Section 16 of Indian Contract Act

16.“Undue influence” defined.— (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—

• (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 lie upon the person in a position to dominate the will of the other.

Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of 1872).

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.

Final Thoughts

Introduction

Section 16 of the Indian Contract Act, 1872, deals with the concept of “Undue Influence”. In simple terms, it means a situation where one person unfairly influences another person to enter into a contract. Such influence takes away the free will of the other party, making the contract invalid in the eyes of law if proved.

Definition of Undue Influence

According to Section 16(1), a contract is said to be induced by undue influence when:

• There exists a relationship between the two parties where one party is in a position to dominate the will of the other, and
• That party uses such position to gain an unfair advantage over the weaker party.

In other words, if one person takes advantage of his superior position to force or manipulate the other into an agreement, then the contract is not based on free consent and becomes voidable.

When Undue Influence is Presumed (Sub-section 2)

Section 16(2) provides specific situations where a person is presumed to be in a position to dominate the will of another:

a. Real or Apparent Authority or Fiduciary Relationship

• If one person holds real authority (like employer) or apparent authority (looks like he has power) over another.
• Or, if they share a fiduciary relationship, such as:
  • Parent and child
  • Doctor and patient
  • Lawyer and client
  • Guru and disciple

In such cases, one person naturally trusts the other, and if the stronger person misuses this trust for personal benefit, it is undue influence.

b. Mental Capacity Affected by Age, Illness, or Distress

• If a person is mentally or physically weak because of:
  • Old age
  • Serious illness
  • Emotional distress
  • Mental disorder (temporary or permanent)

In such cases, even if there is no formal relationship, if the stronger person takes advantage of the weaker person’s condition, it is undue influence.

Burden of Proof in Case of Undue Influence (Sub-section 3)

According to Section 16(3), if the contract appears unfair or one-sided, and one party was in a position to dominate the will of the other, then the burden of proof lies on the stronger party to prove that:

• The contract was made freely, and
• It was not influenced by undue pressure or manipulation.

In normal cases, the person who claims something must prove it. But in undue influence cases, the stronger party must prove their innocence.

Also, this sub-section mentions that it does not affect Section 111 of the Indian Evidence Act, which also deals with fiduciary relationships and burden of proof.

Effect of Undue Influence on Contract

If undue influence is proved:

• The contract becomes voidable at the option of the weaker party (as per Section 19A).
• The court may:
  • Set aside the contract fully, or
  • Modify the terms to make it fair.

This ensures that free consent, a basic requirement of a valid contract under Section 10, is protected.

Important Illustrations under Section 16

(a): Parent misusing influence

• A (father) gives money to B (his minor son).
• When B becomes adult, A forces B to sign a bond for more amount than what was due.
• A used parental influence unfairly. → Undue influence is present.

(b): Doctor taking advantage

• A (old and sick man) is treated by B (his doctor).
• B asks for a very high amount for his services.
• Because of trust and dependence, A agrees.
• B misused his fiduciary position. → Undue influence is present.

(c): Money-lender charging unfairly

• A is in urgent need and takes loan from B (a village moneylender).
• B charges very high interest.
• Contract seems unconscionable.
• B must prove that it was not by undue influence. → Burden of proof on B.

(d): Banker charging high interest

• A needs money urgently and applies to bank.
• Due to market conditions, bank gives loan at high interest.
• Though the rate is high, it is normal in business.
• This is not undue influence.

Conclusion

Section 16 protects parties from being exploited due to unequal relationships or personal weakness. It upholds the importance of free consent in every contract. When one party uses their stronger position unfairly, the law steps in to provide justice.

Key points to remember:

• Undue influence = One party dominates the will of the other unfairly.
• Can arise due to authority, trust, or weakness.
• The stronger party has to prove that contract was fair.
• If proved, the contract can be cancelled or modified.