One of the essentials of a valid contract mentioned in section 10 is that the parties should enter into the contract with their ‘Free consent’.
According to section 13. Two persons are said to have consented when they agree upon the same thing in the same sense.
In English law, this is called ‘consensus–ad-idem’.
Effect of absence of consent:
- Where there is no consent at all, the agreement is ‘void-ab–inito’.
It is not enforceable at the option of either party.
Example 1: X has two cars one Maruti car and one Honda city car. Y does not know that X has two cars Y offers to buy the car at Rs. 50,000. Hence, there is no identity of mind in respect of the subject matter. Hence there is no consent at all and the agreement is void – ab-inito.
Example 2: An Illiterate woman signed a gift deed thinking that it was a power of attorney- no consent at all and the agreement was void-ab-into (Bala Devi v/s Manumdats)
- Consent is said to be free when it is not caused by (Section 14)
- Coercion (Section15)
- Undue influence(Section16)
- Mistake(Section 20, 21, 21)
Effect of absence of Free Consent:
If consent coercion, undue influence, fraud, Misrepresentation the contract is voidable at the option of the party whose consent was not free (19,19A)
Coercion (Section 15)
- Committing any act which is forbidden by the IPC
- Threatening to commit any act which is forbidden by the IPC
- Unlawful detaining of any property
- Threatening to detain any property
CASE LAW- A Madrasi Gentleman died leaving a young widow. The relatives of the deceased threatened the widow to adopt a boy otherwise they would not allow her to remove the dead body of her husband for cremation. The widow adopted the boy and subsequently applied for cancellation of the adoption. It was held that her consent was not free but induced by coercion, as any person who obstructed a dead – body from being removed for cremation would be guilty of an offense under section 297 of the I.P.C. The adoption was set aside ( Ranganayakamma v/s Alwar Seti).
Essential elements of coercion
Above four (a-d)
- (e)Coercion need not necessarily to proceed from party to contract.
- (f) Coercion need not necessarily be directed against the other contracting party.
- (g) It is immaterial whether the IPC is or is not force at the time or at the place where the coercion is employed.
Effect of the threat to file a suit:
A threat to file a suit does not amount to coercion unless the suit is on a false charge. The threat to file a suit on the false charge is an act forbidden by the IPC and thus will amount to an act of coercion.
Effect of Threat to commit suicide:
The threat to commit suicide does not amount to coercion because the attempt to suicide is punishable in IPC not threat to commit suicide. Therefore voidable. (Chikham Ammiraju v/s Seshama).
Effect of a threat to strike:
A threat to strike by employees in support of their demands is not regarded as coercion. This is because the threat to strike is not an offense under the IPC it is a right given under the Industrial Disputes Act.
When coercion is employed to obtain the consent of a party the contract is voidable at the option of the party where consent was obtained by coercion.
Detaining property under mortgage:
Detention of property by a mortgage until the payment of loan does not amount to coercion.
Undue Influence (Section 16)
Meaning of undue influence: dominating the will of the other person to obtain an unfair advantage over the other.
- Where the relation subsisting between the parties must be such that one party is in a position to dominate the will of the other.
- The dominant party uses his position.
- Obtain an unfair advantage over the other.
X was suffering from a number of sickness and Y was his family doctor. Y induced X to agree to pay Y, an unreasonable sum for his professional services. Here, Y has employed undue influence over
- In the case, Y uses his superior position to obtain an unfair advantage over X.
No presumption of domination of will:
- Landlord and Tenant
- Creditor and Debtor
- Husband and wife (other than Pardanashin)
- Principal and Agent
Effect of undue influence: (Section 19A)
When consent to an agreement is caused by undue influence, the contract is voidable at the option of the party whose consent was so caused.
The burden of Proof:
A contract is presumed to be induced by undue influence if the following two conditions:
- A party has the position to dominate the will of the others.
- The transaction is unconscionable (unreasonable).
In such a case dominate party is under the burden to prove the undue influence was not employed.
Fraud (Section 17)
- The term fraud means a take representation of facts made wilfully with a view to deceive the other party.
- 17- fraud means any act committed by a party to a contractor with his connivance or by his agent with intent to deceive another party thereto or his agent or to induce to enter into a contract.
Essentials of fraud:
- By a party to the contract
- There must be representation- [an opinion a statement of expression – does not fraud].
- The representation must be false.
- Before the conclusion of the contract.
- The misrepresentation must be made willfully.
- The misrepresentation must be made with a view to deceive the other party.
- The other party must have actually been deceived.
- The other party has suffered a loss.
Fraud- definition include
- The suggestion, as to fact, of that which is not true by one who does not believe it to be true.
- The active concealment of a fact by one having knowledge or belief of the fact.
- Varun purchases a ring from Prateek on credit without any intention of paying for it is a clear case of fraud from the varun side: hence contract is voidable at the option of Prateek.
- Any other act fitted to deceive.
- Sonata presents herself as an agent to an insurance company and convinces Mala, who deposit some amount to her, This car of fraud and contract is voidable at the option Mala.
Any such act or omission as the law specially declared to be fraudulent.
Silence be Fraudulent
The Explanation to Section 17 deals with cases as to “when silence is fraudulent”. It, therefore, follows that:
- As a rule, mere silence is not fraud because there is no duty cast by law on a party to a contract to make a disclosure to the other party, of material facts within his knowledge.
- Suraj and Prakash, being traders, enter upon a contract. Suraj has private information about a change in prices that would affect Prakesh’s willingness to proceed with the contract. Suraj is not bound to inform Prakesh.
- Silence is fraudulent if the circumstance of the case is such that it is the duty of tn<<pttton keeping silence to speak
In the words, silence is fraudulent in contracts of ‘untmost good faith’ contracts. These are contracts in while the law imposes a duty of abundant disclosure on one of the parties thereto, due to the peculiar relationship of the parties or due to the fact that one of the parties has peculiar means of knowledge which are not accessible to the other. The following contracts come within this class:
- Fiduciary relationship.
When the parties stand in a fiduciary relationship to each other, the person in whom confidence is reposed is under a duty to act with utmost good faith and to make full disclosure of all material facts concerning the transaction known to him. Example of a fiduciary relationship includes those of principal and agent, solicitor and client, guardian and ward, and trustee and beneficiary, master and servant, father and son, guru and disciple, doctor and patient, police and accused, etc.
- Where a broker who was employed to buy shares for the client, sold his own shares to the client, without disclosing this fact to him and without obtaining his consent, therefore, it was held that the client could avoid the sale.
- Where solicitor purchased a certain property from his client nominally for his brother, but really for himself, it was held that the sale can be avoided by the client, if the transaction was a perfectly proper one.
- Contracts of insurance.
In contracts of marine, fire and life insurance, the insurer on the basis that all material facts have been communicated to him; and that if there has been non-disclosure he shall be entitled to avoid the contract.
The assured, therefore, must disclose to the insurer all material facts concerning the risk to be undertaken e.g., disease, etc., in case of life insurance. Concealment or misstatement of a material fact will render the contract void.
- Contracts of a marriage engagement
Both parties to a contract of marriage must disclose every material fact otherwise the other party is justified in breaking off the engagement.
- Contracts of family settlements.
Contracts of family settlements and arrangements also require full disclosure of all material facts within the knowledge of the parties to such contracts.
- Share allotment contracts.
Promoters and directors, who issue prospectus of a company to invite the public to subscribe shares should disclose all the information regarding the company to the general public.
- Silence is fraudulent where the circumstance is such that “alliance in itself, equivalent to speech”
- A says to Z- “if you do not deny. I shall presume that the horse is sound.” A says nothing hence A’s silence is equivalent to speech. If the horse is unsound A’s silence is fraudulent.
Effect of fraud:
Sec.19: A contract induced by fraud is voidable at the option of the party defrauded. Till the exercise of such option, the contract is valid.
Effect of fraud:
- Rescinds of contracts
- Right to insist upon performance
- Right to claim damages-if he suffered loss.
MISREPRESENTATION (SECTION 18)
When a false statement is made with the knowledge that it is false and also with the intention to deceive the other party and makes him enter into a contract on that basis, it is known as fraud. But when the person making a false statement believes the statement to be true and does not intend the other party to the contract it is known as “misrepresentation”. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation.
Section18 define misrepresentation as under: “MISREPRESENTATION” means and includes-
- The positive assertion, in a manner not warranted by the information of the person making it of that which is not the truth, though he believes it to true;
- A says to B who intends to purchase his land, “my land produces 10 quintals of wheat per acre.” A belief the statement to be true, although he did not have sufficient ground for the belief. Later on, it transpires that the land produces only 7 quintals of wheat per acre. This is a misrepresentation.
- Any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice or to the prejudice of anyone claiming under him;
- A, before signing a contract with Z for sale of a business , rightly states that his monthly sale Rs.20000. this negotiation lasts for five months when the contract for sale was signed.
- During this period the production reduced to Rs.15000 per month. A unintentionally keeps quite. This is the case of misrepresentation and is voidable at the option of Z.
- Causing mistake innocently, about the subject-matter.
Mistake (Sec. 20,21,22)
Mistake Erroneous Belief about some facts
- Mistake of fact
- One party under Mistake of fact the contract is valid (Not voidable is void)
- Both parties under Mistake of facts the contract is void
The mistake of law(Sec. 21)
- The mistake of Indian law the contract is valid
Mistake of foreign law
- Same as mistake fact
- Both parties under the mistake
When the consent of the parties to the contract is caused by mistake it is not free consent, which is needed for the validity of a contract. One, or both, of the parties, may be working under some misunderstanding or misapprehension of some fact relating to the agreement.
If such a misunderstanding or misapprehension had not been there, probably they would not have entered into the agreement. Such a contract is said to have been caused by mistake.
Section 20 provides that “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”.
The three conditions which must be fulfilled are:
- Both the parties must be under a mistake i.e, the mistake must be mutual. Both the parties should misunderstand each other so as to mollify consent.
- Menu, having two houses A and B, offers to sell house A, and neal not knowing that M has two houses, thinks of house B and agrees to buy it. Here there is no real consent the agreement is void.
- The mistake must relate to some fact and not to judgment or opinion etc. An erroneous opinion as to the value of the thing that forms the subject matter of the agreement is not to deemed a mistake as to a matter of fact.
- If a buys a motorcar thinking that it is worth Rs.70000 and pays Rs.70000 for it when it is only worth Rs.50000, the contract remains valid. A has to blame himself for his ignorance of the true value of the motorcar and he cannot avoid the contract on the ground of mistake.
- The fact must be essential to the agreement: this mean fact is such which goes to the very root of agreement.
On the basis of judicial decision, common law has identified four different types of mistake in the contract that may broadly be put into the following heads:
- Mistake as to the existence of the subject matter of the agreement. If at the time of the agreement and unknown to parties, the subject matter of the agreement has ceased to exist, or if it has never been in existence, then the agreement is void.
- A agrees to sell to B a specific cargo good supposed to be on its way from England to Bombay. It turns out that, before the way of the bargain, the ship conveying the cargo had been cast away, and the goods lost, neither party was aware of these facts. The agreement is void.
- A agrees to buys from B a certain horse. It turns out that the horse was dead at the time the bargain, though neither party was aware of the fact. The agreement is void.
- Mistake as to the identity of the subject matter. Where parties are working under a mistake as to the identity of the subject matter i.e., one party had one thing in mind and the other party had another, the agreement is void for want of consensus-ad-idem.
- Where there was a contract for the sale of a certain quantity of cotton arriving per ex ships at the time of entering into the contract, held there was no contract.
- Mistakes as to the quantity of the subject matter. If both the parties are working under a mistake as to the quantity of the subject matter, the agreement is void.
- Punit enquired about the price of rifles from Hitesh stating that he may buy as many as 50. Hitesh quoted the price. Punit telegraphed “send thirty rifles”. The telegraph clerk transcribed the message as “ send the rifles. Hitesh sends 50 rifles. Punit accepted only thirty and returned twenty. Hitesh filed a suit for damages for non-acceptance of 20 rifles. It was held that there was no contract as there was no consent and it made no difference even if the mistake was caused by the negligence of a third party.
- Mistake as to the quality of the subject matter. If there is a mutual mistake of both the parties as to the quality of the subject matter i.e. if the subject matter is something essentially different, from what the parties of the matter i.e., if the subject matter is something essentially, from what the parties believed it to be, the agreement is void.
A sold certain seeds to B. Both parties honestly believed that the seeds were two years old. Actually, the seeds proved to be only one year eleven months old. The contract cannot be avoided, as the mistake does not affect the substance of the transaction.
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