In order to constitute a valid contract, the contract has to be voluntary and with the free consent of the parties. As per Section 14 of the Indian Contract Act 1872, “Consent is said to be free if it is not caused or induced by coercion, undue influence, fraud, misrepresentation or mistake”. If the consent is not free & genuine, then no valid contract comes into existence. Coercion and undue influence are two such ways in which consent of a person is obtained wrongfully. While coercion uses threat or a physical force to compel a person to enter into a contract, undue influence uses the power of a person who is in a dominant position to influence the other party whose consent is sought to be taken. In this article, we are discussing the terms coercion and undue influence in detail, their effects on the legality of contracts, and the differences between them.
What is coercion?
The term coercion has been defined in Section 15 of the Act as “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.
According to the foregoing definition of coercion in Section 15, consent is considered to be obtained by coercion when it is obtained by any of the following:
- doing or threatening to do any offense prohibited by the Indian Penal Code
- unlawfully detaining or threatening to detain another person’s property
Further, the commission of any act prohibited by the Indian Penal Code constitutes coercion, even if the act is committed in a location where the Indian Penal Code is not in effect. If A tells B to execute a promissory note in his favour at the point of a pistol, and B does so to save his life, he can avoid this agreement because his consent was not free.
What does not amount to coercion?
A mere threat to prosecute or file a lawsuit against a person is not considered coercion. In the case of Andhra Sugars Ltd. V State of Andhra Pradesh A.I.R. 1968 S.C. 599, it was held that the compulsion of law is not coercion, fraud, misrepresentation, mistake, or even undue influence. Similarly, the charging of high-interest rates or high prices, etc. is also not coercion as the same is not forbidden by the Indian Penal code. However, it should be mentioned here that threat to commit suicide amounts to coercion.
Burden of proof
The party seeking to avoid the contract bears the burden of proving that consent was obtained by coercion. In other words, the aggrieved party must show that his consent was not freely given.
What is undue influence?
According to Section 16 of the Indian Contract Act, 1872, a contract is said to be produced 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”.
Going by the definition, the following two elements are found in a contract induced by undue influence:
- The relationship between the parties is such that one is in a position to dominate the will of the other, and
- The person having a dominant position uses his position to take an unfair advantage over the other.
Both the elements must be present at the same time. The absence of any will not render the contract invalid on the grounds of undue influence. Examples of undue influence may be when a son compels his father to transfer all the property to him or when an employer induces his subordinate to sign a deal against his free will.
Presumptions of undue influence: Section 16(2)
Now, a person is deemed to be in a position to dominate the will of the other when:
1. He has real or apparent control over the other or is in a fiduciary relationship with the other, such as a minor and a guardian, a trustee and a beneficiary, or a solicitor and a client. However, there is no presumption of undue influence in the relationship between a creditor and a debtor, a husband and a wife (unless the wife is a parda-nishin woman), or a landlord and a tenant. In these circumstances, the party must prove that he was subjected to undue influence; there is no presumption of undue influence.
2. He enters into a contract with a person whose mental capacity is temporarily or permanently impaired due to age, sickness, or mental or bodily stress, such as a doctor and a patient.
Burden of proof
In a case for avoiding a contract on the ground of undue influence, the plaintiff has to prove that the other party was in a position to dominate the will; and he actually used his influence to obtain the plaintiff’s consent to the contract; it will be then for the defendant to show that he has not used any undue influence and that the plaintiff freely consented.
Difference between coercion and undue influence
The consent is not free in the case of both coercion and undue influence, and the contract can be cancelled at the aggrieved party’s discretion. However, there are a few points of difference between the two. These are as follows:
Coercion is the use of force or threat to compel a person to enter into a contract. It implies committing or threatening to commit an illegal act to obtain the consent of a party.
Whereas, an undue influence is one that induces a person to act contrary to his or her own free will. A person with superior authority uses his or her power and position to obtain the consent of the weaker party to a contract.
If B does not sell his house to A, he threatens to kill his son. B agrees to sell after being threatened; this is coercion, and such consent is not free. Remember, the acts of coercion should have been carried out with the goal of compelling the other party to agree.
Further, suppose, A, a man affected by disease or old age, is persuaded by B’s influence over him as his medical attendant to agree to pay B an exorbitant sum for his professional services. In this case, B uses undue influence. B has used his superior position to gain an unfair advantage over A. Undue influence forces a person in a weaker position to do something that he would not have done if he had been free to do the things.
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Relationship between parties
In the case of coercion, any relationship between the parties is not necessary. But some sort of relationship must be there between the parties so as to exert undue influence e.g., master and servant, solicitor and client, etc.
In coercion, consent is obtained under the threat of committing an offense. Whereas no offense is committed in case of undue influence because consent is obtained by dominating the will.
Nature of pressure
Coercion involves the use of physical force or threat. While undue influence involves the use of moral pressure.
Coercion may move from even a third party; and also, the threat may be against the promisor himself or against a person in whose welfare the promisor is interested.
For example, a threat against a third party not connected to the contract directly, for example, when A forces B to sign a document threatening to damage C if B does not sign, would also constitute coercion. Similarly, the threat does not have to come from a party to the contract; it might come from a stranger, for example, A threatens to kill B if he does not sell his house to D. B agrees to sell the house to D. Despite the fact that A is a stranger to the contract, consent is obtained by coercion.
On the other hand, undue influence is employed only by a party to the contract. No third party is involved as such in exerting the influence.
Effect of coercion and effect of undue influence
Section 19 states that when consent is obtained through coercion, fraud, or misrepresentation, the agreement is voidable at the choice of the party whose consent was obtained in this manner. The aggrieved party may choose to cancel the contract. If the aggrieved party attempts to terminate the contract, he must return the benefit acquired (if any) from the other party under the contract.
Similarly, Section 19A states that when consent is obtained through undue influence, the agreement is voidable at the choice of the party whose consent was obtained in this manner. The aggrieved party may choose to cancel the contract. If the aggrieved party attempts to terminate the contract, he must return the benefit acquired (if any) from the other party under the contract, subject to such terms and conditions as the Court may deem fit. For example, A, a moneylender, lends Rs. 100 to B, an agriculturist, and by undue influence, encourages B to sign a bond for Rs. 200 at a monthly interest rate of 6%. The Court may set aside the bond, directing B to refund Rs. 100 plus any reasonable interest as may be deemed fit. The Court has the option to direct the aggrieved party to return the benefit, whether in whole or in part or to set aside the contract without any direction to return the benefit.
In short, when the contract is terminated due to coercion, any benefit received has to be restored or refunded. But when the contract is terminated on account of undue influence, it is at the discretion of the Court to direct the aggrieved party to restore the benefit.
Relevant case laws
Chikkam Ammiraju V. Chikkam Seshamma (1917) 41 Mad 33
In this case, the question arose as to whether a threat to commit suicide constitutes coercion or not. Here, a person threatened to commit suicide to his wife and son to induce them to execute a release deed over some specific property in favour of his brother. Under this threat, the wife and son executed the release deed. It was determined that “the threat of suicide amounted to coercion within the meaning of Section 15 of the Indian Contract Act of 1872, and the release deed was thus voidable.”
Marim Bibi v. Cassim Ebrahim (1939) 184 I.C. 171 (1939) A.I.R. 278
A parent has a fiduciary relationship with his child, and any transaction between them in which the parent obtains a benefit for himself or a third party at the expense of the child will be subjected to doubt by Courts of Equity, and the burden of proof will be on the parent or third-party claiming the benefit to show that the child had independent advice while entering into the transaction. And that he completely understood the nature of the transaction and was free of any undue influence when the gift was made.
In short, the differences between coercion and undue influence are summarized below:
|It involves threat or force||It involves moral pressure|
|Consent is obtained under the threat of committing an offense||Consent is obtained by dominating the will|
|Also known as Duress or Menace under English law||Also known as equitable fraud|
|Governed by Section 15 of the Indian Contract Act, 1872||Governed by Section 16 of the Indian Contract Act, 1872|
|A relationship between the parties is not necessary||Some relationship between the parties exists|
|Coercion may move from even a third party||Undue influence is employed only by a party to the contract.|
|Upon cancellation of the contract, the benefit received has to be restored or refunded.||It is at the discretion of the Court to direct the aggrieved party to restore the benefit.|
|No presumptions under law||Law prescribes certain presumptions where a person is deemed to have a dominant position over the other.|
|Involves any act forbidden by the Indian Penal Code||Does not attract the Indian Penal Code|
|The burden of proof lies on the aggrieved party||The burden of proof ultimately lies on the person having a dominant position|
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