contracts
25-11-19
Undue Influence
Influence is said to be undue when a person in dominant position uses that position to
attain unfair benefit for himself at the cost of the person relying upon his authority.
i. Subsection 1 of section 16 lays down the general principle.
ii. Subsection 2 provides for a presumption
iii. Subsection 3 lays down the condition for raising a rebuttal of presumption, ie. a
transaction is not void and the person upon whom undue influence is extended to may
choose to continue with the contract.
One party must be in position to dominate the will of another and he uses that position to
obtain unfair advantage. For Eg. A lawyers, doctor, teacher etc.
Subsection 2 provides that a person is deemed to be in a position to dominate the will of
another if:
I. He holds apparent authority over the other
II. Where he stands in a fiduciary relationship
III. When he makes a contract with a person whose mental capacity is affected by reason of
age, illness or mental or bodily distress
A person is said to be in distress when his mental capacity is temporarily or permanently
affected. Such a person can be easily persuaded by the other party to give consent to a
contract which may be unfavourable to him.
To avoid a contract on the grounds of undue influence, the plaintiff must show that firstly,
the party was in a position to dominate and he actually used his influence to obtain unfair
advantage.
When presumption is raised, then once it is shown that the defendant is not in a position to
dominate the will of the plaintiff, it will be presumed by the court that he must have used
his position to obtain unfair advantage and it happens when one party is in dominant
position and the transaction is apparently unconscionable.
Ragunath Prasad v. Sirju Prasad
In order to defend criminal proceedings, a person mortgaged his properties and
borrowed INR 10,000 at an exorbitant rate of interest. During the dispute the party
contended that the money lender took undue advantage of the borrower. It was held that
the borrower failed to prove the dominance of the money lender.
———Essentials for Undue Influence
i. Dominant position eg: Father and Son
ii. Exercising the position to obtain unfair advantage
Section 16
Without prejudice to subsection 1, if someone holds power through a real or apparent
authority. He may stand in a fiduciary relationship or there may also be the involvement of
mental distress.
Rani & Purni v. Swami Natha
A poor Hindu widow agreed to pay 100% interest to establish her right to maintenance,
She was in urgent need of money. The consent so obtained was held to be premiered by
indue influence which was exerted on a person on mental distress, the court ordered the
reduction of rate to 25%.
Cases
Case Name
Notes
Subtopic
Ragunath Prasad v. Sirju Prasad
A was fighting a criminal case- A
mortgaged property for INR
10,000- Money lender charged
exorbitant rate- A contended that
money lender took undue
advantage-court held that there
was no dominance
Undue Influence is absent
Rani & Purni v. Swami Natha
A poor widow- no money - fighting Undue Influence is present - mental
for maintenance - 100% interest
distress
was asked - consent was obtained court held consent was due to
undue influence- mental distress interest was reduced to 25%
UP cooperative v. West UP mills
Statutory compliance does not
change a contract under undue
influence