In this article, Sweta Mohanty, currently pursuing Online Certificate Course in Commercial Contract Drafting and Negotiation at LawSikho discusses the importance of free consent.
Introduction
In our daily lives, we come across contracts so many times without even realizing it. Be it buying goods from a shop, availing cable services or installing an app on our phone, contracts are everywhere. Contracts are an indispensable part of the business. Every transaction in some way or the other uses contracts, whether written or verbal. Contracts in India are governed by the Indian Contracts Act, 1872. The Act extends to the whole of India except the state of Jammu & Kashmir.
What is a contract?
Over the years various authors and jurists have tried to define ‘what are contracts’ but none of the definitions have satisfactorily captured the essence of a Contract. Basically, a contract is a bundle of rights and obligations binding parties to one another in exchange of some consideration. The Indian Contract Act 1872 defines contract as “An agreement which is enforceable by law is a contract”. This means that all agreements are not contracts. Only those agreements which can be enforced by law are contracts. For an agreement to be enforceable, it must satisfy certain essentials laid out by law to become valid contracts.
Essentials of a contract
Section 10 of the Indian Contract Act, 1872 provides that:
- There should be an agreement between the two parties. When a proposal by one party is accepted by the other, it becomes an agreement
- The parties entering into an agreement should be competent to contract.
- There should be a lawful consideration and a lawful object in the agreement.
- There should be free consent of the parties entering into the contract.
- The agreement must not be expressly declared void by the law.
This Article will only focus on one essential of a valid contract, which is Free Consent and its importance in Contract Law.
Consent
For a Contract to be valid, the consent of the parties must be genuine. The principle of consensus-ad-idem is followed which means that the parties entering into the contract must mean the same thing in the same sense. The parties to the contract must have the same understanding in regards to the subject matter of the contract.
Mere consent is not enough for a contract to be enforceable the consent given must be free and voluntary. The definition of Free consent is provided under the Indian Contracts Act is Consent that is free from Coercion, Undue Influence, Fraud, Misrepresentation or Mistake. Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake.
Clearly, Free Consent means the absence of any kind of coercion, undue influence, fraud, misrepresentation or mistake. When the consent which is given is affected by these elements it calls into question whether the consent given was free and voluntary. The objective of this principle is to ensure that judgment of the parties while entering into the contract wasn’t clouded. Therefore consent given under coercion, undue influence, fraud, misrepresentation or mistake has the potential to invalidate the contract.
Factors which invalidate consent
As stated above, consent given by a party must be absent of:
Coercion
According to the Indian Contracts Act, 1872, coercion is defined as:
“‘Coercion’ is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860) or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.”
A point to be remembered is that it is not necessary that the IPC is applicable at the place the consent was obtained. A very crucial part of the law is the phrase “to the prejudice of any person whatever” which means the coercion could be directed against the prejudice of any person and not just the party to the contract. It is also not necessary that only the party to the contract causes the coercion. Even a third party to the contract can cause coercion to obtain the consent, as was seen in the case of Ranganayakamma v. Alwar Sethi where a widow was coerced into adopting a boy by the boy’s parents by not allowing the corpse of the widow’s husband to be removed from the home until the adoption is made.
The burden of proof in cases of coercion lies on the party whose consent was coerced. When consent of a party was obtained through coercion, the contract becomes voidable at the option of the party whose consent was so obtained.
Undue Influence
When the parties to the contract are in relationships in such a way that one party can dominate the will of the other and uses the unfair advantage so gained to obtain the consent of the other party, then the consent is said to have been obtained by undue influence. Now, the Contract Act 1872 also provides instances where a person can dominate the will of another. These instances are:
- Where a person has a real or apparent authority over the other.
- Where a person has a fiduciary relationship with the other.
- Where a person enters into a contract with another whose mental capacity is affected, either temporarily or permanently.
When a party who in a position to dominate the will of the other, enter into a contract and the contract prima facie appears to unconscionable, then it is the burden of the party who in a position to dominate, to prove that consent has not been obtained by undue influence.
When the consent of the party to the contract has been obtained through undue influence, then the contract becomes voidable at the option of the party whose consent has been so obtained.
Fraud
Consent is not said to be free when it has been obtained by means of fraud. In such cases, the contract becomes voidable at the option of the party whose consent was obtained by means of fraud. Moreover, fraud is also a tort where action for damages can lie. The Indian Contract Act, 1872 gives the definition of the term ‘Fraud’. The law provides five acts which when committed either by the party or with his assistance or by his agent, with the intention to deceive the other party, amounts to fraud. Those acts are as follows:
- A suggestion, as to a fact which is false, by a party who believes it to be false.
- An active concealment of a fact by a party
- A promise made without any intention of fulfilling it.
- Any other act which can deceive.
- Any act or omission which the law specifically provides to be fraudulent.
Mere silence about facts which can affect the willingness of a person to enter into a contract does not amount to fraud, but if there is a duty to speak upon the person who is keeping silent, then it becomes a fraud. Example of such cases is Contracts Uberrima fides, also known as Contracts of Utmost good faith where full disclosure is expected.
The burden of proof in cases of fraud lies on the party who alleges it. The party has to prove the circumstances which can lead to the existence of fraud. Merely making a mention of fraud in the pleadings is not enough. If the party, whose consent has been obtained through fraud, had the opportunity or means to discover the truth with ordinary diligence, then the contract will not be void.
Misrepresentation
Misrepresentation under the Indian Contract Act, 1872 has an exhaustive definition and can be divided into 3 types.
- The first type is when a statement is made by a person, about a fact which is not true, though he believes it to be true.
- Second is the type when there is a breach of duty by a person who is making the false statement and he gains some kind of advantage even though it wasn’t his intention to deceive the other party.
- The third is the type where if one party acting innocently, causes the other party to make any mistake with regards to the subject matter of the agreement.
As can be seen from above, the three types of misrepresentation have one very important thing in common, the intention of the party which misrepresents is innocent; it is not to deceive the other party into entering the contract. The intention of the party who makes the false statement is the difference between misrepresentation and fraud.
The burden lies on the party claiming misrepresentation to avoid the contract to prove that misrepresentation was used to obtain the consent. When consent was obtained through misrepresentation, it becomes voidable at the option of the party whose consent was so obtained.
Mistake
When one of the parties has given its consent to the contract under some kind of misunderstanding then the consent is said to be have been given by mistake. If it wasn’t for the misunderstanding the party would not have entered into the agreement. Under contract law, a mistake can of two kinds: 1) Mistake of Law and 2) Mistake of Fact.
Mistake of Law
When the party has any misunderstanding with regards to the legal provisions, it is called Mistake of Law. Now, the party can be confused regarding the law of the Homeland or law of a foreign land. If it is a mistake regarding the law of the homeland, the contract cannot be avoided. The party cannot take the plea of having no knowledge of laws of his homeland. But if it is a mistake regarding the law of a foreign country, he can be excused.
Mistake of Fact
When the parties have any misunderstanding regarding the subject matter or terms of the contract, it is said to be a Mistake of fact. The misunderstanding can be on the part of one party or both of them.
Bilateral Mistake – When both the parties are under any misunderstanding/mistake relating to a matter of fact essential to the agreement, the agreement becomes void.
Unilateral Mistake – When the misunderstanding/mistake is on the part of one party to the contract, the agreement remains valid. Only when the party is mistaken about the parties to agreement or nature of the transaction, the agreement becomes void.
Conclusion
Free Consent is absolutely essential to make an agreement a valid contract. The importance of free consent cannot be stressed enough. Consent of the parties to the contract must be free and voluntarily. Consent to the contract has to be given without any kind of pressure or delusions. It is important that the consent given by the parties is free as this can affect the validity of the contract. If the consent to the agreement was obtained or induced by coercion, undue influence, fraud, misrepresentation or mistake, then it has the potential to make the agreement void.
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