Definition of “Free Consent”
An agreement is valid only when it is the result of the “free .. consent” of all the parties to it. Section 13 fines the act defines the meaning of the term `consent’ and Section 14 specifies,, under what circumstances consent is `free
Section 13 : “Two or more persons are said to consent when they agree upon the same thing in the same sense.”
Consent involves a union of-the wills and an according the minds of the parties. When the parties agree upon the same thing In the same sense, they have consensus ad item. For a valid contract the parties must be ad idem.
Section 14: This section lays down that consent is not free. if it is. caused by
- undue influence,
- misrepresentation, or
Coercion is defined by Section 15 of the Act as follows
“Coercion is the committing or threatening to unlawful any ac forbidden by the Indian Penal Code, or unlawful detaining or threatening to detain, any propertyto the prejudice of any person whatever with the intention of causing any person to enter in to an agreement.
Explanation-It is immaterial whether the Indian Penal Code is or isn’t in force in the place were the coercion is employed
features or Requisites
the provisions of Section 15 can be analyzed as follows
1. coercion means
(i)committing or threatening to commit an act ; forbidden by the Indian Penal Code, or
(ii ) the unlawful, detaining or threatening to detain any property
2. the act, constituting coercion, must be- directed at e person and not necessary at the other -party to the agreement
3. The act, constituting coercion, must have been done or threatened with the intention of causing any person to enter into, an agreement.
4. it goes not matter whether the Indian Penal Code is or is not in force in t e place w ere the coercion is employed.
(i)-P-Threatens to shoot Q if he does not let out his house to P, and agrees to do so. the agreement has been brought about by. coercion.
(ii) P threatens to shoot Q if R does not let out his house to P and agrees to do so re agreement has been brought about by coercion,
(iii) An agent appointed by a person refused to hand over the book of account of the principal unless the principal released him from a liabilities concerning past transactions. the principalgave a release as demanded. Held the release was obtain by coercion an was not binding . muthia v. Karuppan.
(iv) A girl of 13 was made to agree to adopt a boy by her -husband’s relative who prevented the removal of the dead body of her husband until she consented to the adoption. Held the agreement to adopt was not binding. ranganayakamma valwarsetti
(v) A on board an English ship on the high seas ; causes 8 to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. A afterwards sues B for breach of contract at Calcutta. A has employed coercion although his act is not an offence by the law of England and although the Indian Penal Code was not in force at the time when or the place where the act was done.
Consequences of Coercion
A contract brought about by coercion is voidable at the option of the party whose consent was so cause .-Sec. 1- 9 -’ aggrieved party can have the contract set aside or he can refuse to perform it and take the defence of coercion if the other party sought to enforce it. The aggrieved party may, if he so desires; Abide by the contract an3insist on its performance by the other party.
A threat to prosecute a, man or to file a suit against him does not constitute coercion because it.is not forbidden by the.
Indian Penal Code. Compulsion of law is not coercion -undue influence, fraud, misrepresentation or mistake. Andhra _SugarsLtd.v.StateofA.P.
2. high prices high interest rates
It is not coercion to charge high prices or high interest rates because such acts are not forbidden by the Indian Penal Code
3. A threat to commit suicide
Consent to an agreement may be obtained by threaten in to commit suicide e.g. by a fast to death . the madras High Court
has held that this amounts to coercion. Amiraju v. seshamma .it was however, argued by old-field .J, one o t e judges of the Bench which decided this case, that Section 15 must be constructed and that an act which is not punishable under
the Indian Penal code cannot be said to be ` forbidden” by it. Suicide isn’t punishable by the Indian penal code. only the attempt to commit suicide is punishable. Therefore, suicide isn’t not a crime and the threat to commit suicide is not coercion
The term duress is used in English law to denote threats over the person or another with a view to obtain the consent o a party o an agreement. The scope .of the term coercion is wider because itincludes threats over property.
A contract is said to be induced by undue influence where
(i) one o t e arties is in a position to dominate the will o the other and
(ii) he uses the position to obtain an unfair advantage over the other.-Sec. 16 (1).
Section 16 (2) provides that undue influence may be presumed to exist in the following cases
1. W ere one partyholdsa real or apparent authority over the other or where he stands in a fiduciary ,relationship to the
Fiduciary relationship means a relationship of mutual trust and confidence. such a relationship is suppose to exist in the ollowing cases-father and Son ; guardian and ward ; solicitor and client ; doctor and patient ; preceptor and disciple ; trustee
and beneficiary etc.
2.Where a party makes a contract with a person whose ‘mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress.
(i) F 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 advanced. F employs undue influence.
(ii) P. a man enfeebled by disease or age, is induced by B’s influence over him as his medical attendant to agree to pay B an unreasonable sum for his professional services. B employs undue influence.
(iii) A Malay woman of great age and wholly illiterate made a gift of almost the whole of her property to her nephew who was managing her estates. The gift was set aside on the ground of undue influence. ,lnche Noriah v. Shaik Omar.
Consequences of Undue Influence
- An agreement induced by undue influence is voidable at the option of the party whose consent was so caused. Such an agreement may be set aside absolutely or, if the party who was entitled to avoid it has received any benefit there under, the court can set it aside upon such terms and conditions as may seem just .sec.19A
- The aggrieved party may, , if he desires, treat 7 the agreement as binding and enforce it against the other party.
- according to the madras High Court undue influence by a person, w o is ‘not a party to the contract, may make the contract voidable.
burden of Proof
- If a party is proved to be in a position to dominate the will of another and if it appears-that the transaction is an unconscionable one, the burden of Proving that the contract was not induced by undue influence, lies on the party who was in a position to dominate the will of the other.-Sec. 16 (3).
- the existence of the power to dominate the will of another may be presumed to exist under the-circumstances mentioned in Section 16 (2). [See. Para 2, above]
- it has been held by judicial decisions that the existence of a power to dominate The will of another cannot be presumed in the case of landlord and tenant, and creditor and debtor. There is no presumption of undue influence between husband and wife..
- Mackenzie v.royal Bank -of Canadain these cases the party alleging undue influence must prove that undue influence existed.
- Lack of judgment, want of prudence, lack of knowledge of facts, or absence of foresight are generally not, by themselves, sufficient reasons for setting aside a contract.. Undue influence cannot presume merely from the existence of any of the aforesaid defects in a party. Allcard v. Skinner.
An allegation of undue influence’ may be answered or rebutted if the following facts were proved –
(a)the injured person had independent advice ;
(b)all material facts were disclosed ; and
© he consideration was adequate.
Undue influence is suspected in the following cases :
(i) Inadequacy of consideration.
(ii) Fiduciary relationship between the parties.
(iii) Inequality between the parties as regards age, intelligence, social status, etc.
(iv) Absence of independent advisors for the weaker party.
(v) Unconscionable bargains. Unconscionable bargain is one which is against the conscience of reasonable persons and what shocks the public. If excessive profit is made it will also be within this term.
High rates of interest
- It is usual for moneylenders to charge high rates of interest from needy borrowers. Can the court presume the existence of undue influence in such cases?
- Illustration (d) of Section 16, Contract Act is as follows : ‘A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the 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.”
- So a transaction will not be set aside merely because the rate of interest is high. But if the rate is so high that the court considers it unconscionable, the burden of proving that there was no undue influence lies on the creditor. This is made clear by illustration (c) of Section 16 which is as follows : “A, being in debt to B, the moneylender of his village, contracts a fresh loan on terms which appear to be unconscionable. It 6esanBxo prove that the contract was not induced by undue influence.”
- In India, in most of the States, there are Money Lenders Acts which lay down the maximum rates of interest which can be . charged. Also, under the Usurious Loans Act of 1918, the court has discretionary power to reduce rates of interest whenever they appear to be unconscionable.
A poor Hindu widow was badly in need of money for her maintenance: A money-lender availed of the opportunity of her predicament and persuaded her to make an agreement to pay 100% interest. The court reduced the interest. Raghunath Prasad v. Sarju Prasad.
As regards high prices the general opinion is that if a trader puts his prices up during scarcity and a buyer agrees to pay such high prices, it is a transaction in the ordinary course of business and is not a case of undue influence. In certain cases high prices may amount to profiteering and black-marketing. They are criminal offences.
Women, who observe the custom of Parda, i.e., seclusion from contact with people outside her own family, are peculiarly susceptible to undue influence. Therefore, Indian courts have held that a contract made by or with a Pardanishin lady may be set
aside by her unless the other party to the contract satisfies the court that the terms of the contract were fully explained to her and that she understood their implications.
difference between Undue Influence and Coercion
In both undue influence and coercion, one party is under the influence of another.
- In coercion the influence arises from committing or threatening to commit an offence punishable under the Indian Penal code or detaining or threatening to detain ’property unlawfully. In undue influence, the -influence arises from the domination of the will of one-person over another.
- Cases of coercion are mostly cases of the use of physical force while in undue influence there is mental pressure.
Representation is a statement or assertion, made by one party to the other, before or at the -time of the contract, regarding some fact relating to it. Misrepresentation arises when the representation made is inaccurate but the inaccuracy is not due
to any desire to defraud the other party. There is no intention to deceive .
section I8 of the. Contract Act classifies cases of misrepresentation into three groups as follows :
“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.’
A says to B who intends to purchase A’s land : “My land produces 12 maunds of rice per bigha. A believes the statement to be true .although he did not have sufficient grounds for the belief. Later on it transpires that the land does not produce 12 maunds of rice. This is misrepresentation.
2. Breach of Duty
“Any breach of duty which, without an intent to deceive gains an advantage to the persons committing it
or anyone claiming under him; by misleading another to his prejudice or to the prejudice of anyone claiming under him” under this heading would fall cases where a party is under a duty to disclose certain facts and do not do so and thereby misleads the other party. In English law such cases are known as cases of “constructive fraud.”
“causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.”
Consequences of Misrepresentation
In cases of misrepresentation the aggrieved party can :
(i) avoid the agreement, or
(ii) insist t at the contract be performed and that he shall be put in the position in which he would have been if the representation made ‘ had been true.
But if the party whose consent was caused by misrepresentation. ,had the means of discovering the truth with ordinary diligence, he has no remedy-Sec. 19.
“Ordinary diligence” means such diligence as a reasonably prudent man would consider- necessary , having regard to the nature the transaction.
A by a misrepresentation leads B erroneously to believe that five hundred maunds of indigo are made annually at A’s factory. B
examine-s the accounts of the factory ,which show that only four hundred maunds of indigo have been made. After this B buys the factory. The contract is not avoided by A’s misrepresentation.
The term “fraud” includes all acts committed by a person with a view- to deceive another person. “To deceive” means ” to induce a man to believe that a thing is true which is false.”
Section 17 of the Contract Act states that `Fraud” means and includes _any -of the following acts :
1. False Statement
“The suggestion as to a fact, of that which is not true by one who does not believe it to be true.’ A false statement intentionally made is fraud.
2: Active Concealment
“The active Concealment of a fact by one having knowledge or belief of the fact:” Mere non-disclosure is not -fraud where the party is not under any duty todisclose all facts But active concealment is fraud.
(i) B, having discovered a vein of ore on the estate of A, adopts means to conceal , and does conceal the existence o the ore from A. Through A’s ignorance B is enabled to buy the estate at an undervalue, the contract is void able at the option of-A.-(Illustration (b) to Sec 19).
(ii) A sells by auction to B a horse which A knows to be unsound-A says nothing to .B about the horses unsoundness. This is not fraud because A s under no duty to disclose the fact to B. But if between B ,and A there is a fiduciary relationship (for example if B is A’s daughter) there arises the duty to disclose and non-disclosure amounts to fraud
“A promise made without any intention of performing it.”
Example- purchase of goods without any intention paying for then .
“Any other act. fitted to deceive.”
5.fraudulent act or omission
“an y such act or omission as the law, specially declares to be fraudulent.” This clause to provisions in certain Acts which make it obligatory to disclose relevant facts. Thus, under Section 55 of Transfer of Property Act, the seller of immovable property is bound to disclose to the buyer all material defects. , Failure to do- so -amounts to fraud.
To constitute fraud, the act complained of must be brought within any of the five above-mentioned categories.
It is to be noted that were commendation or praising of one’s own goods is not. fraud. traders and manufacturers are inclined to speak optimistically of their products. e.g. X products are the best in the market” or a soap powder which washes whiter
Than white .such statements do not amount to fraud unless` a clear intentiontodeceive is proved .
Can silence be fraudulent?
“Meresilence 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 isthe duty of the person keeping silence to -speak, or unless his silence is, in itself equivalent to speech.”-Explanation to sec 17.
From the above, the following rules can be deduced :
1.the general rule is that mere silence is not fraud.
(i) A and B being traders enter upon a contract. A has private information of a change in price which would affect B’s willingness
to proceed with the contract. A is not bound to inform B .
( ii) H sold to W some pigs which were to his knowledge suffering from svvinfever .The pigs were sold “with all faults” and H did not
disclose the fever to W .held e, there was no fraud. Ward v. Hobbs.
2. silence is fraudulent, “if the circumstances of the case are such that regard being had to them, it is the duty of the person, keeping silence to speak.” The duty to speak, i.e. disclose all facts, exists where there is a fiduciary relationship between the parties (father and son ; guardian and ward, etc.)The duty to disclose may also be an obligation imposed by statute.
Example- sec-55 of the Transfer of property Act . there also a duty of making full disclosure in contract it of insurance . Whenever there is a duty to disclose, failure to do so amounts to fraud .
3. silence is fraudulent where the circumstances are such that, “silence is in itself equivalent to speech”.
B says to A. “If you do not deny it, I shall assume that the horse is sound A says nothing. Here A’s -silence is equivalent to speech. If then horse is unsound. A’s silence is fraudulent.
consequences of Fraud
A party w o as been induced to enter into an agreement by fraud as the following remedies open to him-sec 19. .
1. He can avoid the performance of the contact.
2.He can insist that the ‘contract shall be performed and that he shall be put in the position in which he would have been if the representation made had-been true.
A fraudulently informs B that A’s estate is free from encumbrance. B thereupon buys the estate. The estate is subject to a mortgage
B may avoid the contract or may insist on its being carried out and the mortgage debt repaid by A
3.The aggrieved party can sue for damages. Fraud is a civil wrong or tort ; hence compensation to payable
Relief for fraud can be obtained only if the following conditions are satisfied .
- The act must have been committed by a party to a contract or with is connivance or by his agent.
- The act must have been done with the intention to deceive and must actually deceive. A deceit which does not deceive gives no ground o action.
- The consent of the party was obtained by the act complained of .a fraudulent act which did not cause the consent to a contract o t e party on whom such fraud was practiced, does not make the contract voidable.
- In cases of fraudulent silence, the contract is not voidable if the party whose consent was so caused had the means of discovering the truth ordinary diligence.
- the remedy of rescinding the agreement is not available in cases of approbation (i.e., acceptance of the agreement) and ]aches or undue delay in taking action.
DISTINCTION BETWEEN FRAUD AND MISREPRESENTATION
1. Different Intention :
In misrepresentation there is no intention to deceive. fraud implies an intention to deceive
2.Different Belief :
the difference between misrepresentation and fraud depends on the belief of the person making the statement. If the statement is honest, even though .it waswrong, there is only misrepresentation. If the statement is dishonest it is a case of fraud.
In case of fraud the party aggrieved can rescind the contract (the contract is voidable at his. option). He an also sue for damages. In case of misrepresentation the only remedy is –rescission. there can be no suit for damages~
In case of misrepresentation if the circumstances were such that the aggrieved party might have discovered the truth with ordinary diligence, the contract cannot e avoided. The same is the case where there is fraudulent silence. but in other cases fraud this is no defence .even if there were independent sources of discovering the truth which were not availed , of the aggrieved party can rescind the contract an /or file a suit or damages.
CONRACTS UBERRIMAE FIDEI
Uberrimae fidei contracts are contracts where law imposes upon the parties the duty of making a full disclosure of all material facts .In such contracts; if one of the parties has any information concerning the subject matter of the transaction which is likely to affect the willingness of the other party to enter into e transaction, he is_ -bound to disclose the information.
The following contracts come within the class-of Uberrimae fidei contracts.
1.contracts of insurance :
The assured must disclose to the insurer all material facts concerning the risk to be undertaken. upon failure to do so, the contract may be avoided. London assurance Co. v. Mansel
2.Fiduciar relationship, :
Contracts in which parties stand in a fiduciary relation to each other, e.g., contracts- between solicitor and client, father and son, etc.
3.Contracts for the Sale of Immovable Property :
Under Section55(1)(a) of the Transfer of Property Act, the seller is’ bound “to ‘disclose to the buyer any -material defect in the property–or in the seller’s title thereto of Which–the-seller is, and-‘the buyer not aware, and which the buyer could not with ordinary care discover.”
4. Allotment of shares of companies :
Persons who issue the prospectus of a company have the duty of ‘disclosing all information regarding the company with strict accuracy. (See under Company Law, ch. 3). .
5. Family Settlements :
When family disputes art settled by mutual agreement, each party is bound to disc: information possessed by him regarding the value of family properties.
Mistake may be defined as a erroneous belief concerning -something. ‘consent cannot be said to be’ “free” when an agreement is entered into under a mistake. An agreement is valid as a contract only when the parties agree upon the same thing in the same sense.
Mistakes may be
(i) mistake of law and
(ii) mistake of fact. Mistake of law may again be
(a) mistake as to a law in force in India and
(b) mistake as to a law not in force in India.
Mistake may be-
(i) Bilateral- or
Bilateral mistakes arise where both the parties of the contract make mistakes e.g.,, regarding, the existence of the things or the nature of the transaction.
Unilateral mistake arises from one of the parties of the contract. As a rule unilateral mistake does hot make one avoid an agreement. But there are cases where such agreement can be avoided. For example in an agreement’ wt3d~et`hece Is no consent
The Indian Contract Act lays down the following rules regarding mistakes
1. Mistake of Law
Mistake on a point of Indian law does not affect the contract, Mistake on a point of law in force in a foreign country is to
Treated as mistake of fact.
A and B make a contract grounded on the erroneous belief that a particular debt is barred by the, Indian law of limitation. This is a valid contract. The reason is that every man is presumed to know the law of his own country and if, he does not he must suffer the consequences of such lack of knowledge ,But if in the above case, the mistake is related to the law of a limitation of a foreign country, the agreement could have been avoided .-Sec. 21.
2. Mistake of fact
An agreement induced by a mistake of fact is void provided the following conditions are fulfilled.-Sec. 20.
(i) Both the parties of the agreement are mistaken.
(ii) The mistake is as to a fact , essential to the agreement.
(i) P agreed to sell to Q a specific cargo supposed to be on its way from England to Bombay. it turns out that
before the day of the bargain the ship conveying the cargo has been cast away and the goods lost neither party was aware of the fact The agreement is void.
(ii) M agrees to buy from N ‘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.
(iii) A, being entitled to an estate for the- life of B, agrees to sell it td C. B was dead at the time of the agreement, but, both parties were ignorant of the fact. The agreement is void.
(iv) W offer to purchase certain plots of land belonging to C at £2,000, C rejected the offer. Later on C wrote a letter offering -to sell the plots to W for “£ 1,200″. His real intention was to make an offer for 2,100″. W accepted the offer asmade. held, W was not entitled to enforce the contract, as he knew that the “offer” was made by-C-under mistake websetr v cecil
“An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement :is not to be deemed a mistake as to a matter of fact.”-Explanation to Sec. 20.
X buys an article thinking that it is worth Rs. 100 while it is actually worth Rs. 50 the agreement cannot be avoided on the ground of 4. Unilateral Mistake
Section 22 provides that, “A contract is not voidable merely because it was caused by one of the parties to it being under.
a mistake as to matter of fact.” A mistake by one of the parties (Unilateral Mistake) does not generally affect the validity of a contract.
H contracted with the N Corporation to build a number of houses. In calculating the cost of the houses H by’ mistake deducted a particular sum twice over and submitted his estimates accordingly. The Corporation agreed to the figures which were naturally lower than actual cost. Held;-the agreement was binding as it stood when the Corporation ;affixed its seal to it, even though it was based upon erroneous estimates. Higgins Ltd. v. Northampton Corporation’
But if the mistake is of such a nature as to. prevent the : ” existence of free consent, the agreement is void, even though the mistake is unilateral. (See below)
Mistake and Consent .
Section 10 of the Act provides that an agreement is valid if it is the result of the free consent of the parties. Section 13 of the Act lays down that two or more persons are said to consent when they agree upon the same thing in the same sense. A mistake may prevent the formation of a real agreement “upon the same thing in the same sense”. When one or more of the parties to an agreement suffer from a fundamental error. and consent (apparently given) is not really there, the agreement t void.
A fundamental error, which precludes consent, is sometimes the result of fraud. But fraud- is not the necessary or decisive element. An error may arise without the fault of any of the parties to the agreement. Whenever any fundamental error exists, the agreement is void.
Examples of Mistake
Some typical cases of mistake invalidating an agreement are given below. ,
(a) Mistakes as to identity of the person contracted with, where such identity is essential to the contract.
(i)Blenkarn, by imitating the signature of reputable firm called Blenkarn & Co., induced another firm Y to supply goods to him on credit. The goods were then sold to X Held, there was no contract between Blenkarn and X because Y, :never intended to supply Blenkam. Therefore .X obtained no title to the goods. Because, the goods were given no credit the question of identity was essential to the agreement. Cundy v. Lindsay.
(ii)A jeweler was insured with a company against loss by theft, with the exception of jewellery ‘entrusted to a customer’: A woman, posing as the wife of a wealthy customer, made a few purchases from the jeweller to inspire confidence, and then was allowed to take away two pearl necktets of high value ‘on approval’ for her supposed husband. She made away with the necktets. The House of Lords held that the loss was covered by the insurance. Lake v. .Simmons.
The question of identity must be an essential clement of the contract. Where the identity of the party contracted with is. – immaterial, mistakes as to identity will not avoid a contract. Thus if X goes to a shop, introduces himself as Y and purchase some goods for cash, the contract valid unless . it can be shown that the shopkeeper would not have sold the goods to X had he knew that he was not Y
(b)Mutual mistakes as to the existence of a thing : All the examples given in the Contract Act under Section 20 come within this’ category. They have been reproduced above.
c) Mutual mistake about the identity or quantity of a thing. .
(i) X agreed to buy from Y 125 bales of. Surat cotton “to arrive ex Peerless from Bombay.” There were two ships called “Peerless” . sailing from Bombay, one arriving in October and the other arriving in November. X meant the earlier one and Y the latter. Held there was no contract. Raffles v. Wichelhaus. In this case there was no consensus ad idem : the parties did not understand the same thing . in the same sense.
(ii) X inspected 50 rifles in a shop. Latter he telegraphed, “send three rifles.” The telegraph, clerk by mistake transcribed the message as, “send the rifles.” The shopkeeper sent 50 rifles and upon X’s refusal , to accept, filed a suit for damages. Held, there was no contract. Here the consensus ad idem did not arise because of the mistake of a third party. Henke! v. Pope.
(d) Mutual mistake as to the subject-matter of the contract, or the nature of the transaction -: If the contract actually made is substantially different from the contract the parties –intended to make, the contract can be avoided.
(i) M an old man of feeble sight, endorsed a bill of exchange thinking it was a guarantee. There was no negligence on his part. Held,, there was no contract.’ Foster v. Mackinnon.
(ii) A and B believing themselves married made a separation agreement under which the husband agreed to pay a week y allowance to the wife. Later on it transpired that they were not married . In an action by the “wife “for arrears of allowance, it was held that the agreement was void because there was a mutual’ mistake on a point of fact which was material to the existence of the agreement.. Galloway v. Galloway .
(e) Miscellaneous : Mistakes may occur for the following causes : the title of property ; quality of the subject matter ; quantity of the goods ; and, the price of the subject.