Undue Influence in Contract

What is Undue Influence?

Undue influence in contract law refers to a situation where one party exerts excessive pressure or uses a position of power to dominate the will of another, leading to an agreement that is not genuinely voluntary. This often happens in relationships marked by significant power imbalances or trust, where the weaker party is unable to act independently.

Also Read: Fraud in Contract Law

Key Aspects of Undue Influence

Definition and Legal Framework

Under Section 16 of the Indian Contract Act, 1872, undue influence is defined as a situation where:

1. One party is in a position to dominate the will of the other.
2. The dominant party uses that position to obtain an unfair advantage.

According to the Act, a person is deemed to be in a position to dominate the will of another if they:

• Hold real or apparent authority over the other.
• Have a fiduciary relationship with the other.
• Make a contract with a person whose mental capacity is temporarily or permanently affected by age, illness, or mental or bodily distress.

Indicators of Undue Influence

Identifying undue influence involves examining the relationship between the parties and the circumstances under which the contract was formed. Key indicators include:

1. Power Imbalance: A significant disparity in power or authority between the parties.
2. Trust and Confidence: A relationship where one party places considerable trust in the other.
3. Unfair Advantage: The dominant party gains a benefit that is not proportional to the consideration given.
4. Lack of Independent Advice: The influenced party did not receive or was unable to seek independent advice regarding the contract.

Legal Consequences of Undue Influence

Voidable Contracts

Contracts affected by undue influence are not automatically void but are voidable at the option of the influenced party. This means the influenced party can choose to:

• Affirm the Contract: Continue with the terms as agreed.
• Rescind the Contract: Cancel the agreement, releasing both parties from their obligations.

Once rescission is elected, the contract is treated as if it never existed, and all duties under it are terminated.

Burden of Proof

In cases of undue influence, the burden of proof shifts to the dominant party. They must demonstrate that the contract was entered into freely and that no undue influence was exerted. This legal provision protects the interests of the influenced party by requiring the dominant party to justify the fairness of the contract.

Examples and Landmark Judgments

Allcard v. Skinner (1887)

In this classic English case, a nun, under the undue influence of her superior, transferred significant property to her religious order. The court determined that undue influence was present due to the superior’s dominant position and the trust placed in her by the nun, making the property transfer voidable.

Rani Annadomani v. Jambulingam Pillai (1938)

In this Indian case, a widow relied heavily on her lawyer, who was in a dominant position, to draft a will. The will was significantly unfavorable to her, indicating undue influence. The court ruled in favor of the widow, recognizing the undue influence exerted by the lawyer, and the contract was deemed voidable.

Defending Against Claims of Undue Influence

If faced with a claim of undue influence, the dominant party can defend by demonstrating:

1. Evidence of Free Will: Proving that the influenced party acted independently and without coercion. This might include showing that the influenced party had access to independent advice or that the contract terms were fair and mutually agreed upon.
2. Demonstrating Fairness: Establishing that the contract was equitable and the influenced party fully understood and agreed to its terms without any manipulation or pressure.

Legal Assistance for Undue Influence Cases

Given the complexities surrounding undue influence, seeking legal assistance is crucial. A knowledgeable lawyer can:

• Assess Relationship Dynamics: Examine the nature of the relationship and the context of the contract formation.
• Evaluate Contract Fairness: Determine whether the terms of the contract were fair and reasonable.
• Provide Guidance: Advise on the best course of action, whether it involves affirming or rescinding the contract.

Situations Leading to Unenforceable Contracts

Besides undue influence, other circumstances can render a contract unenforceable, including:

1. Misrepresentation: False statements or lies about material facts during contract negotiation.
2. Non-Disclosure: Failing to disclose significant information that leads to a substantial misunderstanding.
3. Unconscionability: Extremely unfair or oppressive terms that favor one party disproportionately.
4. Coercion: Using threats or actual harm to force someone into a contract.

Conclusion

Undue influence disrupts the principle of free consent in contract law, making it essential to understand its implications and safeguards. Whether entering into or contesting a contract, awareness of undue influence helps protect against unfair practices. Legal guidance ensures that contracts are entered into willingly and are justly enforceable.

References

1. Indian Contract Act, 1872, Section 16.
2. Allcard v. Skinner, (1887) 36 Ch D 145.
3. Rani Annadomani v. Jambulingam Pillai, AIR 1938 Mad 99.

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Also Read: Coercio in Contract