Free Consent

• Section 10 of the Indian Contract Act, provides “All agreements

are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a
lawful object, and are not hereby expressly declared to be void”.
• “Free consent” is another essential condition of determining
whether an agreement is a valid contract or not.
• Section 13 to 22 of the Indian Contract Act, 1872,specifically
provides the law relating to free consent of the parties.
 What is “free consent”?
• Section 13 of the Act, specifically provides the meaning of the
Term “consent”. It states, “Two or more persons are said to
consent when they agree upon the same thing in the same
sense”.
• There must be voluntary union of thoughts, i.e., consensus-
ad-idem.
What is “free consent”?
• Section 14 further enumerates the law as to which consent is said to be free.
• According to section 14, Consent is said to be free when it is not caused by—
(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of sections 20, 21 and 22.
• Consent is said to be so caused when it would not have been given but for the
existence of such coercion, undue influence, fraud, misrepresentation or
mistake.
Definition of “Coercion”
• “Coercion” means use of force to persuade someone to do a
particular thing.
• Section 15 Indian Contract Act, 1872,specifically defines “Coercion”.
• It says, “Coercion” is the committing, or threatening to commit, any
act forbidden by the Indian Penal Code 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.
• As per the above definition, Coercion means forcing an individual to
enter into a contract, either by
i. the committing, or threatening to commit, any act which is
an offence under IPC, 1860, or
ii. the unlawfully detaining, or threatening to detain, any
property, to the prejudice of any person
• Coercion may involve the actual infliction of physical and
psychological harm in order to enhance the credibility of a threat.
Then the threat of further harm can lead to the threatened person’s
cooperation or obedience.
Illstration:
• A threatens to kill B if B does not sell his house to A at a low price. B
agrees to sell his house to A out of fear. This is a contract induced by
coercion and B can rescind it later.
• C threatens to publish some defamatory statements about D if D does
not lend him some money. D agrees to lend him some money to avoid
damage to his reputation. This is a contract induced by coercion and D
can rescind it later.
Landmark Judgements

Chikham Amiraju v. Chikham Seshamma (1971, Mad)

Fact:

In the instant case, the Husband held out a threat of committing suicide to his wife and son
that if they did not execute a release deed in favor of his brother. The wife and son executed the
release deed under the threat.

Issue / Questions:

The question was whether a threat of committing suicide amounts to coercion?

Held :

Court Held that the threat of suicide amounted to coercion within Section 15 of the Indian
Contract Act, 1872 and the release deed was, therefore, voidable"
Askari Mirza v. Bibi Jai kishori(1923)

• A minor girl was married to a man who was suffering from an incurable disease.
• The girl's father executed a deed of gift in favour of her husband's mother, transferring
his entire property to her.
• The deed was executed under the influence of religious and moral pressure exerted by
the husband's family, who threatened to expose the girl's plight to the public and bring
disgrace upon her father.
• The father later filed a suit to cancel the deed on the ground of coercion.
• The Allahabad High Court held that the deed was obtained by coercion, as it involved
a threat to injure the reputation of the father and his daughter, which was an act
forbidden by section 499, IPC (defamation). The court also held that the coercion was
not only directed against the father, but also against his daughter, who was a party to
the contract by virtue of her marriage. The court therefore set aside the deed and
restored the property to the father.
Who can exercise coercion? – Coercion can be exercised by any person, not
necessarily a party to the contract. It can also be directed against any person, not
necessarily a party to the contract. The only requirement is that the coercion
must have caused the consent of a party to the contract.
threat to prosecute – A mere (only) threat to prosecute a man or file suit against
him does not constitute a coercion.
High prices and high interest Rates – Charging high interest rate, high price etc.
is not a coercion as the same is not prohibited under the Indian Penal code.
A threat to commit suicide – Consent to an agreement may at times be obtained
by threatening to commit suicide. Threat to commit suicide also amounts to
coercion.
Burden of proof – The burden of proof lies on the party taking the defence of
the coercion
What will be the effect if the consent is caused by coercion ?

According to Section 19, if an agreement is vitiated by coercion

I. It is voidable at the option of aggrieved party.
II. The Aggrieved party can the option to cancel or rescind the
contract
III. If the aggrieved party decides to rescind the contract, he must
return or restore all the benefits received by such person
Difference between Coercion and Duress

• The term ‘duress’ corresponds to coercion in English law. However,

Coercion under the Indian Contract law has a wider amplitude than
duress under the English law.
Coercion Duress

Coercion can be employed against any person Duress can be employed only against the life or liability of the
other party to the contract or members of his family.

Immediate violence subsequent to coercion is not an essential Duress must cause immediate violence.
element.

Unlawful detention of goods is a kind of coercion. Unlawful detention is not duress under the English Law.
 Undue Influence
• The expression, “Undue Influence” implies a situation in which
someone uses their power or authority in an unfair way in order to
influence another.
• As per section 14, Indian Contract Act, 1872, consent of the parties
to an agreement will not said to be free if it is vitiated by undue
influence.
• Section 16, Indian Contract Act, 1872, specifically provides the law
relating to undue influence.
Undue Influence (Section 16)

According to Section 16 of the Indian Contract Act, 1872, an

influence will be considered as Undue when:
I. One party to the contract is in a position of trust and controls the other
party wrongfully.
II. Such a person uses his dominant position to gain an unfair advantage
over the other.
When a person is deemed to be in a
dominating position?
As per section16 (2), a person is deemed to be in a position to dominate the
will of another—
a) Where he holds a real or apparent authority over the other (e.g. master
and servant)
b) where he stands in a fiduciary relation to the other (e.g. Doctor and patient)
c) 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.
Note – As per section16 (3), The burden of proving that the contract was not
induced by undue influence shall lie upon the person in a position to dominate
the will of the other
Examples:
1. A’ sold his gold ring to his employer ‘B’ for Rs 200 after he had been
offered good grades by his employer. Here, A’s permission is not
given freely, he was influenced by his employer.
2. A, 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.
There is presumption of undue influence There is no presumption of undue
in the following relationships – influence in case of relationship of —

a) Parent and child a) landlord and tenant

b) Guardian and ward b) debtor and creditor
c) Doctor and patient c) husband and wife
d) Solicitor and client
e) Trustee and beneficiary
f) Religious advisor and
disciple
g) Fiancé and fiancée
Burden of Proof

• If the plaintiff wants to bring an action to stop a contract entered into on the
grounds of undue influence, two issues must be kept in mind. The law has
been stated in the Indian Evidence Act, 1872 and Indian Contract Act, 1872.
• The law states that in order for a plaintiff to prove that he was under undue
influence, two things must be establish:
I. not only must the defendant has a dominant position but,
II. He must use it.
• It states that it’s not enough for the plaintiff to show the possibility of undue
influence that may have been exercised by the dominant party. It must be
certain that a person used his position to influence the plaintiff. A possibility
of the same is not enough for the plaintiff to avoid a contract.
What will be the effect if the consent is
caused by Undue influence – (Section 19 )
a) Agreement is voidable at the option of aggrieved party.
b) Aggrieved party has the option to cancel or rescind the
contract.
c) If the aggrieved party decides to rescind the contract, he must
return or restore all the benefits received by such person
Raghunath Prasad v. Sarju Prasad (1923)

Facts in brief:
• The respondent and appellant here, were the father and son.
• They had dispute over a property.
• the respondent mortgaged his property for the sum Rs 10000 @ 24% compound
interest with the appellant but during eleven years, the interest was increased by
11 times. The respondent contended that the plaintiff has taken the undue
advantage of the defendant’ mental condition to increase the rate of interest.
Therefore Section 16 of the ICA should be applied here.
Issues Involved:
• Whether the contract between the parties is induced by undue influence?
• Whether the plaintiff would be protected under Section 16(3) of the ICA?
Raghunath Prasad v. Sarju Prasad
(1923)
Observation by the Bombay High Court:
The Court laid down the three-step process to determine whether a contract
induced by undue influence or not-
• 1stly the relations between the parties must be determined as one party is in a position
to dominate the other party.
• 2ndly, whether the contract is induced by exercising undue influence or not,
• And finally the onus probandi, If the transaction appears to be unconscionable (wrong),
then the burden of proving that the contract was not induced by undue influence will lie
upon the person who was in a position to dominate the will of the other.
Conclusion
• The conditions of the three steps process are not fulfilled. The Court allowed
the interest rate from the date of the execution.
Difference between Coercion and Undue Influence

Coercion Undue Influence

1. consent is gained by suppressing
1. consent is gained, by the other party’s will.
committing an offense or 2. consent is gained, by influencing
threatening to commit an either of parties using the
offense. position or relation
2. consent is gained, by using 3. Undue influence can only be
force exerted if there is a relationship
between two-parties, where one
3. Coercion does not involve a in a dominating position to the
party’s relationship. other
Fraud (Section17)
• The term, “Fraud” means “to deceive”. And to deceive means
inducing any person to believe that a thing is true, which in fact is
false.
• As per section 14, Indian Contract Act, 1872, consent of the parties
to an agreement will not said to be free, if it is obtain by means of
fraud.
• Section 17, Indian Contract Act, 1872, specifically provides the law
relating to Fraud.
Section 17 defines “Fraud”, as:
“Fraud” means and includes any of the following acts committed by a party to a contract, or
with his connivance, or by his agent, with intent to deceive another party thereto of 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.
• Explanation.—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.
Note –
• Deceive – intentionally cause (someone) to believe something that
is not true
• Connivance – willingness for being secretly involved in an immoral
or illegal act.
What constitutes “Fraud”?

As provided by Section 17 of the Contract Act,

• "Fraud" means and includesany of the following acts,
committed by a party to a contract, or with his connivance, or
by his agent,
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 of a fact by one who is
aware of the fact. But mere non- disclosure is not fraud where the party
is not under any duty to disclose all facts.
For example: (a)B, having discovered a vein of ore on the estate of A,
adopts means to conceal and does conceal, the existence of the ore from A.
Through A's ignorance B is enabled to buy the estate at an undervalue. The
contract is voidable at the option of A.
(b) A sells by auction to B a horse which A knows to be
unsound. A says nothing to B about the horse's unsoundness. This is not
fraud because A is under no duty to disclose the fact to B.
3. Intentional Non Performance a promise, i.E., “a promise made
without any intention of performing it”. For example: Purchase of
goods without any intention of paying for them.
4. Deception, i.e., any other act fitted to deceive
5. Fraudulent Act or Omissian
Is “silence” amounts to fraud?

Whether silence is fraud or not depends upon various factors. The explanation of
Section 17 to be read with Section 17 (b), contract Act makes this point more specific.
As per the above provision, the general rule is, mere silence does not amounts to
fraud.
For Example: 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.
Case law: Ward v. Hobbs
H sold to W some pigs which were to his knowledge suffering from swinefever. The
pigs were sold "with all faults" and H did not disclose the fever to W. Held, there was
no fraud.
Is “silence” amounts to fraud?
However, silence will be considered as fraud in the following situations
–
1) When there is a duty to speak
2) Where silence is equivalent to speech.
For Example: B says to A. "If you do not deny it, I shall assume that the
horse is sound. A s nothing. Here A's silence is equivalent to speech. If
the horse is unsound A's silence is fraudulent
3) Where there is change in circumstances
What will be the effect if the consent is caused by Fraud –
(Section 19)
a) Agreement is voidable at the option of aggrieved party.
b) Aggrieved party has the option to cancel (rescind) the contract.
c) If aggrieved party decides not to cancel the contract then he may
continue the contract and claim damages from the other party.
d) If the aggrieved party decides to rescind the contract, he must
return (restore) all the benefits received by such person.
Uberrimae Fidei –

“Uberrimae fidei” is a Latin phrase which in law, means "utmost good faith".
There are contracts in which the law imposes a special duty to act with the
utmost good faith i.e., to disclose all material information. Failure to disclose such
information will render the contract voidable at the option of the other party
Examples –
a) Contract of insurance of all kinds;
b) Company prospectus;
c) Contract for the sale of land;
d) Contracts of family arrangements; an so on.
Misrepresentation

• 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. But there is no intention to deceive.
• As per section 14, Indian Contract Act, 1872, consent of the parties to an
agreement will not said to be free, if it is obtain by means of
“Misrepresentation”.
• Section 18, Indian Contract Act, 1872, specifically provides the law
relating to “Misrepresentation”.
Section 18 provides:
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 any one 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 the subject of the
agreement.
Section 18 of the Contract Act classifies cases of misrepresentation into
three groups as follows:
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, will also amount to misrepresentation as per Section18 (1),
Indian Contract Act 1872.

Example: A with the intention sell his land to B, says: "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: according to, Section18 (2), Indian Contract Act
1872, where a party is under a duty to disclose certain facts and does
not do so, without any intention to deceive the other. He will be said to
misleads the other party.
However in English law, such cases are known as cases of
"constructive fraud“.
3. Innocent Mistake: 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, will also amount to misrepresentation as
per Section18 (3), Indian Contract Act 1872.
Consequences of Misrepresentation
• If the consent of any party to an agreement, has been obtained by way of
misrepresentation. The agreement becomes voidable at the option of the aggrieved
party.
• The aggrieved party can cancel the agreement, or insist that the contract be
performed.
• 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 further
elaborates "Ordinary diligence" means such diligence as a reasonable prudent man
would consider necessary, having regard to the nature of the transaction.
• Example: A, by a misrepresentation leads B erroneously to believe that five hundred
maunds of indigo are made annually at A's factory. B examines 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.
 DISTINCTION BETWEEN FRAUD AND MISREPRESENTATION
FRAUD MISREPRESENTATION
a) In Fraud implies an intention to deceive.
a) In misrepresentation there is no
b) The difference between misrepresentation intention to deceive.
fraud depends on the belief of the person
making the statement. If the statement is b) If the statement is honest, even
dishonest it is a case of fraud. though it was wrong, its only
c) In case of fraud the party aggrieved can misrepresentation.
rescind the contract i.e., the contract is c) In case of misrepresentation the only
voidable at his option. He can also sue for
damages.
remedy is rescission. There can be no
suit for damages.
d) In cases of fraud the aggrieved party can
rescind the contract or file a suit for d) In case of misrepresentation if the
damages and there is no defence even if circumstances were such that the
there were independent sources of aggrieved party might have discovered
discovering the truth which were not the truth with ordinary diligence, the
availed of, contract cannot be avoided.