Unlike coercion (which is physical in nature), Undue Influence represents psychological pressure. It is defined under Section 16 of the Indian Contract Act, 1872.
1. Statutory Definition (Section 16)
A contract is 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. When is a Person Deemed to Dominate?
A person is presumed to be in a position to dominate the will of another in three scenarios:
- Real or Apparent Authority: e.g., Employer and Employee, Police Officer and Accused.
- Fiduciary Relationship (Trust-based): e.g., Father and Son, Doctor and Patient, Lawyer and Client, Spiritual Advisor and Follower.
- Mental Capacity Affected: When a contract is made with someone whose mental capacity is temporarily or permanently affected by age, illness, or distress.
3. Burden of Proof & Unconscionable Bargains
If a transaction appears completely unfair on its face (an unconscionable bargain) and was entered into by a dominant party, the burden of proof shifts. The dominant party must prove that they did not use undue influence and that the transaction was completely fair.