Section 13 of the Indian Contract Act defines the term 'Consent' as two or more persons are said to consent when they agree upon the same thing in the same sense. Thus, consent involves identity of minds in respect of the subject matter of the contract. In English Law, this is called 'consensus-ad-idem'
Section 10 of the Contract Act specifically provides that all agreements are contracts if they are made by the free consent of the parties. Section 14 of the Act states that Consent is said to be free when it is not caused by
Effect of absence of Free Consent :- If consent was obtained by coercion, undue influence, fraud , Misrepresentation the contract is voidable at the option of party whose consent was not free [19, 19A]
If a person commits or threatens to commit an act forbidden by the Indian Penal Code with a view to obtaining the consent of the other person to an agreement, the consent in such case is obtained by coercion. In simple words coercion means “making a person to give his consent by force or threat.”
Chikkam Ammiraju V. Chickam Seshamma, in this case, the husband by a threat of suicide, induced his wife and son to execute a release deed in favor of his brother in respect of a certain proprieties claimed as their own by the wife and son. Court held that to commit suicide amounted to coercion within the meaning of Section 15 of the Indian Contract Act and therefore release deed was voidable.
Act forbidden by IPC- The word act forbidden by Indian Penal Code make it necessary for the court to decide in a civil action, whether the alleged act of coercion is such as to amount to an offence. A threat of bringing a false charm with the object of making another do a thing amount, to blackmail or coercion. In the case of Ranganayakamma v Alwar Setti, where the widow was obstructed from removing the corpse of her husband until she consented for the adoption. The court held that her consent was not free and it was coerced. It is clear that coercion is committing or threatening to commit any act which is contrary to law.
A consent can be said to be caused by coercion, if it is caused because of unlawful confining or detaining of a property, or a risk to do as such.
Under the English law, actual or threatened violence to the victim’s person has long been recognized to amount to duress. Duress is a term aplied under English Contract Law & Coercion is a term applied under Indian Contract Law. In coercion even third party can perform the act but in duress only the party to contract should perform the act. In Duress, it is only applied for person and cannot detain property. Also coercion can be seen as the practice of putting someone under duress (i.e almost like stress.) Coercion is the act of forcing, while duress is more the consequence (or stressful feeling) that happens as a result of coercion. In this way the extent of coercion is more extensive than duress.
When one party is in a position to dominate the will of others and actually misuses the power, then it is a case of undue influence, and the contract becomes voidable. When all the following three conditions are fulfilled then only the situation is considered as an undue influence:
The word ‘undue’ means unnecessary, unwarranted, or more than required. ‘Influence’ means convincing the mind of another through changing his mind or changing his will, but this influence must be undue i.e it is not required. Undue influence applies to a relationship which may be blood relation or some other kind of relation i.e fiduciary or relation based on trust. It may also arise where the parties are in a relation of confidence or dependence which puts one of them in a position to exercise over the other an influence which may be perfectly natural and proper in itself, but is capable of being unfairly used.
Section 16(1) gives the following two elements of undue influence,
The party who wants to rescind the contract on the ground of undue influence ordinarily must prove both the conditions laid down in Section 16(1). It must be proved first of all that the other party was in a position to dominate the will of the aggrieved party. It is only after this that the question arises regarding the second element of undue influence. In Smt. Chinnamma Verses Devanga Sangha , it was held that it is not necessary that the person in a position of domination must benefit himself. A benefit to a third party may be sufficient. In this case undue influence by office bearers of a society benefiting the society was held to be sufficient to avoid the contract.
In Subhash Chandra Das Verses Ganga Prasad Das, the Court held that, “it is well settled that the law relating to undue influence is the same in the case of a gift inter vivos (from one living person to another) as in the case of contract. “The Court trying a case of undue influence must consider two things to start with namely,
A contract cannot be set aside on the ground of undue influence when one of the par ties is not a posit ion to dominate the will of the other, that is., when the parties are on equal footing. Illustration (d) appended to the Section makes the point clear, A applies to a banker for a loan at a time when there is stringency in the market. The banker declines to make loan except at an unusually high rate of interest. A accepts the loan on these terms
This is a transaction in the ordinary course of business and the contract is not induced by undue influence.
In Shrimati Verses Sudhakar, AIR Bom 122, the Court said, “Influence in the eye of law has to be contra distinguished with persuation. Any and every persuation by one party to the other to contract cannot lead to the inference/conclusion that such party has influenced the other party. One may by his act or conduct convince and persuade the other party to do a particular act and if the other party does such an act freely and of own volition (may be to his/her disadvantage or even to his/ her peril), it cannot be said that such act was influenced by the other.” In the present case the gift was not held to be induced by undue influence as the gift deed was made by a woman, though illiterate, was intelligent enough to manage her properties and was getting agricultural land cultivated from various persons from time to time for about two decades.
Section 16(2) provides that a person is deemed to be in a position to dominate the will of another (a) where he holds a real or apparent authority over the other or (b) where he stands in a fiduciary relation to another or © where he enters into a transaction with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, mental or bodily distress. These cases are discussed below,
The dominant position is not defined in the Indian Contract Act but Section 16(2) provides certain conditions when a person is in a position to dominate the will of another. Cases, where a person is in a position to dominate the will of others, are as follows: There must be a relation between the parties:
Example of real or apparent authority:
Example of fiduciary relation: an advocate asks his client to give him extra money to fight the case from his side. Doctor and patient relationship.
Mental or bodily distress means the mental capacity of a person is affected. It can be either permanently or temporarily affected. The reason behind such health condition can be age, illness, mental or bodily distress. Consent under pressure means when consent is obtained forcefully. In this manner, consent is not lawful, so it had no binding effect.
All cases where there is an active trust and confidence between the parties and both parties are not on equal footing. The principle of undue influence applies to all the cases where influence is acquired and abused. It applies to all relations where domination can be exercised by one party over another. The existence of a dominating position along with its use is mandatory to invoke an action. Merely a dominant position does not lead to undue influence. It arises only when this position is used for gaining an undue advantage. Undue advantage means any kind of advantage which is not warranted by circumstances in which the contract was entered.
In the following cases fiduciary relationships or a relationship of mutual trust and confidence is said to exist,
In such cases it is essential to show that one party relies on the other to such an extent that complete trust and confidence is placed in the other enabling him to influence the former. Thus the parties need not be related by blood, marriage or adoption. What is necessary to establish the presumption is that their relations are such that one is in a superior position over the other.
According to illustration (a) appended to the Section 16, A, having advanced money to his son B, during his minority, upon B s coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of advance. A employs undue influence.
Section 16(2) of the Indian Contract Act states that Undue Influence can arise wherever the donee stands in a fiduciary relationship to the donor or holds a real or apparent authority. In this type of influence, there is a real authority like a police officer or an employer who uses his dominance for his enrichment. Apparent authority is pretending as a real authority without its existence.
The following persons, inter alia, being impositions of authority are said to be in a position to dominate the will of the other,
An only mental distress state of mind does not amount to undue influence until the defendant has used this opportunity to take unfair advantage from another party. Similarly, instigating a person to enter into a contract who has just attained majority amounts to undue influence under this category due to a lack of the plaintiff ‘s experience. A case of undue influence is established more easily when there is evidence to establish to show that the person influenced was of feeble mental capacity or in a weak state of health.
Generally, the party bringing a claim has the burden to prove the truth of the facts on which he or she is relying. The burden of proof is on the claimant to show that undue influence was exerted by a stronger party over the weaker party, and the latter could not exercise free choice when entering the agreement. However, this burden can be shifted to the defendant in an undue influence case if the plaintiff can demonstrate that a confidential relationship existed between the testator and defendant, and that suspicious circumstance surrounded the preparation and execution of the will. When this occurs, the burden shifts totally on the defendant to prove that undue influence did not occur. When a person is found to be in a position by which he can dominate the will of the other or a transaction appears to be affected due to dominance, the burden of proof that no undue influence was exercised in the transaction lies on the party who is in a position to dominate the will of others.
There are some cases in which the Honourable Courts of India presume the existence of undue influence between the parties:
According to Section 17 of the Indian Contract Act, 1872 “FRAUD” means and includes any of the following acts committed by a party to a contract, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:
Explanation – Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not 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.
In order to constitute fraud, it is necessary that there should be a statement of fact which is not true. Mere expression of opinion is not enough to constitute fraud. For example – A person, who is aged over 60 years and thus beyond insurable age, deliberately makes a false statement that his age is 48 years in order to take out an insurance policy, it amounts to fraud, and the insurer is entitled to avoid the policy.
In Edington vs. Fitzmaurice, a company was in great financial difficulties and needed funds to pay some pressing liabilities. The company raised the amount by the issue of debentures. While raising the loan, the directors stated that the amount was needed by the company for its development, purchasing assets and completing buildings. It was held that the directors had committed a fraud.
It has been noted above that to constitute fraud; there should be a representation as to be certain untrue facts. Mere silence is no fraud unless, there is duty to speak, or his silence is, in itself, equivalent to speech. In Keates v Lord Cadogan, A let his house to B which he knew was in ruinous condition. He also knew that the house is going to be occupied by B immediately. A didn’t disclose the condition of the house to B. It was held that he had committed no fraud.
In Shri Krishan v. Kurukshetra University, Shri Krishan, a candidate for the L.L.B. exam, who was short of attendance, did not mention that fact himself in the admission form for the examination. Neither the head of the law department nor the university authorities made proper scrutiny to discover the truth. It was held by SC that there was no fraud by the candidate and the university had no power to withdraw the candidate on that account.
Duty to speak (Contracts of uberrimae fide)
When the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, keeping silence in such a case amounts to fraud. When there is a duty to disclose facts, one should do so rather than to remain silent. There are certain contracts which are contracts of uberrimae fide meaning contracts of utmost good faith. In such a type of contract it is supposed that the party in whom good faith is reposed, would make full disclosure of it and not keep silent. One instance of contract of uberrimae fedi is contract of insurance. In such a contract, there may be certain facts which are in full knowledge of the insured or policy holder. He must make full disclosure of such facts to the insurer or insurance company.
In case of Srinivasa Pillai v LIC of India, it was held in this case by the Supreme Court that contract of insurance being one of uberrimae fede, it is normal to expect in such a contract utmost good faith on the part of the insured. The insured is expected to answer certain questions by the insurer and it is his responsibility to give true and faithful answers. If the insured has knowledge of certain facts which others cannot ordinarily have, then he should not indulge himself in suggestio falsi or suppressio veri. When in the case of contract of insurance, where there exists a duty to disclose , then non disclosure of facts that are non-material to and having no bearing on the risk undertaken by the insured, it does not render the contract voidable.
Silence being equivalent to speech
Sometimes keeping silent as to certain facts may be capable of creating an impression as to the existence of a certain situation. In such a case, silence amounts to fraud. Means of discovering the truth “If such consent was caused by misrepresentation or by silence fraudulent within the meaning of Section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence” Illustration A says to B “If you do not deny it I shall accrue that the horse is sound”. B says nothing. Here B’s silence is equal to speech that the horse is sound. Later if the horse turns out to be unsound, B will be guilty of fraud.
When there is an active concealment of a fact by one having knowledge or belief of the fact, that can also be considered to be equivalent to a statement of fact, that can also be considered to be equivalent to a statement of fact and amount to fraud. By active concealment of certain facts, there is an effort to see that the other party is not able to know the truth and he is made to believe as true which is in fact not so. Active concealment of a fact has also been considered as amounting to fraud because in that case there is a positive effort to conceal the truth from the other party. He is made to believe as true that fact which false. This is what is known as suppresio veri –But if he merely keeps silence it will not constitute fraud subject to certain exceptions.
In case of sale of goods, the rule which is applicable is caveat emptor – or the doctrine of let the buyer beware. It means that it is the duty of the buyer to be careful while purchasing the goods as there is no implied condition or warranty as to quality or fitness of goods.
When a person makes a promise, there is deemed to be an undertaking by him to perform it. If there is no such intention when the contract is being made, it amounts to fraud. Thus, if a man takes a loan without any intention to repay, or when he is insolvent, or purchases goods on credit without any intention to pay for them, there is fraud. If, there is no such bad intention at the time of making contract, but the promise doesn’t perform the contract, it doesn’t amount to fraud.
Clause (4) provides that ‘any other act fitted to deceive’ will also amount to fraud. This clause is general and is intended to include such cases of fraud which would otherwise not come within the purview of the earlier three clauses.
According to this Section 17(5), fraud also includes any such act or omission as the law specially declares to be fraudulent. In such cases, the law requires certain duties to be performed, failure to do which is expressly declared as a fraud.
In Akhtar Jahan Begam v Hazarilal, A sold some property to B stating in the sale deed that he won’t be liable to B if he suffered any loss owing to A’s defective title. A had, earlier to this transaction, sold this property to somebody else, but didn’t inform B about it. It was held that A had committed fraud and the contract was voidable at the option of B.
It is necessary that the misleading statement should be meant for the party who is misled. If a person is purchasing the shares of the company in the open market on the basis of any prospectus then he can’t sue the company later on because the prospectus is meant for an original allottee of the shares by the company, not for the person like the present appellant who buys the shares from the original allottee and therefore, the promoters were not liable for fraud.
Where a contract is induced by fraud, the representee is entitled to claim rescission or damages or both. He would have a remedy by way of such suit, even if restutioin integrum is not possible. The defendant is bound to make reparation for all the damage directly flowing from the transaction. In assessing such damage, the plaintiff is entitled to recover by the way of damages the full price paid by him, but he must give credit for any benefit which he has received as a result of the transaction. As a general rule, the benefits received by him include the market value of the property acquired but such general rule is not applicable where to do so would prevent him obtaining for the wrong suffered. In addition, the plaintiff is entitled to recover consequential losses caused by the transaction. The plaintiff must take all reasonable steps to mitigate the loss once he has discovered the fraud.
The word representation means a statement of fact made by one party to the other, either before or at the time of making the contract, with regard to some matter essential for the contract, with an intention to induce the other party to enter into contract. A representation, when wrongly made, either innocently or intentionally, is called 'misrepresentation'. When the wrong representation is made willfully with the intention to deceive the other party, it is called fraud. But, when it is made innocently i.e., without any intention to deceive the other party, it is termed as 'misrepresentation'. In such a situation, the party making the wrong representation honestly believes it to be true. For example, A while selling his car to B, informs him that the car runs 18 kilometers per litre of petrol. A himself believes this. Later on, B finds that the car runs only 15 kilometers pr litre. This is a misrepresentation by A. Section 18 of the contract Act classifies acts of misrepresentation into the following three groups:
When a person makes a positive statement of material facts honestly believing it to be true though it is false, such act amounts to misrepresentation.
Section 18(2) says that any breach of duty which, without an intent to deceive, gives an advantage to the person committing it, or anyone under him, by misleading another to his prejudice or to the prejudice of anyone claiming under him, amounts to misrepresentation. In such a case, there is no intention to deceive, but party representing commits a breach of duty which he owes to the other party. A breach of duty would also exist where a party bound to disclose certain information does not do so. Such non-disclosure would also amount to misrepresentation. For example, in a life policy, the assured does not disclose the fact that he had previously suffered from some serious ailments. The non-disclosure, however, innocent it may be, would entitle the insurer to avoid the contract on the ground of misrepresentation of facts. Such a duty exists between banker and customer, landlord and tenant and all contracts of utmost good faith. Such cases can also be termed as 'constructive fraud'.
The subject matter of every agreement must clearly be understood by the concerned parties. If one of the parties, leads the other, even innocently, to commit a mistake regarding the nature or quality of the subject-matter, it is considered misrepresentation.
Section 19 of Contract Act provides that when consent to an agreement is caused by misrepresentation, the agreement is voidable at the option of the party whose consent was so caused. Thus, the aggrieved party has the following two rights:
You have seen that the party whose consent was caused by misrepresentation can avoid or rescind the contract. However, this right is lost in the following cases:
Mistake may be defined as the erroneous belief concerning something. Whenever an agreement is made under a mistake, there is no consent, and the agreement is not valid. Broadly speaking, Mistake may be of two types-mistake of law and mistake of fact. Mistake of law can be further classified into (a) mistake of Indian law, and (b) mistake of foreign law. Similarly, mistake of fact can be (a) bilateral mistake or (b) unilateral mistake.
Mistake of law can be further classified into (a) mistake of Indian law, and (b) mistake of foreign law.
The general rule is that mistake of law of the land is no excuse. Section 21 lays down that a contract is not voidable because it was caused by a mistake as to any law in force in India. It is because everyone is supposed to know the law of the country and if a person does not know the law of his country, then he must suffer the consequences.
A person is supposed to know the laws of his country but he cannot be expected to know the laws of other countries. Therefore, the rule that 'ignorance of law is no excuse' cannot be applied to foreign law. A mistake of foreign law is treated as a mistake of fact.
Mistake of fact may be classified into two groups.viz., (a) Bilateral mistake, and (b) Unilateral mistake.
When both the parties to an agreement are under a mistake of fact essential to the agreement, the mistake is known as bilateral mistake of fact. In such a situation, there is no agreement at all because there is complete absence of consent. Section 20 of the Act provides where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. Thus, for declaring an agreement void under this Section, the following three conditions must be satisfied.
The mistake must be mutual. For example, A, having two cars, one Fiat and another Maruti, offers to sell his Fiat car to B and B not knowing that A has two cars, thinks of the Maruti car and - agrees to buy it. In this case, there is no consent whatsoever. Therefore, the agreement shall be void.
Mistake must relate to as essential fact: The mistake must relate to a matter of fact which is essential to the agreement. In other words, only such mistake of fact that goes to the root of the agreement, renders the agreement void. For example, A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void, because the mistake relates to something i.e., the horse, which is essential to the contract
A bilateral mistake may be
Where both the parties to an agreement are under a mistake relating to the subject-matter of the contract, the agreement is void. A mistake as to the subject-matter may take following forms.
When both the parties are under a mistake regarding the existence of the subject-matter, the agreement is void. For example; A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship carrying the cargo had been cast away and the goods lost. Neither the party was aware of these facts. The agreement is void.
Where the parties to a contract have different subject-matter in their minds i.e., one party had one thing in mind and the other party had another, the agreement is void because there is no consensus-ad-idem. For example, A offers to sell his old Delhi house to B. A had another house in South Delhi. B thinks he is buying the South Delhi's house. There is no agreement between A and B.
Sometimes the buyer already owns the property which a person wants to sell to him, but the concerned parties are not aware of this fact. In such a case, the agreement is void as there is a mistake about the title of the subject-matter.
Where both the seller and the buyer make a mistake regarding the quantity of the subjectmatter, the agreement is void. In the case of Henked v. Pape, P inquired about the price of rifles from H suggesting that he might buy fifty rifles. On receiving the quotation, P telegraphed “send three rifles”. But. because of the mistake of the telegraph authorities, the message transmitted was “send the rifles” H despatched fifty rifles. P accepted three rifles and returned the remaining forty seven rifles. It was held that there was no contract. However, P was liable to pay for three rifles on the basis of an implied contract.
If the subject-matter is something essentially different from what the parties thought it to be, the agreement is void. For example, A contracts to sell a particular horse to B. A and B believe it to be ,a race horse. But, it turns to be a cart horse. The agreement is void.
Where there is a mutual mistake as to the price of the subject-matter, the agreement is void. For example, where a seller of certain goods mentioned in his letter the price as Rs. 1,250 when he really intended to w:ite Rs. 2,250, the agreement is void. An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not treated as a mistake of fact.
If the parties to an agreement believe that the contract is capable of performance, while in fact it is not so, the agreement is treated as void or the ground of impossibility. It may be a physical impossibility or a legal impossibility.
The term 'unilateral mistake' means where only one party to the agreement is under a mistake. Generally, a unilateral mistake does not make the agreement void. According to Section 22, a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact. If a man due to his own negligence or lack of reasonable care does not ascertain what he is contracting about, he must bear the consequences. For example, A sold oats to B by sample and thinking that they were old oats, purchased them. In fact, the oats were new. It was held that B was bound by the contract, (Smith v. Hughes). In some cases, however, a unilateral mistake may be fundamental and may affect the character of the contract. In such a situation, the agreement is void. In the following cases, even though the mistake is unilateral, the agreement is void.
Mistake as to the identity of the person violates a contract. For example, where A intends to contract only with B, but enters into a contract with C believing him to be B, the contract is void. It should be noted that a mistake about the identity of the contracting party will render the contract void only if
The following cases illustrate this point. In the case of Cindy v Lindsay, one Blenkiron, knowing that Blenkiron & Co., were the reputed customers of Lindsay & Co placed an order with Lindsay & Co. by imitating the signature of Blenkiron. The goods were then sold to Cindy, an innocent buyer. In a suit by Lindsay & Co. against Cindy for recovery of goods, it was held that as Lindsay never intended to contract with Blenkiron, there was no contract between them and as such even an innocent buyer (Cindy) did not get a good title. Hence, Cindy must return the goods or make payments of price. In the case of Lake v. Sirnmons, a woman by falsely misrepresenting her to be the wife of a well known Baron (a millionaire) obtained two pearl necklaces from a firm of jewelers on the pretext of showing them to her husband before buying. She pledged them with a broker, who in good faith paid her some amount. It was held that there was no contract between the jeweler and the woman and an innocent buyer or a broker did not get a good title. The broker must return the necklaces to the jeweler.
A contract is void when one of the party, without any fault of his own, makes a mistake as to the very nature of the contract. Thus, when a person is induced to sign a written document containing a contract fundamentally different in nature from what he thinks he is signing, the contract shall be void. In the case of Foster v. Mackinnon, an old illiterate man was induced to sign a bill of exchange, by means of a false representation that it was a mere guarantee. Held, he is not liable for the bill as he never intended to sign a bill of exchange.
While discussing various types of mistakes, the effect of each type of mistake has been clearly stated. It can now be summarized as follows: