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FREE

CONSENT

AGREE
According to section 13 two or more persons are said
To consent when they agree upon the same thing in the
same sense.

CONSENSUS AD IDEM

When is consent said to be


free???
According to section 14 consent is said to be free when it

is not caused by
Coercion
Undue influence
Fraud
Misrepresentation
Mistake

It means and includes the use or threatening to use the


physical force against a person or property, to compel him
to enter into a contract.
A forcefully slapped on Bs face and dislocated some of his
teeth and threatens to repeat the same if he (B) did not lend
him Rs. 50,000/-. B lends. The contract is caused by
coercion.

According

to section 15 coercion is the


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 whatever,
with the intention of causing any person to enter
into an agreement.

Essentials of coercion
Committing any act forbidden by I.P.C
e.g. A, after injuring Bs left hand made him to sign a
promissory note for Rs.50,000 in his favour. The consent
obtained by committing an act (injuring) is forbidden by the
I.P.C.
Threatening to commit any act forbidden by the I.P.C
Eg A Hindu gentlemen died , (having enormous property)
leaving his young wife. The relatives of the deceased
threatened the widow that they would not allow to remove
the dead body for cremation unless she adopted a boy to her
husband. The widow signed the adoption papers. Held,
threat amounted to coercion and consent was not free
(Ranganayaamma vs Alwar Setti (1889) 13 MAD 214)

Threat to suicide amounts to coercion :- It should be


noted that an attempt to commit suicide is an offence
under the I.P.C. but committing suicide is not punishable
under it.
E.g. A, a Hindu by giving threat to commit suicide, induced
his wife and son to execute a release deed in favour of his
brother in respect of certain properties. Held, the threat of
suicide amounted to coercion and release deed was,
therefore, voidable.

Unlawful detaining / threatening to detain of any property :when the consent is obtained by unlawful detaining of any
property the consent is said to be caused by coercion.
e.g. An agent refused to hand over the account books and other
documents relating to the agency business to the new agent unless
the principal released him from all his past acts. Consequently
principal gave him a release deed. Held the release was obtained
under the threat of unlawful detaining of property and amounted to
coercion and was voidable at the option of the principal

E.g. The government gave a threat to attach the property


of A, for the recovery of the fine due from B, the son of A.
A paid the dues of fine. Held, the threat amounted to
coercion and A was entitled to recover the amount paid to
avoid the attachment.

The intention must be to compel the other person to enter


into a contract

e.g. A gave beating to B to take revenge for his insult. The beating
does not amount to coercion as the intention of beating was not to
cause him to enter into a contract.
Coercion may proceed either from the party or from a
stranger :Coercion may be applied by the party to the contract himself or by
any other person i.e stranger to the contract.
Coercion may be directed against the party or any other person
The place of coercion is immaterial

Certain threats do not amount to


Coercion

Threat to sue
Statutory compulsions
Threat to strike
Detaining property under mortgage

Effects of coercion
Voidable contract
Restitution
BURDEN OF PROOF
The burden of proving that the consent was obtained by
coercion, lies upon the person who wants to avoid the
contract on the ground of coercion. He will have to prove
that he would never have entered into the contract if the
coercion had not been directed against him.

Duress
Synonym of coercion
But it consists in actual violence or threat of violence to a
person with a view to obtaining his consent.
And it focuses against the individual person only and not
property.

UNDUE INFLUENCE
It is an abuse of the position by a person who is in a
position to dominate the will of the other so as to deprive
the latter of free will. Thus when a dominant party
misuses his influence to dominate the will of the weaker
party, to get unfair advantage, in a contract, the contract
is said to be influenced by undue influence.

According to section 16(1), a contract is said to be induced


by undue influence where the relations subsisting between
the parties are such that one of them is in a position to
dominate the will of the other, and the dominant party uses
that position to obtain an unfair advantage over the other.
Thus it includes
The relation between the parties
The use of dominant position
The dominant party obtains unfair advantage

Persons in Dominant Position


In case of a real or apparent authority : Where a
person holds a real or apparent authority over the other
he is deemed to be in a position to dominate the will of the
other. Eg. Income tax authority over the assesse, a police
officer over the accused, a licensing authority over the
licensees etc.
In case of fiduciary relation It is a relationship of trust
and confidence between the persons. Undue influence is
presumed where the relation between the parties is such
that one of them is able to take unfair advantage over the
other due to the confidence reposed in him by the other.

Eg. Solicitor and client, trustee and beneficiary, doctor and


patient, parent and child, spiritual guru and his disciple, etc.
In case of persons under mental or bodily stress
No presumption of dominant position
Husband and wife
Creditor and debtor
Landlord and tenant
Principal and agent

Effects of Undue Influence


Voidable contract:- when consent to an agreement is
caused by undue influence, the agreement is a contract
voidable at he option of the party whose consent was so
caused sec 19-A. The aggrieved party may either enforce /
perform it or treat is as void. Eg. A, under a threat of a
police officer of his area, agree to sell his car worth Rs.
One lakh for Fifty thousand only. A may either deliver the
car as per agreement or refuse to deliver the car by
treating the agreement as void.

Absolute recession by the Court:- the court has a


discretion to set aside any such contract absolutely on the
request by the party whose consent was obtained by
undue influence. Sec 19 A.
Conditional recession by court

Unconscionable Transactions
When a dominant party to a contract misuses his position and takes
so much unfair advantage in the contact over the other out of the
miseries or ignorance of the other party, the contract is said to be
unconscionable. The terms and conditions of such a contract are
oppressive and grossly unfair to the weaker party under the
circumstance of the contract. The court refuses to enforce such
contracts.
Cases in which the contracts have been found unconscionable
generally involve transactions of money lending and gifts. (High
rate of interest and High prices)

Contracts with Pardanashin


Woman
Generally a contract with a
pardanashin
woman
is
presumed to have been
introduced
by
undue
influence.
A
pardanashin
woman is one who observes
complete seclusion (or parda)
from the members of society
in general.

A pardanashin lady is more exposed to the risk of undue

influence. The Court, therefore, provides special


protection to such a lady. She is entitled to avoid any
contract made by her on the plea of undue influence
unless the other party to the contract satisfies the court :
That the terms of contract were fully explained to her
That the contract was made by her
with full
understanding of the nature and effect of it
That she was in receipt of independent advice in the
matter and
That she freely and deliberately consented to the contract

Fraud

[SECTION 17] : THE TERM


'FRAUD' MEANS A FALSE
REPRESENTATION OF FACT
MADE WILLFULLY WITH A
VIEW TO DECEIVE THE
OTHER PARTY.

Fraud includes the following act: The suggestion, as to a fact, of that which is not true, by

one who do not believe it to be true;


The active concealment of a fact by one having knowledge
or belief of the fact
A promise made without any intention of performing it;
Any other act fitted to deceive and
Any such act or omission as the law specially declares to
be fraudulent

Elements of fraud
1. The parties committing fraud a fraud may be committed by (a)
party to the contract; or (b) any other person with his connivance; or (c)
his agent. A fraud committed by a stranger to the contract does not
amount to fraud. Hence, it does not vitiate the validity of the contract.
E.g. the directors of a company issued a prospectus containing some
false statements. On the faith of the prospectus A applied for some
shares in the company. The shares were allotted but A wanted to avoid
the contract.
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HELD, A could do so on the ground of fraud


committed by the directors, the agents of the
company.
Eg. A applies for certain shares in a company on the
advice of his friend B and got the shares. A never
consulted the prospectus, issued by the company which
contained false information.
Held : A cannot avoid the contract as B was neither a party
to the contract nor agent of the company.

2. The fraudulent acts; There are five classes of acts considered to be fraud:-

1. False suggestion or statement any false suggestion

or statement as to facts of the contract can constitute a


fraud if the person making it does not believe it to be true .
A statement or suggestion constitutes a fraud when it
satisfies the following:
The statement / suggestion must be false
It must be made with positive knowledge of the falsehood
It must have been made before conclusion of the contract
It must relate to material fact, not an opinion.
The other party must have relied on that statement

Eg. A company obtained loan by issuing debentures to pay the pressing


debts. However, the prospectus stated that the loan was needed for
improving the property and developing the business of the company.
Held, the directions had committed fraud with knowledge of falsehood.
2. Active concealment of the fact:- concealment be include active
and passive. When a party keeps silence as to material facts or does
not disclose material facts it is known as passive concealment. Suh a
silence or nondisclosure does not constitute fraud unless the party is
under a duty to disclose them. In active concealment party takes some
positive steps.

Concealment of latent defect (not visible by ordinary


inspection)
3. A promise not intended to perform:- any promise
made without an intention to perform it also amounts to
fraud.
4. Any other act fitted to deceive: 5. Declared fraudulent act or omission:- any actor
omission which has been specifically declared to be
fraudulently by law also amounts to fraud.

3. Intention to deceive or
induce: Any fraudulent act of a party will amount to fraud only
when it is committed with an intention to deceive the
other party or to induce him to enter into a contract.
Eg. A intending to deceive B, falsely represents that 500
tons of indigo are made annually at As factory and thereby,
induces B to buy the factory. The representation is made
with an intention to deceive. Hence it is fraudulent act.

4. The act must have


deceived: Any fraudulent act done with a mere intention to deceive the other
party will not amount to fraud unless it has deceived the other party.

A deceit which does not deceive is no fraud.


No deceit no fraud
5. The party must have suffered:- the general principle is that,
where there is no damage, there s no fraud. Therefore to constitute
fraud the other party must have suffered some loss of money or moneys
worth or some other tangible damage capable of being measured.

A fraud without damage or A damage without fraud is no fraud.

SILENCE AS FRAUD
Mere silence as to facts likely to affect the
willingness of a person to enter into a contract is
no 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.

I. Duty to speak
Contracts of uberrimae fidei, or utmost good faith in such types

of contract there is a legal duty on the parties to disclose complete


and full material facts. Suppression of truth in such contracts
amounts to fraud. Eg.
Contract of insurance
Contract for sale of immovable property
Allotment of shares
Contracts of marriage
Contracts of family settlement

II. Contract of partnership


not contract of uberrimae fidei. In contract of partnership
partners are required to observe good faith to each other.
Therefore they are under a duty to give true account and
information to the firm on all matters affecting it.

III. Contract of guarantee


In contract of guarantee the parties are under a duty to
disclose all the material facts. A guarantee obtained by
means of keeping silence as to material fact is invalid.

IV. Contracts by parties having


fiduciary relationship
Where the parties are in fiduciary relationship they are
also under a duty to disclose all the material facts likely to
affect the willingness of another party.

V. Change in facts before conclusion of the contract If a


statement is true when made, but subsequently becomes
false before the conclusion of the contract. In such a case,
the party is under a duty to speak and notify the change to
the other party. However the change must be in material
facts of the contract.
VI. Required by law
VII. In case of latent defect
VIII. Customs and usages

SILENCE EQUIVALENT TO
SPEECH
Sometimes keeping silence may also give an impression of
the existence of a certain fact. In such a case silence, is in
itself equivalent to speech.

Eg. A says to B if you do not deny it, I shall presume that


the horse is sound. A says nothing here As silence is
equivalent to speech.

Consequences

Contract voidable
Insisting for performance
Restitution
Claim for damages

Exceptions
In following cases the contract is not voidable or contract

cannot be rescinded:Availability of means for discovering the truth


Consent not caused by fraud
Ratification by the party
Lapse of time

Misrepresentation
Any innocent or unintentional false statement
or assertion of the fact made by one party to
the other during the course of negotiation of a
contract is called misrepresentation. The party
making the statement honestly believes in it to
be true and is made in honest ignorance of its
falsehood.

Sec 18
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
Any breach of duty which without an intent to deceive
Causing however innocently, a party to an agreement , to
make a mistake

Effects
Contract voidable
Insisting for the performance
Restitution

V. Mistake
Mistake is a misconception or misimpression or
misunderstanding or erroneous belief about something.
Do not affect the validity of a contract.
Mistake of Law and Mistake of fact

I. Mistake of law
a. Mistake of the land
The effect of mistake as to law f the country is clearly expressed
Ignorance of law is no excuse
IGNORANTIA JURIS NON EXCUSAT
Section 21 states that a contract is not voidable because it was caused
a mistake as to any law in force in India. The contract will have the
same effect as if parties had full knowledge of the law of the country.
A and B enter into a contract on the erroneous belief that a particular
debt is barred by Indian Law of Limitations. The contract is not
voidable.

b. Mistake of Foreign Law


Ignorance of foreign law is excusable. Therefore the
mistake of foreign law does adversely affect the validity of
a contract. Contracts caused by mistake of foreign law are
void.
Sec 21 states that, a mistake as to a law not in force in
India has the same effect as a mistake of fact.

II. Mistake of fact


A mistake of fact is a mistake as to material fact of the
contract. Mistake of fact may be of two types :
Bilateral mistake
Unilateral Mistake

Bilateral or Mutual Mistake


It is a mistake made by both the parties to an agreement. An
agreement caused by such a mistake is void (sec 20):
There must be a mistake as to the formation of an
agreement
It must be mutual or bilateral
It must relate to some fact, (not law) essential to the
agreement
Exception: an erroneous opinion as to the value of the
thing which forms the subject-matter of the
agreement, is not deemed to be a mistake as to matter

Types of Bilateral mistakes


1. Mistake as to subject matter :- where both the parties are
under a mistake as to the subject matter of the agreement,
the agreement is void. It has the following types :. Mistake as to identity of the subject matter
. Mistake as to the existence of the subject matter
. Mistake as to quality of the subject matter
. Mistake as to quantity
. Mistake as to the price
. Mistake as to title

Mistake as to existence of state of state of affairs


Mistake as to possibility of performance (Physical
impossibility and legal impossibility)

II. Unilateral Mistake


Where one of the parties to a contract is under a mistake
as to a matter of fact, it is unilateral mistake. Such a
contract is not voidable. A contract induced by unilateral
mistake remains valid unless the mistake is caused by
misrepresentation or fraud of the other party.
A submitted a tender to B for construction of a number of
houses. A made a mistake in calculating the cost and
therefore, his offer was lower than other tenderers. As
tender was accepted. Held it was binding contract
although it was on erroneous estimate based on unilateral
mistake.

Mistake as to the identity of the


party contracted with
Mistake as to identity of person occurs when one of the
parties represents himself to be some person other than
he or really is. In other words, where a party enters into
an agreement with some person believing him to be some
other person, there is a mistake as to identity of the
person contracted with. In such a situation the contract
would be void provided the identity of the party is of
material significance in the contract.

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