Page 36 - DMGT407Corporate and Business Laws

Unit 2: Consent, Indemnity and Guarantee Acts

Notes
Example: A, a money lender, advanced ` 1,000 to B, a household lady, and by undue
influence induced B to execute a bond with interest at 8 per cent per month then the court may set
the bond aside ordering B to repay ` 1,000 with such interest as the court may deem just.
Extra precautions to be taken while entering into contract with a pardanashin woman. A
pardanashin woman is one, who according to the custom of her community, observes complete
seclusion. The courts in India regard such women as being especially open to undue influence.
When therefore an illiterate pardanashin woman is alleged to have dealt with her property and
to have executed a deed, the burden of proving that there was no undue influence was on the
party setting up the deed. The law demands that the person who deals with a pardanashin lady
must show affirmatively and conclusively that the deed was not only executed by, but was
explained to and was really understood by the lady.
Money lending transactions. In money lending transactions the rate of interest being high, or
that the borrower is in urgent need of money is not an evidence of undue influence. These two
facts do not by themselves show that there is undue influence. However, if the rate of interest is
so high that the court considers it unconscionable, then the burden of proving that there was no
undue influence lies on the creditor.

Example: A, being in debt to B, the money lender, contracts for a fresh loan at compound
interest of 25 per cent the transaction may be held to be unconscionable and a reduced rate of
simple interest may be awarded.

Self Assessment

Fill in the blanks:
5. Undue influence consists in the improper exercise of ……………..over the mind of one of
the contracting parties by the other.
6. 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 …………………….of
the relevant facts.

2.4 Meaning of Fraud [Ss. 17 and 19]

Fraud means and includes any of the following acts committed by a party to a contract with an
intent to deceive the other party thereto or to induce him to enter into a contract: (i) the suggestion
as a fact of that which is not true by one who does not believe it to be true; (ii) active concealment
of a fact by one having knowledge or belief of the fact; (iii) promise made without any intention
of performing it; (iv) any other act fitted to deceive; (v) any such act or omission as the law
specifically declares to be fraudulent.

2.4.1 Essential Elements or Conditions for a Fraud to Exist

For a fraud to exist the following are the essential elements:
(i) There must be a representation or assertion and it must be false. To constitute fraud there
must be an assertion of something false within the knowledge of the party asserting it.
Mere silence as to facts likely to affect the willingness of a person to enter into a contract
is not fraud. To constitute fraud ordinarily there must be active misstatement of fact as the
withholding of that which is not stated makes that is stated absolutely false.

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