Undue Influence- Section 16 of the Indian Contract Act, 1872

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

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

Key Elements of Undue Influence:

1-Existence of a relationship: There must be a relationship between the parties, where one party is in a position to influence the other’s decisions.

2-Domination of the will: One party must be in a position to dominate the will of the other, due to factors like mental incapacity, financial dependency, or authority (e.g., employer-employee, doctor-patient).

3-Unfair advantage: The dominant party uses their position to gain an unfair or unjust advantage.

When is a person deemed to dominate the will of another?

A person is deemed to dominate the will of another in the following circumstances:

• Real or apparent authority: For instance, in relationships such as parent-child, teacher-student, or guardian-ward, one party holds influence over the other due to their authority.
• Mental distress: When one party’s mental capacity is impaired due to illness, age, or other reasons, the other party may take advantage of this.
• Financial position: If one party is financially dependent on the other, it can be assumed that the financially stronger party is in a position to dominate.

Burden of Proof:

• If a contract appears to be influenced by undue influence, the burden of proof lies on the party who benefits from the contract to show that there was no undue influence.

Effect of Undue Influence:

A contract induced by undue influence is voidable at the option of the party whose consent was so influenced. If undue influence is proven, the party influenced may either rescind the contract or enforce it on terms that are fair.

Examples-

1. Relationship of Authority: Employer and Employee

• An employer persuades an employee to sell his land at a price significantly lower than the market rate by threatening to fire him if he doesn’t comply. The employee, fearing job loss, agrees.
• In this case, the employer is in a position of authority and uses it to dominate the will of the employee, obtaining an unfair advantage. The contract may be set aside due to undue influence.

2. Doctor and Patient

• A doctor convinces a patient suffering from a serious illness to transfer property to him, claiming it would help in the treatment or relieve stress. The patient, vulnerable due to illness and trusting the doctor, agrees.
• Here, the doctor holds a position of trust and influence over the patient and uses that to get an unfair benefit. This is a classic case of undue influence.

3. Parent and Child

• A father pressures his adult child to sign over the inheritance rights to him, claiming that it is in the family’s best interest. The child, dependent on the father financially and emotionally, signs the agreement unwillingly.
• In this case, the parent is dominating the child’s will, and the contract could be voidable due to undue influence.

4. Guardian and Ward

• A guardian, who is managing the property of a minor, persuades the minor to sell property to a third party for an unfairly low price. The minor trusts the guardian’s decision due to their dependent relationship.
• Here, the guardian’s influence over the minor is an example of undue influence. The minor can later seek to void the contract when they reach the age of majority.

5. Religious Advisor and Devotee

• A spiritual advisor convinces a devotee to donate a large sum of money or property to the advisor, implying that such a donation would lead to spiritual benefits. The devotee, under the influence of the advisor’s authority, complies.
• The spiritual advisor is using his position of influence to gain an unfair benefit, which constitutes undue influence.

In all of these cases, the person in the dominant position exerts undue influence over the weaker party, resulting in unfair contractual terms. If undue influence is proven, the weaker party can either void the contract or modify it to ensure fairness.