Undue Influence

Undue influence is a defence used in contract law to contest the establishment of a legally enforceable agreement. It happens when someone over-persuades someone else, compromising their free will and resulting in a deal favouring the influencer under Contract Law.

To establish undue influence, it must be demonstrated that the victim and the influencer had a unique connection based on trust, authority, or other factors and that the influenced party had weaknesses that made them vulnerable to persuasion. The affected party may declare the contract, will, or other legal document in issue voidable and unenforceable if it is shown that undue influence occurred.

What is Undue Influence?

The Indian Contract Act 1872 under Section 16 defines "undue influence." A situation of undue influence occurs when one party can control the decisions of others and truly abuses that authority, rendering the contract unenforceable.

To obtain an unfair advantage over the other, one party influences the other during the formation of the contract. The following additional conditions must be met for someone to be able to control the will of another:

• Forms a contract with someone whose mental ability is temporarily or permanently compromised by disease, age, or mental suffering, or has actual or apparent power coming from fiduciary ties (a relationship of trust) between them.

The defendant, or in a position to control the other party's will, bears the burden of proof to demonstrate that the contract was not impacted by undue influence. Furthermore, this clause states that it will not impact clause 111 of the Evidence Act of 1872, which addresses the parties' good faith in the transaction.

What is Coercion?

• The term "Coercion" is used in contract law. It describes a circumstance in which assent to engage into an agreement is secured by utilising threats, force, or intimidation against the opposing side. Coercion, in its most basic form, is the use of fear or stress to force someone to sign a contract.
• Coercion occurs when one party applies pressure on another, threatening to do an illegal conduct or inflicting harm to the other party or their property if they do not agree to the deal. The threat might include physical assault, wrongful detention, or any other conduct that is illegal or punishable under the law.

Types of Undue Influence

The ruling in Allcard v. Skinner divided situations involving undue influence into two categories: those involving accusations against the donee or instances in which a person abused the chances that came with doing their job.

The Supreme Court in the above case elaborated on the ratio of the judgement and stated that "in the former case the remedy is given on the principle that no one should be allowed to retain any benefit that he gets through his fraudulent or illegal activities, and in later cases, it is based on the grounds of public policy so that it can prevent the abuse of influence between the parties by preventing the relation between them."

All examples of undue influence are broadly classified into the following categories:

1. Relationship: For a case to fall into this category, the parties do not have to be related by blood, marriage, or adoption; nonetheless, one party must be in a dominant position and able to dominate the other's will.

2. Inequitable Benefit: The court defined an unfair advantage as "an advantage or enrichment which is obtained through unrighteous or unjust means" in Ganesh Narayan Nagarkar v. Vishnu Ramchandra Saraf. It arises when an agreement benefits the influential party at the expense of others and is unjust to them.

3. Fiduciary connection: The foundation of this kind of connection is the parties' mutual confidence in one another. Because of this, one side inevitably places more trust in the other, and as that trust grows, one party progressively begins to influence the other. This kind of interaction typically occurs between a beneficiary of a trust (cestui que trust), a teacher and student, a parent and kid, a lawyer and client, etc.

4. The dominant Position: In this category of undue influence, their ties are considered as well as the conditions under which the contract was executed. To initiate an action, one must own and utilise a dominant position. Once dominance is established, it is assumed that there was a purpose in that specific occurrence unless a contrasting object arises.

5. Genuine and Apparent Authority: This kind of influence involves a genuine authority figure, such as a police officer or an employer, who makes use of his position of power to further his interests. Presuming to have genuine authority when it doesn't exist is known as seeming authority.

6. Parent and Child: When parents provide for all of their children's needs and expect them to behave under their supervision, an innate impact is formed in youngsters that lasts throughout life.

7. Affecting Mental Capacity: Inder Singh v. Dayal Singh established the legal principle that "undue influence arises when one party takes advantage of another's temporary or permanent mental condition to execute a contract."

Example: B, who is a minor and unable to comprehend the complicated provisions of the deal, and A entered into a contract. If A cannot demonstrate that the agreement was made in good faith and with sufficient contemplation, it will be considered undue influence.

The Doctrine of Equity

The concept of equity, which was developed by the English Courts of King's Bench, the Exchequer, and the Court of Common Pleas, addresses unjust enrichment and is relevant in any situation in which power is acquired and abused, as well as in situations involving deception or betrayal of confidence. Therefore, every deal involving undue influence falls under the purview of equity.

The Doctrine of Inequity

This concept addresses situations in which one party pressurises the other to sign a contract by abusing its need and leverage.

This theory is used as a stand-alone premise in contract issues. In the case of Lloyds Bank Ltd v. Bundy, the bank was found accountable due to the presence of a unique relationship of confidence that the individual's father had placed in them over his debt.

A Contract with a Pardanashin woman

• "Pardanashin" translates to "hidden behind a screen or veil."

• It describes a woman who spends time alone herself.

• "Such women are less conscious and can be easily influenced with very little external manifestation," according to the foundational theory of this ideology.

• This law applies not just to women who wear veils, but also to women who are uneducated, elderly, or sickly but who are not formally Pardanashin.

• However, as demonstrated in Daya Shanker v. Bachi, this theory also applies to males, who are more susceptible to persuasion due to their physical or mental makeup and who, when persuaded, are more likely to enter into agreements or transactions involving the purchase and sale of real estate.

• Equity and moral rectitude are the guiding principles that underpin a Pardanashin woman's legal protection.

Difference Between Coercion and Undue Influence

• The term "coercion" is used in contract law. It describes a circumstance in which assent to engage into an agreement is secured by utilising threats, force, or intimidation against the opposing side. Coercion, in its most basic form, is the use of fear or stress to force someone to sign a contract.
• Coercion occurs when one party applies pressure on another, threatening to do illegal conduct or inflicting harm to the other party or their property if they do not agree to the deal. The threat might include physical assault, wrongful detention, or any other conduct that is illegal or punishable under the law.
• Another legal term in contract law is undue influence, which happens when one party uses a position of authority or trust to influence another party's decision-making, resulting in an unfair or unconscionable agreement. Unlike coercion, which uses threats or force, undue influence is based on the use of a dominating position to sway the other party's agreement.
• Under excessive influence, the dominating party may not use physical force or make open threats. Instead, they may use a particular connection, such as a fiduciary relationship or a relationship of trust and confidence, to apply psychological or emotional pressure to the other person. This influence can majorly impact the weaker party's capacity to make autonomous, informed judgements.

Undue Influence Case Laws

• According to the ruling in M Venkatasubbaiah v. M Subbamma, the party asserting undue influence must make the argument through its legal representatives, who must have signed the document or established the contract as a result of the other party's influence.

• It is forbidden for any third person, no matter how strongly they may feel, to attribute any form of adversity or lack of unanimity. However, if any other party—a third party—had undue influence over the terms of the contract, it might be thrown aside.

• Similarly, a party may forfeit its rights under the agreement if it participated in a conspiracy with a third party or if it served as the third party's agent or principal and used that assistance to exert control over the terms of the agreement.

Consequences of Undue Influence - Section 19A

A contract induced by undue influence is voidable at the choice of the person whose assent was obtained by coercion, as stated in Section 19A of the Contract Act. It is possible to avoid performing under such agreements completely or just in particular circumstances.

Conclusion

In summary, Section 13 of the Act defines inadequate consent as occurring under several circumstances, one of which is undue influence. In addition, it is against the equity principle to make a contract by abusing one's power. Therefore, one must ensure that the contract they have established is free from any outward expression in fiduciary ties and other situations where one party has actual or perceived authority or influence. Nevertheless, under Section 19A, such contracts are voidable at the discretion of the person whose permission was obtained in this manner, and they are not enforceable in court.