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Jasmeet is the Owner of a Small Scale Unit Manufacturing Detergent Soap and Powder. to Add to the Capacity of the Unit He Wanted Decide on the Question of the Validity of the Contract. - Legal Reasoning

MCQ

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Principle: A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Such a contract is void.

Facts: Jasmeet is the owner of a small scale unit manufacturing detergent soap and powder. To add to the capacity of the unit he wanted to purchase some new machinery worth Rupees fifteen lacs for which he approached a bank. Taking into account the financial position of Jasmeet and a higher risk of default associated with lending to a small scale unit; the bank manager agreed to lend the sum on 18.5% interest compounded annually even as the interest rate at which the bank lent to business houses was 12.5% on an average; the sum was to be repaid in five years. Jasmeet paid the first two installments but refused to pay any further installments citing the aforementioned principle.

Decide on the question of the validity of the contract.

Options

  • The loan contract is void.

  • Jasmeet should repay the loan at 12.5 % p.a

  • The bank should not have lent Jasmeet at a rate higher than average.

  • The loan contract is not void.

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Solution

The loan contract is not void.
The relationship between the bank manager and Jasmeet was not of such a nature that the bank manager could have exercised undue influence and forced Jasmeet to accept his terms as it was not an emergency situation for Jasmeet, hence the agreement can not be called void.

Concept: Law of Torts (Entrance Exams)
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