Free Consent
Free Consent
Free Consent
Structure
4.0 Objectives
4.1 Introduction
4.2 Meaning of Consent
4.3 Concept of Free Consent
4.4 Coercion
4.4,1 What is Coercion?
4.4.2 Effect of Coercion
4.4.3 Burden o f Proof
4.'5 liJndue Influence
4.5.1 What is Undue Influence?
4.5.2 Presumptior~of Domination of Wil!
4.5.3 Effect o f Undue Influenc
4.5.1 Burden o f Proof
4.0 OBJECTIVES
You have learnt that there are some essentials of a valid contract and one of them
is that the consent of the contracting parties must be free. If the consent is not
free, the contract shall be treated as void or voidable depending upon the factor
which affected the consent. In thiS unit you will learn about the meaning of
consent and the various factors that affect the consent viz., coercion, undue
influence, fraud, misrepresentation, and mistake. You will also learn how far the
validity of an agreement is affected by each of these factors.
You have learnt that when two parties enter into a contract they should give their
consent. The consent of the parties means that they understand the same thing in
the same sense. There must be no misunderstanding between the parties about the
subject matter of the contract. 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'. If the parties are not
ad-idem on the subject matter of the contract, then there is no real agreement
between them. When two pesons enter into a contract concerning a particular
person or a thigg and it turns out that each of them had a different person or
thing in mind, no contract would exist between them. For example, A has two
Maruti cars, one is blue and the other red. H e wants to sell his red Maruti car. B
who knows of only A's blue car, offers to buy A's car for Rs. 60,000. B accepts
the offer thinking it to be an offer for his red Maruti car. Here the two parties are
not thinking in terms of the same subject matter. Hence, there is no consent and
the contract will not be valid. In Foster v. Mackinnon, the defendant has
purported to endorse a bill of exchange which he was told was a guarantee. The
court held that he was not liable as his mind did not go with that writing and he
never intended to sign a bill of exchange. There was no consent and consequently
no agreement arose.
For a contract to be valid it is not enough that the parties have given their
consent. The consent should also be free i.e., it has been given by the free will of
the parties involving no pressure or use of force. Section 10 of the Contract Act
specifically provides that All agreements are contracts if they are made by the free
consent of the parties .....................
Now let us understand when the consent is
said to be free.
Section 14 of the Act states that Consent is said to be free when it is not caused
by ( i ) coercion, or (ii) undue influence, or (iii) fraud, or ( i v ) misrepresentation,
or ( v ) mistake. Thus, the consent of the parties to a contract is regarded as free if .
it has not been induced by any of the five factors stated under Section 14. In other
words, the consent is not free if it can be proved that it has been caused by
coercion, undue influence, fraud, misrepresentation, or mistake, For example, X,
at a gun point, makes Y agree to sell his house to X for Rs. 50,000. Here, Y's
consent has been obtained by coercion and therefore, it shall not regarded as free.
When the consent of any party is not free, the contract is usually treated as
voidable at the option of the party whose consent was not free. If, however, the
consent has been caused by mistake on the part of both the pmies, the contract is
considered void. Look at Figure 4.1. It depicts the factors affecting free consent
and their effect on the validity of the contract.
Figure 4.1.
1 11coercion
(Voidable)
Undue Influence
(Voidable)
11 1
(Voidable)
Fraud
l~isrepresentation
(Voidable)
1 1
Mistake
(Voidable)
You should note that there is a difference between, the two situations viz.,
(i) when there is no free consent, and (ii) when there is no consent at all. In case
the consent is n ~ free
t the contract is voidable, at the option of the party whqse
consent was not free. But, in case there is complete absence of consent, the
agreement is void ab-initio i.e., it is not enforceable at the option of the party
whose consent was not free. But in case there is complete absence of consent, the
agreement is void ab-initio i.e., it is not enforceable at the option of either party.
Let us now discuss each of these five factors of free consent in detail.
4.4 COERCION
1) Committing any act forbidden by the Indian Penal Code : When the consent
of a person is obtained by committing any act which is forbidden by the
Indian Penal Code, the consent is said to be obtained by coercion.
Committing a murder, kidnapping, causing hurt, rape, defamation, theft etc.
are some of the examples of the acts forbidden by the Indian Penal Code.
For example, A beats B and compels him to sell his scooter for Rs. 2,000. In
this case the consent of B is induced by coercion.
In the case of Ranganayakamma v. Alwar Setti, A Hindu Widow of 13, was
forced to adopt a boy under threat that her husbands dead body would not
be allowed to be removed unless she adopts the boy..The widow adopted the
boy and subsequently applied for cancellation of the adoption. It was held
that the adoption was voidable at her option as her consent was obtained by
coercion because preventing the dead body from being removed for cremation
is an offence under Section 297 of the Indian Penal Code.
2) Threatening to commit any act forbidden by the Indian Penal dode : From
the definition you will observe that not only the committing of an act
forbidden by the Indian Penal Code amounts to coercion but even a threat to
commit such act amounts to coercion. Thus, a threat to shoot, to murder, to
kidnap or to cause bodily injury will amount to coercion. For example, A
threatens to shoot B, if he does not sell his ship to A for Rs. 1,00,Q00. B
agrees t o sell his ship to A. Here the consent of I3 has been obtained by
coercioar.
Cenenl L a w of As per the explanation of Section 15, it does not matter whether the Indian
Contract I Penal Code is or is not in force In place where the coercion is employed. If
the suit is filed in India, this provision will apply. For example, A, on board
an English ship on the high seas, causes B to enter into an agreement by ail
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 Section 506 of the Indian Penal Code was not in force at the time
when, or the place where, the act was committed.
3) Unlawful detaining of any property : If a person unlawfully detains the
property of another person and compels him to enter into a contract with
him, the consent is said to be induced by coercion. For example, an agent
refused to hand over the account books of the principal to the new agent
appointed in his place unless the principal released hirn from dl liabilities.
The principal had to give a release deed as demanded. It was held that the
release was not binding because the consent of the principal was obtained by
exercising coercion (Muthia v. Karuippan).
Section 72 clearly provides a person to whom money has been paid anything
delivered under coercion, must repay or return it. For example, a railway company
refused to deliver certain goods to the consignee, except upon the payment of some
illegal charges for carriage. he consignee paid the illegal charges in order to
obtain the goods. Here he is entitled to recover so much amount of the charges as
were illegal and excessive.
Examples
a) A, a lady gifted all her property to B, her spiritual guru so that she may
secure benefits to her soul in next world. Later on, she disputed the validity
of the gift deed. Here, the spiritual guru was in a position to dominate the
will of his disciple A and by using his strong position obtained an unfair
advantage. Hence, it was held that the consent of A was obtained by undue
influence.
i) He holds a real or apparent authority over the other : Examples of such cases
are relations between master and the servant, parent and child, inlco~~ie
tax
officer and assessee.
In case of coercion, you learnt that if the aggrieved party decides to avoid the
contract, he has to return or restore the benefit received by him. But, when a
contract is avoided on the ground of undue influence, the cQurt has the discretion
to ask the aggrieved party for refunding the benefit either in full or in part of set
aside the contract without any direction to the aggrieved party to refund the
benefit.
Unconscionable Transactions
You will notice that in Section 16 (3) the term 'unconscionable transactions' has
been used. The transaction is said to be unconsciol~ablewhen a person who was in
a position to dominate the will of the other makes use of his position and enters
into a contract which is of great benefit to himself and is unfair to the other party.
In other words, if the stronger party makes an exorbitant profit of the other's
distress, the transaction will be unconscionable i.e., it is something which shocks
the conscience.
In case of unconscionable transactions, the stronger party has to prove that the
contract is not induced by any undue influence. For example, A, being in debt to
B, the money-lender of his village, contracts a fresh loan on terms which appear t o
be unconscionable. It lies on B'to prove that the contract was not induced by
undue influence.
You should note, that simply because the rate of interest is very high, it does not
become a n unconscionable transaction. For example, A applied to a banker for a
loan at a time when there was stringency in the money market. The banker
declined t o make the loan except at an unusually high rate of interest. A accepted
the loan on these terms. This was a transaction in the ordinary course of business
and the contract was not induced by undue influence. Thus, a transaction will not
be set aside merely because the rate of interest is too high. However, if the rate of
interest is so high that the court considers it unconscionable, say when the interest
rate is 75 per cent or 100 per cent per annum, the court may modify the rate of
interest. Example A, a poor Hindu widow was in great need of money to establish
her right to maintenance. She took a loan of Rs. 1,500 bearing a rate of interest of
100% p.a. the court held it to be an unconscionable transaction and modified the
interest rate t o 24% p.a. (Ranee Annapurni v. Swaminatha).
You should also note that a party to a contract cannot avoid it on the ground of
undue influence by merely showing that the transaction is unconscionable. He will
also have to prove that the other party was in a position to dominate his will and
he has used that position t o obtain an unfair advantage.
The presumption of undue influence can be rebuted by showing that
i) the stronger party had made a full disclosure of all the facts to the aggrieved
party before making the contract,
ii) the price was adequate, and
iii) the weaker party was in receipt of competent independent'advice before
entering into the contract.
A pardariashin woman is one who observes complete seculsion i.e., who does not
come in contact with people other than her family members. Law provides a
special protection to pardanashin woman on the ground of their being ignorant so
far as the worldly knowledge goes. A contract with a pardanashin woman is
presumed t o have been induced by undue influence. The burden of proving that no
undue influence was used lies on the other party. The other party will have to
prove that (i) the terms of the contract were fully explained t o her, (ii) she
understood the implications, (iii) free independent advice was available to her, and
(iv) she freely consented to the contract. Here you should note that this protection
is available only to a woman who observes complete parda. Some degree of par&
or seculsion is not sufficient to entitle her to get special protection.
In case of both coercion and undue influence the consent is not free and the
contract is voidable at the option of the aggrieved party. But there are some basic
points of difference between the two. These are summarised as follows:
...........................................................................................................
2) When is consent said to be free?
3) What is coercion ?
4) When is a party said to be in a position to dominate the will of another?
...........................................................................................................
...........................................................................................................
5) What is an unconscionable transaction?
...........................................................................................................
6) State whether the following statements are True or False.
i) In the absence of consent, there can be no contract. ;...............................
ii) A threat amounting to coercion must necessarily proceed from a party to
the contract. .....................................................................................
iii) When consent is obtained by coercion, the contract is void. .: ....................
iv) A threat to commit suicide amounts to coercion ......................................
v) Undue influence involves use of moral pressure ........................................
vi) There is a presumption of undue influence in the relationship of creditor
and debtor. ......................................................................................
vii) Undue influence can be exercised only by a party to the contract. ..............
-- - -
4.7 FRAUD
"Fraud means and includes any of the following acts committed by a party to a
contract or by any one with his connivance or by his agent, .with intent to deceive
another party thereto or his agent, or to induce him to enter into the contract:
i) the suggestion, as to a fact, of that which is not true, by one who does not
believe it to be true;
ii) the active concealment of a .fact by one having knowledge or belief of the fact;
iii) a promise made without an,y intention of performing it;
iv) any other act fitted to deceive;
v) an9 such act or omission as the law specially declares to be fraudulent."
From the analysis of the above definition it follows that the following elements
must be present in the act to constitute fraud.
1) The fraud must be committed by a party to the contract by or aay one with
his connivance, or by his agent. The fraud by a stranger to the contract does
not affect the validity of the contract. For example, A was induced to buy
shares of a company on the basis of a false statement made by 0. B was .
neither the director nor the representative of the company, he was a mere
stranger. Hence, A cannot avoid the contract on the ground of fraud because
the false statement was made by a stranger to the contract and not by the
B
General Law of company or its agent. But, if the false statement had been made by a director.
Contract I
of the company, A could avoid the contract.
2) The fraud must be committed with an intention to deceive the other party. For
example, A intending to deceive B makes a false statement to him that 100
units are manufactured every month in his factory, though A is aware that
only 75 to 80 units are produced every month. B is induced t o buy the factory.
Here B's consent is obtained by fraud.
5) Active concealment of a fact also amounts to fraud. When the party takes
positive steps to prevent an informaticn from reaching the other party it is
called active concealment and this amounts to fraud. For example, A, a horse
dealer showed a horse to B. A knew that the horse had a cracked hoof which
he had filled up in such a way as to defy detection. The defect was
subsequently discovered by B. So, he refused to buy the horse. It was held that
the contract could be avoided by B as his consent was obtained by fraud.
6) 'Che fraud must have actually deceived the other party. The act committed with
intent to deceive must actually deceive. The party must have relied on it to
accord his consent. In other words, an attempt to deceive the other party by
which the other party is not actually deceived, is not fraud. In Horsefall v.
Thomos, A had a defective cannon. In order to canceal it, he put a metal plug
on it. B did not examine the gun and bought it. The cannon burst before the
payment was made by B. B refused to pay. It was held that B was bound to
pay because he was not actually deceived. He would have bought the cannon
even if the plug had not been inserted, he never examined it. Thus, it can be
said that a deceit which does not deceive is not fraud.
7) The party acting on the representation must have suffered some loss. It is a
common rule that "there can be no fraud without damage and there can be no
damage without an injury". The damage or injury may be in the form of loss
of money or money's worth or in some other form.
1) Where the circumstances of the case are such that, regard being had to them,
it is the duty of the person keeping silence to speak. Such duty to speak arises
in the following cases.
i) Fiduciary relationship
Where onz party reposes trust and {confidence in the other, the party
must reveal the truth. For example, A sells by auction a horse to B, his
daughter who has just come of age. Here, the relation between the parties
are such that it becomes A's duty to) tell B about the unsoundness of the
horse.
ii) Contracts of absolute good faith
Where one party has to depend upon the good faith of the other, the
other party is bound to speak. For example, in all contracts of
insurance, it is the duty of the proposer to make full disclosure of all
material facts to the insurance company. If an assured conceals the
material facts like long illness, the insurance company can avoid the
contract on the ground of fraud. Similarly, contracts of family
settlements, marriage and allotment of shares, sale of immovable
property, guarantee, etc. are such where full disclosure must be made.
2) Where the silence is, in itself, equivalent to speech. Sometimes, the silence is
equivalent to speech. In such cases, the silence of a person amounts to fraud.
For example, A is selling his horse to B. The horse appears to be sound. Even
then R says to A, "If you don't deny it, I shall assume that the horse is
sound" A says nothing. Here A's silence is equivalent to speech.
1) He can rescind (cancel) the contract, but it must be done within a reasonable
time. The right to avoid the contract is, however, lost in the following cases.
i) When the party whose consent was caused by fraudulent silence had the means
of discovering the truth with ordinary diligence;
ii) Where the party was not defrauded i.e., the party gave the consent in
ignorance of fraud;
iii) Where a party, after becoming aware of the fraud, takes a benefit under the
contract or affirms it in some other way;
iv) Where, an innocent third party, before the contract is rescind, acquires, for,
consideration; some interest in the property passing under the contract; or
v) Where the parties cannot be restored to their original position.
2) If the party whose consent was not free thinks it proper to accept the contract,
he may d o so and insist upon its performance. The second para of Section 19
provides that a party whose consent was caused by fraud may, if he thinks fit,
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.
For example, A fraudulently informs B that A's estate is free from
encumbrances. B, believing the statement to the true, bought the estate. It was
later discovered that the estate was subject to a mortgage. In this case, B may
either avoid the contract or insist on its being carried out subject to the
mortgage debt being redeemed.
3) The aggrieved party can also sue for damages. Fraud is a civil wrong. Hence,
compensation can be claimed. For example, a party suffers some injury because
of>he unsound horse. If the fact of the unsoundness of horse was not disclosed
despite enquiry, due compensation can be demanded.
4.8 MPSWEB~SENTATION
I .
ii) If his consent is not induced by misrepresentation.
iii) If he, after coming to know about the misrepresentation, expressly affirms the
contract or acts in such a manner which shows that he has accepted it.
iv) If, before the contract is rescinded, the third party acquires some right in the
subject-matter in good faith and for some consideration.
1 v) If the parties cannot be restored to their original position.
Fraud and misrepresentation have many points in common. For example, in both
cases a false representation is made by a party. Similarly, in both cases the
contract is voidable. But there are many points of difference. These are
summarised as follows:
Fraud Misrepresentstion
1) Wrong statement is made Wrong statement is made innocently.
intentionally.
2) The person making the wrong The person making the wrong
statement does not believe it to be statement believes it to be true.
true.
3) .There is an intention to deceive.
I '
There is no intention to deceive.
Geneml Law of 4) Besides rescinding the contract, the The aggrieved party can rescind the
Contract I aggrieved party can also claim contract but cannot claim damages.
damages.
5) Except where the silence amounts to The aggrieved party cannot avoid the
fraud, the contract is voidable even if contract if he had the means of
the party defrauded had the means discovering the truth with ordinary
of discovering the truth with diligence.
ordinary diligence.
1) Define 'Fraud'
...........................................................................................................
2) What is 'Misrepresentation' ?
4.10 MISTAKE
You know that if the consent is obtained by coercion, undue influence, fraud,
misrepresentation or mistake, it is not considered as free consent. You have learnt
about coercion, undue influence, fraud and misrepresentation. We shall, now
discuss about 'mistake'.
Mistake may be defined as the erroneous belief concerning something. Whenever an Free Consent 1
agreement is made under a mistake, there is no consent, and the agreement is nor
valid. Broadly speaking, Mistake may be of two types: (1) Mibtake of Law and
(2) Mistake of fact. Mistake of law can be further classified into (a) mistake of
Indian law, and (b) mistake o f foreign law. Similarly, mistake of fact can be
(a) biiateral mistake or (b) unilateral mistake. Look at figure 4.2, for detailed
of mistakes.
Figlare 4.2
Types of Mistakes
'-4 Mistake
G Mistake of Law
I Mistake of Fact
Unilateral
Subject-Matter
Possibility of
Performance II Identify of
Person
Nature of
Contract
a) Mistake of Indian 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 every one 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, Thus, a mistake of
Indian law will not affect the validity of the contract. For example, A and B
make a contract grounded on the erroneous belief that a particular debt is time
barred by thc Indian Law of limitations. .This contract is valid.
J
Bilateral 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 t o 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.
i) Both the parties musl be under a mistake: The mistake,must be mutual, For
example, A, having two cars, a Fiat aed another Maruti, offers to sell his Fiat
car to B and B qot 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. . 61
I
- A
General Law of ii) Mistake musl be of fact and not of law: Explanation to Section 20 provides
E~tmrnct1 that a n erroneous opinion as to the value of the thing which forms the subject-
matter of the agreement is not treated as mistake relating to a matter of fact.
For example, A buys a painting believing it to be worth Rs. 10,000 while in
fact it is worth only Rs. 2,000. The contract remains valid. A will have to
blame himself for ignorance of the true value of the painting.
iii) Mistake must relate to a s essential fact: The mistake must relate to a matter of
fact which is essential t o the agreement. In other words, oilly such mistake of
fact that goes to the root of the zgreenlent, 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 t o something i.e., the
horse, which is essential to the contract.
Unilateral Mistake
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 conlract is not i/oid;ible merel-y because it was
caused by one of the parties to it being under a mistake as bo 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 thc consequences. For example, A sold
oats to B by sample and 3.3, thinking that they were old oats, purchased them. In
fact, the oats were new. It was held that B was bound by the'contract, (Smitln 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. Thi~s,in
the following cases, even though the mistake is unilateral, the agreenlent is void.
In the case of Said v. Butt, S knew that on account of his criticism of the
plays in the past, he would not be allowed entry at the performance of a play
at-the theatre. Tile mllnaging director of the theatre, gave instructions that a
ticket st~ouldnot be sold to S. S, however, obtained a tickct through one of
his friends. On being refused admission to the theatre, he sued for damages
for breach of contract. It was held that there was no contract with S, as the
theatre company never intended to contract wit11 S.
. 1
parclt,
-.ts the nature of the contract: A contract is void when one of the
it any fault o f his own, makes a mistake as to the very nature of
the contract. Thus, when a person is induced to sign a written document
L
General Law of containing a contract fundamentally different in nature from what he thinks he
Contracl I
is signing, the contract shall be void.
In the case of Foster v. Mackinnon,an old illiterate man was induced to sign
a bill o f 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.
1) What is ~ i ' s t a k e?
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