According to S. 10 of the Act (Indian Contract Act, 1872), ‘free consent’ is essential for the formation of a valid contract. S. 13 of the Act defines ‘consent’ as ‘two or more persons are said to consent when they agree upon the same thing in the same sense”. S. 13 is a replica of the maxim ‘consensus ad-idem’[2]. It means ‘meeting of the mind’ of the parties ‘, agreement upon the same thing with the same sense’ or ‘an agreement according to real wishes of the parties’.

II] When is consent said to be free?

14 defines ‘free consent’. According to S. 14, consent is said to be free when it is not caused by-

1) Coercion[3]. (S. 15)

2) Undue Influence4 (S. 16)

3) Fraud5 (S. 17)

4) Misrepresentation6 (S. 18)

5) Mistake7 (Ss. 20, 21 and 22)

If the consent is caused by one of the above factors, the consent is not free and hence not valid. When the consent is caused by ‘coercion’, ‘undue influence’, fraud’, or ‘misrepresentation’, the agreement is voidable8 at the option of the party whose consent is so caused9. But if the consent is caused by a ‘mistake’, the agreement is void.

In N.N.Global Mercantile Private Ltd. v. Indo Unique Flame Ltd.

(2021 Laws (SC) -1-16)

The Supreme Court Held that voidable argument under Ss. 12,14, 15, 16, 17, and 18 cannot be validated through an arbitration proceeding[4]. Arbitration proceedings cannot circumvent or validate voidable agreements.

We will discuss these factors one by one.

1) Coercion (S. 15):-

Definition and Meaning:-

15 defines- ‘coercion’ as-
i) the committing, or threatening to commit, any act forbidden by the Indian Penal Code. or
ii) 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 agreement10.

In English law, ‘coercion’ is called ‘duress’ or ‘menace’. The concept of coercion under this section is wider than English law because, in English law, duress to a person’s body only is covered, whereas, under this section, coercion can be committed by detaining property.

A) Act’s Forbidden by I.P.C.:-

If a person commits or threatens to commit an act forbidden by the Indian Penal Code with a view to obtaining the consent of the other person to an agreement, the consent in such case is deemed to have been obtained by coercion.

Illustration

A threatens to shoot B if B does not agree to sell his hotel to A at a stated price; B’s consent, in this case, has been obtained by coercion.

For coercion, it is not necessary that the Indian Penal Code should be applicable at the place where the consent has been so caused.

Illustration

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. A afterwards sues B for breach of contract at Calcutta. A has employed coercion, although his act is not an offence by the law of England, and although S.506 (punishment for criminal intimidation) of the Indian Penal Code was not in force at the time when or place where the act was done.

In Chikknn Ammiraju V/s Chikksn Seshama11

Facts:– In this cause, A, a Hindu, by a threat of committing suicide, induced his wife and son to execute a release deed in favour of A’s brother in respect of certain properties claimed as their own by the wife and the son. The question before the court was whether a threat to commit suicide could be considered to be an act forbidden by the Indian Penal Code.

Madras High Court Held that a threat to commit suicide amounted to coercion; therefore, the release deed was voidable.

B) Unlawful Detaining of Property:-

Coercion can also be caused by 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.

2) Undue Influence[5] (S. 16):-

A) Undue Influence Means:-

‘Undue influence’ means improper use of power or influence possessed over the mind of the other contracting party. S. 16 answers as to when a contract is said to have been induced by ‘undue influence’. It provides that the contract is to be called to have been induced by ‘undue influence’ where the relations subsisting between the parties are such that one of the parties-

i) is in a position to dominate the will of the other, and
ii) uses that position to obtain an unfair advantage over the other.

B) When Person’s will is said to be Dominated:-

It is further clarified by the section as to when a ‘person’s will’ is said to have been dominated. In the following situations, a person is deemed to be in a position to dominate the will of the other-

(i) Where he holds real or apparent authority over the other[6], or:-

The person having authority over the other is in a position to dominate the will of the other, e.g. an employer is deemed to be having authority over his employee; similarly, an income-tax authority over the assessee, a police or a judicial officer over the accused, or licensing authority over the licensee.

Illustration

A, having advanced money to his son B during his minority, upon B’s coming of age, obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence.

(ii) Where he stands in a fiduciary relation[7] to the other, or:-

Fiduciary relation means the relationship of confidence and trust. E.g. solicitor and client, trustee and beneficiary, spiritual adviser and devotee, doctor and patient, parent and child, husband and wife, master and servant, etc.

Illustration

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.

(iii) 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.

C) Presumption of undue Influence[8]:-

The burden of proving undue influence lies on Plaintiff. He has to prove (i) that the other party was in a position to dominate his will and (ii) that he actually used his influence to obtain the Plaintiff’s consent to the contract.

In New India Assurance Co. Ltd, Kochi v. Insurance Ombudsman, Kochi

(AIR 2017 (NOC) 592 (Ker))

Facts– The claimant seeking to set aside settlement arrived between him and the Insurance Company on the ground that the Insurance Company settled a claim by taking undue advantage of the unequal bargaining capacity of the claimant and settled the claim for a lesser amount than assessed by the Surveyor. He accepted the claim due to extreme financial distress and undue influence exerted by insurance company officials.

Held- The Insurance Company took undue advantage of the claimant’s unequal bargaining capacity and extreme financial distress and hence used undue influence over the claimant. Therefore, settlement is liable to be set aside.

However, in certain circumstances, undue influence is presumed. Once the Plaintiff shows that the defendant was in a position to dominate his will, it is presumed that the defendant would have dominated his will. It is now up to the defendant to prove that he has not dominated the will of the Plaintiff. In the following cases, the presumption of undue influence is raised. Viz.

(i) ‘Unconscionable Bargains’ or ‘Catching Bargain’14:-

Where one of the parties to a contract is in a position to dominate the will of the other and the contract is apparently unconscionable (i.e. unfair), the law presumes that consent has been obtained by undue influence.

In Wajid Khan V/s Raja Ewaz Ali Khan15

Facts:- An old and illiterate woman, incapable of any business, conferred on her confidential managing agent, without any valuable consideration, an important pecuniary benefit under the guise of trust.

Privy Council observed that ‘all the facts of the case go to show that there was active undue influence.

(ii) Contract with ‘Pardanashin Woman’16:-

A ‘Pardanashin woman’ is she who, by the custom or the usage of a particular community to which she belongs, is obliged to observe complete seclusion from ordinary social intercourse. A contract with such leady is presumed to have been induced by undue influence.

The extent of the burden was further explained by the Court in more concrete terms in the following case-

Moonshe Buzloor Raheem V/s Shumsoonisa Begum17

Facts:– A widow remarried and endorsed and delivered to her new husband certain valuable Government papers. In action, to recover them back from him, she proved that she lived in seclusion and that she had given over the papers to him for collection of interest. He contended that he had given her full consideration for the notes.

Privy Council held– that the mere fact of endorsement and the allegation of consideration was not sufficient to lift the presumption of undue influence. He should prove that the transaction was a bona fide sale and that he gave full consideration for the paper, which he received from his wife.

D) Distinction between ‘Coercion’ and ‘Undue Influence’:-

Following are some points of distinction between these two:

(i) As to Nature:-

Coercion consists in committing or threatening to commit an act forbidden by the Indian Penal Code or detaining or threatening to detain property unlawfully, whereas, in undue influence, the consent of the aggrieved party is obtained by dominating the will of the party by taking undue advantage of his dominating position.

(ii) Force Used:-

In coercion, physical force is exercised, whereas, in undue influence, moral force is used.

(iii) Relation between Parties:-

In coercion, a relation between the plaintiff and defendant is not necessary, whereas, in undue influence, some relation must subsist between the parties so that one of the parties may be in a position to dominate the will of the other.

3) Fraud[9] (S. 17):-

I. Meaning and Definition:-

Intentional misrepresentation of facts is called ‘fraud’. An innocent misstatement is called ‘misrepresentation’. According to Lord Herschell18 ‘fraud’ means “a false statement- made knowingly, or without belief in its truth, or recklessly, carelessly, whether it be true or false”. When consent to the contract is obtained by fraud, it is not free consent, and the contract becomes voidable at his option.

17 of the Act 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 (or his agent), or to induce him, to enter into the contract-

(a) Deliberate false statement of fact19:-

If a suggestion (statement) is made about a fact, which is not true, and the person making the suggestion does not believe it to be true, it is fraud.

(b) Active concealment of facts20:-

If a person actively conceals the fact of having knowledge of it, it is a fraud. In other words, active concealment of material fact is a fraud; but mere silence does not amount to fraud.

When silence amount to fraud? (See note at end).

(a) Promise made without the intention of performing:-

If a promise is made with the intention not to perform the same, it is fraud.

(b) Any other act fit to deceive:-

This clause is general (residuary) and is intended to include such cases of fraud which would otherwise not come within the purview of the earlier three clauses. In other words, this clause is intended to cover all such acts which under any other branch of law are regarded as fraudulent.

(c) Any act or omission declared by law to be fraudulent:-

If the law declares any act or omission to be fraudulent that act or omission if done by a party to an agreement is a fraud.

4) Misrepresentation[10] (S. 18):-

a) Meaning and Definition::-

“Misrepresentation” means “misstatement of a fact material to the contract”. “When the person making a false statement believes that the statement to be true and does not intend to mislead the other party to the contract, it is known as misrepresentation”. When consent to the contract is obtained by misrepresentation, it is not free consent, and the contract becomes voidable at his option.

According to S. 18, misrepresentation means:-

(i) A statement not warranted by the information of the person making it.

(ii) A breach of duty without any intention to deceive and thereby gaining

advantage and mislead another to his prejudice.

(iii) Causing innocently to make a mistake about the substance of a thing being

the subject matter of the contract.

We will discuss them one by one-

(i) Statement not warranted by the Information[11]:-

If a person makes a statement not warranted by information, under the belief that it is true, although it is not true, it is a misrepresentation.

In Derry V/s Peek21

Facts-the directors of a company stated in the prospectus of the company that they had been authorised to run tramways with steam power. Sanction from the Board of Trade had yet to be obtained, but the directors honestly believed that the same would be obtained as a matter of course. The Board of Trade refused to grant permission for the use of steam power. Shareholders brought an action against directors stating it to be a fraud.

Held– that there was a mere misrepresentation, but no fraud as the statement was made without any intention to deceive.

(ii) Breach of the duty without any intention to deceive[12]:-

Any breach of a duty which brings an advantage to the person committing it by misleading the other to his prejudice is a misrepresentation.

In Oriental Bank’s Case22

Facts:- The plaintiff, having no time to read the contents of a deed, signed it as he was given the impression by the defendant that it contains nothing but formal matters already settled between them. The deed, however, contained a release of property in favour of the defendants.

The Court held:- that the plaintiff was allowed to set aside the deed. The court observed that since Plaintiff has posed confidence in the defendant, it becomes Defendant’s duty, to tell the truth of the fact.

(iii) Inducing mistakes about subject matter[13]:-

If a party, though innocently, causes another person a mistake about the substance of the subject matter of the agreement, it is a misrepresentation.

In R. V/s Kyalsat23

Facts:- In the prospectus of the company, it was mentioned that the regular dividend was being paid out of profit, but the company was running into losses for several years, and the dividend was being paid out of the accumulated interest in the past.

The Court held:- It was held to be a misrepresentation.

b) Difference between ‘fraud’ and ‘misrepresentation’:-

Following are some of the differences between ‘fraud’ and ‘misrepresentation’.

(i) Intentional/ Innocent[14]:-

‘Fraud’ is an intentional wrong whereas ‘misrepresentation’ is not an intentional wrong but quite innocent.

(ii) Remedies[15]:-

Fraud, in addition to rendering contracts voidable, is a cause of action in tort for damages. Whereas misrepresentation is not a tort, but S. 75 of the Act entitles the injured party to reasonable compensation with the rescission of the contract.

(iii) Defence available[16]:-

The person complaining about misrepresentation can plead the defence that he had the means to discover the truth with ordinary diligence. Whereas, this defence cannot be taken (except in fraud by silence) by a person who has committed fraud.

(iv) Delay in action[17]:-

If the person complaining about fraud does not take any action within the proper time to render the contract voidable, still the contract cannot become valid. Whereas it may become valid if the person complaining about misrepresentation takes no action to render it voidable.

5) Mistake (Ss. 20 to 22):-

i) Introduction:-

An agreement upon the same thing with the same sense is known as true consent (S. 13) or ‘consensus ad idem’, which is necessary for the formation of a contract. But if the parties are agreed mistakenly, it is not true consent. If one or both of the parties to the contract, are under some misunderstanding, then parties are said to have entered into a contract by a mistake. In other words, an erroneous belief concerning the material facts of the contract is known as a mistake.

ii) Classification of Mistakes:-

Mistakes may be classified as ‘Mistake of Law’ and ‘Mistake of facts’. Mistake of law may further be classified into (i) Mistake to Indian law and (ii) Mistake to Foreign law. The mistake of facts may further be classified as (i) Bilateral Mistake and (ii) Unilateral Mistake. We will discuss these mistakes and their effects on the contract.

A) Mistake[18] of Law (S. 21):-

Mistakes of law may be of two types. Viz.

a) Mistake as to Indian Law:-

21 provides that a mistake as to Indian law or ignorance of Indian law does not make a contract voidable because ignorance of Indian law cannot be pleaded as a defence.

Illustration

‘A’ and ‘B’ make a contract grounded on the erroneous belief that a particular debt is barred by the Indian law of limitation, the contract is not voidable24.

b) Mistake as to Foreign Law:-

21 provides that a mistake as to the law not in force in India (foreign law) has the same effect (i.e. void) as a mistake of fact.

Illustration

‘A’ and ‘B’ entered into a contract to purchase and sell a plot of 200 sq. yards in New York, believing that a house could be constructed over it. Actually, under the law of New York, a house cannot be constructed on a plot of less than 500 sq. yards; the contract can be avoided.

B) Mistake of Fact (Ss. 20 and 22):-

Mistake of fact may be of two types, Viz.

a) Mutual or Bilateral mistake (S. 20):-

According to S. 20, where both the parties to an agreement are under a mistake as to the matter of fact essential to the agreement, the agreement is void.

Illustrations

(i) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo has been cast away, and the goods lost. Neither party was aware of these facts. The agreement is void.

(ii) A agrees to buy from B a certain horse. It turned out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void25.

A mere mistake does not render a contract void unless it is a mistake as to a matter of fact essential to the agreement. Generally, the following facts are essential to every agreement.

1) the identity of parties.

2) the identity and nature of the subject matter of the contract

3) the nature and content of the promise itself.

Any mistake as to these factors amounts ‘mistake of fact essential to the contract’. If both parties to a contract are mistaken about any of this factor, it renders the contract void.

b) Unilateral Mistake (S. 22):-

22 provides that a mistake of fact by one of the parties will not render the agreement voidable. In other words, to render the contract void on the ground of a mistake the following two ingredients should be proved viz.
i) it should be the mistake of fact about a matter essential to an agreement.
ii) mistake must be of both the parties to an agreement.

NOTES

When Silence Amounts to Fraud:-

In the following exceptional circumstances, mere silence amounts to fraud-

a) Duty to Speak[19]:-

Keeping silence is fraud if the person keeping silence is under a duty to speak. The duty to speak arises when one contracting party reposes trust and confidence in the other.

Illustration

In the above illustration, if B is A’s daughter and has just come of age. Here, the relation between the parties would make it A’s a duty to tell if the horse is unsound27.

b) Silence being Equivalent to Speak[20]:-

Silence sometimes is equivalent to speech. In other words, keeping silent as to certain facts may be capable of creating an impression as to the existence of a certain situation. In such cases, silence amounts to fraud.

Illustration

B says to A, “If you do not deny it, I shall assume that the horse is sound.” A says nothing. Here, A’s silence is equivalent to speech.

c) Change of Circumstances29:-

Sometimes a representation is true when made, but it may, on account of a change of circumstances, become false when it is actually acted upon by the other party. In such circumstances, it is the duty of the person making representation to inform change in circumstances. E.g. if a company’s prospectus represents that certain persons would be the directors of the company. But before the allotment of actual shares, there were changes in the directors; some directors retired. It is the duty of the company to inform the change in directors to the subscribers.

d) Half Truth30:-

Sometimes, a person is under no duty to disclose facts, but in case he voluntarily discloses something, he will be guilty of fraud if he discloses a half-truth. He must disclose the full truth.

e) Contract by Partner:-

Partner owes a fiduciary duty to rest of his partners. Therefore, their relations are based on mutual trust and confidence. Therefore, it becomes his duty to disclose all contracts entered into by him on behalf of a firm and also to disclose secret profit, if any, earned by him through such contracts.

f) Contract of Guarantee31:-

The creditor must disclose all material facts to his surety. Any concealment of material facts either by the creditor (or with his collusion by the debtor) becomes void and discharges surety.

*****

[1] मुक्त संमती,[स्वेच्छा सहमति]

[2] Smith V. Hughes (1871) LR 6 QB. आम सहमति

[3] बरदस्ती/धाकधपटषाही, [दबाव].

4 गैर प्रभाव [अवांछित प्रभाव]

5 फसवणूक [धोखा]

6 दिशाभूल [बहकाना]

7 चूकभूल [ग़लती]

8 रद्दबातल करार म्हणजे ‘‘कायदयाने अंमलबजावणी करता न येणारा करार”. रद्दबातल म्हणजे ‘‘ज्या व्यक्तीची संमती करारासाठी जबरदस्तीने, गैरप्रभावाने, फसवणूकीने अथवा दिषाभूल करून घेतलेली आहे त्याच्या इच्छेप्रमाणे करार रद्दबातल अथवा अंमलबजावणी करावयाची की नाही हे अवलंबून असते असा करार जो रद्दबातल ठरू शकतो किंवा बंधनकारक ठरू शकतो.

9 Ss. 19 and 19 A.

[4] लवाद कार्यवाही / तंटामुक्ती प्रक्रयाचे माध्यमातून रदृदबातल करार कायदेषीर करता येणार नाही. [मध्यस्थता की कार्यवाही]

10 Explanation. – It is immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed.

11 ILR (1918) 41 Mad. 33.

In Ranganayakamma v. Alwar Setti, (ILR.19898 Mad. 214).

Facts- On the death of her husband, the husband’s dead body was not allowed to be removed from her house for cremation, by the relatives of the adopted boy until she adopts the boy. She therefore adopted the son.

Held- that the adoption was not binding on the widow due to her consent being caused by coercion.

[5] गैरप्रभाव,[अनुचित प्रभाव]

[6] ज्यावेळी एकाचे प्रत्यक्ष अथवा अप्रत्यक्ष दूसÚयावर नियंत्रण असते, [जहां वह दूसरे पर वास्तविक या प्रत्यक्ष अधिकार रखता है।]

[7] विश्वासाचे संबंध [जहां वह दूसरे के साथ एक प्रत्ययी संबंध में खड़ा होता है]

[8] गैरप्रभावा बाबतीत ग्रहीते [अनुचित प्रभाव का अनुमान,]

14 सद्सद बुद्धी विरुद्ध / कचाटीतील सौदा [अनुचित सौदा या बंदी करार]

15 (1891) 18 Ithna Ashria School 144.

16 पर्दानशीन स्री [पर्दानशीन स्त्री]

17 (1867) MIA 551 PC.

[9] फसवणूक [छल]

18 Observed by Lord Herschell in Derry V. Peek.

19 हेतुपूरस्सर खोटी बतावणी करणे, [तथ्य का जानबूझकर गलत बयान।]

20 महत्वाची परिस्थीती जाणूनबूजून लपविणे, [तथ्यों का सक्रिय छिपाव]

[10] खोटी माहिती / चुकीचे भाष्य करणे/ विपर्यास करणे [बहकाना]

[11] प्रमाणीत माहीती शिवायचे वाक्य [विवरण सूचना द्वारा वारंट नहीं है]

21 9 Ibid.

[12] फासावन्यचे उद्देश्या शिवाय कर्तव्यात कसूर[धोखा देने के इरादे के बिना कर्तव्य का उल्लंघन]

22 In Oriental Banking Corporation v. John Fleming (1879) 3 Bom. 242.

[13] कराराचे विषय वस्तू बद्दल चुकीचा समज करणे. [विषय वस्तु के बारे में गलतियाँ करना]

23 (1931) All ER. 179.

[14] जानबूझकर/निर्दोष

[15] उपाय

[16] उपलब्ध बचाव

[17] दावा दाखल करण्यास उशीर झाल्यास [कार्रवाई में देरी]

[18] चूक

24 X owed Y Rs, 11,000. Y was under the impression that the debt was barred by the Law of Limitation. Y, however, pressed X to pay the amount of the debt. X was aware that the debt was not barred by the Law of Limitation. X offered to pay Rs. 4,000 in full settlement of Y’s claim. Y accepted the offer. Thereafter, Y found that the debt was not barred by the Law of Limitation. Y desired to avoid the contract whereby, he had agreed to receive Rs. 4,000. Here, the contract between X and Y is grounded on the erroneous belief that Y’s debt is barred by the Law of Limitation. This is a mistake as to a law in force in India, and Y cannot avoid the contract.

25 (c) 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 but both the parties were ignorant of the fact. The agreement is void.-

[19] बोलण्याचे कर्तव्य [बोलने का कर्तव्य]

27 In Kiran Bala v. Bhaire Prasad Srivastava (AIR 1982 MP 242)

Facts- First marriage of the appellant, Kiran Bala, had been annulled on the ground that she was of unsound mind at the time of that marriage. She was married to the respondent, the second time. The facts of the annulment of the first marriage on the ground that she was idiot, and also that she was under treatment for mental ailment were not disclosed to the bridegroom either by the girl or her parents.

Held- that it was not the duty of the bridegroom to find out these facts, but it was the duty of the girl or her parents not to conceal these facts. Consent of the bridegroom was held to have been obtained by fraud, and the second marriage of the appellant with the respondent was, therefore, annulled.

[20] मौन, बोलने के बराबर है।

29 परस्थित बदल

30 अर्धसत्य

31 हमीचा करार [गारंटी का अनुबंध]