Affect of Undue Influence :

“When consent to an agreement is caused by undue influence, the agreement is a contract

voidable at the option of the. party whose consent was so caused. Any such contract may be set
aside either absolutely or, if the party who was entitled to avoid it has received any benefit there
under, upon such terms and conditions as the court may seem just.” (Sec. 19-A)

Illustrations (Appended to Sec. 19-A).

(a) A’s son has forged B’s name to a promissory note. B, under threat of prosecuting A ‘s son, obtains a
bond from A for the amount of the forged note. If B sues on this bond, the Court may set the
bond aside.
(b) A, a money lender, advances Rsl00 to B. an agriculturist, and by undue influence, induces B to
execute a bond for Rs200 with interest at 6 percent per month. The Court may set the bond aside,
ordering B to repay the Rs100 with such interest as may seem just.

Thus, it will be noticed that Section 19-A also declares a contract brought about by undue
influencevoidable at the option of the aggrieved party, just as section 19 so declares. In case of
a contract brought about by coercion, misrepresentation or fraud, the special feature of Section 19, is
that while in the case of rescission of a contract procured by coercion, misrepresentation or fraud, any
benefit received by the aggrieved party has to be restored under Section 64 of the Contract Act;
under Section19A, if a contract procured by undue influence is set aside, the Court has discretion to
direct the aggrieved party forrefunding the benefit whether in whole or in part or set aside the
contract without any direction for refund of benefit.

The following points must also be noted in this, connection:

(i) Lack of judgment, lack of knowledge of facts or absence of foresight are generally not by themselves
sufficient reasons for setting aside a contract on the ground of undue influence. Persuasion and
argument are also not in themselves undue influence. Undue influence implies mental and moral
coercion so as to make the consent of one of the parties to the contract without freedom.

(ii) Undue influence by a person, who is not a party to the contract, may make the contract voidable
in other words, it is not necessary that the person in a position to dominate the will of the other
 party use himself be benefited. It is sufficient If the third person m whom he is interested
isbenefited (Chirmamma vs Devenga Sangha).

Unfair or unreasonable bargains belong to the category of unconscionable transactions. These are
such transactions where as between two con-tracting parties, one is in a dominant position and
makes an exorbitant profit of the others distress -
High rate of interest.
Unconscionable bargains take place mostly in money lending transactions where moneylenders
charge high rates of interest from needy borrower. The presumption of undue influence on the
ground of high rate of interest is raised only when the following two things are proved:
1. That the moneylender was in a position to dominate the will of the borrower, and
2. That the bargain is unreasonable i.e., rate of interest is excessive without any valid
reason.

In such cases the law presumes that consent must have been obtained by undue influence and the
burden of proving that there was no undue influence lies on the creditor. It must be noted that both
the above conditions must be proved for giving rise to a presumption of undue influence. There
will be no presumption of undue influence and a transaction will not be set aside on ground of
undue influence, merely because the rate of interest is high if both the parties are, on equal
footing (i.e. none of the parties is in a position to dominate the, will of the other party) or if there
exists valid reason (like tight market conditions) for charging high rate of interest
Illustrations
(a) A being in debt ,to B, the moneylender of his village, -contract 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
[Illustration (c) to Section 16].
(b) A poor Hindu widow borrowed Rs 1,500 ;from a moneylender at 100 per cent per annum rate of
interest for the purpose of enabling her to establish her right to maintenance. It lies on the
moneylender to prove that there was no undue influ-ence (Rannee Annapurni vs Swaminatha).