Page 35 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes Self Assessment

Fill in the blanks:
3. Coercion is the committing or threatening to commit any act forbidden by the …………….
4. When consent to an agreement is caused by coercion the agreement is ……………..at the
option of the party whose consent was so obtained.

2.3 Meaning of Undue Influence (S.16)

Undue influence consists in the improper exercise of power over the mind of one of the contracting
parties by the other. 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.

Example: 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.

Presumption of undue influence as regards persons in particular relationships. After reciting the
general principle of undue influence, s.16 lays down rules of presumption as regards persons in
particular relations. It reads: A person is deemed to be in a position to dominate the will of
another: (i) where he holds a real or apparent authority over the other or where he stands in a
fiduciary relation to the other or (ii) 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
stress.
Some of the relationships which raise a presumption of undue influence are: (a) parent and child;
(b) guardian and ward; (c) doctor and patient; (d) spiritual guru and disciple; (e) lawyer and
client; (f) trustee and beneficiary. However, the presumption of undue influence can be rebutted
by showing that the party said to have been influenced had independent legal advice of one who
had full knowledge of the relevant facts.

Example: A Hindu, well advanced in age, with the object of securing benefits to his soul
in the next world, gave away his whole property to his spiritual guru. Undue influence was
presumed.
There is no presumption of undue influence in the relationships between (i) husband and wife;
(ii) master and servant; (iii) creditor and debtor; (iv) landlord and tenant.

Party on whom lies the burden of proving that the contract (i) was or (ii) was not induced by
undue influence [s.16(3)]. The burden of proving that the contract is not induced by undue
influence lies on the party who is in a position to dominate the will of the other. Thus, in cases
(above given) where undue influence is presumed the onus of proof lies on parent, guardian,
doctor, spiritual guru, lawyer, trustee. On the other hand, in relationships where undue influence
is not presumed the party alleging undue influence must prove that it existed.
Consequences of undue influence (s.19A). An agreement caused by undue influence is voidable at
the option of the party whose consent was obtained by undue influence. However, any such
contract may be set aside either absolutely or if the party who was entitled to avoid it has
received any benefit thereunder then upon such terms and condition as the court deems fit.

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