This Case Summary is written by Shrasti Singh, a student of Shri Ramswaroop Memorial University, Lucknow
This case is a landmark judgement in Indian Contract Act, 1872 for free consent and undue influence. For valid contract, one of the main essential element is free consent. The Consent of the parties means that they understand the same thing in the same sense or meeting of the minds. In English law, this is called ‘consensus-ad-idem. Under section 13 of Indian Contract act has define the word consent means as two or more person agrees upon the same thing in the same sense. For contract to be valid it is not enough that parties have given their consent. The consent should also be free .it means it has been given by free will of the parties involving no pressure and use of force.
Section 14 of Indian Contract Act 1872, provide the concept of free consent. The contract is said to be free when it is not caused by- coercion, undue influence fraud, misrepresentation and mistake. When the contract is not free, it is treated as voidable contract at the option of the party whose consent is not free.
This case deals with the undue influence which is defined under section 16 of Indian Contract Act 1872, it means as when one party is in position to dominate the will of others and actually misuses the power, and then it is case of undue influence. To prove undue influence, the party has to establish a relation between the parties in which the other person in the power to dominate a will of other by reason of:
- A real or apparent authority for eg a factory owner exercise undue influence to employees to make a certain agreement with him, because he has power to remove the employee from job.
- Fiduciary relationship for eg Doctor and Patient Relationship.
- Mental capacity which is influenced due to reason of age, illness, mental or bodily distress. It can be either permanently or temporarily.
This case is judged by four judge bench of: Shaw, Carson, J Edge, A Ali, L Jenkin.
Fact of the Case
This case is second appeal from a decree of first appeal lie in the High Court of Judicature at Patna on November9, 1920, which change the decree passed by the Subordinate Judge of Arrah on September 25, 1917. In this case, the suit is filed for recovery of the amount of mortgage principle and interest due by Sarju Prasad Sahu to Ragunath (here petitioner). The subordinate judge passed decree in the mortgage suit but allow only simple interest but in appeal high court allowed compound interest.
The petitioner Ragunath Prasad was a member of joint undivided family along with a respondent Sarju Prasad (his son). But some difference arose and they fought over the properties. The petitioner had sued a criminal proceeding against his own son in the court of law.
In order to defend himself defendant borrowed money from the plaintiff by mortgaging his properties on May 27, 1910 and acquire ten thousand rupees at a compound interest of 24%. In the mortgage deed, it was written that the respondent will pay the interest by the 30th of the month and in case of non-payment, the interest would add on to principal and the interest would be then charged on the new principal. Due to this in Eleven year, the amount payable is magnified more the elven fold that is RS. 1,12,885.
The respondent’s contention was that the lender has taken unconscionable benefit of his mental distress by demanding him high rates of interest and therefore exercised the undue influence which make a contract voidable at option of the party whose consent is not free.
Whether the petitioner, in the circumstances proved in the case, has used undue influence or not within the provision of section 16 of Indian contract ACT 1872?
The lordship laid down clear views upon Sub-section 3 of Section 16 of the Indian Contract Act as amended. In order to determine that the person falls within the under sub-section 3 of Section 16, the lordship laid down three step process.
- In the first place, the relations between the parties to each other must be such that one is in a position to dominate the will of the other.
- Once that position is confirmed, the second stage has been reached, viz., the issue whether the contract has been induced by undue influence.
- Upon the determination of this issue a third point emerges, which is that of the onus probandi. If the transaction appear as unconscionable then burden of proving that the contract was not induced by undue influence is to lie upon the person who was in a position to dominate the will of the other.
The lordship view that this order followed in sequence otherwise error will arise. For eg: The unconscionableness of the bargain is not the first thing to be considered. The first thing to be considered is the relations of these parties. Were they such as to put one in a position to dominate the will of the other?
After taking Evidence in the case, the lordship held that the borrower failed to prove that lender was in a position to dominate his will under Section 16 of Indian Contract Act, 1872 which is first requirement to be proved. And the only relation between the parties was of lender and borrower. Hence the borrower got no relief.
The lordship have used these precedents given below:
1. Lord Davey in Dhanipal Das v. Raja Maneshar Bakhsh Singh.
2. Maneshar Bakhsh Singh v. Shadi Lal.
(While using this precedent, the court view that in present case the borrower have the full power of bargaining and he lay under no disability. The only relation between parties in this case was proved that they were lender and borrower. No prove was found to have the relation to dominate the will of other.)
3. Sundar Koer v. Sham Krishen
4. Abdul Majeed v. Khirode Chandra Pal (The Lordships dissented from the principles laid down by the Appellate Civil Court in this case while declaring the judgement).
The court upheld the decree of the High Court but varied the amount of mortgage money. The court allowed the compound interest on the principal at the rate of two per cent, from the date of the execution of the bond until September 25, 1917, and thereafter simple interest at the rate of six per cent, per annum up to the date of realization. And held that the appellant will pay the costs of the appeal.
The court in Ragunath Prasad vs Sarju Prasad case laid down three step process which will further help to determine the case fall under section16(3) of Indian Contract Act. Through this case the confusion regarding the relation between the parties to dominate the will other, undue influence and burden of proof was cleared.
The court in this case give a clear view regarding the section 16(3) of Indian Contract Act, 1872. The court laid down three-step process which should be followed in the order not otherwise which may result in error.
Even the case has unconsicousable advantage, if the petitioner does not prove the relation between him and the respondent in which one will dominate the will. The question of undue influence and unconsicousable advantage cannot be raised under section 16(3).