UNDUE INFLUENCE (Sections 16 and 19-A)

Undue influence consists in the improper exercise of a power over the mind of one of the contracting parties by the
other. According to Sec. 16, a contract is said to be induced by undue influence where the relations subsisting between
the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to
obtain an unfair advantage over the other.

Examples

(1) A having advanced money to his son B during his minority, upon B coming of age, obtains, by misuse of parental
influence, a bond from B for greater amount than the sum due in respect of the advance. A employs undue influence.

(2) A, a man enfeebled by disease or age is induced by B’s influence over him as his medical attendant to agree to pay
B an unreasonable sum for his professional service. B employs undue influence.

(3) A, a spendthrift and a weak-minded just come of age, conveys a share of his family estate to his father-in-law for
nominal consideration. Undue influence is presumed to have been exercised [Ram Krishan v. Parmeshwara (1931)
M.W.N. 215].

Undue Influence When Presumed

After reciting the general principle as above, Section 16 lays down rules of presumptions as regards persons in
particular relations. It reads: A person is deemed to be in a position to dominate the will of another:

(a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or

(b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason
of age, illness or mental or bodily distress.

Thus, the following relationships are said to raise a presumption of undue influence: (i) Parent and child; (ii) guardian
and ward; (iii) doctor and patient; (iv) spiritual guru and disciple; (v) lawyer and client; (vi) trustee and beneficiary
and other similar relationships.

Example

A Hindu, well advanced in age, with the object of securing benefits to his soul in the next world, gave away his whole
property to his ‘guru’, or spiritual adviser. Undue influence was presumed.

The presumption of undue influence can be rebutted by showing that the party said to have been influence had
independent legal advice of one who had full knowledge of the relevant facts [Inche Noria v. Shaik Allie Bin Omar
(1929) A.C. 127].

Consequences of Undue Influence (Section 19-A)

An agreement caused by undue influence is a contract voidable at the option of the party whose consent was obtained
by undue influence. However, any such contract may be set aside either absolutely or, if the party who was entitled to
avoid it has received any benefit thereunder upon such terms and conditions as the court deems fit.

Example

A, a money-lender, advances Rs. 100 to B, an agriculturist, and by undue influence, induces B to execute a bond for
Rs. 200 with interest at 6 percent per month. The Court may set the bond aside, ordering B to repay Rs. 100 with such
interest as may seem just.

Burden of Proof [Section 16 (3)]

If a party is proved to be in a position to dominate the will of another and the transaction appears, on the face of it or
on the evidence adduced, to be unconscionable, the burden of proving that the contract was not induced by undue
influence, lies on the party who was in a position to dominate the will of the other.

The power to dominate the will of another is presumed in circumstances mentioned in Section 16 (2) and discussed
above.

The presumption of undue influence has not been accepted in the following relationships:
Husband and wife [Howes v. Bishop (1909) 2 KB 390]; master and servant [Daulat v Gulabrao (1925) Nag. 369);
creditor and debtor; landlord and tenant; Lakshmi Chand v. Pt Niader Mal, AIR (1961) All 295].

In these relationships undue influence cannot be presumed and the party alleging undue influence must prove that it
existed.

CONTRACTS WITH A PARDANASHIN WOMAN

Pardanashin woman is one who according to the custom of her community observes complete seclusion. The Courts in
India regard such women as being especially open to undue influence. When, therefore, an illiterate pardanashin
woman is alleged to have dealt with her properties and to have executed a deed, the burden of proving that there was
no undue influence lies on the party setting up the deed. The law demands that the person who deals with a
pardanashin lady must show affirmatively and conclusively that the deed was not only executed by, but was explained
to, and was really understood by the lady. Notice that, a lady who claims to be pardanashin must prove complete
seclusion; some degree of seclusion is not sufficient to entitle her to get special protection.

UNDUE INFLUENCE IN MONEY LENDING TRANSACTIONS

The mere fact of the rate of interest being high is not evidence of undue influence. ‘A’ who is in urgent need of
money borrows from a lender who charges him very high rate of interest. The transaction, on the face of it, is not one
induced by undue influence.

Example

A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make
the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the
ordinary course of business, and the contract is not induced by undue influence [Illustration (a) to section 16].

Thus, a transaction will not be set aside merely because the rate of interest is high. The observation of Judicial
Committee in Aziz Khan v. Duli Chand may be noted here with advantage. The transaction, it observed, may
undoubtedly be improvident, but in the absence of any evidence to show that the money-lender had actually taken
advantage of his position, it is difficult for a Court of justice to give relief on the grounds of simple hardship.

So, to claim relief under Section 16 it must be proved that the lender was in a position to dominate the will of the other
but the urgent need of money on the part of the borrower does not by itself place the lender in a position to dominate
his will.

However, if the rate of interest is so high that the Court considers it unconscionable, the burden of proving that there
was no undue influence lies on the creditor. In other words, undue influence is presumed in such cases. Illustration (c)
to Section 16 establishes the point as follows:

Example

A, being in debt to B, the money-lender of his village, contracts, for a fresh loan on terms which appear to be
unconscionable. It lies on B to prove that the contract was not induced by undue influence.

Similarly, where a debtor was an old and illiterate person and was much involved in litigation and had agreed to pay to
the creditor compound interest at 25 per cent, the Court held the transaction as unconscionable and allowed only 12
per cent simple interest [Ruknisa v. Mohib Ali Khan (1931), I.A. 938]. Still in another case, a poor Hindu widow
wanted to bring a suit for maintenance and had to borrow Rs. 1,500. The rate of interest payable was 100 per cent per
annum. The Court allowed interest at 24 per cent per annum [Annapurani v. Swaminathan, 1910, 34 Mad. 7].