This article has been written by Jidnya Thakur, pursuing a Diploma in US Contract Drafting and Paralegal Studies from LawSikho.This article has been edited and published by Shashwat Kaushik.

Introduction 

When entering into a legally binding agreement, the law demands that all participating parties provide their consent freely and voluntarily. This requirement ensures that consent is not obtained through undue influence, coercion, or misrepresentation. If consent is not freely given, the agreement may be deemed voidable, meaning it can be challenged or overturned in court.

The concept of free consent is crucial in contract law to protect individuals from being taken advantage of or pressured into agreements that they do not genuinely want to enter into. Consent must be informed, meaning that all parties must have a clear understanding of the terms and conditions of the agreement. Any ambiguity or lack of clarity can lead to misunderstandings and potential disputes.

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To ensure free consent, the law requires that there be no undue influence or coercion present during the negotiation and signing of an agreement. Undue influence occurs when one party has a dominant position over the other and uses that power to manipulate or pressure them into agreeing to terms that are not in their best interests. Coercion, on the other hand, involves the use of threats or intimidation to compel someone to enter into an agreement against their will.

Additionally, misrepresentation and fraud can also invalidate consent. If one party knowingly provides false or misleading information to induce another party to enter into an agreement, that consent is not considered to be freely given. The misrepresentation can be either intentional or unintentional, but it must be material to the decision-making process for the agreement to be voidable.

Objective

The parties involved in the agreement are to be informed and voluntarily involved with consent and knowledge of the agreement formed and to be performed. Nothing abandoned or any aspect of the agreement should be executed without free consent. 

Agreement with free consent

  • As per Section 13 of the Indian Contract Act, 1872, when two or more persons agree upon the same thing in the same sense, it is said to be valid consent. 
  • As per Section 14 of the Indian Contract Act, 1872, for consent to be valid, it must be without coercion, fraud, misrepresentation, undue influence, and mistake.

Agreement without consent

As per Section 19 of the Indian Contract Act, 1872, when 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 induced.

Also, the contract is voidable at the option of the party who was so induced to cancel the agreement or enforce the contract with certain conditions.

The exception to the section is that it saves third-party rights. If they bought something related to the contract that is cancelled because of the voidability of the agreement, the third party will not face any harm from it.

Elements nullifying free consent

Coercion

Section 15 of the Indian Contract Act: Coercion is forcing and threatening someone to do something. It is likely to make a person agree upon something by creating a threat in their mind. The person under coercion starts acting as if willingly. A contract considered coercion can be cancelled.

Undue influence

 Section 16 of the Indian Contract Act: Undue influence happens when one person is in position and takes advantage of another person to make them agree to certain things to which they would not agree willingly. It mostly occurs when one is manipulating or pressuring another; such a contract can be cancelled.

Fraud

Section 17 of the Indian Contract Act: Fraud basically means the hiding of important information in the agreement. To commit such fraud, the fraudulent party may have some benefit out of it or intentionally make a false statement towards someone. Including lying statements and false promises to deliberately deceive someone. Thus, the contract can be cancelled.

Misrepresentation

Section 18 of the Indian Contract Act: Misrepresentation is something a person does to another, not as deliberately as in fraud but also by mistake, by giving false and incorrect information or hiding important aspects of the contract.

Mistake

Sections 20, 21, and 22 of the Indian Contract Act: Mistake is having unknown beliefs or assumptions in such a manner to both parties or to one party. If the contract is created thus, it can be cancelled on the ground that the parties were not aware of the facts or were unaware of the facts.

Difference between valid, void and voidable contracts

Valid contracts

A valid contract contains certain conditions to be considered valid. These include the free consent of the parties; the parties to the contract must be competent to contract, there should be lawful object and lawful consideration; and it should not declare expressly void.

  • Free consent: The parties under the contract agreeing upon something should agree to the contract without being under any force, misrepresentation, coercion, undue influence, or mistake. Therefore, the parties have given free consent.
  • Competent to contract: The competency of the parties is essential, such as being legally capable in terms of age, sound mind, and not disqualified by law.
  • Lawful consideration and object: The agreement must be of some value and not a gift. It should also not be against public policy or illegal in nature.
  • Not expressly declared void: The agreement should not already be declared void by the law or considered to be an illegal form of agreement.

Void contract

The void contracts are contracts that are void from the beginning, do not have a lawful object, are not competent to the contract, are enforceable without free consent, and contain unclear terms and conditions.

  • Void from beginning: Contracts that are void from the beginning are not legally binding and acceptable. This includes the contracts that are impossible to perform from the earlier stage of their formation. Hence, it is said the contract is void from its beginning.
  • Not competent to contract: If the parties are not competent to contract, the contract is said to be void, such as in the case of a person below the age of 18 years of unsound mind or disqualified by law. 
  • Not having a lawful object: A contract formed in order to disobey the law and order or against the law. Hence, such a contract is void.
  • Without free consent: The contract performed under the threat of coercion, undue influence, misrepresentation, fraud, or mistake is void. 
  • Unclear terms and conditions: The contracts formed in such a manner or with criteria that are unclear, cannot be understood, or can create mistakes in one’s opinion are void.

Voidable contracts

A voidable contract is a contract that is valid at the option of one party and can be rejected by the other party; thus, such a contract is voidable in nature. The circumstances under which the contract is voidable include lack of free consent, the object of the contract not being lawful, parties not being competent to contract, the right to cancel such a contract, and no immediate closure of the contract.

  • Lack of free consent: For consent to be free, it should first be free from coercion, undue influence, fraud, misrepresentation, and mistake. Moreover, a lack of consent is not capable of forming an agreement, and such contracts are voidable.
  • The object of the contract not being lawful: The object of the contract not being lawful cannot be enforceable and declared voidable.
  • Parties not being competent to contract: Minor parties cannot form a contract, and if such contract is formed, then it is void in nature as well as voidable contract with unsound or insolvent is voidable at the option of the parties who are under incompetency to make contract.
  • The right to cancel a contract: In a voidable contract, there is a preferential right to the parties who are under a lack of free consent or incompetent to contract and the object not being lawful. Therefore, if it comes to the knowledge of such a party, they can cancel the contract. 
  • No immediate closure of the contract: There is no immediate closure. The contract still performs until the possibility of parties making the contract valid.

Consequences and remedies

  • Recission (Section 19) of the ICA, 1872: The rescission is the cancellation of the contract by the party under undue influence, coercion, misrepresentation, or fraud. Such a right under Section 19 of the Indian Contract Act, 1872, to cancel the contract.
  • Damages (Section 19 and Section 73) of the ICA, 1872: It is given under Section 19 of the Indian Contract Act, 1872, that the parties can claim for damages they incurred in such a voidable contract. Also, Section 73 of the Indian Contract Act, 1872, covers the compensation for breach of contract.
  • Restitution (Section 64) of the ICA, 1872: It is given under Section 64 of the Indian Contract Act, 1872, that when a contract becomes voidable at the time of rescission, any benefits received by both parties should be returned to avoid unfairness in a voidable contract.
  • Rectification (Section 31–Section 34) of the Specific Relief Act, 1963: It explains Section 31 and Section 34 of the Specific Relief Act states that if the terms or conditions of a contract are misrepresented and such contract becomes voidable, the section saves the contract and gives the right to correct such conditions accordingly.

Case studies

Satya Brata Ghose vs. Mugneeram Bangur & Co. (1954)

Facts of the case

  • Mugneeram Bangur & Co. represented the piece of land as having no requisition on it.
  • Satya Brata Ghose relied on the representation made by Mugneeram Bangur & Co.
  • Hence, Satya Brata agrees to purchase the land.
  • After entering into the agreement, Ghose comes to the knowledge that the property was subject to requisition.
  • However, this fact was not disclosed by the Mugneeram Bangur & Co. 

Judgement of the Court

  • In this case, the Supreme Court of India held that Mugneeram Bangur & Co. had misrepresented the status of the property to Satya Brata Ghose.
  • As per Section 18 of the Indian Contract Act, Mugneeram Bangur & Co. had misrepresented the fact and the court ruled that the contract was voidable.
  • Satya Brata Ghose was entitled to rescind under Section 19 of the Indian Contract,Act the contract due to misrepresentation. 

Derry vs. Peek

Facts of the case

  • There was a company known as Tram Company.
  • These companies wanted people to invest in their companies’ shares.
  • Moreover, they issued a prospectus that they had permission to use steam-powered trams, which were more efficient than horse-powered trams.
  • The major factor was they needed approval from the government.
  • The approval was cancelled by the government.
  • Thus, peek invested in the company’s shares.
  • When the company did not get any approval, the value dropped and Peak lost his money.
  • Therefore, peek sued the company’s directors.

Judgement

  • The house of lords stated that to consider such a claim of fraud, Peek needed to prove it.
  • Therefore, it was not proven by the shareholders that the directors of the company were dishonest. 
  • The belief of directors was the company could get the approval; hence, the company, despite being careless or not entirely correct, did mean they were lying.

Chikkam Ammiraju vs. Chikkam Seshamma

Facts of the case

  • Chikkam Ammiraju and his family were involved in a property dispute.
  • Seshamma, the wife,vand Subbamma, the son of Chikkam Ammiraju, were asked to release their rights from the property in favour of Chikkam Ammiraju.
  • Ammiraju threatened to commit suicide if they did not comply.
  • Fearing for his life, Seshamma and Subbamma executed the release deed.
  • And had transferred the rights as demanded by Chikkam Ammiraju.
  • Seshamma and Subbamma challenged the validity of the deed by arguing their consent to the deed was not free and it was obtained through coercion. They also considered it to be a voidable deed.

Judgement

Ladli Prasad Jaiswal vs. Karnal Distillery Co. Ltd. (1963)

Facts of the case

  • Ladli Prasad Jaiswal was the managing agent of the Karnal Distillery Co. Ltd.
  • The managing agent is an influence in the company’s decisions.
  • The agreement was signed between the company and Jaiswal.
  • Due to the dominant position of Jaiswal in the company the agreement had already been signed under undue influence.
  • The other shareholders and parties to the company have claimed that the agreement was signed by coercing the company.

Judgement

Conclusion

In contract law, it is said that the contract must be of free consent. The contracts formed against free consent are voidable in nature. Thus, such contracts include those formed with coercion, undue influence, fraud, misrepresentation, and mistake. 

References

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