Circumstances Under Which a Contract is Said to be Free

Two or more persons are said to consent when they agree upon the same thing in the same sense. Consent is said to be free when it is not caused by-

  • Coercion, as defined in section 15, or
  • Undue influence, as defined in section 16, or
  • Fraud, as defined in section 17, or
  • Misrepresentation, as defined in section 18, or
  • Mistake, subject to the provisions of sections 20, 21, and 22.

Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation, or mistake.

Coercion: “Coercion” is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860) or 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.

Explanation: It is immaterial whether the Indian Penal Code (45 of 1860) is or is not in force in the place where the coercion is employed.

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 (45 of 1860). 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 section 506 of the Indian Penal Code (45 of 1860) was not in force at the time when or at the place where the act was done.

Undue influence:

  • 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 that position to obtain an unfair advantage over the other.
  • In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another-

o    Where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other

o    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.

  • Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.

Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of 1872).

Illustrations:

  • 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 then the sum due in respect of the advance. A employs un-due influence.
  • A, a man enfeebled by disease of 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.
  • A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable, It lies on B to prove that the contract was not induced by undue influence.
  • A applies to a banker for a loan at a time when there is stringency in the money market, The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence.

Fraud: Fraud” means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agents , with intent to deceive another party thereto or 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.

Explanation: 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 to speak, or unless his silence is, in itself, equivalent to speech.

Illustrations:

  • A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse’s unsoundness. This is not fraud in A.
  • B is A’s daughter and has just come of age. Here the relation between the parties would make it A’s duty to tell B if the horse is unsound.
  • 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.
  • A and B, being traders, enter upon a contract; A has private information of a change in prices which would affect B’s willingness to proceed with the contract. A is not bound to inform B.

Misrepresentation: it means and includes-

  • 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;
  • Any breach of duty which, without an intent to deceive, gains and advantage to the person committing it, or any one claiming under him; by misleading another to his prejudice, or to the prejudice of any one claiming under him;
  • Causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.

Mistake as to matter of fact: Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement, the agreement is void.

Explanation: An erroneous opinion as to the value of the things which forms the subject matter of the agreement, is not be deemed a mistake as to a matter of fact.

Illustrations:

  • 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 in the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of these facts. The agreement is void.
  • A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of bargain, though neither party was aware of the fact. The agreement is void.
  • A, being entitled to an estate of the life of B, agrees to sell it to C, B was dead at the time of the agreement, but both parties were ignorant of the fact. The agreement is void.

Voidability of agreements without free consent

When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put on the position in which he would have been if the representations made had been true.

Exception: If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.

Explanation: A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practiced, or to whom such misrepresentation was made, does not render a contract voidable.

Illustrations:

  • A, intending to deceive B, falsely represents that five hundred maunds of indigo are made annually at A’s factory, and thereby induces B to buy the factory. The contract is voidable at the option of B.
  • A, by a misrepresentation, leads B erroneously to believe that five hundred mounds of indigo are made annually at A’s factory. B examines the accounts of the factory, which show that only four hundred maunds of indigo have been made. After this B buys the factory. The contract is not voidable on account of A’s misrepresentation.
  • A fraudulently informs B that A’s estate is free from encumbrance. B thereupon buys the estate. The estate is subject to a mortgage. B may either avoid the contract, or may insist on its being carried out and the mortgage-debt redeemed.
  • B, having discovered a vein of ore on the estate of A, adopts means to conceal, and does conceal the existence of the ore from A. Though A’s ignorance B is enabled to buy the estate at an undervalue. The contract is voidable at the option of A.
  • A is entitled to succeed to an estate at the death of B, B dies; C having received intelligence of B’s death, prevents the intelligence reaching A, and thus induces A to sell him his interest in the estate. The sale is voidable at the option of A.

Source: Scribd.com

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