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This article is written by Ashish Sharma, a student of the Rajiv Gandhi National University of Law, Patiala who discusses free consent as a ground of valid contract and also analyses the consequence of a contract vitiated by free consent.

Introduction

According to Section 10 of the Indian Contract Act, free consent of the parties is an essential requirement for the formation of a valid contract. If the consent of parties is not freely given then it will not constitute a valid contract and hence it will follow the saying “all contracts are agreements but all agreements are not contracts”.

For instance, if ‘A’ gives rupees 1000 to ‘B’ to kill ‘C’. There is an agreement between the parties but not a contract since it is unlawful. So, an agreement will only constitute a contract when it follows the requirements mentioned under section 10.

Section 14 of the Indian Contract Act defines free consent. According to section 14, “Consent is said to be free when it is not caused by :

  1. Coercion, as defined in section 15.
  2. Undue influence, as defined in section 16.
  3. Fraud, as defined in section 17.
  4. Misrepresentation, as defined in section 18.
  5. Mistake, subject to the provisions of section 20, 21 and 22.”

Where the consent of the parties to an agreement is caused by coercion, undue influence, fraud and/ or misrepresentation, the agreement is voidable at the option of the party whose consent was so caused.

For example, if a person is induced to give consent to an agreement with a pistol loaded on his head then it is at the option of such party to accept or reject it. If he accepts it then the contract is binding on him. Meaning of voidable contract is defined under Section 2(i) which reads as, “an agreement which is enforceable by law at the option of one or more parties, but not at the option of other, is a voidable contract.”

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Coercion

Coercion is defined under section 15 of the Indian Contract Act. An agreement whose consent is induced by coercion is voidable at the option of the party whose consent was so obtained. Section 15 reads as, “Coercion is committing or threatening to commit any act forbidden by the Indian Penal Code, or the unlawful detaining or threatening to detain any property to the prejudice of any person, with the intention of inducing such person to an agreement” For the application of section 15 it is immaterial whether the Indian Penal Code is in force in the place where the coercion is employed.

For example, if  A on board an English ship on the high seas, causes B to enter into an agreement by the act amounting to criminal intimidation under the Indian Penal Code. B can avoid the contract or accept it.

It is not necessary that the coercion is to be employed by the contracting parties or to be employed upon the contracting parties. It can be exercised upon the close relatives of the contracting parties such as son, wife, mother and can be exercised by the stranger of which the party has knowledge.

Techniques of causing coercion

Consent is said to be caused by coercion when it is caused by the following techniques:

  1. Committing or threatening to commit any act forbidden by the Indian Penal Code.
  2. Unlawfully detaining or threatening to detain any property.

Indian Law and English Law comparison

Coercion is known as Duress in English Law. Duress is committed when there is an actual or direct application of violence or force upon the contracting party or his wife, parent or child, by the other party or by anyone acting with his knowledge. So coercion, as defined under section 15 of the Indian Contract Act, is much wider than the Duress under English law.

Major Case Laws

  • Chikham Amiraju v. Chikham Seshamma:(1) In this case, a Hindu by the threat of suicide induced his wife and son to execute a release of several properties in favour of his brother which they claimed their own. It was held that the threat of suicide amounts to coercion and the release deed due to the application of section 15 is therefore voidable.
  • Askari Mirza v. Bibi Jai kishori:(2) A criminal prosecution was instituted against a person and fearing the result of prosecution, he entered into an agreement in consideration of the other party abandoning the prosecution. It was held that the threat of criminal prosecution is not per se an act forbidden by the Indian Penal Code. Hence, consent is valid.

Undue Influence

Section 16 of the Indian Contract Act defines undue influence. If the consent of any party is caused by undue influence then it is voidable at the option of the party whose consent was so obtained. Section 16 reads as follows.

(1) A contract is said to be induced by undue influence where the relations subsisting the parties are such that one of the parties is in apposition to dominate the will of the other and uses the position to obtain an unfair advantage over the other.

(2) In particular and without prejudice to the generality of the foregoing principle a person is deemed to be in a position to dominate the will of another:

  1. Where he holds a real or apparent authority over the other or is in a fiduciary relation to others.
  2. 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.

(3) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction on the face appears on the face to be unconscionable, the burden of proving that such contract was not influenced by undue influence shall lie upon a person in a position to dominate the will of another.”

In common parlance, undue influence is often confused with coercion or duress but law draws a distinction and provides that undue influence is said to be a subtle species of fraud whereby mastery is obtained over the mind of the individuals by seductive and deceiving approaches.

Duress occurs when there is a physical compulsion or there is direct use of force upon the person or there is a threat to a person’s life. In contrast to duress, undue influence may exist with or without the force or threat to a person’s life. It depends upon the existence of a relationship between the parties which while it continues produces a natural influence over another.

For instance, ‘A’ advance a sum of money to his son ‘B’ in his age of minority, and uses his parental influence over his son to sign a bond of a greater amount of sum due in respect of the advance. “A” uses undue influence in this case as father and son relationship is a fiduciary relationship and there is natural confidence between both which ‘A’ abuses by making his son sign a bond.

Relations which involve domination

All cases where there are active trust and confidence between the parties and both the parties are not on equal footing.  The principle of undue influence applies to all the cases where influence is acquired and abused, where confidence is betrayed. It applies to all the relations where domination can be exercised by one party over another i.e. where exists a real or apparent authority (boss and employee) or fiduciary relationships such as parent and child, doctor and patient, etc.

Presumption of undue influence

There are some cases in which the Honourable Courts presume the existence of undue influence between the parties.

  1. Where one of the parties to a contract is in a position to dominate the will of other and contract is prima facie unconscionable i.e. unfair, the court presumes the existence of undue influence in such cases.
  2. Where one of the parties to a contract is a pardanashin woman, the contract is presumed to be induced by undue influence. In relation to pardanashin women, Bombay High Court made an opinion that a woman becomes pardanashin not because she is in a seclusion of some degree but it means a woman who is totally secluded from the ordinary social intercourse.

Major case laws

  • Mannu Singh v Umadat Pande:(3) In this case, a spiritual leader induced the plaintiff (his devotee) to gift him the whole property to get benefits of the soul in the next world. it was held that the consent is obtained by undue influence and hence, it is voidable by the person whose consent was so induced.
  • Williams v Bayley:(4) In this case, a son forged the signature of his father on certain promissory notes and paid them into his account. When the truth came to light, the bank manager threatened to prosecute the son. To avert this, father mortgaged his property to the bank manager. House of Lords said that father gave his consent under influence and held the agreement voidable.

Fraud

Basically, fraud is the intentional suppression or misrepresentation of true facts. Fraud in Indian laws is defined under section 17 of the Indian Contract Act. According to section 17 fraud means as follows.

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

(1) The suggestion, as a fact 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 of the fact.

(3) A promise made without the intention of performing it.

(4) Any other act to deceive.

(5) Any such act or omission which law specifically declares to be a fraud.

Explanation: Mere Silence to facts likely to affect the willingness of a person enters into a contract is not fraud unless the circumstances are such that a person has a duty to speak.

Illustrations

(1) A person covered the injury of his horse by colouring and covering it with blinkers before putting it to sale. He did not tell the purchases about the injury. By doing this he committed fraud as there was active concealment of facts which was in his knowledge.

(2) ‘A’ sells, by auction his horse who he knows is unsound but ‘A’ says nothing to ‘B’ about the unsoundness of horse. This is not fraud by A as mere silence about the facts is not considered as fraud.

Mere silence to facts is no fraud

Mere silence to facts is not fraud ordinarily even if it results in the concealment of facts likely to affect the willingness of a person to enter into a contract. Both the contracting parties are not under any obligation to disclose the whole truth to the other party or other information which may affect the subject matter of the contract. But this principle does not apply to all the cases. Silence may become deceptive when there is a duty to speak (cases of uberrima fides), where silence is deceptive, change of circumstances and half-truths.

  • Duty to speak (uberrima fides): The first such case where silence amounts to fraud is when a person is under a duty to speak. A person is considered under a duty to speak where one of the contracting parties holds faith, trust and confidence in the other party. For example, father while selling a horse to his son must tell him that the horse is unsound, as the son is likely to depend upon the facts given to him by his father.
  • Where silence is deceptive: Silence of a person sometimes is equivalent to speech. A person who keeps silent knowing that his silence may be deceptive then he is considered guilty of fraud.
  • Change of circumstances: Sometimes a representation is true when it is made but with the passage of time the circumstances are not as they were before and become false. In such cases, it is the duty of the person who made the representation to communicate the change of circumstances.

For example, a legal practitioner represented to the plaintiff that his practice was worth 2000 dollars per annum. The representation was true when it was made but six months later its worth declines due to defendant’s serious illness. Here the defendant is under a duty to communicate his decline in worth after six months due to his illness.

  • Half-truths: Even if a person is under no duty to disclose the facts he may be held guilty of fraud when he voluntarily discloses half of the facts and then stops half of the way. So the non-disclosure of the remaining half will amount to fraud as by disclosing half of the fact the person is under a duty to disclose the full facts.

Major case laws

  • Derry v Peek:(5) In this case, a company issues a prospectus containing that the company is authorised by a special Act of Parliament to run trams by steam or mechanical power. But the authority was subject to the approval of the Board of Trade. The Board refused consent and consequently the company was wound up. The plaintiff who holds shares in the company sued the directors for fraud. But they were not held liable as there was no intentional misrepresentation of facts as it was a fact which they honestly believed to be true.

Misrepresentation

Misrepresentation means the suppression of the facts material to contract. Any contract in which consent of one party is induced by misrepresentation is voidable. Misrepresentation is defined in section 18 as follows.

“Misrepresentation means and includes-

(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.

(2) any breach of duty which, without intent to deceive, gains an advantage to the person committing it or anyone claiming to it, by misleading another to his prejudice;

(3) causing however innocently, a party to an agreement to make a mistake as to the substance of the thing which is subject of the agreement.”

Section 18 includes three types of misrepresentation. They are:

  • Unwarranted statements: When a person asserts that particular information is true but does not warrant it to be so, though he believes it to be true, this is a misrepresentation. A warranted statement is a statement when the person making the statement receives the information from a trustworthy source and it is not hearsay.
  • Breach of duty: Any breach of duty which brings an advantage to the person committing it by misleading the other person is a misrepresentation. This clause is intended to meet the cases of constructive fraud i.e. where there is no intention to commit fraud but the circumstances are such that the party who derives benefits is equally responsible as he had been actuated by motives of fraud or deceit.

For example, the defendant made the plaintiff to sign a deed of release of property in his favour by giving the plaintiff the impression that the deed contains the subjects which are actually settled between them.

  • Mistake about the subject matter: Causing innocently a party to an agreement to make a mistake as to the substance which is the subject matter of the agreement is a misrepresentation. Further, it should be kept in mind that misrepresentation should be of the material facts which form the basis of agreement. Misrepresentation of any subject matter which is not of much relevance will not help the person to avoid the contract. A fact is considered vital or material when it affects the decision of any reasonable person to enter into a contract or not enter into a contract.

A mere expression of opinion does not amount to representation. Even suppression of vital facts in some cases does not amount to misrepresentation if plaintiff by his reasonable diligence is able to discover the true facts.

For example, if a person went to purchase a factory and there he was told that the production capacity of the factory is 2,00,000 tons but the data shows a difference in the capacity. Here the person cannot sue for misrepresentation and avoid the contract because with reasonable diligence he can discover the facts.

Fraud and Misrepresentation

The major distinction between fraud and misrepresentation is that in a fraud a person has an intention to deceive the other party while misrepresentation can be committed if a person does not have an intention to deceive. So we can say that fraud is an intentional wrong while misrepresentation is an unintentional wrong.

Major case laws

  • Shoshi Mohun Pal Chowdhry v Nobo krishto Poddar: In this case, a person bought a quality of rice was prevented from alleging misrepresentation regarding the quality of price as he lives very near to the place where goods were lying and have a reasonable opportunity to discover the truth with reasonable diligence. So where the truth cannot be discovered with ordinary diligence, the party guilty of misrepresentation cannot rely on the defence.
  • Bindu Sharma v Ram Prakash Sharma:(6) In this case, it was held that in matters of matrimony, qualifications of a spouse is of immense importance and hiding the same can amount to misrepresentation.

Mistake

In contracts, a mistake may operate in two ways. Firstly, it may defeat the consent of the parties’ altogether and secondly, it may mislead the parties about the purpose of the contract. The cases in which consent of the parties is defeated are covered under section 13 of the Indian Contract Act.

Section 13 of the Act defines consent as, “Two or more persons are said to consent when they agree upon the same thing in the same sense.”  basically, for consent, there should be consensus ad idem. A mistake can be of fact as well of law.

If a mistake of law is of Indian law then parties cannot avoid the contract and same is the case with the mistake of fact where the mistake is unilateral. But if the mistake is of foreign law and there is a bilateral mistake of fact by the parties then the agreement is void. A void agreement is defined under section 2(g) of the Indian Contract Act. It reads as, “An agreement not enforceable by law is void agreement.

Provisions related to mistake are dealt in three sections of the Indian Contract Act (section 21,22 and 23). When the mistake of the parties does not defeat the consent but only mislead the parties section 20 of the Indian Contract Act shall apply. It reads as, “Where both the parties to an agreement are under a mistake of fact essential to the agreement, the agreement is void.”

For example, if A agrees to buy from B a certain cow but it turns out that at the time of the bargain, the cow was dead and none of the parties to contract was aware of it. Hence, in such a situation the agreement is rendered void. Section 20 will operate only when both the parties of an agreement are under a mistake and the fact about which they were under a mistake is essential to the agreement.

Section 21 of the Act emphasises upon the effect of mistake of law. It reads as “A contract is not voidable merely of the fact that it was caused by the mistake of law in India, but a mistake of law as to not in force in India has the same effect as a mistake of fact.

For example, A and B make a contract on the belief that a particular deal is barred by Indian law of limitation, the contract cannot be held voidable or void.

Section 22 of the Indian Contract Act deals with the provision where the mistake is of one of the parties to contract. It provides that, “A contract is not voidable merely because of the fact that it was caused by the mistake of the fact of one of the parties.”

What facts are essential

There cannot be an exhaustive list of facts which are essential to contract and which are not essential to contract. The importance of the facts depends upon the nature of the contract which varies in every case. Broadly, Courts have laid down certain facts which are essential to every agreement. They are as follows.

  • The identity of parties.
  • The identity and nature of the subject matter of the contract,
  • The nature and content of the promise itself.

Major case laws

  • Boulton v Jones:(7) In this case, the plaintiff has taken over the business of  Brocklehurst. The defendant used to deal with the Brocklehurst and not knowing of the purchase sent the order of certain goods to him. The order was properly completed and when the defendant came to know about the purchase he tried to avoid the contract and did not pay the fees. In this case, the defendant was held not liable as there was a  mistake about the identity which forms the core of the agreement.
  • Philiphs v Brooks ltd.:(8) In this case, a person entered into the plaintiff shop and selected some pearls and rings. While purchasing them, he misleads the plaintiff by saying he is “Sir George Bullough”. Listening to this the plaintiff pledges his rings and pearls. The plaintiff after finding that the purchases mislead him by telling his wrong identity wants to totally avoid the contract but the court held that the agreement cannot be held void but is voidable at the option of the party as its consent is obtained through fraud.

Limits of Rescission

Section 19 and 19-A specifically deals with the provision of rescission. Section 19 provides that:

Where consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is voidable at the option of the party whose consent was so caused.

Section 19 provides special provisions about the effect of fraud and misrepresentation. It says:

A party to the contract whose consent was caused by fraud and misrepresentation, may if he thinks to insist that the contract shall be performed and that he shall be put in a position if the representation is true.”

If the parties whose consent was induced by fraud or misrepresentation, they can avoid the contract or accept it but if they accept it then the contract cannot be rendered voidable.

Section 19-A of the Act specifically deals with the contract whose consent was induced by undue influence. It provides that the contract is voidable at the option of the party whose consent was obtained by undue influence.

Conclusion

It can easily be concluded from the above discussion that any agreement the consent of which is affected by coercion, undue influence, fraud and misrepresentation is voidable at the option of the party whose consent was so caused. If the party whose consent was obtained through any of these elements accepts the agreement then the agreement becomes enforceable and binding on him or he can also reject it.

While in case of mistake of the parties, parties can only avoid the contract where there is a bilateral mistake of the parties regarding the material facts of agreement and parties are under a mistake of foreign law.

Reference

  1. ILR (1918) 41 Mad 33, 36
  2. AIR (1912) 16 IC 344
  3. ILR (1888-90) 12 ALL 523
  4. (1866) LR 1 HL 200
  5. (1889) LR 14 AC 337, pp. 374
  6. AIR 1997 ALL 429
  7. (1857) 27 L.J Ex 117: 2 H&N 564: (1857) 157 ER 232
  8. (1919) 2 KB 243

 

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