Undue Influence

The Act's own illustrations:

"(a) 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.

(b) A, a man enfeebled by disease or age, is induced, by B's influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services. B employs undue influence.

(c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.

(d) A applies to a 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. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence."

Illustrations (c) and (d) sit side by side deliberately: both are hard loans, and only one is undue influence. The difference is the relationship, not the harshness of the terms.

Broken down: two ingredients, then the burden

The two ingredients under section 16(1)

Both must be established, and in this order.

1. The relations are such that one party is in a position to dominate the will of the other. This is about the relationship, not about the transaction.
2. He uses that position to obtain an unfair advantage over the other. Having the position is not enough. It must be used, and it must produce an unfair advantage.

Vocabulary. A fiduciary relation is one of trust and confidence in which one party is bound to act for the benefit of the other: trustee and beneficiary, guardian and ward, solicitor and client, doctor and patient, spiritual adviser and disciple. Unconscionable means so unfair and one sided that the conscience of the court is shocked by it.

Section 16(2): when the position is deemed to exist

Two heads, and the words "in particular and without prejudice to the generality" mean the list is illustrative and not exhaustive.

• (a) Real or apparent authority, or a fiduciary relation. Employer and employee, police officer and accused, income tax officer and assessee, trustee and beneficiary, solicitor and client, doctor and patient, spiritual guru and devotee.
• (b) Mental capacity temporarily or permanently affected by age, illness, or mental or bodily distress. Note that this head does not need any relationship of authority at all: the vulnerability alone can put the other party in a position to dominate.

Relationships that do NOT of themselves raise the position are worth knowing because they are examined: husband and wife, parent and adult child, and creditor and debtor are not, by the mere fact of the relationship, relationships of domination. They may become so on the facts.

Section 16(3): the burden shifts, but only after a finding

This is the sub-section students misuse, and the case law is clear about the order of the enquiry.

The burden shifts to the dominant party only when two things are already shown: that he is in a position to dominate the will of the other, and that the transaction appears, on the face of it or on the evidence adduced, to be unconscionable. Then, and only then, must he prove that the contract was not induced by undue influence.

The leading cases

Subhas Chandra Das Mushib v. Ganga Prosad Das Mushib, AIR 1967 SC 878.

Facts. A suit was brought to have a deed of settlement set aside as fraudulent and collusive. The plaintiff's father had settled certain properties on a grandson. The trial court dismissed the suit. The High Court, on appeal, proceeded on the footing that in view of the relationship of the parties the trial court should have presumed that the donee had influence over the donor, and should have required the donee to prove that the gift was the spontaneous act of the donor; and it further presumed, from the donor's great age, that his understanding must have deteriorated.

Held. The whole approach of the High Court was wrong and could not be upheld. A court trying a case of undue influence must consider, in view of section 16(1), two things to start with: whether the relations between the parties are such that one is in a position to dominate the will of the other, and whether that position has been used to obtain an unfair advantage. Sub-section (2) merely illustrates when a person is to be considered to be in such a position, and sub-section (3) throws the burden on the dominant party only in the circumstances it specifies. The law of undue influence is the same for a gift inter vivos as for a contract. Mere relationship, and mere old age, raise no presumption of domination.

Why it matters here. It fixes the order of the enquiry and refuses to let a presumption do the work of proof. It is the answer to any problem in which a party argues undue influence from the bare existence of a family relationship.

Ladli Prasad Jaiswal v. Karnal Distillery Co. Ltd., AIR 1963 SC 1279.

Facts. A managing director sued for a declaration that later resolutions of a private company were void and that earlier resolutions in his favour remained in force. The company's answer was that its directors had been coerced and unduly influenced into passing those earlier resolutions by the plaintiff, who was in a dominating position. The written statements contained no particulars of that plea, and no evidence was led on it. The first appellate court nevertheless found domination.

Held. A party pleading undue influence must set out the particulars, and the burden of proving it lies on that party. A finding that a transaction is vitiated by undue influence is primarily a finding on a question of fact. The first appellate court had travelled far beyond the pleadings.

Why it matters here. It supplies the pleading and burden half of the topic. Undue influence cannot be raised for the first time in argument, and a vague averment of domination is not a plea of undue influence at all.

A worked example

Kamla, aged seventy nine, has been seriously ill for two years. Her nephew Suresh has lived with her throughout, manages her bank accounts, holds her power of attorney, and is the only person who deals with her doctors. She transfers a flat worth two crore rupees to him for twenty lakh rupees. Her daughter sues to set the transfer aside.

• Step one: is Suresh in a position to dominate her will? Very likely yes, on both heads of section 16(2). He holds a real authority over her affairs and stands in a fiduciary relation as her attorney, under (a); and her mental capacity is affected by age and illness, under (b).
• Step two: is the transaction unconscionable on its face? A flat worth two crore transferred for twenty lakh is on its face grossly one sided.
• Step three: the burden. Both conditions of section 16(3) being satisfied, the burden shifts to Suresh to prove that the contract was not induced by undue influence.
• How would he discharge it? By showing that Kamla had independent advice from a lawyer of her own choosing, that the transaction was explained to her, that she understood it, and that there was a genuine reason for the price, for example that he had cared for her for years or had spent money on the property.
• What must the daughter have done first? Pleaded undue influence with particulars, on Ladli Prasad Jaiswal. A bare allegation that Suresh was close to Kamla will not do.

Now change one fact. Kamla is seventy nine, in perfect health, manages her own affairs, and simply sells the flat cheaply to a nephew she is fond of. On Subhas Chandra Das Mushib the mere relationship and the mere age raise no presumption, so the daughter must prove both a position to dominate and its use, and affection is not domination.

What it does NOT mean

"An unfair bargain is undue influence." Illustration (d) is exactly this and says it is not. A banker lending at a high rate in a tight market is a transaction in the ordinary course of business. Unfairness matters only once a position to dominate is shown.

"Undue influence is presumed between close relatives." It is not. Subhas Chandra Das Mushib holds that neither relationship nor advanced age raises a presumption.

"Section 16(3) means the defendant must always disprove undue influence." Only where he is shown to be in a position to dominate and the transaction appears unconscionable. Both, and in that order.

"Undue influence and coercion are the same thing with different names." They differ in the pressure, in the need for a relationship, in the test applied, and in who bears the burden. See the table in [Coercion].

"It makes the agreement void." It makes the contract voidable, under section 19A, and the court may set it aside on such terms as seem just, which is the subject of the next chapter.

Quick revision

• s.16(1): relations such that one party is in a position to dominate the will of the other, and he uses that position to obtain an unfair advantage. Both, in that order.
• s.16(2): deemed positions, illustrative only: (a) real or apparent authority, or a fiduciary relation; (b) mental capacity affected by age, illness, or mental or bodily distress.
• s.16(3): where he is in that position and the transaction appears unconscionable, the burden of proving the contract was not induced by undue influence lies on him.
• Illustrations (c) and (d) are the pair to remember: the village moneylender, and the banker in a tight market. Relationship, not harshness, is what separates them.
• Subhas Chandra Das Mushib, AIR 1967 SC 878: consider the two section 16(1) questions first; relationship alone and old age alone raise no presumption; the law is the same for a gift as for a contract.
• Ladli Prasad Jaiswal, AIR 1963 SC 1279: undue influence must be pleaded with particulars and proved by the party alleging it; it is primarily a question of fact.
• Effect: voidable, s.19A. Rebutted usually by proof of independent advice and full understanding.

Test yourself

1. Define undue influence and state its two ingredients. Section 16(1) provides that a contract is induced by undue influence where the relations subsisting between the parties are such that one is in a position to dominate the will of the other and uses that position to obtain an unfair advantage. The two ingredients are the position to dominate, which is about the relationship, and the actual use of that position to obtain an unfair advantage.

2. When does the burden of proof shift under section 16(3)? Only where two things are shown: that the party is in a position to dominate the will of the other, and that the transaction appears, on the face of it or on the evidence adduced, to be unconscionable. The burden then lies on the dominant party to prove that the contract was not induced by undue influence.

3. Does a family relationship raise a presumption of undue influence? No. In Subhas Chandra Das Mushib v. Ganga Prosad Das Mushib, AIR 1967 SC 878, the Supreme Court held that the High Court was wrong to presume domination from the relationship, and equally wrong to presume from the donor's great age that his understanding had deteriorated. The court must first ask the two questions in section 16(1).

4. What must a party pleading undue influence do? Plead it with particulars and prove it. In Ladli Prasad Jaiswal v. Karnal Distillery Co. Ltd., AIR 1963 SC 1279, the Supreme Court held that the burden lies on the party alleging undue influence, that the plea requires particulars, and that a court which finds domination on pleadings that never raised it has travelled beyond them.

5. Explain illustrations (c) and (d) to section 16 together. In (c) a villager takes a fresh loan from the village moneylender on unconscionable terms, and it lies on the moneylender to prove the contract was not induced by undue influence, because the relationship puts him in a position to dominate. In (d) a borrower accepts a loan from a banker at an unusually high rate during a stringency in the money market, and there is no undue influence, because it is a transaction in the ordinary course of business between parties in no relationship of domination. The pair shows that harsh terms alone are not enough.