WHAT HAPPENS IF A PARTY SIGNS A CONTRACT UNDER COERCION OR UNDUE INFLUENCE?

INTRODUCTION

CONTRACT FORMATION:

A contract comprises one or more actionable promises. A promise between two parties—the promisor, who makes the promise, and the promisee, who receives it—is the foundation of a contract. Regarding what should be done or not done, both parties have a common understanding and expectation. In essence, a contract is an arrangement in which two or more individuals or groups commit to specific duties. Typically, a contract is made in phases:Through discussion, idea sharing, and term suggestion, both parties engage in negotiation. Both parties offer something of value as part of the agreement, which is known as consideration. Acceptance is created once both agree on the terms; the contract is formed.

COERCION UNDER THE INDIAN CONTRACT ACT, 1872, SECTION 15

The act of forcing someone to enter into a contract by means of wrongdoing, threats of wrongdoing, or illegal detention is known as coercion. Section 15 of the Indian Contract Act, 1872, states that coercion is the use of threats or coercion to subdue someone's free will and get them to agree to terms in a contract that they don't want. This undue pressure may take many forms, including physical harm, financial threats, blackmail, emotional manipulation, or threats to one’s personal safety or reputation. Contracts established under such circumstances are considered voidable because of the absence of voluntary consent.

1. Unlawful Detaining of Property as Coercion

Consent is considered to be caused by coercion when it results from the unlawful confinement or detention of property, or from a threat to do so. “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.” This provision explicitly states that coercion is not confined to physical harm or threats; it also encompasses undue control over property, which is utilized to force another party into contractual commitments.

Compulsion of Law and Coercion

According to Section 15 of the Indian Contract Act, an action executed under legal compulsion does not constitute coercion. The law acknowledges that compliance with statutory duties or legal obligations should not be regarded as coercive behavior. This principle was firmly established by the Supreme Court in Andhra Sugar Ltd. v. State of Andhra Pradesh, where it was held that actions mandated by law do not fall within the scope of coercion. This distinction is justified by the fact that coercion entails the use of illegal threats or wrongful detention to force someone to make a commitment. On the other hand, compulsion of law results from the obligation for all people and organizations to abide by the law. Consequently, compliance with such obligations cannot be interpreted as exerting undue pressure or intimidation.

1) When Coercion Exists:

a) Detaining Property Despite Legal Right—Even if a person has a legal right to hold or detain a property, if they do so with the intention of forcing another person into acting against their will, it amounts to coercion.

b) Withholding Assets to Force Compliance—In cases where a person in control of important assets such as books, records, or money refuses to hand them over unless the other party executes a deed of discharge, such action is considered coercion. The agreement extracted under these circumstances is not free and voluntary.

c) Misusing Fiduciary Position – If a partner withholds money entrusted to them by a co-partner for the benefit of a creditor and uses this leverage to force the co-partner into executing a bond in their favor, such conduct is deemed coercion. The undue influence arising from misuse of trust renders the agreement invalid.

2) When Coercion Does Not Apply:

a) Threat to Revoke Legal Actions—A threat to retract a criminal proceeding that has already commenced unless a bond is signed does not constitute coercion, since the law permits a party to choose whether to continue or discontinue a case. Nevertheless, the initiation of fraudulent criminal proceedings with the purpose of intimidation is deemed coercive and illegal.

b) Right to Strike—When employees indicate their intention to strike, it is not considered coercion but rather an exercise of their legal rights as outlined in labor laws, including the Industrial Disputes Act. Utilizing such threats to secure improved conditions is a legitimate industrial strategy, not coercion.

c) Voluntary Payments—Payments made voluntarily to settle crimes that cannot be compounded or to resolve offenses that can be compounded should not be considered coercive. The transaction is consensual if there is no use of force or intimidation.

UNDER SECTION 16 OF THE INDIAN CONTRACT ACT, 1872

Undue influence occurs when one party uses a relationship of authority or trust to force the other into making choices that favor the influencer. Section 16 of the Indian Contract Act, 1872, articulates undue influence as a circumstance where one party, by virtue of their superior position, exercises control or takes advantage of the trust that the other party has placed in them. In these cases, the weaker party depends on the guidance of the dominant party, anticipating indifferent treatment. However, the contract may be considered voidable on the grounds of undue influence, If this trust is misused and the stronger party manipulates the decision-making process of the weaker party.

UNDUE INFLUENCE ESSENTIALS

The necessary component to establish undue influence is outlined in Subsection (1) of Section 16 of the Indian Contract Act, 1872:

· A relationship must exist between the parties such that one party is capable of dominating or controlling the will of the other;

· The dominant party must use this position to obtain an unfair advantage over the other; and

· An unfair advantage must, in fact, have been acquired.

It is well settled that in order to establish undue influence in a case of inter vivos transactions under Section 16, two critical factors must be established. First, the relationship between the parties should be such that the vendee or donee possessed the capacity to dominate the will of the vendor or donor. Secondly, the dominant party must have taken advantage of this position to secure an unfair benefit. It is inadequate to merely demonstrate that the relationship involved trust or reliance or that one party was in a position to sway the decisions of the other. The claimant is required to prove that the dominant party actually exercised this influence to obtain an improper advantage.

CONCLUSION

To safeguard the integrity of contractual relationships, the concepts of coercion and undue influence are crucial. According to legal standards, genuine consent serves as the cornerstone of a binding agreement, and any form of pressure—be it through wrongdoing, threats, or betrayal of trust—compromises this principle. To ensure that statutory compliance is not confused with undue pressure, the law differentiates between coercion and legitimate obligations. The Act aims to protect vulnerable parties from exploitation while reinforcing the principle of free will in both personal and commercial transactions by offering clear definitions of these concepts and, when necessary, establishing the burden of proof.