‘A’ applies to banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. ‘A’ accepts the loan on these terms. Is this contract induced by undue influence?
The main issue which is involved in the present case is whether the abovesaid contract has been induced by undue influence.
Every contract is based upon mutual trust and confidence and every party to the contract gives his consent only on one belief that every party to the contract will perform his contractual obligation.
According to the provisions of Indian Contract Act, 1872, to make a valid and lawful contract, it is essential that the consent given by the parties must be free and not induced by coercion, fraud, misrepresentation or undue influence. Section 16 of the Indian Contract Act, 1872, deals with the provisions of undue influence.
According to this section, if one of the parties to an agreement is in a position to dominate the will of another party and by using that position if the former party obtains an unfair advantage over the latter party, then in such a case, it is considered that the contract is induced by undue influence and the consent of latter party was not free.
If the contract is induced by undue influence, then in such a case, that contract will be considered voidable and the aggrieved party has right to get the contract set aside.
In the leading case of Ladli Prasad vs. Kernal Distillery Co., the Hon’ble court held that this doctrine is applicable only if one of parties to an agreement is in a position to dominate the will of another party and by using that position, he obtains unfair advantage over that party.
In the present case, the banker has not obtained any unfair advantage over “A”. The banker charged high rate of interest only because of the stringency in the money market. It is a general business practice.
So, ‘A’ cannot claim that his consent was not free. Hence, it is clear that the contract was not induced by undue influence and the contract is valid and lawful and can be enforceable by the law.