Rajesh applied to a banker for a loan at a time when there was stringency in the money market, the banker declined to grant the loan except at a usually high rate of interest. Rajesh accepted loan on these terms. The contract is vitiated by undue influence. Decide.
The contract is valid and enforceable and not vitiated by undue influence.
Undue influence is unfair persuasion by one party thereby influencing the mind of the other contracting party. It is the improper use of any power/authority possessed by one party over the mind of the other contracting party.
However, only when the transaction appears on the face of it or on the evidence adduced to be unconscionable, there is undue influence.
In the above case, the loan transaction by a banker at unusually high rate of interest due to stringency in the money market is in the ordinary course of banking business applicable to all customers without discrimination and further Rajesh has accepted the loan on these terms. Hence there is no undue influence in the transaction.
The facts of the case resemble illustration (d) of Sec. 16, where it is stated that the loan transaction at unusually high rate of interest is in the ordinary course of business and hence the contract is not induced by undue influence.