UNDUE INFLUENCE

DEFINITION OF UNDUE INFLUENCE:

(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 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 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 one 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.
Examples:
(1) 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 that the sum due in respect of
the advance. An employs undue influence.
(2) 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.
WHAT IS UNDUE INFLUENCE?
A party to a transaction, though consenting to it, may not give a free consent because he is exposed
to such influence from the other party as to deprive him of the free use of his judgement. In such
a case, the transaction will be set aside. If property has passed, equity will order restitution, and, if
necessary, follow the property into the hands of third parties.
‘Influence’ has been defined as the ascendancy acquired by one person over another; it may be
used wisely, judiciously and helpfully. ‘Undue influence’ is improper use by the ascendant person,
of such ascendancy, for the benefit of himself or someone else so that the acts of the person
influence brought to bear upon a person entering into an agreement, which having regard to the
age and capacity of the party, the nature of the transaction, and all the circumstances of the case
appears to have been such as to preclude the exercise of free and deliberate judgement. It means
the domination of a weak mind by a strong mind to an extent which causes the behavior of the
weaker person to assume an unnatural character. The person influenced is constrained to do against
his will that, which, but for the influence, he would have refused to do if left to exercise his own
judgement.
Ability to dominate the will of other
Sometimes the parties to an agreement are so related to each other that one of them is able dominate
the will of the other. The person who occupies the superior position may prevail upon the other to
obtain his consent to an agreement to which he, but for the influence so exerted, would not have
consented. The relationship between the parties so as to enable one of them the will of the other in
a sina qua non for undue influence to come into play. A spiritual advisor, for example, in a case
before the Allahabad High Court, induced the plaintiff, his devotee, to gift to him the whole of his
property to secure benefits to his soul in the next world. Such consent is said to be obtained by
undue influence.
Subtle species of fraud
“Undue influence is said to be a subtle species of fraud whereby mastery is obtained over the mind
of the victim, by insidious approaches and seductive artifices. Sometimes the result is brought
about by fear, coercion, importunity or other domination, calculated to prevent expression of the
victim’s true mind. It is a constraint undermining free agency, overcoming the power of
resistances, bringing about a submission of the other.” The following statement bears out the
distinction between coercion and undue influence:
“The law draws a distinction between duress and undue influence. Duress in the execution of a
contract or deed occurs when there is a physical compulsion of the person, which must be very
rare, or when there is a physical compulsion of the person’s life or limb, or threat of a physical
beating or of imprisonment. It may also take into account threats of a wrongful imprisonment or
prosecution of the person and possibly of the person’s near relative.
In contrast to duress, undue influence may exist without violence or threats of violence against the
victim. It depends upon the existence of a relationship between two parties which, while it
continues, causes one to place a confidence in the other which produces a natural influence over
the one which that other abuses to his own advantage.”
PRINCIPLE OF EQUITY
The principle of undue influence is a doctrine of equity. Undue influence is a comprehensive
phrase covering cases of undue influence in particular situations, as also cases of domination of
pressure outside those special relations. ‘The courts have always been careful not to fetter this
useful jurisdiction by defining the exact limits of its exercise.’
‘The principle applies to every case where influence is acquired and abused, where confidence is
reposed and betrayed’, or, as Sir Samuel Romilly expressed it in his celebrated argument in
Huguenin v. Baseley, which has been made authoritative by repeated judicial approval, ‘to all the
variety of relations in which dominion may be exercised by one person over another’. ‘As no court
has ever attempted to define fraud, so no court has ever attempted to define undue influence, which
includes one of its many varieties’.
The doctrine of undue influence applies as much to gifts as to transaction in the form of contract.
RELATIONS WHICH INVOLVE DOMINATION
The relationships which may develop a dominating influence of one over another are infinitely
various. There is no precisely defined law setting limits to the equitable jurisdiction of a court to
relieve against undue influence. This is a world doctrine, not of neat and tidy rules. The courts of
equity have developed a body of learning enabling relief to be granted where the law has to treat
the transaction as unimpeachable unless it can be held to have been procured by undue influence.
It is the starting-point from which the court advances to consider whether the transaction is product
merely of one’s own folly or of the undue influence exercised by another. A court in the exercise
of this equitable jurisdiction is a court of conscience. Definition is a poor instrument when used to
determine whether a transaction is or is not unconscionable: this a question which depends upon
the facts of the case.

BURDEN OF PROOF
In an action to avoid a contract on the ground of undue influence the plaintiff has to prove two
main points. He must show, in the first place, that the other party was in a position to dominate his
will and secondly that he actually used his influence to obtain the plaintiff’s consent to the contract:
the law says that: (1) not only must the defendant have a dominant position, but (2) he must use it.
It is not enough, for a person to avoid the contract, to show that the other party is his father who
could have influenced him. He must go further and show that his father actually did influence him.
Power to set aside contract induced by undue influence:
When consent to an agreement is caused by undue influence, the agreement is a contract voidable
at the option of the party whose consent was so caused.
Any such contract may be set aside either absolutely or, if the part who was entitled to avoid it has
received any benefit thereunder, upon such terms and conditions as to the court may seem just.
The doctrine of undue influence in England and India
“The equitable doctrine of undue influence has grown out of and been developed by the necessity
of grappling with insidious form spiritual tyranny and with the infinite varieties of frauds.” It
applies alike to acts of pure bounty by way of gift and to transactions in the forms of contract
which are clearly more advantageous to one party than to the other.
Then English authorities are numerous, and many of them are complicated by questions on the one
hand of actual fraud or on the other hand of breach of some special duty such as that of an agent,
which is independent of the state of mind of the parties. It will be sufficient for the present purpose
to refer to a few of the leading authorities on the various points dealt with by the text of the Act.
The first paragraph of the section lays down the principle in general terms; the second and third
define the presumptions by which the court is enabled to apply the principle. It is obvious that the
same power which can “dominate the will” of a weaker party is often also in a position to suppress
the evidence which would be required to prove more-constraint in a specific instance. Modification
of the ordinary rules of evidence is accordingly necessary to prevent a failure of justice in such
cases. Where the special presumptions do not apply, proof of undue influence or the particular
occasion remains admissible, though strong evidence is required to show that, in the absence of
any of the relations which are generally accompanied by more or less control on one side and
submission on the other, the consent of a contracting party was not free.
The essential ingredients under this section are as under:
(1) One of the contracting parties dominates the will and mind of another; or
One of the contracting parties hay a real or apparent authority over the other; or
One of the contracting parties stand sin fiduciary position to the other, e.g. minor and
guardian; husband and wife; or
One of the contracting parties is strongly enough and upon whom the other has to depend
because of some infirmity mental or physical
(2) The dominating party has taken an unfair advantage over the weaker party or the transaction is
unconscionable.
 MISREPRESENTATION
DEFINITION OF MISREPRESENTATION:
‘Misrepresentation’ means and includes-
(1) the positive assertion, in a manner not warranted by the information of the person making it,
of that which is not true, though he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains an advantage of the person
committing it, or any one claiming under him, by misleading another to his prejudice, or to the
prejudice of any one claiming under him;
(3) causing, however innocently, a party to an agreement, to make a mistake as to the substance
of the thing which is the subject of the agreement.
WHAT IS MISREPRESENTATION?
A misrepresentation is a positive statement of fact, which is made or adopted by a party to a
contract and is untrue. It may be made fraudulently, carelessly or innocently. It is false
representation. With regards to contracts, the general principle is that if one party has induced the
other to enter into a contract by misrepresentation, though innocently, any material fact
especially within his own knowledge, the party misled can avoid the contract.
The may be stated
If made without honest belief in its truth, it amounts to fraud. The common law recognizes a
general duty not to make statements which are in fact untrue, with the intent that a person to
whom they are made shall act upon them to the damage of a person so acting, and without any
belief that they are true. The breach of this duty is the civil wrong known as fraud or deceit, but
if belief in truth exists, it is not required by any general rule of the law to be founded on any
reasonable ground, though want of any reasonable ground maybe evidence of want of belief.
The Contract Act does not go beyond the common law. If fraudulent, the misrepresentation is
always a cause for rescinding a contract induced by it; if not, it is a cause of rescission only
under certain conditions, which the definitions of this section express. In certain classes of
contracts, where the facts are especially within one party’s knowledge, a positive duty of
disclosure is added and the contract is made voidable by mere passive failure to communicate a
material fact. The principal examples of this special duty are to be found in several branches of
the contract of insurance, and in sales of immovable property; but, there is no positive duty of
disclosure between contracting parties where the facts are not by their nature more accessible to
one than to the other, though one party may have acquired information which he knows that the
other has not.
A contract cannot be avoided where the truth has been disclosed, or is known.
TYPES OF MISREPRESENTATION
There are 3 types of misrepresentation-
(1) FRAUDULENT MISREPRESENTATION
(2) NEGLIGENT MISREPRESENTATION
(3) INNOCENT MISREPRESENTATION
Fraudulent misrepresentation
The significance of a misrepresentation being classified as a fraudulent one is that the measure of
damages may be greater under certain circumstances. There are two remedies available for
fraudulent misrepresentation: recession and damages.
Representees should attempt a claim for fraudulent misrepresentation with caution, as the courts
impose a much higher standard of proof due to the serious allegations. There may also be
penalties in the event the claim is not made out.
A fraudulent misrepresentation was defined in Derry v Peek(1889) 14 App Cas 337 as a false
statement which is ‘made knowingly, or without belief in its truth, or recklessly, careless whether
it be true or false’.
In order to assess whether a statement has been made fraudulently, you should consider whether:
The statement maker knows that the statement he has made is false
The statement maker has reasonable grounds to believe his statement is true even if it is false
In the case of a, there will clearly be a fraudulent statement.
In the case of b, if the statement maker has made a false statement, but has reasonable grounds to
believe his statement, it will not amount to a fraudulent statement, as it has not been made
recklessly or carelessly. A statement made recklessly or carelessly needs to be a statement made
which the statement maker has no belief in the truth of (but does not know for sure that it is true
or false).
Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573 clarified that where a statement is
made where the statement maker has no idea whether or not it is true or false, this statement
would be fraudulent due to the recklessness asserting it is true when it may not be.
True statements which become false
In With v O’Flanagan [1936] Ch 575 it was suggested that misrepresentation as a result of a
change of circumstances might result in either a fraudulent misrepresentation or a negligent one.
Here are the circumstances in which this can happen:
Fraudulent: The statement maker is aware there is a duty to notify the representee of a change in
circumstances (Banks v Cox (No 2) unreported)
Negligent: The statement maker is not aware there is a duty to notify the representee of a change
in circumstances.
Negligent misrepresentation
Negligent misstatement
A claim for a negligent misrepresentation that is based in tort under the common law is usually
referred to as a ‘negligent misstatement’ - Hedley Byrne & Co Ltd v Heller & Partners Ltd
[1964] AC 465. Caparo Industries plc v Dickman [1990] 2 AC 605 for the test for duty of care.
Subsequent case law which considered negligence of misrepresentations in the context of duty of
care concluded there would be a duty of care owed if there was an ‘assumption of responsibility’
on the part of the statement maker (Henderson v Merrett Syndicates Ltd [1995] 2 AC 145).
Whether or not there is an ‘assumption of responsibility’ considers determining whether the
statement maker has held themselves out as possessing expertise or special skill, and is aware the
other party will rely on this information. It is irrelevant whether or not the statement maker is an
actual expert, only that they hold themselves out to be one.

Negligent misrepresentation
An alternative approach to a claim for negligent misrepresentation is to pursue the claim under
statute. The Misrepresentation Act 1967 Section 2(1) allows for such a claim and contains the
key components.

The significance of a negligent misrepresentation claim under statute is that the burden of proof
from the common law claim is reversed. The representor cannot escape liability simply by
proving that he was not negligent, it must be proven that he had reasonable grounds to believe
the statement -Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978]
QB 574.

Innocent misrepresentation
With the development of the Misrepresentation Act the claim for innocent misrepresentation is
extremely limited. A claim for innocent misrepresentation will arise when a claim for negligent
misrepresentation under the Misrepresentation act has failed. The remedy for an innocent
misrepresentation will usually be rescission of the contract.

Misrepresentation of fact or law

It is used to be said in English books that misrepresentation which renders a contract voidable
must be of fact; but there does not seem to be really any dogmatic rule as to representations of
law. The question would seem on principle to be whether the assertion in question was a mere
statement of opinion or a positive assurance- especially if it came from a person better qualified
to know- that the law is so and so. It seems probable in England, and there is no doubt here that
at any rate deliberate misrepresentation in matter of law is a cause for avoiding a contract. Where
a clause of re-entry contained in a Kabuliyat was represented by a zamindar’s agent as a mere
penalty clause, the Judicial Committee held that the misrepresentation was such as vitiated the
contract, and the zamindar’s suit was dismissed.
An innocent misstatement about the law however does not amount to misrepresentation.
However, between statements of law and statements of fact is to neat, and is likely to mislead.
Even an innocent statement of law may be misrepresentation where it carries an implication of
fact which itself is untrue.
Where an executing party to a deed signed the deed upon a representation that the deed will not
be enforced, there is a mistake as to the substances of the agreement, apart from the question that
there was no consensus of mind.
Effect of misrepresentation
The contract is voidable at the option of the party who was induced by misrepresentation to enter
into a contract. He has two remedies open to him, either to elect to rescind the contract, or to
seek enforcement of representation, and insist upon being laced in the same position as if the
contract were performed.
The difference between claim for damages and suit for rescission is this. In the former case the
contract is left intact, and the suit is to enforce it and substitutes money damages for
performance. In the latter case, the objective is to avoid performance of the contract. Hence any
order made on rescission should have as its object the restoration of the parties to the original
position. The idea is restitution in integrum and the parties to be restored to status quo ante.
Misrepresentation as to a part would make the whole transaction voidable.
Damages under misrepresentation
Damages have always been recoverable under the English law for fraudulent misrepresentation
and are recoverable for negligent misrepresentation under 2(1) of the Misrepresentation Act
1967. Under this Act, such compensation can be awarded in lieu of performance under s.19 as
would place the representee in aa position as if the contract were performed. The court granting
rescission has also the power to order compensation under s.30 of the Specific Relief Act, 1963.
The person rescinding the contract would also be entitled to restitution to the extent provided in
s.65.
 CASE LAWS
UNDUE INFLUENCE
Subhas Chandra Das Mushib Vs. Ganga Prosad Das Mushib and Ors

FACTS
Plaintiff claimed that the will deed of his father conveying the entire property to defendant,
plaintiff’s nephew, was brought about by exercising undue influence over the donor. To the
contrary, the deed details that the gift of the property was made out of natural love and affection
between the donor and defendant. Further, after the conveyance of the property to defendant,
when some suit arose on the independent settlement deeds executed upon the transferred
property (before the death of the plaintiff’s father,i.e. donor), donor explicitly filed the statement
that “he no longer holds any interest in the property”. Nevertheless, High Court assumed the
presence of undue influence vitiating the deed on account of the relations between the donor and
defendant being of a grandparent and grandchild.

ISSUE
Whether the deed of gift was brought about by the undue influence?

HELD
Under Section 16 of the Indian Contract Act, the first thing to prove so as to claim undue
influence is the existence of such a relationship between the parties that one is in a position to
dominate the will of the other. But mere relationship of such a nature will not raise any
presumption of undue influence; for it must be further proved that the defendant had used such a
relation to obtain an unfair advantage over the plaintiff.
U/s 16(2)(a) the phrase “real or apparent authority” can be taken to mean “relations of the parties
such that one naturally relied on the other for advise and the latter was in a position to dominate
the will of the first in giving it”. The Court observed that no presumption of undue influence
arises in case of gift to a son, grandson, son-in-law, although made during the donor’s illness or
old age. Though, the relationship of solicitor-client, spiritual advisor and devotee, doctor-patient,
parent and child are those in which such a presumption arises.
The statement filed by donor that “he no longer holds any interest in the property” shows that he
was fully conscious and consented the transfer of property to the defendant. Further, the fact that
donor was actively involved in the management of his property clearly proves that no undue
influence was exercised over him.
MISREPRESENTATION
Sony Kabushiki Kaisha v. M/S. Mahaluxmi Textile Mills

FACTS
The Plaintiff/Appellant, Sony Kabushiki Kaisha, was a Japanese Co. (also known as Sony
Corporation) engaged in manufacturing and selling diverse range of electronic goods including
video and audio equipment, televisions, etc. under the trademark ‘SONY’.
Defendant/Respondent (M/S. Mahaluxmi Textile Mills) was selling the products (hosiery goods,
briefs and underwear) under the same trademark “SONY” without Plaintiff’s consent. As a
result, Plaintiff filed a suit against the Defendant and also applied for an interim injunction. The
application for interim injunction was rejected by the Trial Court. On appeal, the Division Bench
referred the matter to a larger bench, as the Division Bench was unable to decide due to a
judgment (Rustom Ali Molla & Ors. v. Bata Shoe Company Ltd.; AIR 1957 Cal 120) contrary to
its views.

ISSUE
Whether the similarity of the goods of rival traders is an essential requisite for maintaining an
action for passing off?

HELD
No, similarity of the goods of the rival traders is not an essential requisite for maintaining an
action for passing off.

COURT’S OBSERVATIONS
The meaning of ‘passing off’ was analysed and it was differentiated from ‘infringement’. The
main ingredient of passing off is misrepresentation by a trader as regards the source of his goods,
which is likely to deceive the consumers. Whereas, infringement is only concerned with the
improper use of other’s trademark, irrespective of its ability to deceive the consumers.
The submission of the Respondent was rejected. The decision of the Supreme Court in the case
of ‘Mahendra and Mahendra Paper Mills Ltd.’ is on the principle of passing off. A passing off
action lies on the allegations of misuse of both corporate name and trademark.

All the authorities considered in the case of ‘Rustom Ali Molla’ proceeded on an underlying
reasoning that if the goods of the rival traders were different, there would be no possibility of
confusion in the mind of consumers as regards the source or origin of the goods. But from the
days of “one company one product” in the nineteenth century, the commercial world has
considerably changed. Today, the large corporations operate with multiple products across the
globe, where a trademark is not restricted to only those goods in which its proprietor is directly
engaged in.
Therefore, it was held that the decision in the case of ‘Rustom Ali Molla’ was no longer good
law and the views expressed by the Division Bench were agreed with.