Coercion vs. Undue Influence in Contracts

Distinguishing Coercion and Undue Influence under the Indian Contract Act, 1872

The Indian Contract Act, 1872, meticulously differentiates between coercion and undue influence, treating them as distinct factors that impair the freeness of consent. This distinction is vital as it impacts the remedies available and the burden of proof.

Coercion (Section 15 of the Indian Contract Act, 1872)

Section 15 defines "coercion" as:

• Committing or threatening to commit any act forbidden by the Indian Penal Code (IPC), 1860.
• Unlawful detaining or threatening to detain any property, to the prejudice of any person whatever.

The intention behind such acts must be to cause any person to enter into an agreement. It is immaterial whether the IPC is in force in the place where the coercion is employed. Coercion essentially involves the use or threat of physical force, criminal acts, or illegal detention of property to compel a person into a contract. The pressure exerted is typically external and tangible.

Example: A threatens to kill B if B does not sell his house to C. Here, A employs coercion, and the contract between B and C would be voidable at B's option.

Undue Influence (Section 16 of the Indian Contract Act, 1872)

Section 16(1) defines "undue influence" as occurring when:

"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."

Unlike coercion, undue influence is subtle and operates on the mind of the influenced party. It does not involve physical threats but rather exploits an existing relationship where one party holds a dominant position, often due to trust, authority, or a specific vulnerability of the other party.

Section 16(2) further clarifies when a person is deemed to be in a position to dominate the will of another:

• Where he holds a real or apparent authority over the other.
• Where he stands in a fiduciary relation to the other.
• Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

Example: A spiritual guru induces his disciple, who is severely ill and emotionally vulnerable, to gift all his property to the ashram. This could be a case of undue influence.

Key Distinctions between Coercion and Undue Influence

The following table encapsulates the fundamental differences:

Basis of Distinction	Coercion (Section 15)	Undue Influence (Section 16)
Nature of Pressure	Physical force or threat of physical force/criminal act/unlawful detention of property. It is external.	Moral, mental, or psychological pressure. It is internal and subtle.
Relationship between Parties	No pre-existing relationship is necessary. It can be exercised by a stranger to the contract.	A pre-existing relationship (fiduciary, authoritative, or one of trust) where one party dominates the will of the other is essential.
Nature of Act	Involves committing or threatening an act forbidden by the Indian Penal Code, or unlawful detention of property.	Involves the misuse of a position of dominance to gain an unfair advantage.
Criminal Liability	May amount to a criminal offence under the IPC.	Does not typically amount to a criminal offence, though it makes the contract voidable.
Intent	To compel a person to enter into an agreement.	To obtain an unfair advantage by exploiting a dominant position.
Return of Benefit	Any benefit received must be restored under Section 72 of the Act.	The court has discretion to direct the influenced party to repay or restore any benefit received, as per Section 19A.
Voidability	Contract is voidable at the option of the aggrieved party (Section 19).	Contract is voidable at the option of the aggrieved party (Section 19A).

Presumptions Raised Under the Indian Contract Act, 1872 regarding Undue Influence

While coercion requires affirmative proof of a forbidden act or threat, the law, under Section 16(3), provides for certain presumptions in cases of undue influence. This shifts the burden of proof, making it easier for the weaker party to establish undue influence.

Section 16(3) states: "Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other."

This implies that if two conditions are met:

1. One party is in a position to dominate the will of the other.
2. The contract appears to be "unconscionable" (unfair or unreasonable).

Then, the law presumes that the contract was induced by undue influence. The burden then shifts to the dominant party to prove that no undue influence was exercised and that the weaker party entered into the contract with free consent, full knowledge, and understanding. This presumption is particularly strong in certain fiduciary relationships, such as:

• Parent and child
• Guardian and ward
• Doctor and patient
• Solicitor and client
• Trustee and beneficiary
• Religious advisor and disciple

In such relationships, if the dominant party enters into a transaction with the dependent party that appears unfair, the court will readily presume undue influence. This presumption aims to protect vulnerable individuals from exploitation.

For instance, in the case of Raghunath Prasad v. Sarju Prasad (1923), the Privy Council clarified that the court must first find that the relationship between the parties allows one to dominate the other's will, and then examine if the contract is unconscionable, to raise the presumption of undue influence. Without both elements, the presumption may not apply automatically, and the onus remains on the party alleging undue influence.