Undue Influence in Contract Law Key Cases and Clas
This summary explores undue influence in contract law, distinguishing between actual and presumed influence. It analyzes leading cases, legal principles, classifications (Class 1, 2A, 2B) the requirement of manifest disadvantage in equitable claims.
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Raghunath Prasad v Sarju Prasad 1
Raghunath Prasad v Sarju Prasad
Issue
Whether the contract between the parties is induced by undue influence?
Facts:
The dispute involved joint family property owners, Raghunath Prasad and
his son Sarju Prasad. The latter, facing legal issues, mortgaged
properties to his father, borrowing ten thousand rupees at 24%
compound interest. Alleging undue influence, Sarju Prasad contended
that exorbitant interest rates took advantage of his mental distress.
Held ( -ve )
The Court held that the plaintiff was unable to prove that the defendant
dominated his position, and the contract was induced by the undue
influenced. Hence, the conditions of the three steps process are not
fulfdled.
Tj2£ a?¥?i interest rate fi’o m date of the execution.
Thus, essentially, three things/steps:
1. In a position to dominate
2. Uses that position to obtain contract
3. The burden of proving it was not undue influence falls on the one
accused of it
* "In a position to dominate---------" has been categorised into----------two .
Raghunath Prasad v Sarju Prasad
Issue
Whether the contract between the parties is induced by undue influence?
Facts:
The dispute involved joint family property owners, Raghunath Prasad and
his son Sarju Prasad. The latter, facing legal issues, mortgaged
properties to his father, borrowing ten thousand rupees at 24%
compound interest. Alleging undue influence, Sarju Prasad contended
that exorbitant interest rates took advantage of his mental distress.
Held ( -ve )
The Court held that the plaintiff was unable to prove that the defendant
dominated his position, and the contract was induced by the undue
influenced. Hence, the conditions of the three steps process are not
fulfdled.
Tj2£ a?¥?i interest rate fi’o m date of the execution.
Thus, essentially, three things/steps:
1. In a position to dominate
2. Uses that position to obtain contract
3. The burden of proving it was not undue influence falls on the one
accused of it
* "In a position to dominate---------" has been categorised into----------two .
Polygram Records Sdn Bhd v The Search
Facts
The defendant had previously signed a contract with the plaintiff to have
exclusive recording rights for the defendants. However, at the end of
1987, the group decided to record an album under a new company, Go-
Search, a company that was incorporated by the defendants' themselves.
This caused the plaintiff to take action against the defendants for breach
of contract.
Held
The plaintiff was in a position of trust and confidence and could influence
the defendants into the second contract, the claim of undue influence
failed.
Ratio decidendi:
In cases of presumed undue influence, the defendants needed to
establish manifest disadvantage or prove that the contract was
unconscionable, and they could not do so. This is connected to s28 of the
Contracts Act and the case of Bank of Credit and Commerce
International SA v Aboody
Legal principle:
1. relationship of trust and confidence /
2. proof of manifest disadvantage X Fl Failed UI
A presumption of undue influence may arise from a relationship of trust and
confidence where one party can dominate the will of another. However, this
presumption is likely to fail without proof of manifest disadvantage or an
unconscionable contract --------------------------------------------------------------
Case Review - Polygram Records Sdn Bhd v The Search.pdf
Facts
The defendant had previously signed a contract with the plaintiff to have
exclusive recording rights for the defendants. However, at the end of
1987, the group decided to record an album under a new company, Go-
Search, a company that was incorporated by the defendants' themselves.
This caused the plaintiff to take action against the defendants for breach
of contract.
Held
The plaintiff was in a position of trust and confidence and could influence
the defendants into the second contract, the claim of undue influence
failed.
Ratio decidendi:
In cases of presumed undue influence, the defendants needed to
establish manifest disadvantage or prove that the contract was
unconscionable, and they could not do so. This is connected to s28 of the
Contracts Act and the case of Bank of Credit and Commerce
International SA v Aboody
Legal principle:
1. relationship of trust and confidence /
2. proof of manifest disadvantage X Fl Failed UI
A presumption of undue influence may arise from a relationship of trust and
confidence where one party can dominate the will of another. However, this
presumption is likely to fail without proof of manifest disadvantage or an
unconscionable contract --------------------------------------------------------------
Case Review - Polygram Records Sdn Bhd v The Search.pdf
Common law classification are:
1. Direct/Actual undue influence
□ Directly influences a person
2. Presumed undue influence
□ It is presumed that the person had been influenced due to the
relationship
□ It is rebuttable
□ This appears to be reflected under s.16
□ However, there appears to be a 'new' classification of Undue Influence
Undue Influence in Contract Law _________
Class 1: Actual Undue Influence
□ Definition: The claimant must prove that the wrongdoer exerted
undue influence to induce the transaction.
□ Key elements:
1. Affirmative proof is required—mere suspicion is not enough.
2. Direct evidence of coercion, pressure, or manipulation is
necessary.
□ Application in PBQs:
o Look for explicit actions by the wrongdoer (e.g., threats,
pressure, manipulation).
o Identify whether the complainant was deprived of free will.
o The burden of proof is on the claimant.
Class 2: Presumed Undue Influence
□ Definition: The claimant only needs to show a relationship of
trust and confidence, leading to a presumption of undue
influence.
□ Key elements:
o No need to prove actual coercion.
o Two subcategories:
□ Class 2A (Automatic presumption)
□ Class 2B (Factual presumption)
Class 2A: Presumed Undue Influence (Certain Relationships)
1. Direct/Actual undue influence
□ Directly influences a person
2. Presumed undue influence
□ It is presumed that the person had been influenced due to the
relationship
□ It is rebuttable
□ This appears to be reflected under s.16
□ However, there appears to be a 'new' classification of Undue Influence
Undue Influence in Contract Law _________
Class 1: Actual Undue Influence
□ Definition: The claimant must prove that the wrongdoer exerted
undue influence to induce the transaction.
□ Key elements:
1. Affirmative proof is required—mere suspicion is not enough.
2. Direct evidence of coercion, pressure, or manipulation is
necessary.
□ Application in PBQs:
o Look for explicit actions by the wrongdoer (e.g., threats,
pressure, manipulation).
o Identify whether the complainant was deprived of free will.
o The burden of proof is on the claimant.
Class 2: Presumed Undue Influence
□ Definition: The claimant only needs to show a relationship of
trust and confidence, leading to a presumption of undue
influence.
□ Key elements:
o No need to prove actual coercion.
o Two subcategories:
□ Class 2A (Automatic presumption)
□ Class 2B (Factual presumption)
Class 2A: Presumed Undue Influence (Certain Relationships)
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