Undue Influence in Contract Act 1872

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⁠⁠⁠⁠ Undue influence:

A contract is said to be induced by “undue influence” where the relationship subsisting between the parties are such that one party is in a position to dominate the will of the another and uses that position to attain an unfair advantage over the other.

 Constituents of undue influence:

To constitute undue influence there must be either confidence reposed in the person charged or dominating influence with him over the other such as to render the latter to stand in some respect, in awe or fear of the former. It is the domination of a weak mind by strong mind which causes the behaviour of a weaker person to assume an unnatural character. In other words, to hold a contract as vitiated by undue influence, two conditions must be satisfied. Firstly, the relationship subsisting between the parties must be such that one party is in a position to dominate the will of the another secondly, the person so placed should have used that position to obtain an unfair advantage over the other. Both the conditions are complementary and not mutually exclusive and hence both together and not each by itself can satisfy the test under section 16.

Position to dominate:

The question whether a party was in a position to dominate the will of another is largely a question of fact. No strict or technical fiduciary relationship is needed to establish that one person in a position to dominate the will of the other. Any person who holds the real or apparent authority over another or who stands in a fiduciary relationship to the other would be deemed to be in a position to dominate his will. But this alone will not be sufficient to hold that undue influence was exercised on a person. The question of the exercise of undue influence depends upon the circumstances of each case and the criterion would be whether the court considering all the attending circumstances regarding transaction as unconscionable. (PLD 1958 Lah 614)

Husband and wife:

There is no presumption of undue influence in every case where a wife confers a benefit on her husband without consideration. (AIR 1945 PC. 8)

Master and servant:

An ordinary servant, dependent on his mater, cannot in the usual course of things, be in a position to dominate the will of his master and unless there is an evidence to the contrary it cannot be found that he has exercised undue influence over his master. An official superior is in a position to dominate the will of his subordinate. If he obtains by use of that position an undertaking from the subordinate it must be held that the undertaking was given under undue influence. (AIR 1956 All, 439)

Agent:

An agent looking after litigation and also serving loans for his employer can justifiably be inferred to be in a position to dominate the will of the employer especially when the is in embarrassed circumstances. (AIR 1948 Oudh 129)

Creditor and debtor:

The relation between a debtor and creditor is not necessarily one in which the former is situated in a position in which his will is bound to be dominated by the later. But where a lender is in a position to dominate the will of the borrower and the transaction on the face of it appears to be unconscionable, a presumption arrives that the transaction was in due by undue influence.

Land lord and tenant:

Where a harsh unconscionable agreement is entered into by a tenant with the land lord the presumption is that undue influence was brought to bear upon him by the land lord as he is in a position to exercise it. (AIR 1960 Mad. 410)

Fiduciary relationship:

A fiduciary relationship arises between two parties when one of them stands in a position of trust to the other. A fiduciary relationship exists regardless of the origin of the confidence and the source of influence. It is not necessary to constitute a fiduciary relationship between two persons that one of them should be in loco parentis to the other. It is enough if the one places his trust in the other and relies upon him even though the relation between the two cannot be classified under the category of technical fiduciary relations relationship such as that which exists between guardian and his ward, father and son, patient and his medical adviser, the solicitor and his client, trustee and cestui que trust etc. (32 Bom. 37).

 Trustee and Cestui Que Trust:

The fact that two persons stand to each other in the relation of trustee and cestui que trust does not affect a dealing between them which is unconnected with the subject of trust. (30 Bom 578)

Guardian and ward:

A guardian stands in a fiduciary relation to his ward and is not allowed to make any profit out of his office; and he is bound to deal with the property of the ward, as carefully as a man of ordinary prudence would deal with his own properly.

Parent and child:

If the gift is made to a parent or a guardian soon after the donor attains majority the presumption is that the influence of the parent or guardian is still dominate and the influence will be deemed to exist until the child becomes emancipated. In the case of sons who resided with them and were maintained by the father it has been held to exist even after the lapse of some years after their attaining majority. (AIR 1961 Madras 190)

Burden of Proof:

The mere existence of fiduciary relationship between the donor and donee raises the presumption of undue influence and the court will hold the transaction to be bad unless the presumption is rebutted by cogent evidence adduced by the donee. (AIR 1961 Madras 190).

The burden of proving, that the relationship between the parties was such that one of them was in a position to dominate the will of the other and that the transaction secured unfair advantage to him is on the party who pleads undue influence and on proof of these two facts exercise of undue influence will be presumed. It must however, be noted that it is necessary to prove the existence of both a dominating position and an unconscionable nature of bargain proof of one without the other will not be sufficient. (1970- SCMR 1993)

 

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