FREE CONSENTA contract without free consent isvoidable contract.
Flaw in consentCoercion Undue influence Misrepresentation Mistake(sec15) (sec 16) (sec 17,18) (sec 20,21) Innocent or Faudulent or wilful Mistake of fact Mistake of law (sec 17) Unintentional (sec 20) (sec 21) (sec 18)
Bala Debi vs Majumdar,A.I.R (1956)Cal 575 An illiterate women executed a deed of gift in favour of her nephew under the impression that she was executing a deed authorizing her nephew to manage her lands. The evidence showed that the woman never intended to execute such a deed of gift, nor was the deed ever read or explained to her. Held the deed was void and inoperative.
MEANING OF CONSENT According to Section 13 two or more persons are said to consent when they agree upon the same thing in the same sense. This means that there should be perfect identity of mind (consensus ad idem) regarding the subject matter of the contract.
FREE CONSENT To make a contract valid not only consent is necessary but the consent should also be free. Section 13 says the consent is said to be free when it is not caused by any of the following :(a) Coercion - sec 15(b) Undue influence - sec 16(c) Fraud(d) Misrepresentation - sec 17,18(e) Mistake –sec 20,21
Coercion Coercion is committing or threatening to commit any act forbidden by the Indian Penal Code, or the unlawful detaining or threatening to detain any property to the prejudice of any person, whatsoever with the intention of causing any person to enter into an agreement .
Decided case of coercionMuthta vs Muthu Karuppa,(1927) 50Mad 786An agent refused to hand over the account books of a business to the new agent unless the principal released him from all liabilities. The principal had to release deed as demanded. Held the release deed was given under coercion and was at the option of the principal.
Is Threat to commit suicide coercion? Madras high court has held by a majority judgment that even a threat to commit suicide is coercion even though it is not punishable under the Indian penal code . Example: A man by giving a threat to commit suicide induces his wife and son to execute a deed in favour of him in respect of certain property and they execute. Held that the consent of the wife and son has obtained through coercion.
Effect of Coercion-section 19 When the consent of a party to an agreement is obtained by coercion,the contract becomes voidable at the option of the party ,whose consent is so obtained The burden of proving that the consent was obtained through coercion shall be upon the party who wants to set aside the contract on the plea of contract.
Example of effect of coercion Anuj executes a transfer bond for the house under fear of assault .It will be a contract voidable at the option of Anuj since his consent was obtained by coercion.. A railway company refuses to deliver certain goods to the consignee, except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.
2.UNDUE INFLUENCE-section16 Undue influence is the improper use of any power possessed over the mind of the contracting party. According to section 16 a contract is said to be affected by undue influence when: The relations subsisting between the parties are such that one of the parties is in a position to dominate the will of other. Uses that position to obtain an unfair advantage over the other.
Example of undue influence By operation you just execute a deed of giving your Whole property to me
Following are the parties that can beaffected by undue influence Doctor and patient Lawyer and client Guardian and ward Trustee and beneficiary Teacher and student
Decided case on undue influence In Karnal Distillery Co. ltd V. Ladli prasad .1958 Punj 190,confirmed by the supreme court in 1963 S.C 1279,the elder brother was shown to have exercised undue influence over his younger brother in respect of a compromise arrangement, the transaction was held to be voidable at the instance of the younger brother.
Difference between coercion and undue influenceCoercion Undue InfluenceThe consent of the aggrieved party The consent of the aggrieved partyis taken by committing or is obtained by dominating the partythreatening to commit an act by taking an unfair advantage of hisforbidden by Indian penal code. position.Physical force is exercised Moral force is used in undue influenceRelationship between the promisor Some sort of relationship mustand the promisee is not necessary exist between the two parties to the contract
IMPORTANT POINTS ABOUT THE CASE Priyamvada Birlas will, which bequeaths the Rs 5,000 crore (Rs 50 billion) assets of the Madhav Prasad Birla group to chartered accountant R S Lodha. The family members have examined the will and the consensus is that we have the moral and legal right to challenge the validity of the will. They also refused to believe that Priyamvada could have left the will in the custody of the person who was its beneficiary. M P Birla had a 25 per cent stake in Pilani Investments while the holding of BK Birla and GP Birla is 30 per cent and 25 per cent, respectively. The balance 20 per cent is held by the Krishna Kant and Sudershan Kumar families. The Birla clan is opposing the transfer of MP Birlas 25 per cent stake in Pilani Investments to Lodha.
IMPORTANT POINTS ABOUT THE CASE Pilani Investments holds shares in Century Textiles, Kesoram Industries, Mangalam Cement, Mysore Cements, Grasim Industries, Hindalco, Indian Rayon, Jay Shree Tea, Mangalore Refinery, Orient Paper, Saurashtra Chemicals, Zuari Industries, Birla VXL, Bihar Caustic & Chemicals. Since these companies hold shares in other Birla companies, Pilani Investments has indirect holding in virtually all the companies managed by the Birla group. The will can also be challenged on another point: good presumption of undue influence as R S Lodha was considered very close to Priyamvada Birla. If this is proven, the will could be declared invalid. The other basis for invalidation is if it is proven that the person was not of sound mind while signing it. The brief will -- apparently a mere four lines -- can be considered unusual though not bad in law,
Meaning of fraud Sec. 17 Misrepresentation of facts may be intentional or innocent. Intentional misrepresentation has been termed as Fraud and innocent misrepresentation has been termed simply as ‘misrepresentation’ in the contract act.
Definition under law section 17 According to section 17 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 contract:(a) A suggestion as to fact of that which is not true by one who does not believe it to be true(b) An active concealment of a fact by one having knowledge or belief of the fact.(c) Any other act fitted to deceive(d) A promise made without any intention of performing it
Essential of fraud There must be a representation and it must be false.(Peek vs Gurney(1873) L.R 6 H .L 377) The representation must relate o material fact (Bisset vs Wilkinson (1972) A.C 177) The representation must have been made before the conclusion of the contract with the intention of inducing the other party to act upon it. The other party must have been induced to act upon the representation The other party must have relied upon the representation and must have been deceived.(Horsefull vs thomas , (1862) 1 H & C 90)
There must be false representationPeek vs Gurney(1873) L.R 6 H .L 377The prospectus of a company did not refer to the existence of a document disclosing liabilities. This gave the impression that the company was prosperous. If the existence of the document had been disclosed the impression would have been quite different. Held, non disclosure amounted to fraud and anyone who purchased shares on the faith of this prospectus could avoid the contract.
The representation must relate to material fact Bisset vs Wilkinson (1972) A.C 177 The vendor of a piece of land told a prospective purchaser that, in his opinion the land would carry 2000 sheep. In fact the land could carry only a number less than this. Held there was no misrepresentation as the statement was one of opinion which was honestly held
Examples of fraud Manoj was induced to buy shares in a company on account of a false statement made by a stranger. It was held that he could not get out of the bargains because false statement was not made by the company or its agent. Manoj says to deepika his coat is made of pure wool ,though he knows that it is untrue .Deepika purchases the coat believing Manoj’s statement to be true ,It is a fraud by Manoj and therefore contract is voidable at deepika’s option.
Mere silence without any legal Duty to speak will not amount To fraud except where (a) The circumstances of the case Are such that regard being Had to them ,it is the duty of the Person keeping silence to speak (b)Silence in itself will be equivalent To speech (c ) change of circumstances (d) Duty to speak-where contracting Party responses trust and confidenceConcealment by mere silence is not fraud
Decided case onsilence is not a fraudHands vs Simpson, fawcett & co ltd (1928) 44T LR 295H a commercial traveller, obtained an employment with S. S regarded driving as an essential part of H’s duties but he did not specifically ask H if he is qualified to drive a car. H kept quiet about his disqualification to drive a car. S contended that H’s silence is misrepresentation. But it was held that H was under no duty to volunteer the information and there was no misrepresentation.
Essentials of fraud The act must have been committed by a party to the contract or with his connivance or by agent .It should not have been committed by a stranger The act must have been committed with the intention of inducing the deceived party to act upon it-It implies that the assertion should be such that it would necessarily influence and induce other party to act Plaintiff must have suffered
Effect of Fraud Section 19=The party whose consent to the contract is obtained by fraud can exercised any of the following rights: He may avoid the contract and may (i) ask for the damages suffered because of the non fulfillment of the contract He may insist for the performance of the contract .
Examples of frauda) 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 in A.b) B is As daughter and has just come of age. Here, the relation between the parties would make it As duty to tell B if the horse, is unsound.c)A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect Bs willingness to proceed with the contract. A is not bound to inform B.
Misrepresentation Misrepresentation is a false representation made innocently without any intention of deceiving the other party .It may include two things: (a) wrong statement of a material fact not known to be false (b) Non-disclosure of facts where there is a legal duty to disclose without intention to deceive SECTION 18
Difference between fraud andmisrepresentationMisrepresentation fraudThere is no intention to In fraud the false statementdeceive or to gain any is made deliberately with aundue advantage clear intention of deceiving the other partyIt makes the other contract In fraud the injured partyonly voidable at the option besides avoiding theof the party whose consent contract may also claim thehas been so caused damages.
Mistake Mistake are of two type(a) Mistake of law(b) Mistake of fact
Mistake of lawMistake of law is further divided into three categories(a) mistake of Indian law(b) mistake of foreign law(b) mistake as to private rights of the parties – treated as mistake of fact . Here , the agreement will be void in case of bilateral mistake only.
Mistake of fact Bilateral mistake Unilateral mistake are two types of mistake of fact
Bilateral mistake Section 20 states that were both the parties to an agreement are under a mistake as to a matter of fact, essential to the agreement shall be void. The mistake shall be termed as bilateral mistake of fact only when both of the following conditions are satisfied (a) it should be committed by both the parties (b) it should relate to a matter of fact essential to the agreement. E.g.-A agrees to buy certain horse from B .It turns out that the horse was dead at the time of the agreement ,though neither party was aware about this fact. The agreement is void.
Case of material factreferring to previous slide A and B believing themselves to be married ,made a separation agreement in which A agree to pay B Rs 10000 .It was later discovered that they were not duly married .B claimed the promised money .The agreement was held to be void as there was mistake of fact on their part which was material to the existence of the agreement.
Bilateral mistake-Mistake as to subject mattera) Existenceb) Identityc) Titled) Pricee) Quantityf) Quality
Mistake as to possibility ofperforming the contracta) Physical impossibilityb) Legal impossibility
Unilateral mistake One party to a contract is under a mistake of fact, the contract is voidable .unilateral mistake do not affect the validity of contract unless they concern some fundamental Example: A agreed to buy certain wheat from B believing that they were old.Infact wheat offered were new. It was held that A could not avoid the contract on the ground that he had a mistaken impression as to the oldness of wheat.
Unilateral mistake is fundamentaland affects the character of thecontract , the innocent party isfreed from liability Mistake as to nature of the contract Case Foster vs. Mackinnon – illiterate old man signing pronote thinking as if he was acting as a witness…… Mistake as to the identity of the person contracted with
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