2. Introduction
Free consent of all the parties to a contract is
an essential of a valid contract as per
requirement of section 10.
When there is no consent at all, the agreement
is void ab-initio, i.e. it is not enforceable at the
option of either party.
Consent defined: two or more person are said
to consent when they agree upon the same
thing in same sense ( sec 13).
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3. Consent Is Not Free When It Is
Caused By:
COERCION
UNDUE INFLUENCE
FRAUD
MIS REPRESENTATION
MISTAKE
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4. COERCION
In simple words, coercion is threat or force used by
one party against another for compelling him to
enter into an agreement.
Section 15 of Indian Contract Act defines coercion
as the committing or threatening to commit any act
forbidden by the Indian Penal Code or an unlawful
detaining or threatening to detain, any property to
the prejudice of any person with the intention of
inducing any person to enter into an agreement.
Consent obtained at the point of pistol or intimidation,
threat of imprisonment and threat to commit suicide with
the intention of causing a person to enter into an
agreement is an act of coercion.4
5. Essentials of Coercion
There must be clear threat.
The threat should be to commit an act forbidden
by law.
It must be uttered with the intention of causing the
other party to enter into an agreement.
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6. Types of Coercion
Threat to file a suit-A threat to file a suit does not amount
to coercion unless the suit is on false charge. Threat to
file a suit on false charge is an forbidden by the Indian
Penal Code and thus will amount to ant act of coercion.
Threat to commit Suicide.
Effect of Coercion
Section 19 provides that an agreement consent to which is
obtained by coercion is voidable at the option of the party
whose consent is so obtained.
Burden of proof : it lies on the party who wants to set aside
the contract on the plea of coercion.
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7. Undue Influence
Section 16(1) provides that “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 the
position to obtain an unfair advantage over
the other.”
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8. A person is deemed to be in a
position to dominate the will of
another:
Where he holds a real or apparent authority over
the other e.g. relationship between master and
servant, public officer and accused, income tax
officer in relation an assessee.
Where he stands in a fiduciary relationship to the
other. Fiduciary relation means a relation of
mutual trust and confidence. like father and son,
guardian and ward, solicitor and client, doctor and
patient, trustee and beneficiary.
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.
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9. Effect of 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. Such
contract may be set aside either absolutely or subject to
restitution of the benefit there under or upon such
condition as the court may deem just.(section 19 (A)).
Pardanashin Ladies-A paranashin women is one who
lives in seclusion having no communication except from
behind the pardah with any male person except a few
privileged relations.
Law provides special protection to them on the ground of
their being ignorant so far as the worldly knowledge
goes. A contract with them is presumed to have been
induced by undue influence unless the other party show
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10. Undue Influence is suspected when:
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Inequality between
the parties
Inadequacy of
consideration
Fiduciary relationship
Unfair bargain
Pardanashin Women
11. Difference between coercion and
undue influence
11
Basis Coercion Undue influence
Obtaining the
consent
By committing or
threatening to
commit an
offence
By dominating the
other party
Type of force Physical Mental or moral
Presumption Not presumed by
court, party have
prove it.
It can be
presumed as
other party is in
dominating
position
Nature of liability Criminal liability Not criminal
liability
12. FRAUD
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Section 17 of Indian Contract Act, 1872 defines “Fraud'.
"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.
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 speak, or unless his silence is, in itself, equivalent to speech.
13. 13
1.The suggestion, as a fact, of that which is not true, by one
who does not believe it to be true. The leading case: Peek V.
Gurney.
The prospectus of a company did not refer to the existence
of a document disclosing liabilities. This created an
impression that the company was prosperous. It was held
that there was suppression of truth and suggestion of false
statement amounting to fraud.
2. The active concealment of a fact by one having knowledge
or belief of the fact-If a person conceals a fat which is
material to the contract will be a case of fraud. Mere non
disclosure is not fraud, where there is no duty to
disclose.”Caveat Emptor” or “Buyer Beware” is the rule,
but in contracts of absolute faith mere silence about material
facts will be taken as fraud.
14. 14
E.g. A, horse dealer sold a mare to B.A knew that the mare
had a cracked hoof, which he filled up in such a way as to
defy detection. The defect was subsequently discovered by
B. It was held that the agreement could be avoided by B as
his consent was obtained by fraud.
A promise made without any intention of performing it is
fraud.
Any other act fitted to deceive. E.g. Where a party, who by
false impersonation induces another to enter into a
contract with him under the belief that he is somebody
else, commits fraud.
Any such act or omission as the law specially declares to
be fraudulent.
15. Mere silence is not fraud….
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A party to the contract is under no obligation to
disclose the whole truth to the other party. Caveat
Emptor i.e. let the buyer beware is the rule
applicable to contracts. There is no duty to speak
in such cases and silence does not amount to
fraud.
Silence is treated as Fraud in:
Fiduciary relationship
Contract of insurance
Contract of marriage
Contract of Family settlement
Share allotment contracts.
16. Effect of fraud
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When the consent to an agreement is caused by
fraud, the agreement is a voidable contract at the
option of the party whose consent was so
caused.
A party whose consent to an agreement is so
obtained has two remedies, namely:
He may rescind the contract or
He may 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.
17. Misrepresentation
Ruby Sharma17
The term “Misrepresentation means a false
representation of fact made innocently or non-
disclosure of a material fact without any intention to
deceive the other party.
According to Section 18 the term misrepresentation
means:
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.
E.g. A on the strength of hearsay information
positively asserted to B that certain third party is
going to be the Director of the co. to be
incorporated, bought the shares on faith of such a
statement. This is case of misrepresentation by
A.(Mohanlal V Shri Ganga Ji Cotton Mills co.)
18. Contd…………
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2.Any breach of duty, which ,without an intention 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 anyone
claiming under him. This is known as ‘Constructive
fraud".
3.It also covers those cases where a statement when
made was true but subsequently before it was acted
upon, it became false to the knowledge of the person
making it .In such a case , the person making the
statement comes under an obligation to inform the
other party of the true facts.
19. Essentials Of Misrepresentation
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There should be a representation or assertion.
Such representation must relate to a matter of fact which
has become untrue ; and It was made before the
finalization of transaction with a view to induce the other
party to enter into a contract.
It must actually have been acted upon by the party.
It must have been made either by the party himself or by
his duly authorized agent.
Consequences of Misrepresentation- The aggrieved party
may avoid the contract, or May affirm the contract and
insist on the misrepresentation being made good.
When consent is induced by misrepresentation &
aggrieved party has the means of discovering the truth with
ordinary diligence, the contract cannot be set aside.
20. MISTAKE
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Mistake may be defined as an erroneous belief
concerning something. It means that parties
intending to do one thing have by intentional error
done something else.
Mistake
of Law
Mistake
Of Fact
MISTAKE
21. Mistake Law
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Mistake of Law: The contract is binding because
everybody is supposed to know the law of the country.
”A contract is not voidable because it was caused by
a mistake as to any law in force”(section 21).
Mistake of Foreign Law and Mistake of Private rights
of Parties are treated as mistake of facts.
Mistake of facts:
Bilateral
Mistake Unilateral
Mistake
22. Bilateral Mistake
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Mistake as to subject matter. It falls into six heads
namely
1.Existence 2.Identity 3. Title 4. Price 5. Quantity 6.Quality
When both the parties to an agreement are under a
mistake as to a matter of fact, which are essential to
the agreement, and this agreement shall be Void.
Thus this mistake shall be termed as bilateral
mistake of facts.
It should be committed by both the parties
It should be related to a matter of fact which are
essential to the agreement.
23. Unilateral Mistake
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Section 22 provides that if one party alone is
under mistake of fact. Unilateral mistakes do
not affect the validity of contract unless they
concern some fundamental fact and the other
party is aware of the mistake.
1.Mistake as to identity of the person or party:
Mistake as to the identity of a person may also
avoid a contract. Where A intends to contract
only with B, but enters into a contract with C
believing him to be B, the contract is vitiated.
2.Mistake as to the nature of transaction: A blind
man signing a document, read over to him
24. 24
Case ; Foster V. Mackinnon.
A an illiterate old man, was made to put his
signature on a document which was a pronote .A
thought the document to be a will where his
signature was required as a witness. Under this
presumption hr signed the document which was
in fact a pronote. Subsequently B endorsed the
pronote to C who paid value for it in good faith. C
sued A on the pronote. It was held that A was not
bound by it.
