Contracts Under Pressure: How to Identify and Address Undue Influence

The Impact of Undue Influence on Contractual Relationships: A Legal Overview

Overview: 

Free consent is deemed essential for every agreement. A contract induced by coercion or undue influence lacks this element. If consent is entirely element as in some cases of mistake, the agreement is void.

In contract law, undue influence is considered a form of coercion that invalidates the agreement because it undermines the principle of free will, which is essential to the formation of a valid contract. Undue influence can take many forms, but it generally involves the use of power or authority by one party to control or manipulate the decision-making of another party. This can include physical or emotional pressure, manipulation, threats, or deception. The key element of undue influence is that the influenced party is not able to freely and voluntarily consent to the contract or agreement. Such influence may be inferred from benefit gained by a person, who had no right to demand such gain under any law or equity or had no moral justification for such gain, and grantor had no rational motive to grant such benefit to such person.

There are two types of undue influence: actual undue influence and presumptive undue influence. Actual undue influence occurs when one party can prove that the other party used improper or excessive pressure to induce them to enter into a contract or agreement. Presumptive undue influence, on the other hand, is a legal presumption that arises in certain situations where one party has a special relationship or position of trust with the other party. In these situations, the law presumes that undue influence existed unless the party that benefited from the relationship can prove otherwise.

Meaning and Definition of “Undue Influence”: 

The following definitions give a fair understanding of the concept of “undue influence” in the context of the law of contract:

(1) Halsbury's Laws of England: 

“Undue influence may be defined, for this purpose, as the unconscious use by one person of power possessed by him over another in order to induce the other to enter into a contract, 

(2) Corpus Juris Secundum: 

While “undue influence”  is difficult to precise definition, it may be broadly defined as unlawful control exercised by one person over another so as to substitute his will for the violation of the victim.

(3) According to Holland:

“Undue influence consists in acts which, though not fraudulent, amount to an abuse of the power which circumstances have given to the will of one individual over that of another.”

(4) Section 16(1), Contract Act: 

“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

Illustrative case law:

The doctrine of “Undue Influence” is stated in Ashburner on Equity (2nd Ed., p. 209) thus: 

“In a court of equity, if A obtains any benefit from B, whether under a contract or as a gift, by exerting an influence over B which, in the opinion of the Court, prevents B from exercising an independent judgment in the matter in question, B can set aside the contract or recover the gift. Moreover, in certain cases, the relation between A and B may be such that A has peculiar opportunities of exercising influence over B. If A under such circumstances enters into a contract with B, or receives a gift from B, a court of equity imposes upon A the burden, if he wishes to maintain the contract or gift, of proving that in fact, he exerted no influence for the purpose of obtaining it.”

Examples of situations where presumptive undue influence may be found include:

In these situations, the law presumes that the relationship between the parties is such that one party has a position of trust and influence over the other party. As a result, the law requires the party that benefited from the relationship to prove that the contract or agreement was entered into freely and voluntarily by the other party.

Essential Elements of Undue Influence:

Section 16 of the Contract Act contemplates the following essential elements of “Undue Influence”:

(1) Position to Dominate Will:

Transactions are of two types in regard to the position of parties:

Section 16, Sub-section (1) Contract Act enacts that an agreement is said to be obtained by undue influence: 

The expression “the relationship between the parties is such that one of them is in u position to dominate the will of the other” refers to the case of persons in unequal positions. If a party is in an unequal position, and is in a situation, in which, in entering into the contract, he is not a free agent, or in a position to protect himself, the law will protect him, and where a party had not had the protection he ought to have had, the Court will narrow up the agreement. 

Sub-section (2), Section 16, lays down a special presumption that a person is deemed to be in a position to dominate the will of another where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other, or where he enters into transaction with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

The general principle, enunciated in, applies to all the variety of relations in which dominion may be exercised that one person has over another. The classical illustrations of such relationships, by which one party is in a position to dominate the will of the other, arc those which exist between 

(2) Real or Apparent Authority: 

A person in authority is definitely able to dominate the will of the person over whom the authority is held. The authority may be real or apparent. Persons in. authority would include an income tax officer in relation to an assessee; a magistrate or police officer in relation to an accused person and the like.

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(3) Fiduciary Relation:

Fiduciary relations are of several kinds.

Fiduciary relation means a relationship of mutual trust and confidence. Such a relationship is supposed to exist in the following cases; Father and son, guardian and ward, advocate and client, doctor and patient, spiritual adviser and disciple, trustee and beneficiary, etc;

(4) Mental Incapacity or Distress:

A person is said to be in distress when his mental capacity is temporarily or permanently affected. It may be due to old age or mental or bodily illness or any other cause. Such a person is easily persuaded to give consent to a contract that may be unfavorable to him. Accordingly, if a contract is made with him by taking advantage of his distress, it is voidable on the ground of undue influence.

(a) A poor Hindu widow, who was in great need of money to establish her right to maintenance, was persuaded by a moneylender to agree to pay a 100 percent rate of interest. This is a clear example of undue influence being exerted upon a person in distress, and the court reduced the interest to 24 percent.

(b) An illiterate elderly woman made a deed of gift of her whole property to her nephew who managed her affairs. It was held, the gift should be set aside on the ground of undue influence. (inchu Gariah vs Shaikh Allie Bin Omar)

(5) Unfair Advantage: 

in order to prove undue influence it is also necessary that the party who is in a dominating position must have used his position to obtain an unfair advantage over others. 

Illustration: 

A, having advanced money to his son B, obtains from him, by misuse of parental influence, a bond for a greater amount than the sum advanced. A in this case employs undue influence. 

Section 16(2) explains that a person is deemed to be in a position to dominate the will of another as follows: 

Presumption of Undue Influence:

Contracts that are voidable for undue influence fall into two classes: 

• (i) those in. which there is no special relationship between the parties; that is transactions between equals
• (ii) those in which a special relationship exists; that is transactions between unequal. 

In transactions falling in the first class, undue influence must be proved as a fact. In the second class, it is presumed to exist. In transactions between equals, it must be affirmatively proved that one party in fact exerted influence over the other and thereby procured a contract that otherwise would not have been made. In transactions between unequals undue influence is presumed, because the confidence reposed in one party either endows him with exceptional authority over the other or imposes upon him the duty to give disinterested advice. The possibility that he may put his interest uppermost is so obvious that he comes under a duty to prove that he has not taken undue advantage of his position and abused it.

Relations where undue Influence is Presumed: 

Section 16(2) A person is deemed to be in a position to dominate the will of another

It is difficult to make an exhaustive list of persons against them the presumption is raised. The most familiar types of relationships are as under:

(1) Parents and Child:

If a gin is made to a parent soon after the child attains majority, the presumption is that the influence of the parent is still dominant, and the parental influence has, in some. cases, been held to exist, even in the ease of sons of 25 and 23 who resided with and were maintained by the lather. The influence is deemed to exist until the child becomes emancipated. The parent must show that the child was either emancipated, or was placed in a position equivalent to emancipation by the possession of independent advice, or that the transaction was the result of the child’s free exercise of independent, will. 

(2) Guardian and Ward: 

What has been stated above, with respect to contracts and transactions between parent and child, applies mutatis mutandis to contracts and: transactions between guardians and wards. Undue influence may be presumed in contracts and transactions between guardians and wards even alter the wards have attained majority or other legal capacity, if they result in a benefit, that is, unfair advantage, to the guardian unless the wards arc shown to have acted under independent advice. 

(3) Doctor and Patient: 

The rule contained in this section, as to the presumption of undue influence, applies to transactions between medical men and their patients. A presumption of undue influence arises in transactions between physicians and patients if they result in an unfair advantage to the physician. These transactions are scrutinized with care and suspicion. The physician must show that-; the patient acted voluntarily, or that he had independent advice. The ‘presumption of undue influence is particularly strong., if the patient is in the physician’s custody. Thus, a contract, whereby the physician undertakes to treat the patient throughout his illness in consideration of an inordinately large sum to be paid to the physician at the patient’s death is presumed to be unfair. 

(4) Solicitor and Client: 

If a man who is in the position of a solicitor to a client, so that the client has presumably confidence in him, and the solicitor has presumably influence over the client, desires to contract with his client, he must make full disclosure of every material fact that he knows, and must take upon himself the burden of satisfying the Court that the contract is one of full advantage to his client, or, at least, that no unfair advantage has been taken of the relation of solicitor and client. This clear duty results from the law, which throws upon him the whole onus of the case.

(5) Trustee and Beneficiary: 

In the course of the connection of trustee and beneficiary, no transaction can stand, if it purports to confer some unfair advantage on the trustee, or which purports to be a bounty for the execution of antecedent duty. Where a trustee docs Ins duly, and the beneficiary taking it So Ss fair serious, and well-informed consideration, does an act or bounty, the Court does not allow the act of bounty to stand unless it is satisfied that the act is that of nature, recollecting-that in discussing whether it s an act a rational consideration, an act of pure volition, uninfluenced, that inquiry is so easily battled in a Court of justice, that instead of the spontaneous act of a friend uninfluenced, it may be the impulse of a mind misled by undue kindness, or forced by oppression. Therefore, the Court watches these transactions with jealousy almost invincible. 

(6) Husband and Wife: 

There is no presumption of undue influence in every case, where a wife confers a benefit on her husband without consideration. Nor is it necessary, in order to establish the presumption, that the parties should stand in some particular category of relationship to each other. The presumption can be more easily established and may be assumed in such eases as transactions between parent and infant child, solicitor and client, or spiritual adviser and penitent, but it will arise only if the facts show that the circumstances are such that influence can fairly be inferred. 

(7) Spiritual Advisor and Disciple: 

As observed by Lindley, L.J., the influence of one mind over another is very subtle, and of all influences, religious influence is the most dangerous and the most powerful. A person who stands in a relation of spiritual confidence to another cannot derive any advantage from the person who is under the dominion of that influence:

(8) Master and Servant: 

A master does usually stand to his servant in a relationship in which he is in a position to dominate the will of the latter. But, to constitute undue influence, its other element, namely, that the master, in a position to dominate the will, must use that position to obtain an unfair advantage over the servant should also be proved to exist. 

(9) Principal and Agent:

The relation subsisting between principals and agents is such that one of them may be in a position to dominate the will of the other. In such a case, if the person in a position to dominate the will of the other, uses that position to obtain an unfair advantage over the other, the transaction can be said to be induced by undue influence. A transaction between principal and agent is unfairly advantageous to either and should be scrutinized closely. However, the rule can have no application, if the transaction concerns a subject matter which is outside of and unconnected with the agency. And the section can have no application in cases of transactions that are entered into after the relation of principal and agent has come to an end. 

(10) Employer and Manager: 

Transactions between employers and their managers may be looked upon with suspicion. If:

• (1) a fiduciary relationship is made out, that is, the manager or agent stands in a position of trust in relation to the employer, and
• (2) the fiduciary relation is such as can be deemed sufficient to lead to the inference that the person standing in such relation to another is in a position to dominate the will of the employer, and also stands in a position of active confidence within the meaning of Section ill of the Evidence Act, and
• (3) the transaction between the employer and the manager confers upon the latter an unfair advantage, the burden rests on the latter to show conclusively (that the transaction is honest, bona fide, well understood, the subject of independent advice, and free from undue influence.

(11) Creditor and Debtor: 

When a question of undue influence arises between a creditor and a debtor, the question falls to be settled in accordance with the provisions of the section According to sub-section (3) which lays down three propositions, namely: 

(12) Other Relations:

Before a contract can be said to be induced by undue influence, it must appear that: 

Therefore, whenever some relation exists between the parties, it has, in n general, to be seen, whether that relationship was such that one of the parties was in a position to dominate the will of the other, that is, whether he had some ascendancy, or position of advantage, over the other, which put him in u position to dominate the will of the other.

Effect of Undue Influence: 

According to Section 19-A, when consent to an agreement is caused by undue influence, the contract is voidable at the option of the party whose consent was so caused.” If a contract is set aside, the court has the discretion to direct the aggrieved party to refund the benefit received by him. 

The legal remedy for undue influence depends on the type of undue influence that is found to exist. In cases of actual undue influence, the contract or agreement is typically considered void or voidable, depending on the circumstances. If the contract or agreement is voidable, the aggrieved party may choose to either affirm or void the contract. If the contract or agreement is void, it is as if the contract never existed and the parties are not bound by its terms.

In cases of presumptive undue influence, the contract or agreement may be considered voidable, but the party that benefited from the relationship must prove that the contract was entered into freely and voluntarily by the other party. If this cannot be done, the contract or agreement will be deemed voidable, and the aggrieved party may choose to either affirm or void the contract.

You can also read about the Remedies provided by law if the contract is caused by undue influence in this Article: Legal and Equitable Remedies

Distinctions between Coercion and Undue Influence:

The following are the points of distinction between the two:

Conclusion: 

While neither moral turpitude nor improper motive is essential to the existence of undue influence, it is requisite that there be an influence destroying the free will of the victim and substituting for it that of another. Where the means employed to influence another consist in mere honest intercession or persuasion, there is no undue influence, nor will such influence be established by the mere giving of advice or suggestions, but to constitute such influence there should be unlawful importunity. While undue influence may exist even in the absence of illegal acts or threats, ordinarily a threat to exercise a legal right does not constitute undue influence. Solicitation, importunity, argument, and persuasion are not undue influences, and a contract is not to be set aside merely because one party has used these means to obtain the consent of the other. It is important to note that undue influence is a complex legal concept and each case will depend on its own unique set of facts. It is also worth noting that undue influence can happen in many forms and not only in cases of special relationships as mentioned above. It can happen in any situation where one party has power or authority over the other, and uses that power to control or manipulate the other party's decision-making.