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Undue Influence (Contract Law)

Undue Influence (Contract Law)
Undue Influence (Contract Law)


Undue Influence (Sections 16 and 19A)

As outlined in Section 16, when the dynamics between two parties are such that one party holds a position of power that enables them to control the mind and will of the other, and they exploit this position to gain an unfair advantage, the resulting contract is deemed to be induced by 'Undue Influence'. 

Section 16 (3) further establishes that undue influence may be presumed in certain relationships, including:

(a) Doctor and patient,

(b) Parent and child,

(c) Guardian and ward,

(d) Lawyer and client,

(e) Spiritual Guru and disciple,

(f) Trustee and beneficiary, and similar relationships.

However, the presumption of undue influence can be successfully rebutted if it can be demonstrated that the individual allegedly influenced had obtained independent legal advice from someone with full knowledge of the relevant facts [Inche Nora vs Shaik Allie bin Omar (1929) A.C. 127].

Nevertheless, it's important to note that the presumption of exercising undue influence is not recognized in the following relationships:

(i) Husband and wife [Howes vs Bishop (1909) 2 K.B. 390]

(ii) Master and servant [Daulat vs Gulab Rao (1925) Nag. 369]

(iii) Landlord and tenant [Lakshmi Chand vs Pt. Niader Mal, AIR (1961) All. 295]

(iv) Creditor and debtor.


Burden of Proof 

In relationships where the presumption of undue influence cannot be made, the burden of proving undue influence lies on the party alleging its existence.

However, if it is evident that one party was in a position to dominate the will of the other, and the transaction appears, prima facie or based on available evidence, to have been induced by undue influence, the burden shifts to the dominating party to prove otherwise.

Similar to contracts induced by coercion, contracts induced by undue influence are voidable (not void) [Section 19A]. Consequently, only the aggrieved party has two options available:

(a) Request to set aside the contract, or

(b) Insist on the performance of the contract by the other party.

It's important to clarify that such contracts can be set aside either wholly or partially at the discretion of the court. Partial setting aside may occur if the aggrieved party has received some benefits under the contract, but this would be subject to terms and conditions determined by the court.

For instance, if a moneylender, Mani Ram, coerces a villager, Virendra Singh, into executing a Demand Promissory Note (DPN) for Rs 5,000, with an exorbitantly high interest rate, the court may set aside the agreement partially.

Virendra Singh might only be required to repay the actual borrowed sum of Rs 2,000 plus interest at a reasonable rate, not the inflated amount stipulated in the DP Note. This demonstrates partial setting aside of the contract by the court.

It's crucial to note that charging a higher interest rate alone may not be adequate to establish undue influence. Other factors must be considered to ascertain whether undue influence was indeed exerted.

Contract with a Pardanashin Lady

Entering into a contract with a pardanashin lady requires more than ordinary care and caution. Pardanashin women are perceived by Indian courts as highly susceptible to undue influence. 

Therefore, if an illiterate pardanashin lady signs documents for the sale of property, the burden of proof that no undue influence was exerted falls upon the party benefiting from the sale deed. 

Consequently, the law mandates that such beneficiaries must exercise greater care to ensure there is ample affirmative and conclusive evidence demonstrating that the contents of the deed were read and explained to her, and that she confirmed understanding them, even after the fact.

However, to establish the status of a pardanashin lady, the individual must prove complete seclusion. Partial seclusion is not deemed sufficient to warrant the special protection afforded to a pardanashin lady under the law.


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