Introduction
Contracts are agreements enforceable by law. In India, laws pertaining to contracts are laid down in the Indian Contract Act, 1872. One of the essentials of a valid contract is free consent of the parties.
The concept of ‘Consent’ has been defined in Section 13 of the Act as two individuals agreeing to the same thing in the same sense[1]. While it is important for both parties to give their consent to the rights and obligations imposed in the contract, the said consent should be free in nature and not be caused by coercion, undue influence, fraud, misrepresentation and mistake. The definition of free consent has been mentioned in Section 14 of the Act. It lays down the elements or causes which can exclude freedom of consent. If there are two consenting parties to a contract but the consent of one is not free, then the contract is voidable at the option of such party.
Elements vitiating free consent
Coercion
Coercion as defined in Section 15 of the Act includes instances in which an individual commits or threatens to commit an act which is forbidden by the Indian Penal Code, or detains an object unlawfully or threatens to do so with the intention of forcing someone to enter into a contract. The enforcement of the Indian Penal Code in the place where the coercive act was performed is immaterial.
The requirement of bringing only the rarest of the rare cases to the Court in matters pertaining to Section 15 was highlighted in the case Askari Mirza v Bibi Jai Kishori[2]. It was specified that the threat of criminal prosecution does not necessarily fall within the ambit of coercion. However, the threat to file a false charge is an act forbidden under the Indian Penal Code.
A parallel concept in English law is that of Duress. This common law idea is based on the contracting party being threatened. Coercion came about and was developed in equity to tackle situations in which ‘improper pressure’ is applied which could occur even without any particular threats. Duress and coercion are very closely related, with minute differences between the two.
Illustration
If A gets B’s consent to a contract after pointing a gun at him, or by threatening to harm him, B’s consent cannot be considered to be free consent.
Case law on coercion
In the case of Chikkam Ammiraju v. Chikkam Seshama, the Court was posed with the question of whether the threat to commit suicide could be considered to be a constituent of coercion. The facts of this case were that a husband was threatening his wife that he’ll commit suicide. This was done with the intention of inducing and coercing the wife and the son to execute a release in favour of his brother with respect to properties over which rights were claimed by the wife and the son. The Court in its judgement opined “that the threat of suicide amounted to coercion within Section 15 and the release deed was, therefore, voidable”.
Undue influence
Undue influence pertains to the relationship between the parties to the contract. If one of the parties is in a position of dominance and can alter the will of the other party so as to have an unfair advantage over the other, the contract is considered to be induced by undue influence. Section 16 defines undue influence and clarifies that this element can come up in situations wherein there is either a fiduciary relationship between the parties or a relationship of subordination.
It can also occur if the mental capacity of one of the contracting parties is affected owing to age, illness or distress and this is exploited by the other party. The burden of proof in cases pertaining to application of undue influence lies on the dominant party. An agreement will become voidable only after it is proved that the intention and objective of exploiting the other party existed.
Illustration
L advances money to her son, M, whilst he was a minor. When M comes of age, L, by misusing her parental influence, obtains a deed from M for an amount greater than what was given to him in the first place. L employs undue influence here.
Case law on Undue Influence
In the case of Wajid Khan v. Raja Ewaz Ali Khan[3], a benefit of a high monetary value without any consideration was given by an old and illiterate woman to her manager. The Court held that it was a case of application of undue influence. It was stated that the burden of proof to show the validity of the transaction, its bonafide nature and that no undue influence was exercised was on the manager.
Fraud
Fraud, as one of the vitiating elements of free consent, as defined in Section 17 of the Act, includes within its ambit five acts. If any of the acts mentioned are committed by a party to a contract, with his/her connivance or by an agent of such party, with the intention to deceive the other party into agreeing to the provisions of the contract, it amounts to fraud. The acts are as follows:-
(1) Suggesting something untrue as a fact which is true by someone who knows it’s not true;
(2) Actively concealing a fact by someone who has the knowledge or belief of that fact;
(3) Making a promise without the intention of performing it;
(4) Any act aimed at deceiving;
(5) Any such act or omission which the law categorically declares to be fraudulent.
For filing a suit under this element, it is pertinent that the party that was the victim of the fraudulent act faces some actual loss and incurs damages due to the fraud. Section 17 also specifies that merely being silent about the facts which could possibly affect the willingness of an individual to enter into a contract does not amount to fraud. An exception to this rule is that is the circumstance is such that it is the duty of the person keeping silent to speak or if his silence is in itself equivalent to speech.
Illustration
If A, who is aged over 15 years and thus a minor, deliberately makes a false statement that his age is 20 years in order to enter into a deed of sale of property, it amounts to fraud.
Case law on Fraud
In the case of Shri Krishan v. Kurukshetra University[4], a candidate for the LLB exam was the plaintiff. The student was short on attendance and did not specify the same on the exam admission form. The University authorities did not conduct a thorough check of the forms and this went undiscovered. In this case, the Court held that there was no commission of fraud at the instance of the candidate and that the University had no power to withdraw his candidature.
Misrepresentation
Section 18 of the Act defines and lays down the vitiating element of misrepresentation. It essentially includes the following:-
(1) A positive assertion about something which is not true by someone who believes it to be true;
(2) Any breach of duty performed without the intention to deceive the other party but leads to an advantage for the person committing it;
(3) Causing the other party to the contract to make a mistake in regards to the very essence of the main subject of the contract.
Misrepresentation as opposed to the other vitiating elements of free consent, must be innocent and the party making it must not have the intention and should believe the assertion or statement to be true.
Illustration
‘A’ sold a bag to ‘B’ with the belief that the bag is pink in colour while the bag was actually purple. In this case, A will be exempt from liability as he was selling the bag without the intention to deceit the customer.
Case law on Misrepresentation
In the case of Long v. Lloyd[5], the plaintiff bought the defendant’s lorry due to the representation made by the defendant regarding the perfect condition of his lorry. The plaintiff, upon buying the lorry, discovered various defects in it. However, the plaintiff did not rescind the contract and in turn, accepted the offer of getting half the cost of the repairs by the defendant. At a later point in time, the lorry broke completely and the plaintiff wished to rescind the contract. However, it was held by the Court that the plaintiff could not avail of this right anymore as he had already decided not to rescind the contract and had instead accepted a cost sharing system.
Mistake
The two types of mistakes, namely, mistake in law and mistake in fact are specified in Section 20, 21 and 22 of the Act. Mistake can occur in a contract in two ways. It can defeat the consent which the parties are supposed to have given and highlight that consent is unreal. The mistake could also lead to misleading of the parties to the contract with the purpose that was intended.
This provision is applicable when both parties are mistaken, where there is a mistake of fact and there the facts that are mistaken are essential to the contract. Section 20 is supplemented by Sections 21 and 22. The former lays down that mistake should be of fact and not of law and the latter pertains to situations where only one party is mistaken as to matter of fact. Mistake of law occurs when the party misinterprets any legal provision. In such cases, the contract cannot be avoided due to the application of the maxim of ignorantia juris non excusat[6]. On the other hand, a mistake of fact occurs when the parties have an issue in understanding the terms of contract. The contract cannot be invalidated in case of a mistake by one party.
Illustration
A and B make a contract based on the wrong belief that a particular agency of implementation is disallowed by the Indian law. In this case, the contract is not voidable as ignorance of law is no excuse.
L owes P Rs. 9800. Both L and P are under the misconception that the debt is barred by time and jointly agree that L needs to pay only Rs. 4900 to clear the debt. Since it is a mistake of law, the contract is valid.
Attempt this quiz to test your knowledge on the subject!
Results
#1. For which of the following, intention need NOT be proved?
Answer: Both (b) and (c)
#2. If M, a doctor, asks his patient, N, to sign an agreement for sale of property that will ensure a boost in his immunity, which of the following does it amount to?
Answer: Undue influence
#3. If T gives his opinion which is false, does it constitute fraud?
Answer: Maybe
#4. Does it amount to fraud, if A threatens to commit suicide unless B transfers $500 in his bank account?
Answer: No
#5. When consent to an agreement is caused by coercion , fraud or misrepresentation, the agreement is a contract :
Answer: (a) – Voidable at the option of the party whose consent was so caused.Voidable at the option of the party whose consent was so caused.
[1] Consensus ad idem.
[2] (1912) 16 IC 344.
[3] (1891) ILR 18 CAL 545.
[4] 1976 AIR 376.
[5] [1958] 1 WLR 753.
[6] ignorance of law is no excuse.
