One of the essential conditions of a valid contract is that it should be made out of free consent of the parties. It means free consent if important to determine the validity of a contract. First we will understand consent and thereafter free consent.
Two persons are said to consent, when they agree upon the same thing in the same sense. It is also known as consensus-ad-idem, which means identity of mind. Salmond describes it as an error in consensus. Absence of consent means agreement is void.
A consent is said to be free, when it is not obtained by
When the consent is there but it is not free, Salmond describes it as error in causa. In such a case, the contract is voidable at the option of one party.
It means any act forbidden (prohibited) by the Indian Penal Code (IPS) or the detention or threat to detain the property. It may be noted that killing or beating another person and interfering in the personal freedom of another person are forbidden by the IPC. The English law uses the term ‘duress’ for coercion.
The threat to commit suicide is coercion. As per the IPC, attempt to commit suicide is offence but committing suicide is not an offence.
Examples
The IPC need not to be in force in the place where coercion is done. If A threats B on high seas, where the IPC is not applicable, it is still regarded as the coercion. The purpose of coercion is to compel a person to enter into a contract forcefully.
It is not necessary that a threat is given by the party to the contract only. The coercion may be exercised by the party to contract or by any third person.
Example
If A wants to enter into contract with B but he engage D to give threat to B. It is also case of coercion if D gives threat to B.
The coercion may be directed against the party to contract or against the other person. Threat of life or any other threat creating danger to life, if given to a family member or relative or friend of the party also amounts as the coercion.
Example
A gives threat to B that if he will not enter into contract with him, he will kill B’s wife. It is also coercion.
When the coercion is employed, a contract becomes voidable at the option of the aggrieved party, and any benefit received by the other party under the contract must be paid back. If the aggrieved party has suffered from any loss, he can recover the loss from the defaulting party.
Every kind of threat is not regarded or said as coercion. The only threat which is an offence is considered as the coercion. Therefore, the following threats do not amount to the coercion.
Threat to prosecute a person or file a suit against the person is not coercion. Approaching court and seeking appropriate remedy by filing suit is the fundamental right of every person. Refusing to renew a contract will not amount to coercion. Similarly, a threat not to withdraw the pending criminal proceedings, unless a bond is executed, cannot be regarded as coercion.
Where the law requires that a contract be made by the parties, the consent in such a contract will not be deemed to be caused by the coercion, or undue influence. In the same way, if anything is done at the instance of the order of court, it is not coercion.
A threat to strike by the employees in support of their demands is not regarded as coercion. This is because the threat to strike is not an offence under the IPC. It is a right given under the Industrial Disputes Act.
Detention of property by a mortgage, until the payment of the loan, does not amount to coercion.
Lord Halsbury has defined that ‘undue influence is the unconscientions use, by one person, of the power possessed by him over another, in order to induce the other party to enter into a contract’.
A contract is entered on undue influence when relations that exist 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 his position to obtain unfair advantage over the other. Thus, mere being in a position to be dominant is not enough but the party should have obtained unfair advantage by using dominant position. When a contract is made with undue influence, the contract is voidable. The aggrieved party can recover the damages, if he has suffered from any loss because of undue influence. When the contract is challenged in a court of law on the ground of undue influence, the burden of proof lies upon the weaker party.
Generally, in the following situation or circumstances, a person is deemed to be in a position to dominate the will of others.
If one person holds real or apparent authority over the other, and uses his authority in an appropriate manner while entering into a contract with the other person, he is said to have obtained unfair advantage. Following are the relationships, where one party is enjoying authority over the other:
Example
A applied for a long leave to his offer the Registrar of a Court where A was working. The registrar proposed to grant the leave only if he promised in writing that he would not return to is job and be treated as retired. After completion of leave period, A returned to him job but the Registrar refused to accept him on the job. Held, the registrar used undue influence and the plaintiff be treated on the job.
When one party stands in a fiduciary position or a relationship towards the other party, he should be in the position of dominance of the will as the other party keeps faith on him. Following are the relationships where one party stands in fiduciary relationship with the other:
This is a contract that is made with a person whose mental capacity is temporarily or permanently affected by the reason of age, illness or bodily distress.
A pardanashin woman is one who observes complete seclusion because of the customs of her community to which she belongs. A contract with her is presumed to have been induced by undue influence.
However, in the following relationship, there is no presumption of dominance of will by one party over the other party:
Example
A applies to a Banker for a loan when the money market is very stringent. Banker says that loan could be provided only at 30% rate of interest. A accepts to such high interest. A’s consent is not obtained by way of undue influence. A could have obtained the loan from any other bank or person. Moreover banker has not obtained any unfair advantage.
Matter | Coercion | Undue Influences |
---|---|---|
Kind of force | Use of physical force. | Use of moral force/mental force. |
Intention | Intention is to obtain consent for contract. | Intention is to obtain unfair advantage from weak party. |
Punishment | It is criminally liable-IPC | No criminally liability arises. |
Parties | Coercion can be employed by parties or by outsider. | Undue influences can be exercise by party to the contract. There must be relation exist between parties. |
Relationship | Relation between parties are immaterial. | Relation between parties are material. |
Consequences | Contract is Voidable at the option of aggrieved party. | Contract is voidable or court may set it aside on application of party. |
Fraud may be defined as an intentional, deliberate or willful mis-statement of facts, which are material for the formation of a contract.
The fraud means and includes the following acts:
Example
Furniture dealer conceals the cracks in furniture by polish work.
The fraud is any of the above acts, if committed by the party to contract or with his consent, or by his agent with the intent to deceive another party to contract.
The elements of fraud are the following:
There must be a representation and the representation should be false. Alternatively, it can be said that false representation should be knowingly or without belief in its truth. Mere puffing like ‘This product is No. 1 in market’ is not fraud.
Example
A, a shopkeeper, while selling ghee represents the buyer that it is ‘pure deshi ghee’ although he knows that it is adulterated. A commits a fraud with the buyer by deliberate misrepresentation of facts.
Representation should be related to material facts.
One party makes false representation with the intention that the other party acts upon it. The other party should have relied on representation without knowledge. Only false statement is not sufficient to prove fraud.
Mere silence is not fraud unless it was the duty of the person to speak or to provide any information as per the act.
Example
A sells, by auction, to B a horse which A knows to be unsound. A says nothing to B about the horse’s unsoundness. There is no fraud on the part of A because no deliberate misrepresentation of facts was made by him.
In the following circumstances, silence is considered as fraud.
In the following three situations, it is the duty of the person to speak and represent in full:
The silence amounts to fraud, when it is the duty of a person to speak or to inform, where a person keeps silent knowing that his silence is going to be deceptive, he is responsible for fraud.
In some contracts all material facts should be disclosed compulsorily, whether it is asked by the party or not. This kind of a contract, where all material information should be provided, is known as a contract of ubberimae fidei. Following are the examples of contract of ubberimae fidei.
Insurance contracts are founded upon the principle of utmost good faith. The proposer, therefore, is under a duty to disclose all the facts known or ought to be known to him, which are likely to affect the acceptance of the proposal.
In such contracts, the buyer as well as the seller is under a duty to disclose all the material facts. All material facts with regard to defect or limitation in the title of property and any charge or pledge in favour of the third party should be disclosed to the buyer.
Every party in a marriage contract is under a duty to disclose all the material facts.
Each member of family is under a duty to disclose all the material facts (i.e. as to property etc.) at the time of family settlement.
All partners have a duty to consult and inform other partners. All partners must be faithful to one another.
A contract is voidable at the option of the party who is defrauded. It means a party can cancel a contract. However following are exceptions to the above rule, where a contract is not voidable:
Examples
Example
A bought shares in a Company on the faith of a prospectus that contained an untrue statement as to the Directorship of B. A had never heard of B and hence such statement was immaterial from his view point. A claimed damage for fraud. His claim for damage is dismissed on the ground that there was no fraud.
The aggrieved party can ask for a specific performance. The aggrieved party can sue for damage, if he has suffered a loss.
A, fraudulently, sold his car to B. Afterwards, B came to know about the fraud but instead of complaining, he further sold the car to C. Now B wants to claim damage from A. Will he succeed? Advice.
Sohan induced Suraj to buy his motorcycle saying that it was in a very good condition. After taking the motorcycle, Suraj complained that there were many defects in the motorcycle. Sohan proposed to get it repaired and promised to pay 40% cost of repairs after a few days, the motorcycle did not work at all. Now Suraj wants to file case of fraud against the Sohan. Advise Sohan. Can he recover damage from Sohan?
It means false representation of the fact made innocently which is a material fact of contract. The misrepsentation includes:
The aggrieved party can cancel the contract. It means a contract is voidable at the option of the aggrieved party but he cannot sue for damages.
All elements of fraud are equally applicable to misrepresentation except the knowledge of false facts. Following are the essential elements of misrepresentation:
Matter | Fraud | Misrepsentation |
---|---|---|
Meaning | It is deliberate mis-statement or active concealment of the fact. | It means incorrect or false statement made without innocently. |
Party making statement believe in truth | Party making statement do not believe in truth. | Party making statement believe in truth. |
Intention to deceive | Intention is to deceive other party. | Intention is not to deceive other party. |
Action | Aggrieved party can avoid the contract and recover damages. | Aggrieved party can avoid the contract but cannot ask for damage. |
Means for discovery of truth | Contract is voidable if party has means of discovering truth with normal effort. | Contract is not voidable if party has means of discovering truth with normal effort. |
Similarities between fraud and misrepresentation can be summarized as under.
It means an erroneous belief about some facts. A mistake can either be (a) mistake of law and (b) mistake of fact.
A mistake of law does not mean mistake in provisions of any law but it means there is mistake in understanding the provision of any law by the party to contract.
A mistake of law can be further classified either as mistake of Indian law or mistake of foreign law.
4.17.1.1 Mistake of Indian Law Everyone is supposed to know the law of land. In the latin maxim it is said that ‘Ignoranlia juris non excusa’. Ignorance of law is no excuse. Therefore, if there is a mistake of Indian law, the contract is not void or voidable.
Example
A, a widow, was entitled to certain occupancy rights on the land of B. She remarried and believing that she has lost her occupancy rights by reason of her second marriage, agreed to take the land on lease from B, on an increased rent. Both A and B honestly believed that A had lost her occupancy rights. The contract for higher rent is valid and not voidable although they made the contract in ignorance of law.
4.17.1.2 Mistake of Foreign Law Everyone can be supposed to know the law of the foreign country. A mistake of foreign law is treated, as if it were a mistake of facts, because person cannot be expected to know the law of the other country.
A mistake of facts can be classified either as a bilateral mistake or a unilateral mistake.
4.17.2.1 Bilateral Mistake It means both the parties are at mistake related to the essential part of agreement. If an agreement is entered into on the ground of bilateral mistake, the agreement is void. An erroneous opinion, as to the value of the thing which forms the subject-matter of agreement, is not deemed to be a mistake as to the matter of fact.
Example
A buys a painting from B at a price of ₹ 20,000. Both A and B believed it to be the work of a known artist by B did not make any representation or warranty about it. Later A comes to know that it was a new one and worth only ₹ 1000. A is bound by the contract.
The bilateral mistake can be further classified as:
If both the parties are under a mistake as to the quantity of the subject matter of the agreement, the agreement is void. Such a mistake may even be caused by the negligence of a third party but the agreement would be void.
Example
A agreed to buy 100 sewing thread reels from B. Both believed that each reel contains 500 metres of thread but, in fact, the length of thread was only 300 metres. Held, the agreement was void as there was a bilateral mistake as to quantity of subject-matter.
If both the parties are working under a mistake as to the price, the agreement is void.
Example
A agreed with B to let out his house for a monthly rent of ₹ 520. However, in the lease deed it was written as ₹ 350. Held, the agreement was void.
Example
A agrees to sell 100 units of a particular product. Later, it is discovered that there was a ban on sale of the product even at the time of making the contract. The contract is void.
4.17.2.2 Unilateral Mistake A unilateral mistake means one party is at mistake. A contract is neither void nor voidable except that it is mistake as to the nature of the contract or a mistake with regard to the identity of the person.
Examples
A agrees to sell his horse to B. But unknown to both the parties, the horse had already died at the time of making of the contract. Is it a valid contract? Why?
A wrote to B inquiring price of rifles suggesting that he might buy as many as 50. On receipt of information, he telegraphed, ‘Send three rifles’. Due to telegraphic mistake, message was transmitted as ‘Send the rifles’. B dispatched 50 rifles. A rejected the 50 rifles and claim of B to pay for 50 rifles. Is contention of A valid? If so, on what grounds?
A contracted to take on rent, a property for viewing the coronation procession of the King. Unknown to the parties, the procession had already been cancelled. Is it a valid contract between the parties?
Matter | Unilateral Mistake | Bilateral Mistake |
---|---|---|
Meaning | One party is at mistake. | Both parties to contract is at mistake. |
Effect | Contract is not void or voidable. | Both parties to an agreement are under mistake of facts, agreement is void. |
Provision applicable | Section 22 | Section 20 |
Ranganyakamma vs Alwar Setti (1889)
The consent obtained from wife by detaining corpse of her husband is coercion.
Purabi Banerjee vs Basudev Mukherjee (1969)
The consent obtained by threat to commit suicide is coercion. An attempt to commit suicide is an offence under the Indian Penal Code (IPC).
V. Srinivasa Pillai vs LIC (1977)
A contract of insurance is the contract of ‘uberrimae fidei’ and an insured person and insurer, must disclose all material facts on their own, even if the other party does not specifically ask them.
Shri Krishna vs Kurukshetra University (1976)
A candidate failed to mention the fact of shortage of attendance in the examination form. It was held that mere silence is not fraud.
Resee River Silver Mining Co. vs Smith (1869)
The representation or statement which is made with knowledge of its falsity is fraud.
Horsefull vs Thomas (1862)
The fraud must have actually deceived the other party.
Shireen Mall vs John James Taylor (1952)
If at the time of entering into a contract, a party has no intention to perform his promise, if will be considered as fraud.
Ningawa vs B. S. Hire Kurabar (1968)
Every act done with the intention of deceiving a party will be considered as fraud.
Griffith vs Brymer (1903)
If an agreement is impossible to perform but the fact of impossibility is unknown to both the parties, the agreement is void.
Where both the parties to an agreement are under a mistake, as to the matter of fact essential to the agreement, the agreement is void.
Foster vs Mackinnon (1869)
Unilateral mistake as regard to the nature of an agreement makes the agreement void.
Define Consent. When is consent said to be free?
(Ref. Para-4.1,4.2)
What is coercion? State the effects of coercion on the validity of a contract.
(Ref. Para-4.3)
A threat to commit suicide amounts to coercion. Comment
(Ref. Para-4.3)
Which threats do not amount to coercion?
(Ref. Para-4.4)
A threat to lodge a criminal prosecution on a false charge amounts to coercion. Comment.
(Ref. Para-4.4)
What is undue influence? State the effects of undue influence.
(Ref. Para-4.5)
When is the party said to be in a position to dominate the will of others?
(Ref. Para-4.6)
Distinguish between coercion and undue influence.
(Ref. Para-4.7)
Define fraud. Give its suitable example.
(Ref. Para-4.8)
What are the elements of fraud?
(Ref. Para-4.9)
Mere puffing is not fraud. Comment.
(Ref. Para-4.9)
Does silence always amount to fraud?
(Ref. Para-4.10)
What do you understand by contract of ‘uberrimae fidei?’
(Ref. Para-4.11)
In which circumstances, the right of aggrieved party to cancel a contract on the basis of fraud is lost?
(Ref. Para-4.12)
A deceit which does not deceive is no fraud. Explain.
(Ref. Para-4.12)
Explain the effects of fraud?
(Ref. Para-4.12)
Write a short note on misrepresentation.
(Ref. Para-4.13,4.14)
What will be the effect of misrepresentation on a contract?
(Ref. Para-4.13)
Distinguish between fraud and misrepresentation.
(Ref. Para-4.15)
What are the similarities between fraud and misrepresentation.
(Ref. Para-4.16)
Explain various kinds of mistakes with suitable examples.
(Ref. Para-4.17)
Unilateral mistake means the contract is valid. Critically evaluate this statement.
(Ref. Para-4.17)
Write a short note on bilateral mistake.
(Ref. Para-4.17)
Distinguish between unilateral mistake and bilateral mistake.
(Ref. Para-4.18)