UNDUE INFLUENCE
“A master asks his servant to enter into a contract to sell his bike at a price less than the market price”. Examine the validity of the above contract in light of the provision of the Indian Contract Act 1872.
As per Section 13 of the Indian Contract Act, Consent means when two or more persons agree upon the same thing in the same sense.
It is based on the Latin maxim “Consensus Ad Idem” which means Meeting of minds.
For example:- ‘A’ agrees to sell his house to ‘B’. ‘A’ owns three houses and wants to sell his house in Mumbai. ‘B’ thinks he is buying his Delhi house. Here ‘A’ and ‘B’ have not agreed upon the same thing in the same sense. Therefore, there is no consent and no contract afterwards.
The term “Free Consent” is defined under Section 14 of the Act which states that the consent is said to be free when it is not caused by
- Coercion under Section 15
- Undue Influence under Section 16
- Fraud under Section 17
- Misrepresentation under Section 18
- Mistake under Section 20,21,22
When the consent is affected by undue influence then the consent is not free consent and the contract is voidable at the option of the aggrieved party in accordance with Section 19A of the Indian Contract Act.
According to Section 16 of the 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.
For example- A having advanced money to his son, B, during his minority, upon B’s coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance.A employs undue influence.
The Essential Elements of Undue influence is as follows- 1. One party is in the position to dominate the will of the other party. 2. He Misuses his position. 3. To obtain an unfair advantage.
A person is deemed to be in a position to dominate the will of another –
a) Where he holds a real or apparent authority over the other or stands in a fiduciary relation to the other; or
b) Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.
As per the provisions of Section 19A of the Indian Contract Act 1872, when consent to an agreement is caused by undue influence, the contract will be voidable at the option of the party whose consent was so caused.
The burden of proving that such a contract was not induced by undue influence shall be upon the person in a position to dominate the will of the other.
In the leading case of Inder Singh v Dayal Singh, it was held by the court that Undue influence emerges when one party makes use of the short or long-term benefit of another’s mental state to execute a contract. However, until the defendant takes advantage of this chance, a merely distressed state of mind cannot amount to undue influence.
In another case of Diala Ram Vs. Sarga (1927), The court held that the burden of proving that the contract was not induced by undue influence is to lie upon the person who was in the position to dominate the will of others if the transaction appears to be unconscionable.
In the leading case of Ganesh Narayan Nagarkar vs. Vishnu Ramchandra Saraf, the court held that unfair advantage is the advantage or enrichment that is obtained through unjust means.
In the light of above provisions and the leading judgments, the relationship between the Master and the Servant is of Fiduciary relationship where the Master is in the position of dominating the will of the Servant and if he uses his position to obtain the unfair advantage then it will amount to undue influence under Section 16 of the Indian Contract Act.
In the given scenario if the consent is affected by such undue influence then under the provisions of Section 19A the contract will be voidable at the option of the aggrieved party i.e, the Servant in the given case.
The burden of proving that the contract was not affected by undue influence will be on the party who is in a position to dominate i.e, the Master.
