Chapter 5 Free Consent By Coercion By Undue Influence By Fraud By Misrepresentation, and/or By...

(a) Consent means that promisor and promisee must agree to the same thing, and in the same sense, and at the same time (i.e. there must be ‘consensus-ad-idem’); and

(b) Consent must be free

Free consent means that consent must not be obtained byany one or more of the following:

(i) By Coercion(ii) By Undue Influence(iii) By Fraud(iv) By Misrepresentation, and/or(v) By Mistake

Otherwise, such contract would be voidable (not void), at the option of that party, whose consent was so obtained

(a) Committing, or threatening to commit, any act (against Promissor or any other person) (by Promissee or any other person) forbidden by Indian Penal Code (IPC), or

(b) Unlawfully detaining, or threatening to detain (Promissor or any other person) (by Promissee or any other person)

(c) Threat to commit suicide is a crime, hence coercive.

1. Coercion1. Coercion

comprises

Amount paid or things delivered, under coercion,must be paid / delivered back

(a)Aggrieved party can set the contract aside, or

(b)He can insist on the performance of the contract

2. Undue Influence

Possible where one party dominates the mind and will ofthe other, by using such position to obtain unfair advantage.e.g. Doctor and patient, Parent and child, Guardian andward, Lawyer and client, Spiritual Guru and disciple, Trusteeand beneficiary. But, the charge of undue influence could berefuted.      

Undue influence cannot be presumed in the cases of:

Husband and wife Master and servant Landlord and tenant, and Creditor and debtor

In such relationships, the aggrieved party has to prove undue influence

But, in a prima facie case of undue influence, the alleged party has to prove his innocence

The contract, induced by undue influence, is voidable, at the option of the aggrieved party, and the same two remedial options available in the case of coercion apply here also.

Such agreement could be set-aside in part, if aggrieved party, had received some benefits

Charging a higher rate of interest, in itself, may not be sufficient

If rate of interest is exorbitantly high, Court may fix a reasonably lower rate

The onus of proof of no use of undue influence is on the creditor

More than ordinary care is required in case of pardanashin lady

(I) (a) The representation must be made(b) It must be false, and(c) It must be made knowingly, too

A mere silence would not amount to fraud

But it will(a) Where relationship between the parties is of a

fiduciary nature (like father and son or daughter, guardian and ward)

(b) Because, such relationships require utmost good faith (like in the contract of insurance)

3. Fraud3. Fraud

Further, ‘silence is fraudulent’, where ‘silence’, in itself, is ‘equivalent to speech’

Besides, suppression of some relevant truth

(II) The representation must pertain to a fact

(III) The false statement must have been made:

(a) Knowingly, (i.e. with knowledge of it being false) (b) Without belief in its truth; and

(c) Recklessly, without verify the truth

(IV) With intention to induce other party to act thereupon

(V) The statement must actually deceive

(VI) Some loss must be suffered by the party by the fraud

(i) To avoid the performance of the contract, or

(ii) To insist performance, with the required changes, or

(iii) To claim damages for the fraud

Remedies Available to the Defrauded (Deceived) PartyRemedies Available to the Defrauded (Deceived) Party

Some ExceptionsSome Exceptions

(a) When the party had the means to verify and discover the truth

(b) When the party had taken some benefit under the contract, or he had affirmed the contract in some way or the other

Though it also involves false statement, Element of fraudulent intention is not involved, i.e. misrepresentation is innocent and the person honestly believed it to be true.

4. Misrepresentation4. Misrepresentation

(1) The positive assertion, of that which is not true, though he believes it to be true

(2) Any breach of duty, without an intention to deceive, gives an advantage to the person committing it

(3) Causing, however innocently, a party to make a mistake as to the substance of a thing, which happens to be the subject matter of the agreement

Three Categories of MisrepresentationThree Categories of Misrepresentation

To avoid performance of the contract, so made

But, not allowed, if the affected party had the means of finding out the truth, by ordinary diligence[The contract, obtained by fraud, can be avoided even in such cases]

To insist performance of contract, with some required changes

Remedies Available to the Affected PartyRemedies Available to the Affected Party

Unlike cases of fraud, claiming damages is not available in such cases

Except:

(a) In the cases of breach of warranty of authority of an agent; and

(b) In the cases of Negligent Representation

Remedies Available to the Affected PartyRemedies Available to the Affected Party

Mistake pertains to an erroneous belief of something

Two types of Mistake

(i) Mistake of Fact (Bilateral and Unilateral), and

(ii) Mistake of Law

5. Mistake5. Mistake

(I) (1) Bilateral Mistake

When both parties are under the mistake of fact, essential to the agreement. Such agreement is void; not just voidable

Such mistakes may be regarding its:

(a) Existence; e.g. cow under the deal was already dead

(b) Identity; e.g. the car under sale was different than buyer thought

(c) Title; e.g. both parties wrongly believed that seller had valid title

(d)Quantity; e.g. the quantity, ordered by buyer, and thought by seller, differed

(e) Price; e.g. Both parties have different notions about price of goods.But a wrong estimate about the price does not amount to a bilateral mistake

(II) (2) Unilateral Mistake

When only one of the parties commits mistake

Contracts so made are valid, and not voidable

Three Exceptions where contract is voidable

Where the unilateral mistake pertains to:

Nature of the Contract (and not its terms) Quality of the Contract, and Identity of the Person, with whom the contract is being made

Mistake of Law (of own country, or of some foreign country)

‘Ignorance of law is no excuse’ is applicable only in cases of home country

Accordingly, it is not applicable in the case of mistake of law of some foreign country.Such contract is treated only as a mistake of fact, and not of law