Undue influence

In one minute

Undue influence happens when one party can dominate the other's will and uses that power to take an unfair advantage. There is no threat and no lie. The pressure comes quietly from a relationship of trust or authority.

The contract is not void. It is voidable, so the weaker party may choose to cancel it. In exams, the section 16 test and the burden of proof are the usual marks. In real life, it protects patients, elderly parents, borrowers and others who depend on someone.

Exam focus

Frequency: Rarely asked
Usually asked as: Short answer (4 to 6 marks)

Legal provision

Section 16(1): undue influence exists where one party can dominate the other's will and uses that position to gain an unfair advantage.
Section 16(2): dominance is deemed in two cases. One is real or apparent authority, or a fiduciary relation. The other is a contract with a person whose mind is affected by age, illness, or distress.
Section 16(3): if the transaction appears unconscionable, the dominant party must prove it was not induced by undue influence.
Section 19A: the contract is voidable at the option of the party whose consent was so caused. The court may set it aside absolutely or on just terms.

Meaning and definition

Undue influence is the misuse of a position of power over someone you have a relationship with. Two things must be present. You can dominate the other person's will, and you use that position to get an unfair advantage.

The law protects free consent (sections 13 and 14). A person who signs because someone close overpowered their judgment has not truly chosen. The law gives that person a way out, but the weaker party may also keep the contract.

Detailed explanation

Step 1: a relationship of dominance

Section 16(2) names the situations where the law deems one party able to dominate the other.

Real or apparent authority: an employer over an employee.
A fiduciary relation: a relationship of trust, such as lawyer and client.
Weakened mind: mental capacity affected by age, illness, or mental or bodily distress.

Example. Lakshmi, aged 82, is seriously ill. Her doctor, who treats her daily, is in a position to dominate her will because of her age and illness. This is the Act's own illustration (b): a weak patient agrees to pay the doctor an unreasonable fee.

Step 2: use of that position for an unfair advantage

Dominance alone is not enough. The stronger party must use it to gain an unfair advantage. A fair deal between a doctor and a patient is not undue influence.

Example. A father advances money to his son during the son's minority. When the son comes of age, the father uses his parental influence to get a bond for a greater amount than the son owes. This is the Act's illustration (a).

Step 3: the burden of proof

Normally the person who alleges a wrong must prove it. Section 16(3) changes this. If the stronger party's transaction looks unconscionable (shockingly unfair), the stronger party carries the burden of proof and must show there was no undue influence. Otherwise the weaker party must prove both dominance and misuse.

Example. Venkat is in debt to the village moneylender and takes a fresh loan on terms that look unconscionable. The moneylender must prove that he did not use undue influence. This is the Act's illustration (c).

Step 4: the effect

The contract is voidable under section 19A. The court may set it aside completely, or on just terms if the weaker party took a benefit. In the Act's illustration, a moneylender lends Rs 100 and takes a bond for Rs 200 at 6 per cent a month. The court may set the bond aside and order repayment of Rs 100 with such interest as seems just.

The undue influence test, step by stepHow to read this: start at the top. Each box must be answered "yes" to move down. Red text shows where the claim fails.

1. Can one party dominate the other's will? (section 16(1), 16(2))No: no undue influence. A hard bargain in ordinary business is not enough (illustration (d)).
2. Did that party use the position to gain an unfair advantage? (section 16(1))No: no undue influence.
3. Does the transaction look unconscionable? (section 16(3))Yes: the dominant party must prove there was no undue influence. No: the weaker party must prove it.
4. Result (section 19A)The contract is voidable at the weaker party's option. The court may set it aside, on just terms if a benefit was received.

Don't confuse: coercion and undue influence

Both make consent unfree, and both make the contract voidable. They differ in how the pressure is applied.

Point	Coercion	Undue influence
Section	15	16
Pressure	An act forbidden by the Indian Penal Code, or unlawful detention of property, done or threatened	Misuse of a position of trust or dominance. The act itself is lawful
Relationship needed?	No. The section does not require one	Yes. The parties' relations must allow domination
Effect	Voidable (section 19)	Voidable (section 19A)

Inside undue influence. A guru tells his devoted follower that God wants her to donate her house to the ashram. She signs out of reverence. The guru misuses his hold over her will.

Just outside it (coercion). A stranger threatens to beat a shopkeeper unless he signs a lease. No relationship exists, and the threat is of an act forbidden by law. This is coercion.

Common mistakes

Treating any unequal bargain as undue influence. A hard bargain in ordinary business is not enough.
Writing that the contract is void. It is voidable, and the weaker party chooses.
Mentioning only dominance. The stronger party must also gain an unfair advantage.
Mixing it with coercion. Undue influence needs no threat, only a position of power.

Apply it

Problem

Dr Rao is the family doctor of Lakshmi, aged 80, who is seriously ill and anxious about her future. During her treatment he persuades her to sell him her house worth Rs 60 lakh for Rs 10 lakh. Can Lakshmi's family have the sale set aside?

Issue. Was the sale induced by undue influence?

Rule. Section 16: a party who can dominate the other's will and uses that position to gain an unfair advantage commits undue influence. A person affected by age, illness or distress is within section 16(2). If the deal looks unconscionable, the dominant party must disprove undue influence (section 16(3)).

Application. Her age, illness and anxiety place Dr Rao in a position to dominate her will. A sale at one-sixth of the value is unconscionable on its face, so the burden shifts to him.

Conclusion. Unless Dr Rao disproves undue influence, the sale is voidable. Lakshmi may have it set aside under section 19A.

Leading case laws

Raghunath Prasad v. Sarju Prasad (1924), Privy Council, AIR 1924 PC 60
Facts. A moneylending dispute involving a very high rate of compound interest.

Principle. The court first asks whether the relations between the parties let one dominate the other. It then asks whether the contract was induced by undue influence. Last, it asks who carries the burden of proof. High interest alone does not raise a presumption of undue influence without proof of dominance.

Why it matters. It is the standard three-stage approach to a section 16 question.
L.I.C. of India v. Consumer Education & Research Centre (1995)
Facts. The Life Insurance Corporation sold a cheap policy only to people employed by the Government or reputed firms.

Principle. A clause shutting out the self-employed was arbitrary under Article 14. Courts may strike an unfair clause in a contract between unequal parties.

Why it matters. A related case on unequal bargaining power. It does not apply section 16.

How to write this answer in the exam

5-mark answer

Define undue influence in the words of section 16(1).
State the two elements: dominance and unfair advantage.
Give the section 16(2) cases in one line.
State the burden of proof rule (section 16(3)).
State the effect: voidable (section 19A).

10-mark answer

Free consent and section 14.
Section 16(1), and the section 16(2) categories with examples.
Section 16(3) and the burden of proof.
Case: Raghunath Prasad v. Sarju Prasad, and illustrations (a) to (d), including (d) as a hard bargain.
Comparison table with coercion.
Effect under section 19A, with the moneylender illustration.

Key points to remember

Two elements: a position to dominate, and use of it for an unfair advantage (section 16(1)).
Section 16(3) moves the burden of proof to the dominant party if the deal looks unconscionable.
A hard bargain in ordinary business is not undue influence (illustration (d)).
Effect: voidable under section 19A. The court may set aside absolutely or on just terms.
Coercion needs an unlawful act or threat. Undue influence needs a relationship of dominance.

Quick self-test

1. What two things must be shown for undue influence?

That one party was in a position to dominate the other's will, and that the party used that position to gain an unfair advantage.

2. When does the burden of proof move to the dominant party?

When the dominant party makes a contract with the other and the transaction appears unconscionable, on its face or on the evidence (section 16(3)).

3. Is a contract induced by undue influence void or voidable?

It is voidable at the option of the party whose consent was so caused (section 19A).