 One of the essential of a valid contract

mentioned under sec 10 of the ICA is that the

parties should entered into the contract with
their free consent.
 Consent is defined under sec 13 as
 Sec 13: Two or more person are said to consent
when they agree upon the same thing in the
same sense.
 And according to sec 14 consent is considered to
be free when it is not caused by:
cont.....
1. Coercion (sec 15)
2. Undue influence (sec 16)
3. Fraud (sec 17)
4. Misrepresentation (sec 18)
5. Mistake (sec 20,21 &22)
 If the consent of the parties is not free, the
contract is not valid.
 When consent to an agreement is caused by
coercion, undue influence, fraud and
misrepresentation the agreement is a contract
voidable at the option of the party whose
consent was so caused (sec. 19 and 19A)
 However the consent is caused by mistake, the
agreement is void (sec. 20)
 Sec 15: Coercion" is the committing, or
threatening to commit, any act forbidden by
the Indian Penal Code (45 of 1860) or the
unlawful detaining, or threatening to detain,
any property, to the prejudice of any person
whatever, with the intention of causing any
person to enter into an agreement.
 Coercion is said to be there where the
consent of a party has caused either by:
1. Committing, or threatening to commit any
act forbidden by the Indian Penal Code, or
by
2. Unlawful detaining, or threatening to detain
any property.
3. Such an act should be to the prejudice of
any person whatever.
 If the threat or commission of offence, is
covered under IPC and is used to obtain the
consent of the party then only consent is
considered to be obtained by the means of
coercion.
 Eg: A threatens to shoot B if B does not sell
his property to A. if B agreed then his consent
is considered to be obtained by coercion and
is not free consent.
 A widow was not allowed to remove her
husband’s body from her house for
cremation, until she agreed to adopt a boy of
13 years by the relatives of the boy.
 Question before Madras high court was
whether adoption was binding on the widow
or not.
 It was held that her consent was taken by the
means of coercion so the adoption was not
binding upon her.
 A makes a threat to commit suicide.
 And procured a deed from his wife and son in
the favour of his brothers.
 The question is whether consent is caused by
coercion or not?
 It was held by Justice Wallis and Justice
Seshagiri Ayyar that threat to commit suicide
amounted to coercion.
 But Justice Oldfield was of the view that
Commission of suicide is not punishable
under IPC. It is only unsuccessful attempt to
commit the suicide, which is cover under sec
309 of IPC.
 Law Commission of India in its 13th Report
recommended that there must be an
amendment to sec 15 of ICA so as to cover
threat to commit suicide as coercion.
 Another aspect which is covered under sec 15
is unlawful detention of the property is also
cover under sec 15 of ICA.
 If an agent unlawfully rejects to hand over the
account books in the demand of any share in
property, it amounts to coercion.
 According to sec 15, threat, commission or
detention must be to the prejudice of any
person whatever, with the intention of
causing any person to enter into an
agreement.
 It means it is not necessary that coercion
must directly relate to the party to the
contract.
 Threat to third party is also cover under sec
15.
 Under English law duress consists of actual
violence or threat of violence to a person.
 It only includes fear of loss to life or bodily
injury or harm.
 Duress does not covers threat to detain
goods or damage to goods.
1. Duress covers actual 1. Coercion covers only
violence or threat those acts which are
violence irrespective forbidden by IPC
of specific law.
2. It does not include 2. It includes detention
property. of property also.

Duress Coercion
 Contract in which consent is caused by coercion
is voidable and also is any benefit is given to the
party it may be recovers under sec 72 of ICA
 Sec 19: When consent to an agreement is caused
by coercion, fraud or misrepresentation, the
agreement is a contract voidable at the option of
the party whose consent was so caused. A party
to contract, whose consent was caused by fraud
or misrepresentation, may, if he thinks fit, insist
that the contract shall be performed, and that he
shall be put on the position in which he would
have been if the representations made had been
true.
 Sec 72: Liability of person to whom money is
paid, or thing delivered, by mistake or under
coercion
 A person to whom money has been paid, or
anything delivered, by mistake or under
coercion, must repay or return it.
 Sec 16: "Undue influence" defined
 (1) A contract is said to be induced by "undue influence"
where the relations subsisting between the parties are
such that one of the parties is in a position to dominate
the will of the other and uses that position to obtain an
unfair advantage over the other.
 (2) In particular and without prejudice to the generally of
the foregoing principle, a person is deemed to be in a
position to dominate the will of another -
 (a) where he hold a real or apparent authority over the
other, or where he stands in a fiduciary relation to the
other; or
 (b) where he makes a contract with a person whose mental
capacity is temporarily or permanently affected by reason
of age, illness, or mental or bodily distress.
 (3) Where a person who is in a position to
dominate the will of another, enters into a
contract with him, and the transaction
appears, on the face of it or on the evidence
adduced, to be unconscionable, the burden of
proving that such contract was not induced
by undue influence shall be upon the person
in a position to dominate the will of the other.
1. The relationship between the parties are
such that one of the parties is in position to
dominate the will of the other.
2. Such person uses his dominant position to
obtain an unfair advantage over the other.
1. Where he holds a real or apparent authority
over the other.
2. Where he stands in a fiduciary relation to
the other.
3. Where he makes a contract with a person
whose mental capacity is temporarily or
permanently affected by the reason of age,
illness or mental or bodily distress.
 If person has an authority over the other
party, it is expected that he would not abuse
the authority to gain an undue advantage
from the other.
 An employer may be deemed to be having
authority over his employees.
 Police officer over an accused.
 Judicial officer over a witness.
 These are the relations which are based upon trust
and faith.
 If a person betrays the confidence and trust of the
other it amounts undue influence.
 Eg: Advocate-Client, Doctor-Patient, Spiritual
advisor-devotee.
 Mannu Singh v. Umadat Pande (1890)
 An aged person executed a deed of gift in favour of
his spiritual advisor.
 Reason for this gift was his desire to secure benefits
to his soul in the next world.
 Then he approached the court for the cancellation of
the deed.
Cont.....
 Court applied sec 111 of The Indian Evidence
Act.
 Sec 111: Proof of good faith in transactions
where one party is in relation of active
confidence.-Where there is a question as to
the good faith of a transaction between
parties, one of whom stands to the other in a
position of active confidence, the burden of
proving the good faith of the transaction is
on the party who is in a position of active
confidence.
 Since defendant failed to prove so, plaintiff
got the desired relief from the court.
 A Person’s will may be influenced because of
his mental or bodily distress .
 Mental capacity may be affected by reason of
age, illness or distress.
 In Merci Celine D’Souza v. Renie Fernandez
(1998)
 Plaintiff was mentally infirm person and
totally dependent upon the defendant gifted
his property in favour of defendant.
 It was found that defendant has obtained that
property by undue influence.
1. These are so extremely unjust, or
overwhelmingly one-sided in favour of the
party who has the superior bargaining
power, that they are contrary to good
conscience.
2. If the presence of dominant position is there
the transaction may be considered as
unconscionable and the law raises the
presumption of undue influence.
 Sec 19-A declares that contracts in which
consent happens because of undue influence are
voidable in nature.
 19-A. Power to set aside contract induced by
undue influence - When consent to an agreement
is caused by undue influence, the agreement is a
contract voidable at the option of the party
whose consent was so caused. Any such contract
may be set aside either absolutely or, if the party
who was entitled to avoid it has received any
benefit thereunder, upon such terms and
conditions as to the Court may seem just
 Sec 17: fraud defined
 "Fraud" means and includes any of the following acts
committed by a party to a contract, or with his
connivance, or by his agents, with intent to deceive
another party thereto or his agent, or to induce him
to enter into the contract;
(1) the suggestion as a fact, of that which is not true,
by one who does not believe it to be true;
(2) the active concealment of a fact by one having
knowledge or belief of the fact;
(3) a promise made without any intention of performing
it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially
declares to be fraudulent.
 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
1. There should be a false statement of the
fact by a person who himself does not
believe the statement to be true.
2. The statement should be made with a
wrongful intention of deceiving another
party thereto and inducing him to enter into
a contract on that basis.
 It is necessary that the statement about any facts
made by the person must not be true.
 Mere expression of opinion is not enough to
constitute fraud.
 In Edington v. Fitzmaurice (1885)
 A company was in great financial difficulties and
needed funds to pay some pressing liabilities.
 Directors raised some amount by issuance of
debenture and stated that the amount was
needed for the development, purchase of assets
etc.
 Court held that directors has committed fraud.
 As per explanation attached to the sec. 17 it
is crystal clear that mere silence does not
amount to fraud, unless person is bound to
speak.
 If a person makes no disclosure about the
patent defect he is not committing any fraud.
 But if he makes wrong statement about the
quality of the product, then he may be liable
for committing fraud.
 Shri krishan, a candidate for the LLB
examination, who was short of attendance,
did not mention the same fact in the
examination form.
 Neither the head of the department nor
university authorities made proper scrutiny to
discover the truth.
 It was held by the supreme court that there
was no fraud.
 And university had no power to withdraw the
candidature of the candidate.
1. When there is duty to speak, keeping silence
amounts to fraud.
2. When silence is, in itself, equivalent to
speech, such silence is fraud.
 Certain contracts are considered as contracts
Uberrima fides i.e. Contracts of utmost good
faith.
 In such cases it is the duty of the party to
disclose each and every fact to the other
party.
 Keeping silence in these kind of contracts
amounts to fraud.
 This doctrine is mostly applied in contracts of
Insurance.
 First marriage of the girl was annulled on the
ground that she was of unsound mind at the
time of the marriage.
 She was married to the respondent second
time.
 But the fact of annulment of the marriage was
not disclosed to the respondent.
 It was held that the consent of the groom was
taken by fraud.
 And on this ground he was granted divorce.
 Depending upon the circumstances of any
case, some times silence also amounts
equivalent to speech.
 Like, if A says to B that if he do not deny it, it
will be presumed that the horse is of sound
mind. If B keeps silence, his silence would
amount to speech and the affirmation of the
fact that horse is of sound mind.
 Exception : 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.
 It means that if a party is capable to discover
the truth then silence from other side does
not amount to fraud (Shri Krishan v. KUK Uni.)
 When there is an active concealment of any
fact by one having knowledge or belief of the
fact, that can also be considered to be
equivalent to the statement of fact and
amounts to fraud.
 Eg: A discovered that there is an ore on the
estate of B. He did not discloses this fact and
purchased the estate on an under value.
Contact is voidable at the option of B.
 Making a promise with an undertaking to
perform it and having intentions not to
perform it also amounts to fraud.
 Thus if a man took a loan with an intention
not to pay the same, he is committing fraud.
 This clause is general and means that
instances defined under sec 17 are not of
exhaustive nature.
 This provision widens the scope of
applicability of this sec.
 Some times law itself provides some acts or
omissions which may be considered as
fraudulent.
 Like sec 55 of TPA 1882, it states that the buyer
of immovable property is bound to disclose to
the seller any fact as to the nature or extent of
the seller’s interest in the property of which the
buyer is aware, but of which he has reason to
believe that the seller is not aware and which
materially increases the value of such interest,
and omission to make the above stated
disclosure is fraud.
 In order to constitute fraud it is very important that wrong
statement must be made with a intent to deceive another
party.
 If intention to deceive is not there is may not be a fraud.
 In Derry v. Peek (1889)
 The directors of a company issued a prospectus stating
that they got authority to run tramways with steam and
mechanical power instead of animal power.
 A plan was submitted to get licence from the Board of
Trade.
 And it was honestly believed by the directors that they will
got the licence.
 But Board refused to grant the licence.
 It was held by the house of lords that since the statement
had not been made with a intention to deceive there was
no fraud.
 Sec 18: "Misrepresentation" defined
"Misrepresentation" means and includes -
(1) 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;
(2) 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 any one claiming under him;
(3) causing, however innocently, a party to an
agreement, to make a mistake as to the substance of
the thing which is subject of the agreement.
 1. Positive assertion i.e. An explicit statement of
fact by a person of that which is not true, though
he believes it to be true amounts to
misrepresentation.
 It means there should be a false statement made
innocently i.e. Without any intention to deceive.
 2. when there is a breach of duty whereby the
person making a false statement gains some
advantage at the cost of the other party and the
statement though false is made without an
intention to deceive, it amounts to
misrepresentation.
 3. if party acting innocently, causes another party
to make a mistake as to the substance of the
thing which is the subject of the agreement,
there is said to be misrepresentation.
1. In fraud, the false statement is made by a
person, who knows that it is false or does not
believe in its truth, whereas in
misrepresentation the person making the
statement believes the same to be true.
2. In fraud, intention to deceive is there, in
misrepresentation it is not so.
3. Apart from cancelation of the contract, in fraud
additional remedy for compensation under law
of torts is there, as fraud is also covered under
the law of tort, but it not so in case of
misrepresentation.
 Sec 19 deals with effect of flaw in consent
caused by coercion, misrepresentation and
fraud.
 Sec 19-A comes into play when the consent
is caused by undue influence.
 Two kind of remedies are provided by these
sections
 1. A right of rescission of the contract.
 2. A right to claim to compensation.
 As it is clear that nature of the contract is voidable in
which consent of a party has been obtained by
coercion, undue influence, fraud, misrepresentation,
so rescission of the contract is one remedy which is
available in these kind of contracts.
 A voidable contract will be avoided only if the party
having a right to do so avoids it, if he affirms the
contract then, the contract will be binding on both
the parties.
 As per sec. 66 various rules of communication are
also applied on revocation.
 Communication of revocation or rescission is also
mandatory.
 If the other party is not available, doing some act to
this effect constitutes valid revocation or rescission.
 The purchaser of a car committed fraud against the
seller by making the payment through a cheque,
which was dishonoured.
 The seller wanted to avoid the contract and to regain
the possession of the car.
 But the buyer was not traceable.
 The seller immediately informed to the police and
also to Automobile Association.
 Meanwhile buyer sold the car to another party, who
was bonafide purchaser.
 It was held by the court that the rescission of contract
was completed when the seller informed to police.
 So the new buyer got no good title.
1. When the contract is affirmed.
There are two rights available, either avoid a
contract or enforce a contract.
 Sec 19 provides that : When consent to an
agreement is caused by coercion, fraud or
misrepresentation, the agreement is a contract
voidable at the option of the party whose consent
was so caused. A party to contract, whose
consent was caused by fraud or
misrepresentation, may, if he thinks fit, insist
that the contract shall be performed, and that he
shall be put on the position in which he would
have been if the representations made had been
true.
 A sold a lorry to B by making a false
representation that the lorry was in excellent
condition.
 On lorry’s first journey, B discovered serious
defects.
 But instead of rescinding the contract he
accepted A’s offer to bear half the repair cost.
 On second journey, lorry completely broke
down.
 Then he wanted to rescind the contract.
 Whether contract can be avoided?
 It was held that accepting repair cost
amounts to affirmation of the contract. And
once a contract has been affirmed, it can not
be avoided at later stage
 A person has right to rescind the contract
must exercise his right within a reasonable
time.
 In Leaf v. International Galleries (1950)
 it was held that if a person purchasing a
picture on the misrepresentation that it has
been painted by a renowned painter.
 But afterwards wants to avoid the contract
after five year of its purchase.
 The rescission would not be allowed.
 The right of rescission may be gone if before
the contract has been rescinded some third
party has aquired a right in the subject
matter of the contract,
 A voidable contract is valid till it is avoided.
 If A purchased a watch from B with fraud, but
before it can be rescinded, A further sold the
watch to C. Now B can not rescind the
contract.
 When a party wants to avoid the contract, he
must do so, so long as the parties to the
contract can be placed in the same position in
which they were before the contract was
made, but not afterwards.
 Eg: A purchased a piece of cloth and the
contract was voidable at his option. If he
converted this piece into a suit, there arises
no question to rescind the contract.
 A party may claim damages in lieu of
rescission if the circumstances demand so.
 Fraud is also covered under tort, so action in
both i.e. Under Indian Contract Contract Act
as wel as under Law of Torts is maintainable.
 When the consent of the parties to the contract is
caused by mistake, it is not free consent which is
required for the validity of a contract.
 Mistake may work in two ways:
1. There may be no consensus ad idem i.e.
Meeting of mind is not there. Means absence
of consent as defined under sec 13. offer and
acceptance do not coincide and thus no
genuine agreement is constituted.
2. There may be a genuine agreement, but there
may be mistake as to the matter of fact relating
to that agreement.
 Some times two parties may think differently
regarding offer and acceptance, i.e. No
meeting of mind is there.
 In such circumstances consent is considered
to be affected by mistake and is not a free
consent.
 The buyer and the seller entered into an
agreement under which the seller was to supply a
cargo of cotton to arrive on a ship named
“Peerless” from Bombay.
 There was two ships of the same name. Both
were to sail from Bombay, one in October and the
other in December.
 The buyer had in mind peerless sailing in
October.
 But seller dispatched cotton by December.
 Court held that offer and acceptance did not
coincide. There was no consensus ad idem. So
there constitutes no good contract.
 Sec 20: Agreement void where both parties
are under mistake as to matter of fact:
Where both the parties to an agreement are
under mistake as to a matter of fact essential
to the agreement, the agreement is void.
 Explanation: An erroneous opinion as to the
value of the things which forms the subject-
matter of the agreement, is not be deemed a
mistake as to a matter of fact.
 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.
 A being entitled to an estate for the life of B,
agrees to sell it to C. B was dead at the time
of the agreement, both parties were ignorant
to the fact. The agreement is void.
1. Both the parties to the contract should be
under a mistake.
2. Mistake should be as regards a matter of
fact.
3. The fact regarding which the mistake is
made should be essential to the agreement.
 To declare an agreement to be void under sec 20
it very necessary that mistake must be from both
sides.
 A fact unknown to only one party is not covered
under sec 20, i.e. Unilateral mistake did not
render an agreement void under this provision of
law.
 Sec 22 made the condition clear in this regard as
under:
 Sec 22: Contract caused by mistake of one party
as to matter of fact
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.
 Plaintiff was the highest bidder at an auction
for the fishery rights with Rs. 40,000.
 The rights has been auctioned for 3 years.
 The rent in fact was Rs. 40,000 per year.
 Plaintiff sought to avoid the contract on the
ground that he was under a mistake that he
made a bid of Rs. 40,000 for all the three
years.
 Court held that since the mistake is unilateral
only. Contract can not be avoided on this
ground.
 It is very clear under sec 20 that mistake
must be of a fact and not of the law.
 Basic rule is Ignorantia juris non
excusat or ignorantia legis neminem excusat,
i.e. Ignorance of law is no excuse.
 Sec 21 made it clear as follows
 Sec 21: Effect of mistake as to law
A contract is not voidable because it was
caused by a mistake as to any law in force in
India; but mistake as to a law not in force in
India has the same effect as a mistake of fact.
 It is also necessary that the fact regarding
which the mistake is made should be
essential to the agreement.
 No hard and fast rule is there in this regard.
Situation may vary with circumstances.
 Some situations are discussed as under
 If both the parties are under mistake in regard to
the existence of a subject matter, which in fact
does not exist, the agreement would be void.
 Such an agreement is void for other reason also,
because sec 56 declares agreements to do
impossible things void.
 Also sec 7 of Sale of Goods Act 1930 also declare
that if there is a contract for the sale of specific
goods but they are non-existence at the time of
the contract, the contract is void.
 A man and woman executed a separation
deed, both of them working under a common
mistaken impression that they were married
to each other.
 In fact they were not.
 Since the fact of marriage was non-existent,
the deed was held void.
 Mistake in regard to the quality does not render a
contract void.
 Smith v. Hughes (1871)
 There was sale of a parcel of oats by sample from
A to B.
 B refused to accept the delivery on the ground
that he thought oats were old, when in fact they
were new.
 A sued B for the breach of contract.
 Court held that mistake regarding quality is no
mistake and held him liable to pay damages to A.
 If one intends to enter into a contract with
specific person and made an offer to him.
Other person can not accept the same.
 if A made offer to B for the purchase of
goods and the same has been accepted by
the C, A is not bound to pay for the delivery
of goods from C. Because he never intended
to enter into a contact with C.
 Jones used to have business dealings with
Brocklehurt, sent an order to him for the
purchase of certain goods.
 By the time, Brocklehurt sold his business to
Boulton.
 Boulton supplied goods to Jones.
 Jones refused to pay for the goods and sued
by Boulton for the same.
 Whether Jones is liable?
 It was held that Jones had never made an
offer to Boulton, he was not bound to pay for
the goods.