COERCION &

UNDUE INFLUENCE

A PRESENTATIONBY

VEDANT

FORMATION OF CONTRACT

FREE CONSENT

Free Consent is one amongst several essential requirements in the formation of a contract.

As per S 14 of the Indian Contract Act, 1872, Consent is said to be free when it is not caused by:

(1) coercion [as defined in S 15], or (2) undue influence [as defined in S 16] or (3) fraud [as defined in S 17], or (4) misrepresentation [as defined in S 18], or (5) mistake [subject to the provisions of Ss 20, 21 and 22].

COERCION

Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake.

Dictionary meaning of word ‘coercion’ is: compelling someone by force, intimidation or authority, especially without regard for the individual’s desire or volition.

COERCION

Consent is said to be caused by coercion when it is obtained by pressure exerted by committing or threatening to commit any act forbidden by IPC; or unlawfully detaining or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.

It is immaterial whether the IPC, is or is not in force in the place where the coercion is employed.

Coercion may be caused by any person, not necessarily a party to the contract.

Coercion need not to be directed against the contracting party, or his parent, wife or child.

COERCION

An agreement, the consent to which is caused by coercion is voidable at the option of the party whose consent was so caused.

Section 19 of the Indian Contract Act, 1872 declares that when consent to an agreement is caused by coercion, … or, …the agreement is a contract voidable at the option of the party whose consent was so caused.

A contract is voidable if the consent of a person was obtained by the use of coercion.

CHIKKAM AMIRAJU v. CHIKKAM SHESHAMMA

In this case, by threat of suicide, a Hindu, induced his wife and son to execute a release in favour of his brother in respect of certain properties which they claimed as their own.

It was held by the majority “that the threat of suicide amounted to coercion within Section 15 and the release deed was therefore voidable”.

The difference of opinion related to whether suicide is an act forbidden by the IPC. An attempt to commit suicide is punishable under the code, but there is no punishment provided for suicide.

CHIKKAM AMIRAJU v. CHIKKAM SHESHAMMA

The majority opinion said that if a man commits suicide, he goes unpunished, that is not because the act is not forbidden, but because there is nobody left to punish.

The term “forbidden by the Indian Penal Code” is much wider than the term “punishable by the Penal Code”. If someone escapes punishment does not mean that the act is not forbidden.

The court also gave the analogy of a child or a lunatic who are not punished for an act, but that does not mean that the act is not forbidden. The court says that since the abetment and attempt to commit suicide are both made punishable by the Penal Code, it was prepared to hold that the act itself is forbidden. It also held that, the possibility of the husband dying and leaving the wife and the child uncared for, was enough to furnish the ground of prejudice.

Because of this case threats to commit suicide amount to coercion under Section 15

COERCION - DETENTION OF PROPERTY

The concept of detention of property can be explained by following example:

Suppose, a person pledges a necklace for Rs.50. But, when he/she goes to redeem it, the pledgee insists that an extra Rs.20 was owed to him as interest and the pledger has to pay it to redeem it, then the pledger can sue the pledgee to recover the extra amount back, since the pledgee extracted from him an extra amount by refusing to deliver it.

DIFFERENCE BETWEEN INDIAN AND ENGLISH LAWS

Under English Law ‘Coercion’ is called as ‘Duress’ or ‘Menace’ and is more a rule of equity than of common law, but has a overriding or prevailing effect in case of any conflict between the two.

Duress is said to consist in actual or threatened violence or imprisonment of the contracting party or his wife, parent or child, by the other party or by anyone acting with his knowledge and for his advantage.

But, coercion as defined in Section 15 in Indian

Contracts Act is much wider and includes the unlawful detention of property also.

COERCION DIFFERENCE BETWEEN INDIAN AND ENGLISH

LAWS

Secondly, coercion can be committed by any person and not necessarily a party to the contract.

Thirdly, coercion need not be directed towards the contracting party, or his parent, wife or child, it may be directed towards any person, even if he is stranger.

Another difference is that while in English law, duress must be such that will cause immediate violence and also unnerve a person of ordinary firmness of mind, these requisites are not necessary in Indian law

UNDUE INFLUENCE

Undue influence means an influence by a person who is in a position of power and has taken unfair advantage of that power over another person.

Undue influence is defined in Section 16 of the Indian Contracts Act , 1872 as under:

(1) 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.(2)In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of

another:

UNDUE INFLUENCE

(a)Where he holds a real or apparent authority over the other, or where he 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.

(3) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall be upon the person in a position to dominate the will of the other

UNDUE INFLUENCE Section 19A of the Indian Contracts Act also talks

about undue influence in a contract. It says that “when consent to an agreement is

caused by undue influence, the agreement is a contract voidable at the opinion 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.”

Exception- a contract made under statutory compulsion cannot be regarded as one made under influence.

ACTUAL UNDUE INFLUENCE

Sometimes the relation between the parties is such that one of them is able to dominate the will of the other. The one with the superior position may use it unfairly to obtain the other’s consent to an agreement, to which he otherwise would not have consented.

It can be said that one party is able to dominate the will of the other when there is active trust and confidence between the parties or when the parties are not on equal footing.

Burden of Proof- if someone wants to avoid a contract on the ground of undue influence, then he must be able to prove that, the other party was in a position to dominate his will and that he actually used this influence to obtain the plaintiff’s consent to the contract.

WILLIAMS v. BAYLEY In this case, the plaintiff, Mr. Bayley’s son, forged his

signatures on many promissory notes and paid them into his banking account. When the truth came to light, the manager of the bank, Mr. Williams, threatened criminal prosecution of the son. To avoid this, Mr. Bayley agreed to give an equitable mortgage to the bank on his property, in return of the promissory notes. Subsequently, Mr. Bailey, sought to have this agreement cancelled on the ground of undue influence.

The House of Lords held that the agreement was voidable. It said that because of the threat given by the bank manager, the plaintiff acting under this fear, agreed to give an equitable mortgage.

There was an inequality between the parties and one of them took unfair advantage of the situation of the other and used undue influence to force an agreement from him.

PRESUMPTION OF UNDUE INFLUENCE

In certain cases undue influence is presumed. The effect of this presumption is that once it is shown that

the defendant was in a position to dominate the will of the plaintiff it will be presumed he must have used his position to obtain an unfair advantage.

The only difference between actual and presumed undue influence is that the Burden of Proof will shift to the defendant to prove that even though he was in a position of dominance, he did not use that position to influence the plaintiff and the plaintiff consented freely. In the absence of discharge of the burden of proof, the presumption will apply.

The presumption is raised at least in the following cases:- (1)Inequality of bargaining power;

(2)Relationship of blood, marriage or adoption

LLOYDS BANK LTD v. BUNDY

Brief facts of the case are that a contractor borrowed money from a bank. But he could not pay back in time, so the banker pressed for payment or for security. He suggested that the contractor’s father could mortgage the family’s only residential house. The bank officer visited the father and got his signatures on readymade papers. When the contractor still could not pay, the banker sought to enforce the mortgage. Accordingly Mr. Bundy relied upon the unfair character of the mortgage.

In this case, the court presumed undue influence, due to the inequality in bargaining power between the parties.

It said that the bank exploited the vulnerability of the father. It also said that, asking for the house as security for a very short delay in the paying of the loan, was a very unfair and inadequate consideration.

The court allowed Bundy to set aside the mortgage.

INFLUENCE DISTINGUISHED FROM PERSUATION

Influence has to be distinguished from Persuasion.

The distinguishing factor is of the relationship of superior position capable of being prevailed upon the other to obtain his consent by exerting the influence.

In Persuasion the relationship of superior position capable of being prevailed upon the other to obtain his consent by exerting the influence, remains absent while it is present in the case of Influence.

COERCION &

UNDUE INFLUENCE

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