Lecture 6.


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Lecture 6.

  2. 2. <ul><li>Consent Defined: </li></ul><ul><li>When two or more persons agree upon the same thing in the same sense, </li></ul><ul><li>they are said to consent. </li></ul><ul><li>[Case: Bala Devi v. S. Mazumdar] </li></ul><ul><li>An illiterate lady executed a deed under the impression that she was executing a deed authorising her nephew to manage her lands while in fact it was a deed of gift in favor of her nephew. </li></ul>
  3. 3. <ul><li>The evidence showed that she never intended to execute a deed of gift nor the deed was read or explained to her. It was held that the deed was void </li></ul>
  4. 4. <ul><li>According to section 14, consent is said to be free when it is not caused by: </li></ul><ul><li>Coercion </li></ul><ul><li>Undue Influence </li></ul><ul><li>Fraud </li></ul><ul><li>Misrepresentation </li></ul><ul><li>Mistake </li></ul>Free Consent
  5. 5. Coercion <ul><li>Coercion is </li></ul><ul><li>Committing or threatening to commit any act forbidden by Indian Penal Code </li></ul><ul><li>[Ranganayakamma v. Alwar Setti] </li></ul><ul><li>A Hindu widow is forced to adopt X under threat that her husband’s corpse (dead </li></ul><ul><li>body) would not be allowed to be removed unless she adopts X . The adoption is </li></ul><ul><li>voidable as having been induced by coercion. </li></ul>
  6. 6. <ul><li>It is immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed </li></ul><ul><li>Example: </li></ul><ul><li>A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. </li></ul><ul><li>B afterwards sues A for breach of contract at Calcutta. </li></ul>
  7. 7. <ul><li>A has employed coercion, although his act is not an offence by the law of England, and although the Indian Penal Code was not in force at the time or place where the act was done. </li></ul>
  8. 8. <ul><li>( ii ) the unlawful detaining, or threatening to detain, any property, </li></ul><ul><li>[ Muthia v. Karuppan] </li></ul><ul><li>An agent refused to hand over the books of accounts of the principal unless he </li></ul><ul><li>(principal) released him from all liabilities concerning past transactions. </li></ul><ul><li>Held : The release so given was not binding, being the outcome of coercion. </li></ul>
  9. 9. <ul><li>Effect of Coercion (Section 19): </li></ul><ul><li>Agreement is voidable at the option of the aggrieved party. </li></ul><ul><li>Liability of person to whom money is paid or thing delivered under coercion (Section 72) </li></ul><ul><li>A person to whom money has been paid, or anything delivered under coercion must </li></ul><ul><li>repay or return it. </li></ul>
  10. 10. <ul><li>Example </li></ul><ul><li>A railway company refuses to deliver certain goods to the consignee, except upon the payment of an illegal charge for carriage. </li></ul><ul><li>The consignee pays the sum charged in order to obtain the goods. </li></ul><ul><li>He is entitled to recover so much of the charge as was illegally excessive. </li></ul>
  11. 11. <ul><li>Coercion may be directed against anybody: </li></ul><ul><li>Example: A threatens to kill B (C’s son) if C does not let out his house to A. The agreement is caused by coercion. </li></ul><ul><li>Burden of Proof: </li></ul><ul><li>Lies on the aggrieved party </li></ul>
  12. 12. <ul><li>Undue influence [ Sec. 16]: </li></ul><ul><li>To obtain the unfair advantage by making use of position. </li></ul><ul><li>Undue influence when presumed: </li></ul><ul><li>Real or apparent authority </li></ul><ul><li>A having advanced money to his son B during his minority, obtains, by misuse of parental influence, a bond from B for greater amount than the sum due in respect of the advance. A employs undue influence. </li></ul><ul><li>( </li></ul>
  13. 13. <ul><li>(b) Fiduciary relationship: </li></ul><ul><li>Example: </li></ul><ul><li>A Hindu, well advanced in age, with the object of securing benefits to his soul in the next world, gave away his whole property to his ‘guru’, or spiritual adviser. Undue influence was presumed </li></ul>
  14. 14. <ul><li>(c) Mental Distress: </li></ul><ul><li>[ Annapurani v. Swaminathan] </li></ul><ul><li>A poor Hindu widow who was in urgent need of money was forced by a money lender to agree to pay 100% rate of interest. </li></ul>
  15. 15. <ul><li>Effect of Undue Influence : </li></ul><ul><li>Agreement is voidable at the option of the aggrieved party. </li></ul><ul><li>Court may set aside the case or implement it in the modified form </li></ul><ul><li>To return the benefit if contract is set aside </li></ul>
  16. 16. Fraud <ul><li>Fraud means and includes any of the following acts done with an intent to deceive or to induce a person to enter into a contract: </li></ul><ul><li>Any false suggestion or statement </li></ul><ul><li>Example: A purchased a typing machine on a dealer’s representation that it was new model. After paying the purchase price, he discovered that, although the machine looked new, it was actually a re-built model. </li></ul>
  17. 17. <ul><li>(ii) Active concealment of fact by one having knowledge or belief of the fact </li></ul><ul><li>(iii) A promise made without any intention of performing it. </li></ul><ul><li>(iv) Any such act or omission as the law specially declares to be fraudulent. </li></ul>
  18. 18. <ul><li>For fraud to exist there must be: </li></ul><ul><li>(a)A false representation </li></ul><ul><li>(b) Representation of a fact </li></ul><ul><li>(c) Misrepresentation made with a knowledge of its falsity </li></ul>
  19. 19. <ul><li>(d) Misrepresentation made with the intention of inducing the other party </li></ul><ul><li>(e) The representation must in fact deceive </li></ul><ul><li>(f)The other party must have suffered some loss </li></ul>
  20. 20. <ul><li>Is Silence a Fraud: No </li></ul><ul><li>[ Ward v. Hobbs] </li></ul><ul><li>H sold to W certain pigs. </li></ul><ul><li>The pigs were suffering from some fever and H knew it. </li></ul><ul><li>The pigs were sold “with all faults.” H did not disclose the fever to W. </li></ul><ul><li>Held : There was no fraud. </li></ul>
  21. 21. <ul><li>Exceptions: </li></ul><ul><li>Duty to speak: </li></ul><ul><li>a. Contract uberimae fidei (requiring utmost good faith) Example: Contract of insurance </li></ul><ul><li>[Peek v. Gurney] </li></ul><ul><li>The prospectus issued by a company did not refer to the existence of a document disclosing liabilities. The impression thereby created was that the company was a prosperous one, which actually was not the case.. </li></ul>
  22. 22. <ul><li>Held : The suppression of truth amounted to fraud </li></ul><ul><li>b. Contracts of partnership </li></ul><ul><li>c. Contracts of gurantee </li></ul><ul><li>d. Contracts of family settlement </li></ul>
  23. 23. <ul><li>(ii) Silence is fraudulent where the circumstances are such that, “silence is in itself equivalent to speech” </li></ul><ul><li>Example </li></ul><ul><li>B says to A — “If you do not deny it, I shall assume that the horse is sound.” </li></ul><ul><li>A says nothing. </li></ul><ul><li>Here A ’s silence is equivalent to speech </li></ul>
  24. 24. <ul><li>A person shall be liable in fraud where the false statement he has made was made </li></ul><ul><li>knowingly , </li></ul>
  25. 25. <ul><li>Effect of Fraud (Section 19) </li></ul><ul><li>(1) May avoid or rescind the contract. </li></ul><ul><li>(2)May affirm the contract and insist upon the misrepresentation being made good </li></ul><ul><li>(3) Claim for damages </li></ul>
  26. 26. <ul><li>Example </li></ul><ul><li>A fraudulently informs B that A’s estate is free from encumbrance. </li></ul><ul><li>B, therefore, buys the estate. </li></ul><ul><li>The estate is subject to mortgage. </li></ul><ul><li>B may either avoid the contract, </li></ul><ul><li>or </li></ul><ul><li>He may insist on its being carried out and the mortgage deed redeemed. </li></ul>
  27. 27. <ul><li>Exceptions: where the contract is not voidable. </li></ul><ul><li>1. Contract entered into without relying on the false representation </li></ul><ul><li>2. Before the contract is avoided, third party intervenes and acts bonafide. </li></ul>
  28. 28. <ul><li>For misrepresentation to exist there must be: </li></ul><ul><li>(a)A false representation </li></ul><ul><li>(b) Representation of a fact </li></ul><ul><li>(c) Misrepresentation made without the knowledge of its falsity </li></ul>
  29. 29. <ul><li>(d) Misrepresentation made without the intention of cheating the other party </li></ul><ul><li>(e) The misrepresentation must have been acted upon by the parties. </li></ul>
  30. 30. <ul><li>Cases of Misrepresentation: </li></ul><ul><li>Positive assertion: </li></ul><ul><li>Example </li></ul><ul><li>X learns from A that Y would be director of a company to be formed. </li></ul><ul><li>X tells this to B in order to induce him to purchase shares of company </li></ul><ul><li>B does so. </li></ul>
  31. 31. <ul><li>This is misrepresentation by X , </li></ul><ul><li>He believed in the truthness of the statement </li></ul><ul><li>There was no intent to deceive. </li></ul>
  32. 32. <ul><li>(b) A statement true when made but becomes false when acted upon </li></ul><ul><li>[Case: With v. O’s flanagan] </li></ul><ul><li>A before signing a contract with B for the sale of business, correctly states that monthly sales are Rs 50000 for 5 months. During this period the sales come down to Rs 5000 a month. A unintentionally keeps quite. It was held there was misrepresentation and B was entitled to rescind the contract </li></ul>
  33. 33. <ul><li>(c) Innocently making a mistake as to the </li></ul><ul><li>substance of thing </li></ul><ul><li>[Case: Bonnerman v. White] </li></ul><ul><li>X entered into contract with C for the sale of hops. </li></ul><ul><li>X told Y that no sulphur had been used in their growth. </li></ul><ul><li>Y agreed to buy only if no sulphur had been used for their growth. </li></ul>
  34. 34. <ul><li>As a matter of fact, sulphur had been used in 5 out of 300 acres which fact was evidently forgotten by X when he represented that no sulphur was used </li></ul><ul><li>Held : </li></ul><ul><li>The representation was not fraudulent </li></ul><ul><li>The representation that no sulphur had been used was in the nature of a primary stipulation, the contract could be avoided, </li></ul>
  35. 35. <ul><li>Consequences of Misrepresentation (Section 19) </li></ul><ul><li>May avoid or rescind the contract. </li></ul><ul><li>(2)May affirm the contract and insist upon the misrepresentation being made good </li></ul>
  36. 36. <ul><li>Example: </li></ul><ul><li>A informs B that his estate is free from encumbrance. </li></ul><ul><li>B thereupon buys the estate. </li></ul><ul><li>In fact, the estate is subject to mortgage, though unknown to A also. </li></ul><ul><li>B may either avoid the contract or may insist on its being carried out and the mortgage debt redeemed. </li></ul>
  37. 37. <ul><li>Exceptions: Right to rescind the contract </li></ul><ul><li>1. Aggrieved party continues to take the benefit under the contract </li></ul><ul><li>2. Subject matter destroyed or consumed </li></ul><ul><li>3. A third party intervention </li></ul>
  38. 38. <ul><li>4. Means of discovering the truth </li></ul><ul><li>Example: A by a misrepresentation, leads B erroneously to believe that 500 tonnes of Indigo are made annually at his factory. </li></ul><ul><li>B examines the accounts of factory which shows that only 400 tonnes are being made. After this B buys the factory. Contract is not voidable </li></ul>
  39. 39. <ul><li>MISREPRESENTATION AND FRAUD DISTINGUISHED </li></ul><ul><li>Intention </li></ul><ul><li>Belief </li></ul><ul><li>Claim for damages </li></ul><ul><li>Criminal act </li></ul><ul><li>Discovery of truth </li></ul>
  40. 40. <ul><li>MISTAKE </li></ul><ul><li>(i) Mistake of Fact: </li></ul><ul><li>(a) Bilateral mistake </li></ul><ul><li>(b) Unilateral mistake </li></ul><ul><li>(ii) Mistake of Law: </li></ul><ul><li>(a) Mistake of law of country </li></ul><ul><li>(b) Mistake of law of a foreign country </li></ul>
  41. 41. <ul><li>Bilateral Mistake: Contract is void </li></ul><ul><li>Two conditions: </li></ul><ul><li>Mistake should be mutual </li></ul><ul><li>Must relate to matter of fact essential to an agreement </li></ul>
  42. 42. <ul><li>Cases of bilateral mistake </li></ul><ul><li>(A) Mistake as to the existence of subject-matter </li></ul><ul><li>[Case: Courturier v . Hastic] </li></ul><ul><li>A and B entered into a contract for the sale and purchase of Indian corn supposed to be on board,a particular ship from England. </li></ul><ul><li>Unknown to both parties the corn was damaged and discharged at an intermediate port, some days prior to the contract. </li></ul>
  43. 43. <ul><li>Held : The contract was void on the ground of mistake </li></ul><ul><li>(B) Mistake as to identity of the subject-matter </li></ul><ul><li>A contract was entered into for the purchase of certain bales of cotton to arrive by a ship called “Peerless” from Bombay. </li></ul><ul><li>Two ships of the same name (Peerless) </li></ul><ul><li>were to sail from Bombay. </li></ul>
  44. 44. <ul><li>The buyer intended to buy the cargo of one ship but the seller was selling the cargo of the other. </li></ul><ul><li>The contract was held to be void. </li></ul>
  45. 45. <ul><li>(C) Mistake as to title to the subject-matter </li></ul><ul><li>[Case:Cooper v. Phibbs] </li></ul><ul><li>A agreed to take a lease of fishery from B </li></ul><ul><li>Unknown to both parties A was already tenant for life and B had no title to it. </li></ul><ul><li>Held: The contract was void </li></ul>
  46. 46. <ul><li>(D) Mistake as to quantity of subject-matter </li></ul><ul><li>[Case: Henkel v. Pape] </li></ul><ul><li>P wrote to H inquiring the price of rifles and suggested that he might buy as many as 50. </li></ul><ul><li>On receipt of the information, he telegraphed “Send three rifles.” </li></ul>
  47. 47. <ul><li>But because of the mistake of the telegraph authorities, the message transmitted was “Send the rifles.” </li></ul><ul><li>H despatched 50 rifles. </li></ul><ul><li>Held : There was no contract between the parties. However, P could be held liable to </li></ul><ul><li>pay for three rifles on the basis of an implied contract </li></ul>
  48. 48. <ul><li>(E) Mistake as to price of the subject-matter </li></ul><ul><li>Example: </li></ul><ul><li> A contract of lease of a house was agreed to at a lease of £230 </li></ul><ul><li>But in the written agreement, the figure £130 was inserted by mistake </li></ul><ul><li>The contract was held to be void. </li></ul>
  49. 49. <ul><li>Mistake as to possibility of performance of contract </li></ul><ul><li>Physical impossibility </li></ul><ul><li>Legal impossibility </li></ul>
  50. 50. <ul><li>2. Unilateral mistake: Contract is not void </li></ul><ul><li>Example: </li></ul><ul><li>A enters into an agreement with B for the purchase of a horse which he assumes to be a racing horse. </li></ul><ul><li>A do not confirm from B </li></ul><ul><li>In actual the horse is not a racing horse. </li></ul><ul><li>A can not rescind the contract. </li></ul>
  51. 51. <ul><li>(ii) Mistake of Law: </li></ul><ul><li>(a) Mistake of law of country: </li></ul><ul><li>(b) Mistake of law of a foreign country: </li></ul>