Free Consent For Contract

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Introduction

Free consent of all the parties to a contract is

an essential of a valid contract as per

requirement of section 10.

When there is no consent at all, the agreement

is void ab-initio, i.e. it is not enforceable at the

option of either party.

Consent defined: two or more person are said

to consent when they agree upon the same

thing in same sense ( sec 13).

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Consent Is Not Free When It Is

Caused By:

COERCION

UNDUE INFLUENCE

FRAUD

MIS REPRESENTATION

MISTAKE

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COERCION

In simple words, coercion is threat or force used by

one party against another for compelling him to

enter into an agreement.

Section 15 of Indian Contract Act defines coercion

as the committing or threatening to commit any act

forbidden by the Indian Penal Code or an unlawful

detaining or threatening to detain, any property to

the prejudice of any person with the intention of

inducing any person to enter into an agreement.

Consent obtained at the point of pistol or intimidation,

threat of imprisonment and threat to commit suicide with

the intention of causing a person to enter into an

agreement is an act of coercion.4 Ruby Sharma

Essentials of Coercion

There must be clear threat.

The threat should be to commit an act forbidden

by law.

It must be uttered with the intention of causing the

other party to enter into an agreement.

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Types of Coercion Threat to file a suit-A threat to file a suit does not amount

to coercion unless the suit is on false charge. Threat to

file a suit on false charge is an forbidden by the Indian

Penal Code and thus will amount to ant act of coercion.

Threat to commit Suicide.

Effect of Coercion

Section 19 provides that an agreement consent to which is

obtained by coercion is voidable at the option of the party

whose consent is so obtained.

Burden of proof : it lies on the party who wants to set aside

the contract on the plea of coercion.

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Undue Influence

Section 16(1) provides that “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 the

position to obtain an unfair advantage over

the other.”

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A person is deemed to be in a

position to dominate the will of

another:

Where he holds a real or apparent authority over

the other e.g. relationship between master and

servant, public officer and accused, income tax

officer in relation an assessee.

Where he stands in a fiduciary relationship to the

other. Fiduciary relation means a relation of

mutual trust and confidence. like father and

son, guardian and ward, solicitor and

client, doctor and patient, trustee and beneficiary.

Where he makes a contract with a person whose

mental capacity is temporarily or permanently

affected by reason of age, illness or mental or

bodily distress.8 Ruby Sharma

Effect of Undue Influence

When consent to an agreement is caused by undue

influence , the agreement is a contract voidable at the

option of the party whose consent was so caused. Such

contract may be set aside either absolutely or subject to

restitution of the benefit there under or upon such

condition as the court may deem just.(section 19 (A)).

Pardanashin Ladies-A paranashin women is one who

lives in seclusion having no communication except from

behind the pardah with any male person except a few

privileged relations.

Law provides special protection to them on the ground of

their being ignorant so far as the worldly knowledge

goes. A contract with them is presumed to have been

induced by undue influence unless the other party show

that it was her intelligent and voluntary act.

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Undue Influence is suspected when:

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Inequality between the parties

Inadequacy of consideration

Fiduciary relationship

Unfair bargain

Pardanashin Women

Difference between coercion and

undue influence

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Basis Coercion Undue influence

Obtaining the

consent

By committing or

threatening to

commit an

offence

By dominating the

other party

Type of force Physical Mental or moral

Presumption Not presumed by

court, party have

prove it.

It can be

presumed as

other party is in

dominating

position

Nature of liability Criminal liability Not criminal

liability

FRAUD

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Section 17 of Indian Contract Act, 1872 defines “Fraud'.

"Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto of his agent, or to induce him to enter into the contract:-

(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true ;

(2) the active concealment of a fact by one having knowledge or belief of the fact ;

(3) a promise made without any intention of performing it

(4) any other act fitted to deceive ;

(5) any such act or omission as the law specially declares to be fraudulent.

Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.

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1.The suggestion, as a fact, of that which is not true, by one who does not believe it to be true. The leading case: Peek V. Gurney.

The prospectus of a company did not refer to the existence of a document disclosing liabilities. This created an impression that the company was prosperous. It was held that there was suppression of truth and suggestion of false statement amounting to fraud.

2. The active concealment of a fact by one having knowledge or belief of the fact-If a person conceals a fat which is material to the contract will be a case of fraud. Mere non disclosure is not fraud, where there is no duty to disclose.”Caveat Emptor” or “Buyer Beware” is the rule, but in contracts of absolute faith mere silence about material facts will be taken as fraud.

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E.g. A, horse dealer sold a mare to B.A knew that the mare had a cracked hoof, which he filled up in such a way as to defy detection. The defect was subsequently discovered by B. It was held that the agreement could be avoided by B as his consent was obtained by fraud.

A promise made without any intention of performing it is fraud.

Any other act fitted to deceive. E.g. Where a party, who by false impersonation induces another to enter into a contract with him under the belief that he is somebody else, commits fraud.

Any such act or omission as the law specially declares to be fraudulent.

Mere silence is not fraud….

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A party to the contract is under no obligation to disclose the whole truth to the other party. Caveat Emptor i.e. let the buyer beware is the rule applicable to contracts. There is no duty to speak in such cases and silence does not amount to fraud.

Silence is treated as Fraud in:

Fiduciary relationship

Contract of insurance

Contract of marriage

Contract of Family settlement

Share allotment contracts.

Effect of fraud

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When the consent to an agreement is caused by

fraud, the agreement is a voidable contract at the

option of the party whose consent was so

caused.

A party whose consent to an agreement is so

obtained has two remedies, namely:

He may rescind the contract or

He may insist that the contract shall be performed

and that he shall be put in the position in which

he would have been, if the representation made

had been true.

Misrepresentation

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The term “Misrepresentation means a false representation of fact made innocently or non-disclosure of a material fact without any intention to deceive the other party.

According to Section 18 the term misrepresentation means:

1. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true.

E.g. A on the strength of hearsay information positively asserted to B that certain third party is going to be the Director of the co. to be incorporated, bought the shares on faith of such a statement. This is case of misrepresentation by A.(Mohanlal V Shri Ganga Ji Cotton Mills co.)

Contd…………

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2.Any breach of duty, which ,without an intention to

deceive gains an advantage to the person committing

it or anyone claiming under him, by misleading

another to his prejudice or to the prejudice of anyone

claiming under him. This is known as „Constructive

fraud".

3.It also covers those cases where a statement when

made was true but subsequently before it was acted

upon, it became false to the knowledge of the person

making it .In such a case , the person making the

statement comes under an obligation to inform the

other party of the true facts.

Essentials Of Misrepresentation

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There should be a representation or assertion.

Such representation must relate to a matter of fact which

has become untrue ; and It was made before the

finalization of transaction with a view to induce the other

party to enter into a contract.

It must actually have been acted upon by the party.

It must have been made either by the party himself or by

his duly authorized agent.

Consequences of Misrepresentation- The aggrieved party

may avoid the contract, or May affirm the contract and

insist on the misrepresentation being made good.

When consent is induced by misrepresentation &

aggrieved party has the means of discovering the truth with

ordinary diligence, the contract cannot be set aside.

MISTAKE

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Mistake may be defined as an erroneous belief

concerning something. It means that parties

intending to do one thing have by intentional error

done something else.

Mistake of Law

Mistake Of Fact

MISTAKE

Mistake Law

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Mistake of Indian Law: The contract is binding

because everybody is supposed to know the law of

the country. ”A contract is not voidable because it was

caused by a mistake as to any law in force in

India”(section 21).

Mistake of Foreign Law and Mistake of Private rights

of Parties are treated as mistake of facts.

Mistake of facts:

Bilateral Mistake Unilateral

Mistake

Bilateral Mistake

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Mistake as to subject matter. It falls into six heads namely

1.Existence 2.Identity 3. Title 4. Price 5. Quantity 6.Quality

When both the parties to an agreement are under amistake as to a matter of fact, which are essential tothe agreement, and this agreement shall be Void.

Thus this mistake shall be termed as bilateralmistake of facts.

It should be committed by both the parties

It should be related to a matter of fact which areessential to the agreement.

Unilateral Mistake

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Section 22 provides that if one party alone is

under mistake of fact. Unilateral mistakes do

not affect the validity of contract unless they

concern some fundamental fact and the other

party is aware of the mistake.

1.Mistake as to identity of the person or party:

Mistake as to the identity of a person may also

avoid a contract. Where A intends to contract

only with B, but enters into a contract with C

believing him to be B, the contract is vitiated.

2.Mistake as to the nature of transaction: A blind

man signing a document, read over to him

wrongly, will not bind him.

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Case ; Foster V. Mackinnon.

A an illiterate old man, was made to put his

signature on a document which was a pronote .A

thought the document to be a will where his

signature was required as a witness. Under this

presumption hr signed the document which was

in fact a pronote. Subsequently B endorsed the

pronote to C who paid value for it in good faith. C

sued A on the pronote. It was held that A was not

bound by it.