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How Undue Influence Invalidates The Free Consent In A Contract

Concept of Consent and Free Consent:

When two parties enter into a contract they should give their consent. The consent of the parties means that they understand the same thing in the same sense. There must be no misunderstanding between the parties about the subject matter of the contract. Section 13 of the Indian Contract Act defines the term 'Consent' as two or more persons are said to consent when they agree upon the same thing in the same sense.

According to Section 10 free consent is an essential requirement of a valid contract. Mutual consent, which should also be free consent is the sine qua non of a valid agreement and one of its essential elements is that a thing is understood in the same sense by a party as is understood by the other i.e. both parties should have consensus-ad-idem. Not only consent but free consent is declared by section 10 to be necessary to the complete validity of a contract.

Where there is no consent there can be no contract at all. Where there is consent, but not free consent, there is generally a contract voidable at the option of the party whose consent was not free. According to section 14, consent is said to be free unless it is caused by coercion, undue influence, fraud, misrepresentation, or mistake. Consent caused by coercion, undue influence, fraud, misrepresentation makes the contract voidable at the option of the party whose consent was not freely obtained.

Whereas when there is a mistake of fact from both the parties, the entire contract is said to be void. Thus, consent involves the identity of minds in respect of the subject matter of the contract. In English Law, this is called 'consensus-ad-idem'. If the parties are not ad-idem on the subject matter of the contract, then there is no real agreement between them.

When two persons enter into a contract concerning a particular person or a thing and it turns out that each of them had a different person or thing in mind, no contract would exist between them. To illustrate this point, let us assume that Mr. A is a person who at gunpoint compels Mr. B to sell his car and Mr. B subsequently sells that car to Mr. A. This act of Mr. A amounts to coercion as per section 15 of the Indian Contract Act, 1872.

Now, in this case, even though there is consent, it's not a free consent and hence the contract becomes voidable at the option of the person whose consent was obtained by coercion. When the consent of any party is not free, the contract is usually treated as voidable at the option of the party whose consent was not free. If, however, the consent has been caused by mistake on the part of both parties, the contract is considered void.

Undue Influence:

Section 16 of the Indian Contract Act, 1872 defines and explains the concept of Undue Influence and the nature of transition entered due to undue influence. A party to a contract, though consenting to it, may not give a free consent because he is exposed to such influence from the other party as to deprive him of the free and voluntary use of his judgment. Such a contract is said to be entered by undue influence.

Undue influence is improper use of intimidation or inducement by the person using his dominant position, for the benefit of himself or someone else so that the acts of the person influenced are not, in the fullest sense of the word, his free, voluntary acts. It is any influence upon a person entering into an agreement, which having regard to the age, innocence or mental/physical capacity of the party, and all the circumstances of the case appears to have been such as to hinder a person's exercise of free and voluntary acts.

Where one party exercises such domination over the mind and will of the other that the other's independence of decision was substantially undermined and hindered, and it was due to the influence of such person in dominant position that the victim entered into a contract, the victim will be entitled to relief on the ground of undue influence. Undue influence is an inclusive phrase covering cases of undue influence in particular situations, as also cases of domination or pressure outside those special relations like husband-wife, parent-child, attorney-client, etc.

Section 16(1) of the Indian Contract Act requires the Court trying a case to consider two things: Are the relations between the promisor and the promisee such that the promisee is in a position to dominate the will of the promisor?; and Has the promisee used that position to obtain an unfair advantage over the donor? In the first place the relations between the parties to each other must be such that one is in a position to dominate the will of the other.

Once that position is substantiated the second essential has been reached, namely, the issue whether the contract has been induced by undue influence or not arises. When once it has been established that one party to the contract possessed a general influence and dominance over the will of another, it need not be shown how in the particular instance it was used, and it will be presumed that the dominant position has been used unless contrary is shown.

The presumption would not arise if the dominance over the will of the other is not established. It is not necessary that the parties should be related by blood, marriage or adoption, but that their relations towards each other are such that one is in a superior dominating position over the other. The section is not restricted to cases where strictly or technically fiduciary relationship is established; and it applies to all varieties of relations where the possibility of exercising undue influence exists from confidence created or established, or relations in which dominance may be exercised by one person over another.

A mere finding that the promisee obtained an unfair advantage over the promisor is not sufficient to establish undue influence, unless it is also shown that the promisee was in a position to dominate the will of the promisor, and did so to use that position.

In, Williams v Bayley (1866) LR 1 HL 200, son forged his father's signature on several promissory notes and paid them into his banking account. Bank manager threatened prosecution of the son when it came to his knowledge that the signatures on promissory notes are forged. To avert this threat by the manager, the father agreed to give an equitable mortgage to the bank on his property in return for the promissory notes.

The House of Lords held the agreement to be voidable at the option of the father and stated that there was an imbalance between the position of father, son and the bank manager and that the manager ad a dominant position in this case which he used to induce the father to mortgage his property.

Now the question arises as to when can a person be said to be in a position to dominate the will of the other. Answer to this question is provided by Section 16(2) of the Act. This sub-section lays down a special presumption that a person is deemed to be in a position to dominate the will of another. One such presumption is when promisee holds a real or apparent authority over the other examples of such cases are relations between master and the servant, parent and child, etc. Another such presumption is when promisee stands in a fiduciary relation to the other. It means a relationship based on trust and confidence.

The category of fiduciary relationship very wide. It includes the relationship of guardian and ward, spiritual adviser (guru) and his disciples, doctor, and patient, solicitor and client, trustee and beneficiary, a woman and her confidential managing agent. Another factor under which consent is presumed to be caused by undue influence is when a person makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress. Persons of weak intelligence, old age, indifferent health or those who are illiterate can be easily influenced. Hence, the law gives their protection.

For example, In Sher Singh and Ors. vs Pirthi Singh and Ors AIR 1975 All 259, A, an illiterate old man of about 90 years, physically in firm and mentally in distress, executed a gift deed of his properties in favour of B, his nearest relative who was looking after his daily needs and managing his cultivation. The court held that B was in a position to dominate the will of A. Section 16(3) throws the burden of proving free consent on a party who, being in a dominant position. The reason for this rule is that a person, who had obtained an advantage over another by dominating his will, may also remain in a position to suppress the requisite evidence in support of the plea of undue influence. That is the principle of equity and fairness come into play.

If the consent of a party is induced by undue influence, the contract is voidable at the option of the party whose consent has been so caused. According to section 19A, when consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the Court may seem just.

When a contract is avoided on the ground of undue influence, the court has the discretion to ask the aggrieved party for refunding the benefit either in full or in part of set aside the contract without any direction to the aggrieved party to refund the benefit.

References:
  1. Avtar Singh, Contract and Specific Relief, 12th edition
  2. Pollock & Mulla The Indian Contract Act,1872, 15th edition
Written By: Arnav Ashtikar, 1st-year B.A. LL. B. at Symbiosis Law School, Nagpur.

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