Law of Contract I - Coercion & Undue Influence-2

S 15- COERCION
“ ‘Coercion’ defined.- ‘Coercion’ is the committing, or threatening to commit, any act forbidden by the Indian
Penal Code (45 of 1860), or the unlawful detaining, or threatening to detain, any property, to the prejudice of
any person whatever, with the intention of causing any person to enter into an agreement.
Explanation.- It is immaterial whether the Indian Penal Code (45 of 1860) is or is not in force in the place
where the coercion is employed.”
Let’s break the provision up!

• Committing, or threatening to commit any forbidden act under the IPC; OR
• Unlawfully detaining any person’s property, or threatening to do so;
• TO induce a person into entering an agreement.
It is important that the coercion was committed to force a person into a contract.
COERCION- ‘ACT FORBIDDEN BY THE PENAL CODE’
• Does the alleged act constitute an offence? The use of the phrase ‘act forbidden by the Indian Penal Code’ implies that it
is also necessary for the court to determine in a civil suit (to set aside a contract induced by coercion), whether the act
constitutes an offence.
• It is important that the alleged coercive act or threat is expressly forbidden under the IPC.
• In some cases, the court has gone ahead and set aside a contract for lack of consent due to coercion when the coercive act
has not violated any express provisions under the IPC.
• In Ranganayakamma v Alwar Setti, the court interpreted S 297 of the IPC which deals with disrespecting a corpse to set a aside a
contract where the widow was forced to enter it because the relative obstructed removal of the body. The decision said that the
widow’s consent was not free. It was held that the action of the relative was forbidden under the IPC, though it does not attract any
punishment.
• The threat to commit an offence is not always punishable under the scheme of the IPC. The Law Commission has suggested
that the understanding of ‘offence’ under S 15 must be wider in scope.
• It recommended that ‘act forbidden by the Indian Penal Code’ should be widened to ‘act punishable by any law’.
• Money paid under coercion may be recovered under S 72. ‘Coercion’ under S 72 has wider application. It has been
construed in the general and ordinary sense of the word.
• Therefore even if the court cannot find ‘coercion’ under S 15, the court may award recovery under S 72 because ‘payment under
coercion’ is understood as ‘payment under compulsion.’
• Acts including money paid to an official as ‘penalty’ to avoid prosecution could be recoverable. Or, money paid under a threat to
interfere with legal rights of a person is also recoverable though it may not attract provisions of the IPC
COERCION UNDER S 15- S. SWAMINATHAN, ‘COERCION, UNDUE
INFLUENCE AND UNCONSCIONABILITY IN INDIAN LAW’
• The scope of coercion under S 15 is much wider than the traditional doctrine of duress under English Law. It includes detaining goods
as an example.
• Threats and prejudice to person are included and the provision does not restrict itself to threats made by parties to the contract. It could
be a threat from anyone.
• A threat to detain property has been read quite widely under the ICA. For example –
• It would include a lawyer refusing to handover documents to the client if the client does not cough up an extra amount which is beyond the agreed fee.
• A government department that refuses to pay a contractor unless he gives up a claim for extra rates would be covered under S 15.
• The manner in which S 15 is linked to the IPC could have resulted in a rigid standard that would have been unable to include cases of
unwarranted pressure to enter contracts.
• The use of ‘illegitimate pressure’ under English Law as a standard for judging cases of duress, has resulted in a wider application of the
standard as compared to Indian law.
• The rigidity is a limitation of S 15. Courts are bound to the words of the provision.
COERCION UNDER S 15- S. SWAMINATHAN, ‘COERCION, UNDUE
INFLUENCE AND UNCONSCIONABILITY IN INDIAN LAW’
• In Ranganayakamma v Alwar Setti, we observe how the judges did not apply a particular section of the IPC in ruling that the act of obstructing cremation of
a person constituted ‘coercion’.
• Instead, the court invoked both coercion and undue influence to rule that consent was absent in this case.
• This brings out the apparent limitations of the phraseology of S 15.
• Pollock & Mulla criticize this decision as it did not amount to ‘coercion’ under S 15. However, one cannot deny that there is illegitimate pressure in this case.
• It must be remembered that this was a decision handed at a time when courts interpreted S 16 liberally. The application of S 16 was later restricted under the 1899
amendment. The scope for accommodating cases that spill over from S 15 into S 16 was reduced. Therefore, the definition of coercion under S 15 came to be fairly
restricted.
• The limitations of S 15 is evident in ‘pressure cases.’ For example, threats to prosecute have been excluded from the scope of the provision, unless there is a
false charge. This is because threats to prosecute don’t attract criminality under the IPC.
• Though in some cases, courts may use S 15 to provide some relief in ‘pressure cases.’ The phraseology of S 15 would not apply to such cases usually.
• Changa Lal v MCD (2008)- the plaintiff was a lessee of a property owned by the Municipal Corporation of Delhi. The plaintiff was asked to handover possession of
the premises to the government or face arrest under the Maintenance of Internal Security Act, 1971 [now repealed]. The Delhi HC set aside the surrender of position
stating that it was vitiated by coercion under S 15 without specifically connecting the act to a particular provision of the IPC.
• Notably, the amendment to the Act envisaged the application of S 15 in ’pressure cases’ if we notice the illustration under S 19 A.
• “A’s son forged B’s name to a promissory note. B under a threat of prosecuting A’s son, obtains a bond for the amount of the forged note. If B sues on this bond, the
Court may set the bond aside.”
IS THIS • X’s brothers wanted him to
• Jack forged his father’s
signature to obtain a
COERCION? execute a release deed over a
property in their favour. X’s wife
loan.
and son were unwilling to do so • When Jack could not
• The brothers put a lot of pressure pay, the lender
on X to execute the release deed. threatened to prosecute
• X decides that the only way in Jack unless Jack’s sister,
which his wife and son would
agree to sign the release deed is
Jill, honoured the
if he threatened to hurt himself. guarantee.
• X threatens to commit suicide in • The lender knows that
front of his wife and son.
Jill paid only because
• They agree to execute the release she was afraid that her
deed.
ailing father may die
• Threat to commit suicide is not
an offence under the IPC.
from shock if he learns
of Jack’s prosecution.
CHIKHAM AMMIRAJU V CHIKHAM SESHAMMA
Facts:
• The facts in the green box were from this case.

• The plaintiffs brought an action against the defendants claiming that the property in their possession belonged to the plaintiffs.
• They argued that the defendants (the man’s brothers) pressured the man for his property which resulted in the threat to commit
suicide.
• The mother and son argued that they had alienated the property in favour of the defendants without any just cause and wanted
to set aside the release.
• It was due to this threat that they consented
• The defendants denied the threat.
• The lower court found that the threat amounted to coercion
• On appeal, the appellants [man’s brothers] argued that suicide is not a punishable offence under the IPC and Section 15 of the
ICA does not apply in this case as ‘prejudice’ means detriment to property and not ‘sentimental grievance’. [ relied on Queen v
Metropolitan Board of Works]
• The respondents argued
• that Section 15 states ‘acts forbidden’ by the IPC and not of an offence that is punishable under it. Suicide is forbidden under the IPC.
• It is not necessary that ‘prejudice’ is interpreted only in related to property.
• S 15 is wide enough to accommodate circumstances that influence the consent of a party to a contract. It would apply in cases where the
circumstances under which consent is provided have the effect of negating ‘freedom of volition’.
• The loss of a father or husband in such cases is sufficient prejudice.
CHIKHAM AMMIRAJU V CHIKHAM
SESHAMMA
Held (Wallis CJ):
• The courts found that there was coercion in this case. But, Sadashiva Aiyar J and Moore J dissented as to whether the fact
amounted to coercion under S 15.
• The dissenting judges opined that suicide was not an act forbidden by the IPC. Wallis CJ differs with this. At common law,
suicide was a form of homicide. And culpable homicide under S 299 of the IPC is wide enough to cover ‘deliberate
suicide’. This would make suicide punishable.
• Abetment of suicide is also punishable. S 309 of the IPC deals with attempts to commit suicide.
• Suicide is forbidden by the IPC.
• The second point raised was that the threatened act must be ‘to the prejudice of any person whatever,’ and this would
cover threats to commit murder. Here, the threat was to kill oneself. And this must be read as an ‘ act to his own
prejudice’.
• Such a threat would directly prejudice the wife too. It would deprive her of her husband, and the wife would then incur the
‘disabilities’ of a Hindu widow. For this reason, the act must be considered as ‘prejudice’ of the wife and son.
• Found in favour of the wife and son.
CHIKHAM AMMIRAJU V CHIKHAM SESHAMMA
Held (Oldfield J, Dissenting):
• Would a threat to commit suicide constitute an act that is forbidden by the IPC?
• Threat to commit suicide is not forbidden in the sense that it is punishable. It is not forbidden either directly or in the sense of the punishment for a
threat to commit suicide. Therefore, one may only read a ‘threat to commit suicide’ as prohibited by implication.
• S 15, if interpreted along the lines of implied prohibitions may result in an arbitrary standard if the court adopts a liberal standard of interpretation of the
criminal statute. The court must pay heed to the fact that the statute (IPC) has not included threats to commit suicide.
• The respondents do not argue about attempted suicide, rather the argument is that there was a threat. An attempted suicide is punishable under the IPC.
• ‘Threats’ and ‘attempts’ are analytically distinct. ‘
• Attempts’ in the legal sense can be recognized only if criminal intent is frustrated, not when it is expressed – that is when the threat is made.
• The argument that the IPC implicitly prohibits suicide because it also prohibits abetment and attempts to suicide it problematic. It can’t apply to
situations other than an instance where the cause of the suicide can be linked to the abetment or attempt. This has not been shown in the present case.
CHIKHAM AMMIRAJU V
CHIKHAM SESHAMMA
Held (Seshagiri Ayyar J, Concurring):
• The evidence in the case does not point to undue influence.
• On coercion- There is no provision in the IPC on threats to commit suicide, but there is no doubt that it was the intention of
the Legislature to forbid such an act.
• ‘Any act forbidden by the Indian Penal Code’ is wider than the term ‘punishable by the Indian Penal Code’.
• The fact that a person escapes punishment, does not mean that the act is not forbidden.
• The act of threatening suicide is forbidden by the IPC.
• The second argument by the appellant is that the threat to commit suicide could not have prejudiced the plaintiff.
• Although a sentimental prejudice is insufficient to find ‘coercion’, an injury must flow to say that a person was
prejudiced.
• Following this, it is not possible to say that there was no prejudice against the wife and son in this case when the
man threatened to commit suicide.
• The agreement was brought about by coercion.
AKSARI MIRZA V BIBI JAI KISHORI
[EXTRACT FROM A. PATHAK’S BOOK]
• Bibi Jai Kishori loaned Aksari Mirza some money. Later she claimed that Aksari Mirza lied to secure this loan.
• She threatened to file a criminal case against Aksari Mirza.
• They entered an agreement to the effect that Aksari Mirza would immediately return the money to her.
• Aksari Mirza claimed that the agreement was entered under coercion- the threat to prosecute.
• The question before the court was whether a threat to prosecute constitutes coercion under S 15.
• The court held that a threat of criminal prosecution is not forbidden by the IPC. The threat would amount to coercion only in
cases of a threat to file false charges.
• A plaintiff who alleges ‘coercion’ must establish all of the following-
• The threat was uttered;
• The threat was to commit an act forbidden by the IPC; and
• The threat was issued to induce the plaintiff to enter the agreement contested.
• A threat to prosecute under a valid charge does not constitute Coercion because threatening to file a ‘true’ or a valid
complaint under the IPC is not forbidden.
KISHEN LAL KALRA V. NDMC [2001, DEL HC]
• The plaintiff held a licence by the New Delhi Municipal Council to run an open air restaurant.
• The lease was to expire on May 31,1978. But the Plaintiff was evicted through forcible possession on August 7, 1976.
• The plaintiff filed a suit for damages to the tune of Rs 10 lacs.
• The NDMC admitted that eviction proceedings were initiated against the plaintiff under the Public Premises Act. It was also admitted that
the NDMC licensed the same premises to another person after removing the plaintiff. The defendant argued that the plaintiff voluntarily
gave up possession.
• The defendant attempted to sabotage the case that was filed at the lower court by the plaintiff in 1981 in many ways.
• They did not cross-examine the plaintiff’s witness.
• On a number of days, nobody showed up from the defendant’s side.
• They even failed to produce their own evidence. The PW’s testimony went unchallenged.
• The appellant in this case argued that the fact that the PW’s testimony went unchallenged is proof of the fact that they were ousted
without due process.
• The defendant had initiated proceedings under the Public Premises Act, they did not take these proceedings to a logical
conclusion; and evicted the plaintiff during pendency. This was illegal. ‘An occupant cannot be dispossessed without recourse of
law’.
• The license had not expired.
• The plaintiff was made to sign the letter under coercion. This was an involuntary act of the plaintiff.
• The NDMC sent a demolition squad with police issuing a threat of of a blank warrant of arrest under the MISA. The plaintiff
stated these during his testimony and he was not cross-examined.
• The letter of possession signed by the plaintiff cannot stand the test of S 15 of the ICA.
• There was an early termination of the lease which amounts to breach.
• Plaintiff entitled to damages.
KISHEN LAL KALRA V. NDMC
[2001, DEL HC]
Held (A. K. Sikhri J):
• A person is not bound to act under duress or coercion. The threat of
detention under MISA was clearly an act of coercion under S 15.
• Going by the fact that the events transpired during the heyday of the
Emergency, the court cannot rule out the possibility that such a
threat was issued.
• The signature of the plaintiff was obtained under duress and
coercion. It was not voluntary. The plaintiff was awarded damages
of Rs 9,11, 525.12 paisa.
• Under English law, the following acts constitute duress-
• Threatened violence to the victim’s person;
• Actual or threatened imprisonment;
• Wrongful threats to property;
• Threats to seize goods;
• Wrongful or illegitimate threats to a person’s economic interests.
• Coercion under S 15 can be committed by a stranger, but duress must be committed by a party
to the contract.
DURESS AT • Coercion can be directed against a party to the contract or any other person, but duress must
be directed at the claimant who is a party.
COMMON • Duress contemplates an element of immediate violence or threat. This is not the case with
coercion.
LAW
• It must be proven that the victim had no option but to enter the contract under such
circumstances.
• Earlier cases of duress required the party so claiming to prove that the consent provided non-
voluntary. Later cases have also applied the test of whether the victim had a ‘practical choice.’
• Duress is primarily concerned with the process by which a contract was made. It does not
necessarily deal with the terms of the contract, even if they are harsh or unconscionable.
• A contract concluded under duress would be voidable at least, if not void.
• It is sufficient to show that there was a threat to person, it is not required that the party show
that without the threat they would not have entered the contract. The onus is on the party
coercing the other to show that there was free consent.
DURESS AT COMMON LAW
• Not all threats are improper or illegitimate.
• A threat to commit a crime or tort is improper or illegal.
• But, a threat to break a contract may not amount to duress on the ground that the victim was induced by such a threat and could not
avoid the contract. There must be something more than mere commercial pressure.
• For example, a threat to break a contract if the other party does not provide additional payment or consideration may be legitimate commercial
pressure if the party so threatening is unable to perform the contract without such additional payment.
• The commercial pressure must constitute duress. It must be such that the victim entered the contract against their will and had no
other alternative. Also, the party must have been confronted with the coercive.
• In such cases it is material enquire whether the victim protested and whether the victim had an alternative option other than being
forced into a contract. Also, it is important to determine whether the victim took steps to remedy the situation after entering the
contract.
• Where a party was forced to renegotiate a contract and had no other option but to do so, the party may be said to be under
economic duress while consenting to such an arrangement.
• Tara, an event organizer, asks Zack, a pâtissier, to bake a • ABZ Co. is a building contractor. ABZ Co. enters an
cake for her client’s birthday. The specifications are that agreement with Taleja & Co., a builder company to
Zack will bake a 4 ft tall unicorn cake for Tara’s client construct their new apartment complex in South Delhi.
But, Tara has no contractual obligation towards her client • ABZ Co. employs several construction workers who are
to provide a 4 ft tall cake – this was left to her discretion.
routinely paid less wages in relation to other contractors.
The client was keen on a unicorn themed cake.
• ABZ Co. must complete construction within 3 years’
• Tara promises under a written agreement to pay Zack Rs
from the date of the contract. Otherwise, they will attract
30,000 for the cake. Zack runs an independent business.
penalties under the contract.
• Zack has two weeks to the birthday party, or for
• Two years since the date of commencement, ABZ Co.’s
delivering the cake. employees (construction workers) begin demanding
• A week into this contract, the price of sugar in the higher wages at industry standard.
domestic market rises sharply. Along with this, the cost • ABZ Co. does not pay heed to this demand as it would
of other material required for baking such as sprinkles,
cost them an extra Rs 50 lacs to compensate the workers
icing sugar, castor sugar, isomalt, candy and other
per their demands. ABZ Co. would suffer a loss under
products that are sugar based, has also increased sharply. the contract with Taleja & Co if they increased the wages
• This drives up the cost of the overall baking process for of their workers.
Zack. He now stands to loose from the contract rather • Two months after the demand was made, the workers
DURESS than benefit from it.

• Zack immediately calls Tara and informs her of this. He
needs an additional Rs 30,000 to buy the raw material
threaten to strike.
• ABZ Co. must complete the construction within the
agreed time to avoid penalties. They do not make any
required to perform the agreement. He informs Tara of efforts to avoid the strike before demanding an
the ways in which he has modified his plan to cut costs additional Rs 50 lacs from Taleja & Co under the
and keep them to a minimum. But, it would be
contract. AZB Co. can cover this increased labour costs
impossible for him to bake the cake without the
from their own kitty – they have the money to do so.
additional money.
• ABZ Co. informs Taleja & Co. that if they do not pay the
• Zack inform Tara that he can bake her a 2.5 ft cake
additional Rs 50 lacs, the construction will not take
instead of a 4 ft cake at the existing price. Tara refuses to place.
hear this suggestion. Zack appeals to her and says that it
is impossible for him to complete the task within the • Taleja & Co. attempt to negotiate on this price escalation
given amount and that he does not have the finances to with ABZ Co. But, ABZ Co. refuse to enter into
fund the remainder part of the project. Tara refuses to negotiations.
renegotiate. • Taleja & Co. agree to pay the additional amount because
• Zack threatens to break the contract if Tara does not they would otherwise be liable for penalty under their
renegotiate. Is Zack guilty of duress? contracts with individual home-owners.
• Is ABZ Co guilty of duress?
ECONOMIC DURESS
• A contract may be set aside for economic duress. This is a threat of serious financial consequences that the victim has no practical
choice but to enter the contract.
• An unlawful threat by a trade union to continue the boycotting, or threat to break a contract is sufficient to render a contract
voidable under economic duress.
• For example, one party may threaten to break an existing contract unless it is renegotiated in their favour. The other party may
suffer financial losses in such situations if they do not agree to the renegotiated terms.
• There must be a causal link between the duress and the contract. The party alleging economic duress must prove that the duress
was a significant cause of the contract.
• Not every threat to break a contract unless the terms are renegotiated will amount to duress. It is necessary for the threat to induce
renegotiation.
• The availability of an alternative remedy is important in such cases. Has there been a compromise? Has there been a submission
to a claim made in good faith? Did the victim protest?
• A person threatened by breach of contract can avoid the threat by suing for breach.
• Or, other available remedies must be insufficient to protect the victim under the circumstances.
• The existence and adequacy of an alternative is taken into account in cases of economic duress. For example – it must not be
possible for the victim to obtain the same contractual services elsewhere.
• Parties who genuinely face difficulties in performing the contract and wish to renegotiate, can distinguish between permissible
and impermissible conduct.
• Whether a party is making a good faith demand to renegotiate is important in determining duress.
ECONOMIC DURESS- PAO ON TEST
• Facts: The plaintiffs were owners of all shares in a company [Shing On]. The defendants were majority shareholders in another company [Fu
Chip] which went public.
• The defendants wished to acquire a building that was held by the plaintiff’s company.
• The Plaintiffs wished to realize the value of the property by selling their shares in the company.
• The parties agreed that the plaintiff would sell shares in their company to the defendant’s company. The price payable to be met by the allotment to the
plaintiffs of 4.2 million ordinary shares of $1 each in Fu Chip. The agreed market value of Fu Chip shares was $2.50.
• The plaintiffs agreed that they would not sell or transfer 2.5million shares transferred to them before 1974. The restriction was imposed to prevent any
decrease in the value of Fu Chip’s shares resulted by a large sale of shares.
• This restriction exposed the plaintiffs to a risk of drop in their value.
• To reduce their risk, the parties entered a subsidiary agreement under which the defendants agreed to buy back the shares at $2.50 per share on or before
April 1974.
• This was to the defendant’s advantage because they could require the plaintiffs to sell shares for $2.50 even if the market value had increased.
• The plaintiffs refused to perform the main contract unless the subsidiary contract was cancelled when they found out about this advantage held by the
defendants.
• The defendants wanted to go through with the deal because their company was new and they did not want to lose public confidence. They agreed to the
plaintiffs’ terms and executed a guarantee in May 1973.
• Fu Chips share prices took a hit after this and the plaintiffs sought to enforce the guarantee against them.
• The defendants argued that the guarantee had no consideration. Notably, they argued that the guarantee was unenforceable because it was obtained under
duress.
ECONOMIC DURESS- PAO ON TEST
Scarman J:
• Duress is a form of coercion that will vitiate consent. In a contractual situation, mere commercial pressure
is not enough to constitute duress.
• There must be an underlying factor that can be considered as coercion under law.
• To determine such coercion, the court must inquire-
• Whether the person alleging coercion did or did not protest; and
• Whether at the time of contract formation, the person alleging did not have any other option or alternative open to
them such as a legal remedy; and
• Whether the person alleging coercion was independently advised; and
• Whether upon entering the contract, the person alleging coercion took any steps to avoid the contract.
• Anson argues that Pao On test was interpreted in a misleading manner to say that not only was the victim’s
consent defective, but their entry into the contract was involuntary. This fallacy was later corrected in The
Universal Sentinel.
• Technically, economic coercion would fall under the scope of S 16 according to Pollock & Mulla. But, it has been read into S 15
under coercion.
• S 16 defines undue influence as one in which –

• the relationship subsisting between the parties is such that one of them is in a position to dominate the will of the other;
and
• uses this position to obtain an unfair advantage over them.
• In Dai-Chi Karkaria Pvt Ltd v ONGC [Bom HC], the court held that whenever duress resulted in a varied contract, the victim of
duress may choose not to abide by the varied terms. Further, they may also seek an injunction restraining enforcement of the new
ECONOMIC
terms without setting aside the entire contract. [relying on Pollock & Mulla].
• Pollock & Mulla argue that the foundation for relief on grounds of economic duress under the ICA are not clear in this judgment..
• Procedurally, the court was not required to go into matters pertaining to economic duress. The suit was for an interim
DURESS –
injunction- this decision can only be sustained on grounds of equity.
• The court discussed the effects of economic duress in interlocutory proceedings.
• The court is not clear whether the duress renders the contract voidable for lack of free consent or on grounds of public
THE INDIAN
policy.
• S. Swaminathan-
• By reading economic duress into S 15, it has steadily become a feature of Indian law.
POSITION •
•
In Dai-Chi, Dhanuka J held that S 15 was wide enough to include the concept of economic duress. Several High Courts
have followed suit since then.
This approach raises difficulties. The text of the provision is not capable of including economic duress. “It cannot
accommodate this doctrine unless it contingently coincides with a threat to commit an offence or detention of property.”
• A case like Universe Tankships, where a trade union refused to allow the claimant’s ship to depart, would constitute a
threat to detain property under S15. The doctrine of economic duress need not be discussed in this case.
• S 16 which deals with undue influence is better placed to deal with economic duress. This is appropriate for ‘pressure’
cases.
• ***A note will be shared on Universe Tankships Inc of Monrovia v International Transport Workers Federation & Atlas
Express Ltd. V Kafco
UNDUE INFLUENCE –
COMMON LAW
• At common law, undue influence would also include subtler forms of exerting pressure (that don’t constitute duress).
• It may arise in a context where the parties share a relationship of confidence or dependence. This puts one party in a position
to exercise influence over the other, and the dominant party is capable of exercising this power in an unfair manner.
• There are two forms of unacceptable conduct under Equity-
• Overt acts of improper pressure such as coercion, unlawful threats.
• This is more in the form of duress and has been called ‘actual undue influence’.
• Influence emerging from a relationship shared between parties where one party has acquired ascendancy over the
other and seeks to take unfair advantage.
• The parties are in a relationship where one party owes the other duties of care and confidence.
• This is known as ‘presumed undue influence’.
• It is the nature of this relationship that provides scope for misuse.
• Typically occurs when one party places trust in the other to look after their affairs and interests and the latter
betrays them to benefit themselves.
THE JOHNNY FONTAINE STORY
'ACTUAL’ UNDUE INFLUENCE
• In Allcard v Skinner it was held that it is an equitable wrong that is committed by the dominating party against the
other. The dominant party has exercised ‘unconscionable’ influence over the party to enforce their legal rights.
• This is influence in the character of domination over the mind and will of the other party.
• Something that affects the other party’s independence in decision making.
• The domination has brought the transaction into existence.
• In these cases there is no need for a special relationship between the parties.
• The fact that domination was exercised is sufficient.
• “In Smith v Kay, for example, a young man, only just of age, incurred liabilities to the appellant by the contrivance
of an older man who had acquired a strong influence over him, and who professed to assist him in a career of
extravagance and dissipation. It was held that influence of this nature, though in no way ‘fiduciary’, entitled the
young man to the protection of the Court” [Anson pp 360]
• Another example taken by Anson is cases where men pressurize their wives to secure business debts by
mortgaging the family home. Heavy family pressures don’t necessarily constitute undue influence. But, the court
may look for moral blackmail or coercion in some form.
• The existence of undue influence is sufficient, it is not required that the transaction induced by undue influence if
apparently disadvantageous to the victim.
‘PRESUMED’ UNDUE INFLUENCE
• Where parties share a special relationship of confidence, undue influence may be found even
if it cannot be found that the powerful party dominated the mind of the other.
• In Tate v Williamson (1886) LR 2 Ch App 55, Lord Chelmsford held:
“Wherever two persons stand in such a relation that…confidence is necessarily reposed by one, and
the influence which naturally grows out of that confidence is possessed by the other, and this
confidence is abused, or the influence is exerted to obtain an advantage at the expense of the
confiding party, the person so availing himself of his position will not be permitted to retain the
advantage, although the transaction could not have been impeached if no such confidential relation
had existed.”
• In Etridge, the court held that only relationships where the duties of care and confidence
emerged as a matter of law would classify for ‘presumed’ undue influence.
• In such cases, the claimant need not prove that they reposed trust in the other. This trust is
presumed by proving the existence of the relationship.
• In such cases the law presumes that there is ‘influence’. The claimant must show that undue
influence was exercised.
‘PRESUMED’ UNDUE
• The claimant must establish –
INFLUENCE
• The nature of the relationship –
• While establishing the nature of the relationship, the claimant must demonstrate their vulnerable position in
relation to the other party’s position.
• The nature of the relationship is restricted to those relationships that the Court regards as suggesting undue
influence. Child – parent, solicitor-client, doctor – patient, trustee-beneficiary, or spiritual advisor- advisee.
Marital relationships do not attract this presumption, they occupy a special position in such cases. The
presumption does not apply as a matter of law, but one of the parties may be able to demonstrate that they reposed
trust in the other.
• The Etridge test of reposing test would apply here.
• It is not limited to abuse of trust or confidence, but also applies to cases where a vulnerable person in such
relationships is exploited.
• Per Tate v Williamson, it is sufficient to show that the party in whom trust is reposed is in a position to exercise
undue influence.
• The nature of the transaction.
• In Goldsworthy v Brickell, the court held that the presumption remains inoperative until the claimant has made a
transaction so large, or ‘improvident’ that it cannot be reasonably accounted for vis-à-vis the relationship –
friendship, charity or “other ordinary motives on which ordinary men act.” The influence is rendered ‘undue
influence’ only when the transaction can demonstrate it.
• The reason for setting the bar high is to avoid innocuous transactions between parties who share a relationship of
trust – say a holiday gift, or payment of reasonable fees etc.
• In National Westminster Bank v Morgan the court held that the transaction must be ‘manifestly disadvantageous’
to the influenced person.
• The question for the court to determine is whether the transaction is such that it gives rise to an influence that was
obtained by unfair means or exploitation.
UNDUE INFLUENCE BY A THIRD
PARTY – COMMON LAW
• Where a third-party exercises undue influence it is unclear whether the claimant should have
the right to rescind.
• The interference with free consent by a third party raises the question - whether the other
contracting party should have their security of contract undermined because a third party
carried out undue influence.
• If a party is unduly influenced by a third party, they may not be allowed to avoid the
contract. However, a remedy is tort may be made available against the third party.
• If the third party is an agent, then the influence of the agent is attributable to the principal.
• An example of a third-party exerting pressure – a husband and wife are co-owners of a
family home and the husband exerts pressure on the wife to secure a debt in her name
against the property.
UNDUE INFLUENCE – S 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 the 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 be upon the person in a position to dominate the will of the other.
Nothing in the sub-section shall affect the provisions of Section 111 of the Indian Evidence Act, 1872 (1 of 1872).”
UNDUE INFLUENCE – S 16
• A party to a contract may provide consent because he has been deprived of the free exercise of
their judgment by the other party.
• ‘Influence’ is understood as the dominating position [or ascendancy of the party over the other] of
one party over the other in the contractual situation.
• ‘Undue influence’ is when the dominating party uses this influence in an improper manner.
• It must be exercised to the advantage of the dominating party;
• It is any such influence that is brought to bear upon the other party into entering an
agreement related to-
• Age and capacity to contract;
• The nature of the transaction;
• Circumstances of the contract that appear to violate free consent of the party.
Something that takes away the independence of the other party to consent.
• It does not include advice by a close friend or relative.
• The person who is influenced must be in a position where, without the undue influence, they
would have not consented to such a contract.
UNDUE INFLUENCE S 16
• Sometimes, the influence may be in the form of coercion, inducement of fear, or calculated moves to
prevent the other party from expressing free consent.
• It must constrain the free agency of the innocent party and it must bring about submission or unfair
persuasion that is to the detriment of the victim.
• ‘Pressure’ that is in the form of fear, or that affects the hopes of one party, to overpower such party
would be a part of this. For example, a situation that forces the promisor to do something for the
sake of peace and to escape distress or social discomfort, that affects the promisor’s discretion
would constitute undue influence.
• The doctrine of ‘undue influence’ emerges from the doctrine of equity.
• Undue influence covers cases of domination or use of ‘pressure’ outside special relationships.
• The principle applies to every case where there is prima facie dominance, or abuse of position and
where the confidence of the other party is betrayed.
S 16 (1)
• The first paragraph under S 16 provides the elements of undue influence. The court
will consider two things-
• Are the relations between the parties such that the donee/transferee/promisee is a
in a position to dominate the will of the other?
• Has the donee/promisee/transferee used this position to obtain unfair advantage
over the other?
• Both conditions must be established by the claimant.
• Relationship:
• It is not necessary that the parties are related to each other by blood. But, a relationship must be established.
• The claimant must establish that the relationship necessarily entails an imbalance in the kind of power exercised by
the parties.
• One party must be in a superior position to exercise such influence.
• S 16 (1) is not strictly restricted to only fiduciary relationships (relationships of trust and care). It applies to other
relationships as well where undue influence is possible.
• Dominating Position:
• The position of the superior party must be such that they are able to dominate the will of the other.
• If the position of dominance is established, it is deemed to continue until the position is termination.
S 16 (1)
• Use of Position:
• The defendant must be in a dominant position and must use this position.
• The transaction should be such that the dominant party has taken advantage of the existing relationship for their benefit.
• Unfair Advantage:
• The dominant party must use their power to their advantage in an unfair manner.
• The existence of the relationship is not sufficient. Both elements must be satisfied by the claimant.
• For example- a deed of gift may be made to the dominant party under pressure such that it leaves the donor with nothing to live on, where the deed was obtained
by exercising influence over the donor.
• ‘Unfair advantage’ is used in terms of ‘unfair means’.
• Where gains are made from improper methods.
• The bargain is in favour of the influencer and is disadvantageous to the other.
• Unfair advantage needs to be established in relation to the position of the other party. Merely claiming unfair advantage is insufficient for undue influence under S
16 (1).
SUBHAS CHANDAR DAS MUSHID V
GANGA PRASAD DAS MUSHIB
The HC proceeded on the grounds that the
The appeal was filed before the SC trial court should have taken into account
challenging a lower court judgment that The deed of settlement related to some that the donee stood in a position of
dismissed the plaintiff’s request for setting properties and the plaintiff claimed that influence over the donor while trying the
aside a deed of settlement executed by his the properties were transferred under fraud case. The trial court did not determine
father and sister in favour of his brother’s and collusion. whether the deed of gift was spontaneous
son. and a result of free exercise of the donor’s
will.
The appellant (brother’s son) argued that it

The HC also considered the age of the The appellant also argued that the deed of
was erroneous for the HC to make this
donor and his mental status and presumed gift was executed on the ground of love
presumption. There was no evidence
that he was under the influence of his and affection that the grandfather bore
adduced on undue influence. Nor was this
younger son on the date of the gift. towards him.
tried at the trial court.
SUBHAS CHANDAR DAS MUSHID V GANGA PRASAD DAS MUSHIB
Held (G K Mitter J):

• S 16 (1) provides the elements of undue influence. The court will consider two things-
• Are the relations between the parties such that the donee/transferee/promisee is a in a position to dominate the will of
the other?
• Has the donee/promisee/transferee used this position to obtain unfair advantage over the other
• S 16 (2) is instructive while evaluating when a person may occupy a dominant position over the other.
• Where the donee has real or apparent authority over the will of the donor in cases of fiduciary relationships; and
• Where the donee makes a contract with a person who is incapacitated or affected by age, illness, or physical or mental
distress.
• S 16 (3) – the burden of proving that the contract was not a result of undue influence is on the person benefitting from it when
two factors are established against such person –
• They are in a position to dominate the will of another; and
• The transaction appears to be unconscionable.
• 3 stages of ascertaining undue influence-
• One party is in a powerful position- can dominate the will of the other;
• Whether the contract has been induced by undue influence; and
• Whether the transaction is unconscionable.
SUBHAS CHANDAR DAS MUSHID
V GANGA PRASAD DAS MUSHIB
Held (G. K. Mitter J):
• There is no presumption of undue influence – relying on Poosathurai v Kannappa Chettiar.

• The plaint is vague and did not allege undue influence. In fact it was contradictory because at one place it alleges fraud and at
another it alleges undue influence owing to the age of the father.
• The trial court did not frame an issue around undue influence or on whether the father was a person of ‘unsound’ mind, or
whether he was under domination of the second defendant.
• The trial court did not find that the father was of ‘unsound mind’ when the gift was executed. Moreover, it is difficult to
believe the plaintiff’s claim that he did not know of the transfer for nearly 4 years after the deed was executed. This was a
correct conclusion.
• Unfortunately, the HC accepted the plea of undue influence. Moreover, the HC did not find whether the plaintiff’s brother was
in a position to dominate the will of his father. Nor did the HC find whether the bargain itself was unconscionable. The
presumption of the HC is unwarranted in law.
• No evidence of domination of the brother over the father at the time the deed was executed. Found in favour of the appellant.
S 16 (2)
When is a person in a dominant Two elements of when undue influence

‘Real’ and ‘Apparent’ Authority-
position? is possible-
• The person holds real or apparent • When the person operates from a • Real authority is when a person has
authority over the other; or position of special authority or actual legally justified authority over
• The person stands in fiduciary confidence committed to the promisor; the other like in the case of a police
relationship with the other; or or officer and the accused, employer-
• The person enters a transaction with • The promisor is feeble. employee, income tax officer-
the other whose mental capacity is assessee, or officer-subordinate.
temporarily or permanently affected • Apparent authority is when the
owing to age, illness, or physical or authority is not ‘real’, but the person is
mental distress. nevertheless in the position to
demonstrate their authority over the
other.
S 16 (2)
Establishing a fiduciary
Fiduciary Relationships Examples relationship:
• These are relationships where the beneficiary • Parent-child • Where a fiduciary relationship exists, the
has reposed trust and confidence in the other probability of dominating the will of the other
person in relation to the beneficiary’s affairs, • Doctor-patient arises from the nature of the relationship itself.
property or business. • The claimant must show that they rely on the
• A trustee – beneficiary relationship. • Lawyer-client other party by reposing complete trust and
• This sort of relationship arises when one party confidence in them.
is in a position where the other naturally • Spiritual leader- disciple • They have therefore enabled the other to
reposes trust in them. influence the claimant.
• The influence grows out of such trust or • A person standing in fiduciary relations has
confidence. the duty of care and protection towards the
• The relationship puts the beneficiary at a other.
disadvantage. • They must not exert undue influence upon the
• The burden of disproving fraud or undue other.
influence lies on the party in the dominating
position.
16 (2)
Mental Capacity Mental Distress Age

1. There is potential for undue influence 1. Insufficient to only prove the existence 1. Mere old age or young age (a young
against persons who are affected by – of mental distress. adult) is not a good defence.
1. Age
2. Fear and anxiety alone will not 2. The presumption of undue influence
2. Illness constitute undue influence. may arise when the other party can
3. Mental or physical distress exercise influence.
3. The person’s state of mind must be
2. Mere existence of a state of distress is couple with the dominant party 3. Debi Prasad v Chhotey Lal- The
insufficient to prove undue influence. pressurizing them to enter the contract. plaintiffs were old and were cared for by
their grandson. They agreed to make a
3. The party alleging must show that the
will in his favour. But the grandson
dominant party took unfair advantage.
made them execute a deed of gift in
their favour. It was held
‘unconscionable’ because the donee was
in a position to dominate.
S 16 (2)
Threat of Prosecution Agreement during the Pudishary Krishen v
pendency of a litigation – Karampally-
• Undue influence may exist where a person
• If an agreement to arbitrate is made
is forced into a contract under a threat of under a threat of criminal
• The plaintiff agreed to relinquish
prosecution. prosecution, it will not always their right to a religious office.
• A threat to prosecute must exist amount to undue influence. • The consideration was that the
• The plaintiff cant have the defendant would withdraw a
• The threat must be directed at extracting a criminal trespass complaint
arbitration agreement set aside on
promise. the grounds that they entered the against the plaintiff.
• A direct threat is not necessary in such agreement under undue influence. • The charge of trespass was false.
situations. • The fear of criminal prosecution is • The court held that the agreement
not sufficient to constitute undue was voidable because the reason
• It may be sufficient if consent is provided influence. for the plaintiff entering the
to only prevent prosecution and this is • The plaintiff cannot dominate the contract was the false complaint.
known to the other party. will of the other because criminal
• A mere state of fear will not amount to proceedings were pending against
the defendant.
undue influence.
• A threat to prosecute a third person to
extract a promise may constitute undue
influence.
UNDUE INFLUENCE – S 16 (3)
• This subsection states that the burden of proving that there was free consent to the contract lies with
the party in the dominant position who makes a bargain that is to their advantage so much so that it
is ‘unconscionable’.
• The sub-section has limited application.
• It provides the conditions for raising a rebuttable presumption that a transaction is procured by the
exercise of undue influence.
• The reason for this rule is that the party in the dominant position may also have the power to
suppress important evidence in such claims.
• Two factors must be proved to invoke S 16 (3)-
• That the party was in a position to dominate the will of the claimant; and
• Prima facie, the transaction appears to be unconscionable.
• If either of these are not proved, then the presumption of undue influence will not arise.
S. SWAMINATHAN, ‘COERCION, UNDUE INFLUENCE AND
UNCONSCIONABILITY IN INDIAN LAW’
• Section 16 has incorporated doctrines of unconscionability and undue influence under it.
• What would have been classified as ‘unconscionability’ or ‘unequal bargaining power’ at common law would be undue influence under S 16.
• There is a ’dissonance’ in the structure of Ss 15 & 16.
• Courts have widened the scope of S 15 to accommodate illegitimate pressure like economic duress.
• On the other hand, courts have restricted the scope of S 16 by refusing to invoke it in cases of unconscionability and inequality of bargaining power
when required.
• ‘Erroneously projected’ a narrow interpretation on the notion of undue influence as it is traditionally understood.
• Courts have neglected the versatile manner in which S 16 may be used to overcome the rigid nature of S 15.
• S 16 empowers the court to provide relief in cases that are neither duress nor undue influence in a traditional sense.
• This is because ‘unconscionability’ under S 16 operates with the notion of ‘special disadvantage’ which is not covered under traditional
doctrines of duress or undue influence.
• The law in Equity that provided relief in cases of unconscionable contracts was not incorporated under the general doctrine of
unconscionability.
• S 16 as it originally stood, incorporated the doctrine of presumed undue influence, though this was not a true reflection of the general
English doctrine of undue influence. But, this did not prevent Indian courts from developing the law on S 16.
• Though courts cannot provide relief for unconscionable agreements under S 16, the courts have invoked the doctrine to remedy the situation
following the lead of English courts.
• Relief in such cases was provided on grounds of equity.
THE 1899 AMENDMENT
Before the 1899 Amendment to the ICA, S 16 read as follows:
• “(1)When a person in whom confidence is reposed by another, or who holds a real or
apparent authority over that other, makes use of such confidence or authority for the purpose
of obtaining an advantage over that other which, but for such confidence or authority, he
could not have obtained.
• (2)When a person whose mind is enfeebled by old age, illness, or mental or bodily distress,
is so treated as to make him consent to that to which, but for such treatment, he would not
have consented, although such treatment may not amount to coercion.”
• The 1899 amendment included the doctrine of unconscionability in the statute.

• The motivation behind this intervention was to remedy harsh contracts against rural indebtedness and usurious money lending in 19 th
Century India.
• Sir Chalmers proposed the amendment to empower courts to intervene in cases where parties do not enter a contract on equal footing
which could result in unfair terms.
• Sir Chalmers opined that the new provisions would empower courts to go beyond the terms of a contract to test whether the contract was
fair and reasonable.
• Stephen Martin Leake argued that the amendment Bill allowed the court to considerwhether the bargain is oppressive. Has the dominant
party taken advantage of the weakness or necessity of the other party?
• Therefore, the resultant provision was one that incorporated the general principle of unconscionability to protect a party in an unequal or
unfair bargain.
• The use of the phrase ‘unfair advantage’ was a result of the drafters’ intention to include the general doctrine of unconscionability.
• S 16 (1) did not require ‘coercion from outside’ or ‘overreaching’ to constitute ‘improper pressure’ [ a standard laid down under Allcard v
Skinner]. S 16 (1) incorporates a more general standard against obtaining an unfair advantage’ by anyone who can dominate the will of the
other.
• Actual domination of will was not required.
• S 16 (3) – the counterpart of presumed undue influence, went beyond the class of relationships which involved one party
reposing trust in the other where a special duty is owed as recognized in Allcard v Skinner.
• S 16 (3) was not restricted to the well defined relationships recognized under Allcard v Skinner. It extended to any case where
one party was in a position to dominate the will of the other and the transaction was prima facie unconscionable.
• The use of ‘relationships of special influence’ subsumed the categories recognized in Allcard v Skinner. This is evident in
Illustration 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.”
• These historical facts lead us to the conclusion that S 16 was not restricted to just undue influence but also included
unconscionable dealing.
• For Sir Chalmers, “unconscionability was the genus of which undue influence, as it was conventionally understood, was a
specie.”
• S 16 (2) was a combination of the original S 16 which was focused on undue influence, and unconscionable dealing.
• S 16 (2) could be subsumed under the general principle stated under S 16 (1). The amenders of the Act recast S 16 as an
indicative list of cases that may result in undue influence.
UNCONSCIONABILITY
Predatory Lending/Auto Lending - Last Week Tonight with John Oliver [Available on
Disney+Hotstar]
1. Describe what the video is discussing.

2. What are the terms of the contract discussed in the video?
3. Do you think these terms are oppressive? Why?
4. Do you think the manner in which the transaction was entered into is morally problematic?
Why?
SUBSTANTIVE AND PROCEDURAL
FAIRNESS
• Atiyah explains that classical contract law draws a distinction between fairness in the contract formation process and fairness in the
outcome of the contract.
• Courts are concerned with procedural unfairness rather than substantive unfairness.
• This is based on the understanding that both parties will be better off once the contract is performed. Contracting parties are assumed to
have evaluated the consequences of entering a bargain.
• Therefore, the law should be aimed at protecting the agency of contracting parties. It should respect the contract that the parties have
made.
• Substantive fairness-
• this is the sort of contract that the law should not promote – one with unfair outcomes.
• Contracts that result in unfair or oppressive outcomes should be unenforceable.
• Substantively unfair contracts are not always unenforceable.
• Recognizes that parties to a contract may not have equal bargaining power which could result in the stronger party pushing the weaker party to
the wall.
• Procedural Fairness:
• The courts will check whether the process of contract formation was fair- was there fraud/misrepresentation/undue influence?
• Contracts that violate procedural fairness may be void or voidable.
UNFAIRNESS
• Stephen Smith categorizes the reasons offered in favour of recognizing substantive
unfairness as follows-
• Evidentiary value- evidence of substantive unfairness in a contract may point to procedural
unfairness, or the risk of it. A court may conclude that wrongdoing based on an unfair outcome.
However, this is a limited reason.
• Distributive justice- The is the most common reason provided. On the face of distributive justice
ought to deal with common goods. Technically, contract law may not seem concerned with this
ideal. But, advocates argue that substantive fairness is important to maintain just distribution of
bargaining power. Substantive fairness, from this view, does not require society to support
redistribution of purchasing power. Instead, it calls for preventing redistribution. Not the best
solution to preserve and unjust distribution of purchasing power and upholding existing
entitlements while trying to talk about substantive fairness in contracts.
FAIRNESS
• Stephen Smith continued-
• Facilitating contracting- It is argued that considering fairness of contractual outcomes facilitates
contracting and affects and individual’s ability to contract. Smith recognizes this as a legitimate
concern. Monopolistic tendencies can make price negotiations difficult, and non-competitive situations
can reduce contracting. Also, where one party is unaware of the ordinary price of a good, fair pricing
can be of help. But, these concerns are related to price and not so much substantive fairness.
• Autonomy and basic needs- these concerns stem from the kinds of contracts under consideration, the
value of worthwhile contractual activity – such as self-enslavement or sale of babies. But the concern of
substantively unfair contracts is different, though it may be connected to non-valuable contracts. The
underlying justification here is that the state should not support non-valuable contracts. Though a
contract at abnormal prices can leave a party impoverished, this is not the issue deliberated by
substantive unfairness. Such contracts are bad, but not necessarily unfair. Fairness is a relative idea-
where one party has been treated unfairly, the other has been treated differently. Though unfair
contracts can be objectionable, the reason for substantive fairness does not emerge from here.
SUBSTANTIVE AND PROCEDURAL FAIRNESS
• Smith on substantive fairness contd.-
• Autonomy and Planning- The reason to watch out for contract prices or outcomes is based on the
ability of individuals to lead autonomous lives.
• Smith argues that this is the ‘real’ reason for incorporating the principle of substantive
fairness while adjudicating upon contracts. Unfair contracts make our lives more difficult.
• Autonomy is not just freedom from coercion. It is the ability of a person to ‘direct one’s life.’
• People should have the reasonable ability to shape and plan their lives and contract law
should facilitate this process by increasing our options and allowing us to decide the goals
we wish to pursue. Unfair contracts control our lives directly, they shift purchasing power
and leave the weaker party worse-off – thereby making it more difficult for them to live
autonomously.
• The ‘planning’ justification leads us to support ordinary price standards while assessing
contracts. Courts are not the best way to decide on prices, parties are. But, we need to view
planning in relation to autonomy to understand whether abnormal prices have shifted
purchasing power in a particular manner.
• Not all abnormal prices disrupt contracting. Certain planning failures may be enforced-
• Losing party makes a gift;
• Losing party does not care about the price; or
• The losing party was mistaken about the value of the good sold, but this does not affect their ability
to plan.
• But, if these factors are answered in the negative, then the contract should not be enforced.
• The argument for a general rule must emerge from two factors –
• The harm caused by the abnormal price; and
• The ease of avoiding the harm.
UNCONSCIONABLE CONTRACTS
• Unconscionable bargains are a class of contracts where the circumstances of the contracts are such
that there is
”weakness on one side, usury on the other, or extortion or advantage taken of that weakness – a
presumption of fraud.” [Lord Hardwicke in Earl of Chesterfield v Janssen]
• The reference to ‘fraud’ here does not mean deceit. But, it means an unconscientious use of power
given the circumstances.
• The relative position of parties in such a situation gives rise to the presumption that the transaction
is untenable if it were fair.
• Unconscionability emerges from the Law of Equity.
• It is concerned with the circumstances of the contract.
• Whereas, undue influence is concerned with the nature of the relationship that parties share.
• Usually, the law of equity will not step in to protect a party because they made a contract that was
detrimental to them.
UNCONSCIONABLE BARGAINS
• Equity offers remedies to parties who are illiterate, ignorant or the poor in cases where there
is contractual overreach and such a party has no access to independent advice.
• The general principle of unconscionability is applicable where one is trying to ‘catch a
bargain’ or where the parties meet under a circumstance where the weaker party gives
dominion over themselves to the powerful party.
• There are 3 necessary elements to establish a claim of ‘unconscionability’ at common law –
• One party to the contract must suffer serious disadvantage when compared to the other;
• This weakness must be exploited by the powerful party in an unethical manner; and
• The resulting transaction must be oppressive.
Serious Disadvantage-
• A gross disparity in price is not sufficient to prove unconscionability, there must be a serious damage.
• The transaction must contain objectionable terms. [ Mutliservice Bookbinding v Marden]
Oppressive transaction-
• It is not enough if the contract only has harsh terms, these terms must be oppressive.
• For example - It is not enough for a sale to be at a lower price, the price of the product sold must be substantially
undervalued. It must ‘shock the conscience of the court’.
Exploitation of the Weakness-

• This relates to the behavior of the stronger party.
• It must be characterized by some form of moral culpability – [Lobb (Alec) (Garages) Ltd v Total Oil Ltd]
When do courts intervene?
- In exceptional cases where the court thinks that standards of common fairness have been
violated.
- It would be wrong to permit a stronger party to corner the other party in any way.
- It is important for the claimant to establish that the defendant exploited their weakness in
some unconscionable manner.
Courts have generally been reluctant to apply this doctrine to set aside unfair contracts.
The doctrine of unconscionability in England has not developed to accommodate a wider set
of cases under it.
• S 16 (3) of the Act was introduced to address unconscionable bargains in India.
• Consideration to a contract would have to be evaluated to check whether the
bargain is unconscionable.
• Unconscionability is taken up by the courts only when parties share a position
where one party is in the position to dominate the will of the other.
• Unless it can be shown that one party is in the position to dominate the will of the
other, a substantively unfair transaction will not be set aside
UNCONSCIONABILIT • Mackintosh v. Wingrove, (1878) 4 Cal 137; Satish Chunder Giri v. Hem Chunder
Mookhopadhya, (1902) 29 Cal 823
Y IN INDIA • The court held ‘if people with their eyes open wilfully and knowingly
[POLLOCK & MULLA] enter unconscionable bargains, the law has no right to protect them.’
Therefore, mere hardship is not sufficient.
• In Poosathurai v Kannappa Chettiar, the court granted relief to a borrower under
a money lending transaction where the lender was in a position to dominate the
will of the other and the bargain was unconscionable.
• Whether an unconscionable transaction should be struck down depends on the circumstances
under which the transaction was made. The outcome of the transaction is not considered.
• Lala Balla Mal v Ahad Shah- the court must consider the prevailing circumstances that existed
at the time of contract formation, not at the outcome.
• The test for unconscionability is whether –
• A sane person, under no delusions, would make; and whether an honest person would
take advantage of the bargain.
• Would a right-minded person execute a document of that type?
UNCONSCIONABILIT • Bhimbhat v. Yeshwantrao, (1901) ILR 25 Bom 126 the court set aside a transaction between an
illiterate farmer and the defendant money lender where –
Y IN INDIA • The plaintiff executed a sale deed in favour of the defendant under pressure of payment
[POLLOCK & MULLA] •

• The sale of lands was worth thrice the amount of the actual debt.
Where a party cannot demonstrate that a party has taken undue advantage, harsh contractual
terms may not be struck down.
• The court may refuse enforcement of unreasonable terms in the absence of fraud of undue
influence.
• The Law Commission in its 13th reports recommended that no relief should be granted on the
ground of unconscionability unless undue influence is established.
UNCONSCIONABILITY IN INDIA
[S. SWAMINATHAN]
• The general principle of unconscionability which was meant to subsume undue influence
came to be applied narrowly.
• The Privy Council adopted an unsympathetic attitude towards the principle of unconscionability
because they saw it as a threat to legal certainty.
• “The end result was that courts stripped away element of unconscionability from S 16.”
• The courts have a tendency to read ‘dominate the will’ under S 16 (1) as restricted to the
situations mentioned under S 16 (2) alone.
• This limited the overall scope of the provision. The SC adopted the position that S 16 was meant to
faithfully reproduce English law on undue influence.
[S. SWAMINATHAN]
Unfavourable attitude to Unconscionability:

• In Dhanipal Das v Raja Manewhar Baksh Singh, the Privy Council held that a court of equity could not provide relief from a
contract with harsh terms.
• In 1919, the PC excluded all possibility of this jurisdiction of lower courts by ruling that S 16 does not include the principle of
unconscionability, rather they interpreted the section as the plaintiff needs to prove undue influence for any relief. [Raja Balla
Mal v Ahad Shah]
• This interpretation undermined the legislative intent behind the sections which incorporated unconscionability to curb
usurious money lending.
• As a result of the PC’s ruling in Raja Balla Mal, the Legislature enacted the Usurious Loans Act, 1918 which further eroded the
position of unconscionability within S 16.
• The Law Commission also took the same view.
• In 1986 [Central Inland Water Transport v Brojonath Ganguly], the SC tried to adopt the doctrine of ‘inequality of bargaining
power’ to intervene in unconscionable contracts. But this is applied in a narrow manner.
[S. SWAMINATHAN]
‘Position to Dominate Will’ as exhausted by S 16

• The presumption under S 16 (3) was meant to apply in cases of undue influence under S 16 (1).
• The court interpreted S 16 (3) narrowly and therefore the presumption could not be invoked in a wider class
of cases that would come under a general principle under S 16 (1).
• This limit became a solidified position in the law in Subhas Prosad Dad Mushib v Ganga Prasad Dad Mushib.
The SC held that the donee’s father was not in a position to dominate the will of the donor on the grounds of
age or mental distress. The court adopted the position that 16 (1) would rest only on the categories of
relationship mentioned under S 16 (2).
• This has been followed in a line of cases and is not an accurate reading of S 16 if we look at its history.
• This position has also made finding ‘presumed’ undue influence very difficult.
INEQUALITY OF BARGAINING
POWER
• The principle of ‘inequality of bargaining power’ comes from Lord
Denning’s judgment in Lloyd’s Bank Ltd v Bundy.
• The principle, though rejected later at the House of Lords, was aimed as
an intervention to protect weaker parties in contractual situations with
asymmetric power relations.
INEQUALITY
• Typically, asymmetric bargaining power between contracting parties is
not covered under the traditional doctrines of coercion, undue
influence, or unconscionable bargains.
OF • Therefore, this is seen as an intervention of principles of common law
and equity.
BARGAINING • As Anson points out, the principle of inequality of bargaining power
articulated by Denning attempts to incorporate both substantive and
POWER procedural unfairness in contracting.
• The principle was squarely rejected by the HL in National Westminister
Bank plc v Morgan by Lord Scarman on two grounds-
• The doctrine of undue influence was sufficient to deal with such
cases; and
• Restricting freedom of contract is a legislative function, not a
judicial one.
INEQUALITY OF BARGAINING
POWER
• In Pao On v Lau Yiu Long, Lord Scarman took the view that English law should not adopt a general
rule of public policy that unfair use of dominant power would render a contract void.
• He opined that the doctrine of duress was sufficient to deal with such cases and offer adequate remedies.
• He also expressed a concern that a rule on substantive fairness would be uncertain and undermine
contractual negotiations between parties.
• The current position at common law is that a contract can be avoided if procedural unfairness exists,
or if it is unconscionable.
• There are 2 distinct approaches to how the law has developed-
• Rather than incorporating the principle of inequality of bargaining power, the courts have developed the
doctrine of duress to cover economic duress.
• Statutory interventions have sought to protect weaker parties, particularly in the case consumer contracts.
LLOYD’S BANK LTD V BUNDY
Facts:
• Bundy was a farmer, both he and his son were customers of Lloyd’s bank for a while. The son formed a company
which also banked with the same branch.
• In 1966, Bundy provided guarantee for the overdraft account of the company for £1500. In doing so, he created a
charge against his farm to secure the sum. The company’s overdraft increased and the son said that Bundy would
provide additional security.
• In 1969, the son met Bundy with the Bank’s assistant manager who suggested that Bundy should execute a further
guarantee of £5000 and a further charge of £6000. The defendant showed the papers to his solicitors who advised
him that the most he could do to help his son was to provide a guarantee of £5000. Bundy executed the guarantee
and charge which now also included his house.
• The company’s position deteriorated and cheques were returned unpaid. The son told the new assistant bank
manager that his father would provide further security.
• In December 1969, the son visited Bundy with the new manager who brought with him an agreement for a further
guarantee of £11000 and a further charge of £3500. Also, they would set up a different account so that 10% of the
earnings from the company could be deposited into the new account to reduce the burden of the overdraft. The
defendant signed this document.
• Towards the end of 1970, the company ceased to trade and the bank tried to sell the defendant’s house for £9500.
• In evidence, the new manager told the court that he knew that the defendant had no other assets except the house.
That the defendant reposed trust in the manager to advice him about the transaction and acted according to such
advice.
• The lower court found in favour of the bank. The appellate court held that the court could intervene between the
bank and Bundy because to prevet abuse of the relationship. The guarantee and charge involved a conflict of
interest which could have resulted in Bundy losing his only remaining asset. He had no independent advice and the
guarantee and charge should be set aside for undue influence because the back breached its fiduciary duty.
Held (Lord Denning)-
• “There are cases in our books in which the courts will set aside a
contract, or a transfer of property, when the parties have not met on
equal terms – when the one is so strong in bargaining power and the
other so weak – that, as a matter of common fairness, it is not right
that the strong should be allowed to push the weak to the wall.”
• “Hitherto those exceptional cases have been treated each as a
separate category in itself. But I think the time has come when we
should seek to find a principle to unite them. I put on one side
contracts of transaction which are voidable for fraud or
misrepresentation or mistake. All those are governed by settled
principles. I go only to those where there has been inequality of
bargaining power, such as to merit the intervention of the court.”
• Categories of cases-
• Duress of goods- when the stronger party withholds goods under a
contract from the weaker party who is in urgent need of these goods with
a demand for a higher price. Transaction is voidable. In such cases, the
stronger party may make the demand believing that they are entitled to it.
No fraud or misrepresentation here. The strength of one party and the
vulnerability of the other party renders the transaction voidable.
• Unconscionable transactions- a person is in need of special care and
protection and this vulnerability is exploited by the stronger party.
Extends to all cases where an unfair advantage has been gained
through ‘unconscientious use of power’.
• Undue influence- One set of cases where the stronger party is guilty of
fraud or wrongful act; and a second set of cases where the stronger party
is not guilty but has gained a benefit through unequal situation of parties.
• Undue pressure- where one party gains a benefit in a situation where
the other party has no choice, but to submit to unfair terms.
• Salvage agreements- where a vessel is in danger of sinking and seeks
help, but the rescuer makes demands. Parties are not on equal terms.
LLOYD’S BANK LTD. V BUNDY
• General Principles-
• In all the categories of cases mentioned above, what is evident is that the parties do not
have equal bargaining power.
• Relief in these cases has been provided on the basis on ‘inequality of bargaining power.’
• Common law provides relief to a person who has entered a grossly unfair bargain for a
consideration that is inadequate where the person’s bargaining power is impaired in any
manner. – no independent advice about the transaction, or entered under distress, or by
ignorance [basically inequality] coupled with undue influence or pressure brought on
the party.
• Denning deliberately avoids using the words ‘dominated’ or ‘overcome’.
• A person in extreme need may ‘consent’ to an improvident bargain because of the
situation.
• Not every transaction without independent advice is unenforceable. But the lack of it
must be fatal in such cases.
• What Denning tries to do here is to bring together a set of cases under the principle
of ‘inequality of bargaining power’.
• He advances the view that courts must take into consideration aspects of substantive
fairness and procedural fairness under this principle while adjudicating on contracts.
• The vulnerable position of a party must also be coupled with undue influence or
pressure that resulted in consent to an unfair bargain.
CIWT V BROJONATH GANGULY
Facts:
• The Central Inland Water Transport Corporation Limited was incorporated in 1967. The Union of India is a majority
shareholder. Remaining shares are held by the states of West Bengal and Assam. The company is wholly owned by
the union government.
• CIWT was established to maintain and run river services, construction of vessels and allied activities.
• CIWT is not only a government company, but the government plays a huge role in the management and functioning
of the company. This includes appointment and dismissal of board members, issuing directions to the board, calling
for books etc.
• Rivers Steam Navigation Company was carrying on a similar business and was taken over by CIWT under a scheme
of arrangement. Under this scheme, CIWT was to take as many existing RSNC staff as reasonable.
• CIWT appointed Brojonath Ganguly (originally an employee of RNSC) as Deputy Chief Accounts Officer under the
scheme. The second respondent, Tarun Sengupta was also similarly appointed as Chief Engineer.
• The appointment letter stated that both of them would be subject to service rules and regulations applicable to CIWT
employees. These rules were first framed in 1970, and then revised in 1979.
• In 1980, Brojonath was promoted to the position of Manager (Finance) and he was further
promoted to the position of General Manager (Finance) in the following year.
• In 1983, he was sent a confidential letter by the Chairman & Managing Director with
allegations of negligence in the management of Provident Funds. He was asked to respond
to this letter in writing within 24 hours, which he did. In late Feb 1983, he received a letter
terminating his services and a cheque with 3 months’ basic pay and dearness allowance.
• Tarun Sengupta was was issued a charge-sheet against him. Sengupta alleged that the reason
was the grudge the C&MD held against him. A disciplinary inquiry was proposed in
Sengupta’s case and he was asked to respond to the charges in writing and asked for
inspection of the documents related to the charges and witness accounts. Sengupta denied
the charges that were made against him. He also received a notice terminating his
employment.
• The Employment Agreement:
• The 1979 rules that were framed by CIWT contained several clauses for termination of employment.
• Rule 9 provided for termination of employment where there was no misdemeanor.
• The contested rule 9 (i) provided that CIWT or a permanent employee may terminate the employment by issuing 3 months’ notice in
writing. CIWT may pay the employee 3 months’ basic pay and dearness allowance. These may be deducted if the employee who is
terminating the agreement fails to provide adequate notice.
• The rules also provided for other means of terminating employment especially in cases where misdemeanor, misconduct,
insubordination were alleged. These rules required disciplinary hearings to be conducted. No such requirement was placed on
termination under Rule 9 (i).
• Though charges and allegations were made against Brojonath Ganguly and Sengupta, their employment was terminated
under Rule 9 (i) without holding any disciplinary inquiries or giving them a chance to defend themselves.
• This termination was contested before the court as being in violation of Article 14 and that Rule 9 (i) was an unconscionable
term that provided CIWT arbitrary power to fire employees.
• The HC held that CIWT would be the ‘State’ under Article 12 for the purposes of Part III and IV of the constitution. Rule 9
(i) was arbitrary and therefore infringed upon the right to equality under Article 14. The HC quashed the termination orders.
Held (Maddon J):
• CIWT is ‘state’ for the purposes of Article 12. It operates as an instrumentality of the state. The corporation is wholly owned by the
union of India and two state governments. Appointments are also controlled by the government. No doubt that it is the state u/A 12.
This implies that it cannot take arbitrary actions which would violate any fundamental rights under Part III. [the Article 14 challenge]
• Rule 9 (i) is unconscionable because it allows termination of employment without giving the employees a chance. It allows CIWT to
exercise absolute and arbitrary powers in the matter. Overall, the service rules allow CIWT to discriminate between employees by
allowing the corporation to apply different sets of rules on termination in different cases. Rule 9 (i) does not provide for fair procedure
in any way.
• The question is whether unconscionability is covered under Section 16 (1) [voidable] or Section 23 on grounds of public policy [void].
• The parties are not at equal bargaining power. The employees must accept all the terms in the service rules when they are hired. There
is no scope for negotiation here. This is a result of standard format agreements that are in the form of adhesion contracts.
What is the test for fairness?
• Relied on Lord Diplock in A. Schroeder Music Publishing Company v Macaulay who identified 2 types of standard format agreements-
• The first type contain standard clauses that have been widely negotiated and accepted as industry standards to facilitate trade; and
• The second type are those that are not negotiated or approved by any organization that represent the weaker party. The contract is dictated by
the stronger party.
• Also relied on Lord Diplock’s judgment in the above case where it was opined that the court should consider setting aside contracts
where the weaker party agrees to terms for the benefit of the other on public policy grounds that vulnerable parties must be protected
from entering unconscionable bargains.
• The contract must be tested for fairness-
• Are the restrictions imposed on the vulnerable party required to protect legitimate interests? And
• Are the restrictions commensurate with the benefits secured to the promisor?
• Relied on Lord Denning’s views in Lloyd’s v Bundy that inequality in bargaining power must be considered
by courts while setting aside unfair contracts.
• The issue with the ICA is that it does not cover unconscionable bargains and inequality in bargaining power
under Section 16 (1). The court cannot set aside such unfair, arbitrary terms by applying S 16 (1) because such
terms do not constitute ‘undue influence’ as defined by the provision.
• To hold unconscionable bargains as undue influence, and therefore voidable, would open the floodgates of
litigation. This should be avoided. A higher standard must be set for testing for unconscionability.
• This standard may be found in contractual terms opposed to public policy under Section 23 which would
render the contract void. Note that this effectively shifts the doctrine of unconscionability from S 16 (1) to S 23.
• Arbitrary clauses that vest absolute power in one party are common in employment contracts with government
corporations. These clauses affect a large number of people, and as a result affect the public at large. They are
against public interest.
• Rule 9 (i) is therefore opposed to public policy and void under S 23 of the ICA.
S. SWAMINATHAN ON CIWT V BROJONATH GANGULY
• Brojonath was essentially a public law judgment which attempted to limit the power of the state
while entering unequal bargains with its employees.
• Principles of contract law were only tangentially relevant here.
• The court failed to revive Sir Chalmers’ original intentions behind the amended section 16.
Rather, the court declared that this provision was limited to accommodate unconscionability. It
pinned unconscionability to public policy under S 23.
• The discussion on unconscionability in the judgment emerges from the ‘state’ imposing unfair
terms.
• One consequence of the judgment is that where contracts are unconscionable or where there is
inequality of bargaining power – the contract is rendered void.
• S 19 A provides a more flexible approach that was entirely disregarded by the court – voidability.
To get around this hurdle, Madon J invoked the doctrine of severability to strike down a particular
contractual term.
• Therefore, this ruling has limited application – to some types of contractual terms in standard
format contracts.
• Subsequent cases have held that Brojonath is not applicable when the state is not involved.
Therefore the court has declined to set aside unconscionable terms in the private realm.
S 17- FRAUD
“Fraud, defined.- ‘Fraud’ means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his
agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:
(1)the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
(2)the active concealment of a fact by one having knowledge or belief of the fact;
(3)a promise made without any intention of performing it;
(4)any other act fitted to deceive;
(5)any such act or omission as the law specially declares to be fraudulent.
Explanation.— Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the
circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his
silence is, in itself, equivalent to speech.”
S 17 FRAUD
• Acts that are included under ‘fraud’ u/s 17 are-
• False assertion
• Active concealment
• Promise without any intention to perform it
• Deceptive acts
• Any act declared fraudulent under law.
• The act of fraud must be committed by a party to the contract, or their agent.
• The claimant must establish an intention to deceive them to induce their consent to a contract.
• There is no duty on parties to speak about facts that are likely to affect the other party’s
consent unless there is a specific duty under particular circumstances, or where silence itself
can be equivalent to speech.
S 17 FRAUD
• Fraud is committed where one party causes the other to act on a false belief which the first
party does not believe to be true.
• The belief that a fact is not true is sufficient, definite knowledge is not required.
• Fraud matters in the contract formation process. Was consent induced by fraud?
• S 17 will not apply in case of fraudulent acts committed after contract formation.
• The difference between fraud and misrepresentation-
• Fraud- a person makes an assertion believing that the assertion is not true;
• Misrepresentation – a person makes an assertion that they believe is true.
S 17 (1) FRAUD
Clause 1-
• Ingredients-
• There should be a suggestion about a fact;
• The fact suggested should not be true;
• The suggestions should be made by a person who does not believe that it is true; and
• The suggestion should be made with the aim of inducing another person’s consent to a contract.
• A representation is a statement of fact which is either in the past or the present and is distinct from an opinion.
• The claimant must prove that the representations made were false according to the person making them.
• Derry v Peek- Fraud is proved when it is shown that a false representation has been made-
• Knowingly; or
• Without belief in its truth; or
• Recklessly regardless of its truth.
• A false representation that is honestly believed to be true will not constitute fraud.
• Positive knowledge of the falsehood is not required. To constitute fraud the statement must have been made under the belief that it is false.
• Mere ignorance as to the veracity of a fact may constitute fraud if –
• the fact is material; and
• Turns out to be false; and
• Where the person making the assertion was doubtful of its accuracy; or
• That he neglected to inquire into its accuracy.
S 17 (1)
• Reckless statements –
• Proof that the person making the assertion does not believe it to be true is necessary to satisfy the
existence of fraud regardless of whether the statement was made recklessly.
• Ambiguous Statements-
• Where such statements are made, the claimant must establish that they understood it as a false
fact.
• The person making the statement will only be liable for fraud if they intended for the statement
to be understood in a particular way.
• Not guilty if the person making the statement believed it to be true.
S 17 (2)
• Active Concealment- where a party believes a fact to be true and conceals it from the other
party to induce them into a contract.
• Must be read with the explanation to the provision which states that mere silence is not
fraud.
• Mere non-disclosure of immaterial facts will not affect consent.
• For example – if you lie on an insurance form about the status of your health by not
disclosing you are diabetic, then you are guilty of insurance fraud.
S 17 (3)
• Promise without an intention of performing it-
• Promises are generally believed to have been made in good faith.
• The person making the promise is expected to perform it.
• This clause is invoked when a promisor enters a contract with no intention of performing it – at
the time the contract was made. Any subsequent representation will not be considered here.
• This rule was not technically a part of the common law doctrine.
• It is fraud to borrow a sum of money as a loan which you don’t intend to repay.
• If you rent a property and state that you will use it for a lawful purpose, but you begin using
the property for an unlawful purpose once you have possession – this would amount to
fraud.
S 17 (4) & (5)
• Clause 4-
• ‘any other act fitted to deceive’
• Inserted for the sake of caution according to Pollock & Mulla.
• Example- a party which signs an agreement with the knowledge that the other party has recorded
the agreement erroneously is guilty of fraud. The party is seeking to take advantage of the error.
Therefore, that party will not be allowed to take advantage of the agreement itself – cannot
enforce it.
• Clause 5-
• This provision applies where disclosure of certain facts is required by law. Like nutrition labels.
• Non-compliance with this legal duty amounts to fraud.
SILENCE AS FRAUD & DUTY TO
SPEAK
• Silence as Fraud:
• Silence as to facts is not always fraud.
• It is fraud when there is a duty to disclose or it is equivalent to speech.
• Willful suppression of a material fact is fraudulent..
• A duty to disclose particular defects in the goods sold or the property may be imposed by usage – silence
in this context or omission to mention the defect is fraud.
• Duty to Speak:
• There is no general duty to disclose facts that may be within the means of both parties. Each party must
obtain the necessary information about the contract themselves. A party cannot expect the other party to
supply such facts, even if the other party is aware of such ignorance. [Go back to Smith v Hughes]
• Many legal systems impose several duties of disclosure as this is a very rigid standard to apply. Common
people may not have access to many material facts unless they are disclosed.
• The duty here is a legal duty, not a moral one.
MISREPRESENTATION- COMMON
LAW
• Ordinarily, the failure to disclose even a material fact that may impact a party’s decision to enter a contract
cannot be used as a reason to avoid the contract.
• Parties are expected to look out for their own interests and acquire relevant information about the contract
and its circumstances.
• For example- if a party is entering a contract to export bananas from India to China and there is an embargo in
China on all goods from India, the party is expected to acquire this information on their own.
• There are some exceptions to the general rule that parties are responsible for acquiring all relevant
information related to the contract.
• A misleading statement or a misrepresentation is viewed differently. This is usually a deliberate act by one
contracting party.
• In such situations the general rule about information does not apply.
• At common law, a misrepresentation renders the contract voidable. In certain situations, a misrepresentation
can also give rise to claim of damages.
MISREPRESENTATION- COMMON
LAW
• Puffs, Representations and Terms-
• An extravagant statement or an excessively commendatory statement that is vague does not necessarily attract liability.
[But, see Vokes v Arthur Murray]
• A mere preliminary statement that neither party intends to have contractual effect will not give rise to a
misrepresentation.
• The third category is ‘terms’ of a contract. A representation/misrepresentation may also be included as a contractual term.
• A misrepresentation is a false statement about current or past facts, or the law that is made by one party which
induces the other party to enter a contract.
• There must be a false representation – some positive statement or conduct from which a statement can be implied. The
representor must actively do something to bring about consent to a contract.
• Partial non-disclosure or concealment- in some cases, a partial non-disclosure may constitute misrepresentation. Active
concealment also constitutes misrepresentation.
• Change in facts- if the representator makes a statement which subsequently becomes false, but the representor has
knowledge of the change of fact, then the representation is treated as a continuing representation which then constitutes
misrepresentation.
MISREPRESENTATION COMMON
LAW
• An opinion is not a misrepresentation – but this is contested. In Bisset v Wlikinson, the court held that
an opinion does not constitute a misrepresentation. But, we will see the exception to this general rule
in Esso Petroleum v Mardon.
• Representation of law- usually, misrepresentations about the law will not render the contract voidable.
• There have been instances where the courts have found it difficult to distinguish whether the representation
was related to fact or law. For example, if a party claims that the house they are about to rent out is ‘new’
under the Rents Act – it is difficult to treat this as a representation of fact alone.
• However, in Kleinworth Benson Lts v Lincoln CC, the court held that the distinction between mistake of law
and fact is no longer valid. This logic has also been applied to misrepresentations of law – remedy may now
be available for such a misrepresentation.
• The representation must be addressed to the party who was misled directly.
• The misrepresentation must induce consent to the contract.
• It must be material to the consent of the other party.
• The misled party has to be influenced into the contract by the misrepresentation that was made.
MISREPRESENTATION – COMMON
LAW
• Misrepresentations are categorized as fraudulent, negligent or innocent.
• Fraudulent misrepresentations renders the contract voidable and also allows the party to file an action for damages for deceit.
• Fraudulent misrepresentations are statements that are intended to deceive the misled party to influence them into a contract.
• Negligent misrepresentations are statements that are made in a negligent manner in an unjustified manner. This claim emerges
when the defendant owes the plaintiff a duty of care, not otherwise – Derry v Peek.
• But, in Hedley v Byrne, the PC held that advice given in the course of social relationships will not attract negligent misrepresentation.
It was also held that there is no general duty of care unless the person who misleads has a special skill or competence, like a solicitor
or an accountant advising in their domains of expertise.
• In Esso Petroleum v Mardon it was held that a duty of care may exist between contracting parties where one party has given specific
information in connection with the contract.
• Innocent misrepresentation- there is no element of fraud or negligence in such misrepresentations.
• The plaintiff must have relied on the information and
• that the representation was untrue; and
• The plaintiff must show that their consent was induced by the representation made.
• An executed contract cannot be set aside for innocent misrepresentation.
SECTION 18- MISREPRESENTATION
• “ ‘Misrepresentation’ defined.- ‘Misrepresentation’ means and includes-

(1) The positive assertion, in any 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 to 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.”
S 18
• Misrepresentation under the ICA falls under 3 categories-
• A false statement of fact which the maker believes to be true, but the statement is not justified by the information they possess;
• A breach of duty (without an intention to deceive) by one party which results in the party gaining advantage by misleading the
other to a disadvantage;
• Causing a party to make a mistake about the substance of the contract, though innocent.
• S 18 (1) refers to any positive assertion which deals with a statement of fact which leads to certain inferences and
induces consent. For example- if, at an auction, the officers of the government state that 15 tonnes of wheat is being
auctioned and later is turns out that there were only 13 tonnes – such a case would attract S 18 (1) because there is a
mistake about fact- the quantity up for sale.
• S 18 (2) deals with cases of ‘constructive fraud’ where there is no intention of deceiving a party, but the circumstances
are such that the representor derives a benefit from the transaction. In such cases, the representor is equally answerable
as if they had acted on motives of deceit. Oriental Bank Corporation v John Flemming [(1879) ILR 3 Bom 242].
• This clause covers concealment of material facts.
• It also includes cases where a true statement that is made later turns out to be false before it has been acted upon.
S 18
• Duty of Disclosure- the general rule is that mere non-disclosure does not constitute misrepresentation. There is
no general duty upon parties to disclose material facts to each other.
• There must be an active misstatement of facts or partial/fragmented statements about facts. The information that is
withheld must make the representation false.
• For example- a professional driver who tries to work for a cab company withholds information that his license was cancelled for
a driving offence, but informs the company that he has 18 years experience of driving. This would amount to misrepresentation.
• If there is a fiduciary relationship, the person in whom trust is reposed, is expected to act in good faith and also
diligently. They owe it to the other party to make full disclosure of all material facts known to them. Therefore, if a
lawyer provides careless advice to a client, this would attract misrepresentation.
• In certain situations, the knowledge of all material terms rests only with one party. In these cases, the party with the
knowledge of material facts has a duty of full disclosure to the other party. Such contracts are known as ‘uberrimae
fidei’ contracts.
• Contracts of partnerships, fiduciary relationships and contracts of insurance are examples of such agreements where the duty to
disclose exists.
• The duty to disclose applies to ‘material facts’. Not every misrepresentation attracts voidability. A representation is ‘material’
when a reasonable man would have been influenced by it while providing consent to the contract – Bhagwani Bai v LIC.
S 18
• S 18 (3) deals with innocent misrepresentations. When a party executes a document under a
mistake as to the subject matter of the contract based on an innocent misrepresentation, S 18
(3) is attracted.
• Non est factum would apply in cases where there is a mistaken belief about the document and a
misrepresentation about the contents of the document.
• Non est factum- where the misrepresentation is merely about the contents of the document, the
transaction becomes voidable. But, where non est factum relates to the nature and character of
the transaction itself, then the transaction is void.
VOKES V MURRAY
• In this case a Audrey Vokes took dance lessons from Murray who worked at a dance studio. The instructor
(Murray) induced Audrey’s consent into 14 contracts for courses at the studio by exaggerating her dancing
abilities and promising her that she would be a very good dancer who could become a performing artist.
• Audrey ended up spending around $31000 for the courses. They made false representations that she was
improving and had excellent potential. In truth, she had not developed her dancing ability. This was known to
Murray. Audrey Vokes brought a suit against the studio, Murray and the owner for misrepresentation. The
defendants claimed that this was their opinion or an expectation and therefore it did not amount to a
misrepresentation.
• The court held that under normal circumstances, it is true that a misrepresentation must be more than an
opinion, however this doesn’t apply to cases where there is a fiduciary relationship, or where parties do not
deal at ‘arm’s length’. Here, the representee does not have equal opportunity to know the truth of the fact being
represented. The defendants had superior knowledge about Audrey Vokes’ potential as a dancer.
• Unnecessary praise showered upon her to make her enter subsequent contracts amounts to misrepresentation in
this case as they did not tell her the whole truth about her potential as a dancer.
ESSO PETROLEUM V MARDON
• Esso Petroleum Company found a site for a filling station on a busy road. Mr Leith, an employee of Esso with more
than 40 years’ experience in trade estimated that the throughput of petrol at the station would be around 200,000
gallons per year. Esso began construction and the local authority refused to grant permission for the filling station
being built on the front of the property that was visible to the road. The filling station had to be built back to front.
• Mr Mardon, a prospective tenant was interviewed by Esso in 1963 and Mr Leith told him about the estimated
throughput. Mr Mardon agreed to a tenancy of £2500 for the first two years and then £3000 for the third year. Mr
Mardon raised overdrafts and pulled all his available capital into the business. Despite this, the throughput was
about 78000 gallons of petrol. In 1964 Mardon terminated the tenancy and Esso offered him a new tenancy for
£1000 per year plus a surcharge. He entered this agreement, but continued to incur losses. He was unable to pay and
Esso cut off his supplies and sued him for recovery. Mardon claimed damages for breach of warranty on the grounds
of negligent misrepresentation.
• The court held that in this case there was a warranty because the forecast on the throughput made by Esso was sound
and it was made with reasonable skill and care employed by Esso.
• The court applied the principle from Hedley Byrne v Heller & Partners ruling that where a person who professes to
have a special skill or competence makes a representation (advice, information or opinion) with the intention of
inducing the other party to a contract, the person is under a duty to use reasonable care that the representation is
correct. Otherwise, negligent misrepresentation exists. In this case, Mr Leith’s skill was used to forecast the
throughput and this induced Mardon’s consent to the contract – negligent misrepresentation.
S 19
• ”When consent to an agreement is caused by coercion, fraud or misrepresentation, the
agreement is a contract voidable at the options of the party whose consent was so caused.
• A party to contract, whose consent was caused by fraud, or misrepresentation, may, if he
thinks fit, insist that the contract shall be performed, and that he shall be put in the position
in which he would have been if the representations made had been true.
• Exception.- If such consent caused by misrepresentation or by silence, fraudulent within the
meaning of S 17, the contract nevertheless, is not voidable, if the party whose consent was
so caused had the means of discovering the truth with ordinary diligence.
• Explanation.- A fraud or misrepresentation which did not cause the consent to a contract of
the party on whom such fraud was practiced, or to whom such misrepresentation was made,
does not render a contract voidable.”
S 19
• The section affects contracts brought about by coercion, fraud and misrepresentation.
• The original section included contracts entered by undue influence as well. In 1899, Section
19 A was inserted to empower courts to set aside contracts caused by undue influence.
• The exception states that if a party has the opportunity to discover the misrepresentation, or
fraud through ordinary means of diligence, then the agreement would not be voidable. The
party misled should be able to discover the truth by ordinary means. Anything that involves
disproportionate costs to find the truth, or where the knowledge of the truth is not ordinarily
available to the party will not be covered by the exception.
• The plaintiff must prove that the fraud or misrepresentation caused consent to the contract
for a remedy under S 19.
S 19A
• “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 party who was entitled to
avoid it has received any benefit thereunder, upon such terms and conditions as the Court
may deem fit.”
S 19 A
• A contract procured by undue influence is only voidable at the option of the party who was
under such influence.
• Once exercised, this right is exhausted. Therefore, once a promisor uses the right to avoid a
contract under S 19 A, they cannot affirm the contract at a later stage.
• This plea cannot be raised by a third party on behalf of anybody else. However, heirs of a
deceased person who was under undue influence can invoke this provision.
S 20
“Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.
Explanation.- An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not to be
deemed a mistake as to a matter of fact.”
• To render a contract void under section 20, the following conditions must be fulfilled-
• Both parties to the contract must be under a mistake;
• Mistake of fact, not mistake of law;
• Mistake should be essential to the agreement.
• The fact must be essential to the agreement. Therefore, not every error counts as a reason for voidability under S 20. Again,
erroneous expectations will not count.
• In order to have a contract set aside under S 20, both parties must be under the same mistake of fact.
• S 56 applies to cases where the agreement is otherwise valid, but is frustrated due to impossibility of performance. It does not
apply to cases that attract 20 for setting aside the contract. The difference is that under S 56 there must be an unexpected turn
of events. For S 20, it is about a common mistake.
TARSEM SINGH V SUKHMINDER
SINGH
• The price of land agreed for sale and purchase was measured by different units of measurements by
both parties. One party measured it in Bhigas and the other in kanal which led to different calculations.
• The seller refused to convey the land and the plaintiff sued for specific performance, or the return of
advance paid in lieu of the contract. The trial court awarded specific performance.
• The appellate court found that there was a mistake of an essential fact, and therefore ordered refund of
the advance paid.
• The HC upheld this decision.
• The SC held that
• Any mistake about the price would not be a matter essential to the agreement; and
• The mistake about the area of land being sold is a common mistake and attracts S 20. This is a mistake of an
essential fact as calculations of price depend on how much land is being sold.
• Ordered refund of advance paid.
SS 21
• “Effect of mistakes as to law.- A contract is not voidable because it was caused by a
mistake as to any law in force in India; but a mistake as to a law not in force in India has the
same effect as a mistake of fact.”
Thank you! Have a great semester ahead of you!

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S 15- COERCION

Let’s break the provision up!

be a threat from anyone.

unwarranted pressure to enter contracts.

standard as compared to Indian law.

• This brings out the apparent limitations of the phraseology of S 15.

• The facts in the green box were from this case.

• ‘Threats’ and ‘attempts’ are analytically distinct. ‘

• The plaintiff filed a suit for damages to the tune of Rs 10 lacs.

DURESS than benefit from it.

• S 16 defines undue influence as one in which –

advantage over the other.

mental or bodily distress.

The appellant (brother’s son) argued that it

Held (G K Mitter J):

• There is no presumption of undue influence – relying on Poosathurai v Kannappa Chettiar.

When is a person in a dominant Two elements of when undue influence

Mental Capacity Mental Distress Age

• The 1899 amendment included the doctrine of unconscionability in the statute.

1. Describe what the video is discussing.

Exploitation of the Weakness-

[POLLOCK & MULLA] •

Unfavourable attitude to Unconscionability:

‘Position to Dominate Will’ as exhausted by S 16

(3)a promise made without any intention of performing it;

(4)any other act fitted to deceive;

(5)any such act or omission as the law specially declares to be fraudulent.

• “ ‘Misrepresentation’ defined.- ‘Misrepresentation’ means and includes-

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