WRITTEN BY - BHARATI, BRAHM, DEVANGI
Any contract made in India should be made in conformity with the Indian contract act, 1872 and no agreement shall make a contract that does not fulfill the essentials that are mentioned in section 10 of the Indian contract act, 1872. One such essential mentioned in the Indian contract act, 1872 is free consent. Free consent is described in the Indian contract from section 14-18. The definition of free consent in the Indian contract act, 1872 is given in section 14 as consent which shall not be obtained by coercion, fraud, misrepresentation (innocent or deliberate), undue influence, and mistake of facts. This article will explore each of these vitiating factors along with their effects on an agreement.
2. DEFINITION CONSENT AND FREE CONSENT (S.13-14)
Section 13 of the Indian contract act, 1872 defines consent as agreeing of 2 parties on the same thing in the same sense. In other words, mere agreeing of parties is known as consent whereas free consent is defined in section 14 as already mentioned above, is slightly different from consent. If there is no consent between parties i.e., when both the parties do not agree on the same thing in the same sense then the agreement is void, whereas, in case of absence of free consent, the contract becomes voidable at the option of the aggrieved party.
If a person “A” wants to enter into a contract of buying a property of person “B” who does not wants to sell it and “A” points a gun on “B” and forces him to enter into the contract then the contract shall be voidable at the option of “B”.
If a person “A” enters into an agreement with person “B” to sell his horse named “Ferrari” and “B” enters into the agreement thinking that the agreement is about the sale of a Ferrari car then here the agreement becomes void as there is no meeting of minds and no conformity to the concept of consensus ad idem exists.
3. VITIATING FACTORS AND THEIR EFFECTS (S.15-18 & S.20-22)
As already mentioned above, certain factors or elements shall not be present to prove the existence of free consent in an agreement. These are described in the Indian contract act from sections 15-18 and 20-21. These are:
i) Coercion (S.15)
ii) Undue influence (S.16)
iii) Fraud (S.17)
iv) Misrepresentation (S.18)
v) A mistake of fact (S.20-22)
Coercion is mentioned in section 15 of the Indian contract act, 1872. When a person tries to commit or threatens to commit something forbidden by the Indian penal code of 1860 or unlawfully detains or threatens to detain a property to wrongfully threaten someone to enter into a contract then it is said that coercion has taken place.
Section 19 of the Indian contract act states that if consent is taken by coercion then the agreement becomes a voidable contract at the option of the party whose consent was so caused.
“A” criminally intimidates “B” to enter into an agreement. Later “A” sued “B” for breach of contract and “B” refused to fulfill the contractual obligations, so here "A" cannot force "B" to fulfill his contractual obligations as “A” used coercion under section 506 of IPC.
3.2 UNDUE INFLUENCE
Undue influence is described in section 16 of the Indian contract act. Undue influence is said to exist when one party is in the position to dominate the will of the other party according to his/her interest and succeeds in gaining an unfair advantage over the other party.
The sub-section (2) says that a person is deemed to be in a position to dominate the will of another:
i) When he /she is a real or apparent authority.
ii) Where he/she is in a fiduciary relationship with the other party.
iii) Where the other party’s mental capacity is affected due to age or any physical or mental illness.
When an agreement is caused by undue influence then the agreement shall become a voidable contract at the option of the aggrieved party.
Some examples of undue influence are mentioned below:
a) A son acts as a dominant authority over his old father who is living with him to influence him to sign a sale deed in the son's name, which the father does not want to sign.
b) An advocate asks for a greater amount from his client to fight his case. This is an example of a fiduciary relationship that exists between an advocate and his client.
3.2.1 BURDEN OF PROOF:
The burden of proof shall lie on the party who shall be in a position to dominate the other party's will. In order to prove the existence of free consent, it is necessary to prove that either party entering into the contract was not influenced by each other under the mentioned circumstances above.
Fraud is a common and popular term which we all might have heard in our daily lives. In simple terms, Fraud means an act done to deceive or to induce a person into a contract. It is also called fraudulent misrepresentation. The important ingredient in fraud is the intention of the person who makes false representation.
The Indian Contract Act 1872 defines fraud in section 17 as -"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.
So, by the above definition of fraud, we come to know that fraud means that one party cheats the other by telling them to enter into a contract knowingly or without having belief in its truth or with the intent to deceive them. An act was done to deprive a person of money, property, or legal rights. The first subclause of the act deals with false representation made without belief in truth to cheat the other person to enter into the contract. But if the person is making false representation honestly, believing it to be true it will not result in fraud under this clause.
Subclause 2 states that the silence in every situation will not result in fraud and silence will result in misrepresentation. Mere silence as to facts likely is not a fraud. But silence regarding a material fact results in fraud where there is a duty to speak or where silence amounts to speech.
Subclause 3 deals with the promise made but it is not fulfilled or performed in the future. Subclause 4 mentions any other act done to deceive or cheat the other party.
Subclause 5 deals with any act declared fraudulent by law.
In fraud, the victim suffers loss as an effect of their dependence on a false statement
WHAT IS MISREPRESENTATION?
Misrepresentation is defined under section 18 of the Indian contract act.
In simple words, misrepresentation is a false statement, innocently made. i.e., the maker of the statement believes his statement to be true.
In both fraud as well as in misrepresentation, a false statement is made, but in fraud, its maker knows it to be false, but in misrepresentation, he believes it to be true.
Section 18 has (3) clauses within it, defining 3 forms of misrepresentation. These are
Section 18 (1) - Positive assertion of a fact which is not warranted by the information of the person making it i.e., making unwarranted statements. This happens when-
the maker of the statement relies on Hearsay, or on information from second-hand sources, a source that has been tampered with and hence is not accurate.
Case law –Howard Marine v Ogden – in this case, the defendants, Ogden, wished to hire 2 barges/boats from plaintiff H.M. Defendants then asked for the carrying capacity of those boats. The plaintiffs replied it was 1600 tons based on the figure quoted in Lloyd's register. The entry in Lloyd's register was however wrong. The real capacity was only 1055 tons. As a result of low carrying capacity, the operation was delayed. Ogden then refused to pay full price to H.M the plaintiff in turn filed a writ for outstanding hire. Ogden counterclaimed, saying H.M had misrepresented and claimed damages worth 6 lakh pounds. Here according to the court burden lay on the Representer to prove that – He had reasonable grounds to believe that the facts represented were true. In this case, H.M was also in possession of registration documents that showed the correct capacity. Here the eagerness to prefer Lloyd's register over Registration documents was not reasonable. Damages were payable for misrepresentation by H.M
Section 18(2) – has the following ingredients-
There was a breach of duty on part of a party to the contract.
The said breach of duty was committed without an intent to deceive.
The breach of duty succeeded in misleading the other party.
The person committing the breach gained an advantage at the cost of the party mislead.
The party misled was prejudiced to his/her disadvantage.
Case law – Thake v Maurice
In this case, Mr. Thake was a railway guard. He already had 5 children. He did not want any more kids. So, he opted for a vasectomy to be conducted by Doctor Maurice. The doctor however failed to inform the couple that there was a small chance that Mr. Thake might get fertile again on account of recanalization. As a result, Mrs. Thake ignored signs of pregnancy she realized it when she was 5 months pregnant and it was too late to abort the baby. Here it was held that by failing to inform the couple about the risk, the doctor had committed a breach of duty, this misled the couple who ignored all early signs of pregnancy. The couple now had to bear extra costs for raising a child. While the doctor gained a fee for conducting vasectomy. Damages were awarded.
Section 18(3)- causing (however innocently) a party to the agreement, to make a mistake
as to the substance of the subject matter of the agreement.
Case Law - Sohrab Shah Pestonji v secretary of state for India.
In this case, an auction of liquor shops was conducted. A list was supplied to bidders. This list contained the location of existing liquor shops. Relying upon the list plaintiff purchased the license of one shop whose nearest rival was 6 miles away according to the list. But the list was incorrect. The rival shop was much closer Required changes had not been made but this was not done deliberately by the government. But since the statement was misleading as to a material fact. it amounted to misrepresentation.
The defence to misrepresentation is provided under section 19 of the Indian contract act. If the party alleging misrepresentation had the means of discovering the truth by ordinary diligence., such a contract will not be voidable.
A mistake in a literal sense means a misunderstanding / an erroneous view on account of ignorance of facts or law.
Broadly a mistake can be divided into –
· A MISTAKE OF LAW
· A MISTAKE OF FACT
MISTAKE OF LAW-
· as to Indian law
· as to foreign law
Under section 21 of the Indian contract act, a contract cannot be avoided by the losing party on the ground of mistake as to the existence/ meaning/effects of any law, which is in force in India. As everyone is supposed to know the law of the land. However, section 21 of the Indian contract act, treats a mistake as to foreign law as equivalent to a mistake of fact and agreement can be avoided on that ground.
MISTAKE AS TO A FACT – can be divided into –
· a unilateral mistake- dealt under section 22 of Indian contract act
· a bilateral mistake- dealt under section 20 of Indian contract act
UNILATERAL MISTAKE OF FACT- occurs on account of a mistake of a fact committed by the fault of one party to the contract. As per section 22 of the contract act, such contracts are not voidable by default at the option of the mistaken party. If the opposite party was innocent and unaware of the mistake committed/believed on part of the plaintiff, and the mistake was not reasonable then the contract will stand. it cannot be avoided on the ground of unilateral mistake.
However, in certain cases, a unilateral mistake may have the effect of nullifying consent as defined under section 13 as there is a lack of consensus- ad idem. These are –
· Unilateral mistake as to the nature of the promise – e.g., the character of the document
· Unilateral mistake as to the identity of the contracting party.
MISTAKE AS TO THE NATURE OF PROMISE - Often mistakes of this kind are brought upon by the fraud on part of one party. A contract induced by fraud is not void but voidable at the option of party defrauded but, a fraudulent misrepresentation for example as to the nature of the deed /character of the document, will cause the agreement to be wholly void and not just voidable.
CASE LAW – PARTAP V PUNIYA BAI – in this case, there was an illiterate woman. She owned a farming land. She consulted her brother on all important matters. However, on finding that some strangers were occupying her land. Her brother took her to the collector's office on the pretext of filing an application. But there he obtained her thumb impressions on blank papers. They were then registered as sale deeds. The woman challenged the transaction and got it declared void.
MISTAKE AS TO IDENTITY OF THE PARTY- such unilateral mistakes also usually happen on account of fraud practiced by one party. A mistake as to identity will render a contract void, only when a person bearing a particular identity exists within the knowledge of the plaintiff and the plaintiff intends to deal specifically with him. For example a painter, a writer, a particular firm. This is because an offer meant for one person cannot be accepted by another.
CASE LAW- BOULTON V JONES – In this case, Jones placed an order with Brocklehurst for certain goods. He had a running account with him. Unknown to jones however Brocklehurst had sold his business to Boulton. Boulton supplied goods to Jones but did not mention this fact to jones. When the invoice reached Jones, he refused to pay for the goods as he had a set-off against Brocklehurst. He also had consumed goods. Held there was no Valid Agreement between Boulton and Jones as Jones never intended to contract with him. His offer was made to Brocklehurst.
BILATERAL MISTAKE OF FACT - This occurs where both parties to a contract are under a mistake. Section 20 talks about it. Such mistakes fall broadly into 2 categories-
Common mistake – occurs when both the parties to the agreement make the same mistake.
Example – A agrees to buy from B a certain live horse. But the horse was already dead at the time of making the agreement. But neither B nor A were aware of the fact. Here there is an agreement, there is consensus but due to a common mistake as to a fundamental fact, the agreement is void.
Mutual mistake – when both parties misunderstand each other. There is no consensus ad idem. No meeting of minds. Both parties are at cross purposes. Example – A has 2 cars from Ford – endeavor and EcoSport. He Intends to sell EcoSport to B. But B mistakenly believes A wants to sell endeavor. This is a mutual mistake
Both common mistakes and mutual mistakes render a contract void.
For a mistake to render a contract void, it must meet requirements of –
· Section 20 OR
· Section 13- when both parties do not agree upon the same thing in the same sense.
FOR A MISTAKE TO FALL UNDER SECTION 20, IT MUST SATISFY 3 ESSENTIALS-
· Both the parties to the agreement must be under a mistake-mutual or common.
· The mistake must be in relation to a matter of fact and not law.
· Such a fact must be essential to the agreement.
Facts essential to the agreement include facts relating to
· Identity of the parties to the agreement
· The subject matter of the agreement
· Nature of the agreement purported to be made /signed
· Contents of such agreement
Mistake as to a subject matter of the agreement can be further subdivided into-
· As to the existence of subject matter
· As to the title
· As to the identity of subject matter
· As to the quality of subject matter
· As to the quantity of subject matter
· As to the price of the subject matter.
Nonexistence of subject matter - Where the subject matter of the agreement, unknown to the parties has already perished or has been damaged/ disposed of, before or at the time of the agreement.
Example- A agrees to sell to B a specific cargo of goods. The cargo is on a ship on its way from England to Bombay. But unknown to A and B the ship had sunk a day before the agreement was made. This agreement will be void for the nonexistence of the subject matter.
Mistake as to title- where both the parties entertain a mistaken but honest belief as to the status of actual title/rights concerning the subject matter of the agreement on account of fraud practiced.
CASE LAW- ISMAIL ALLARKIA V DATTATRAYA. – in this case, C fraudulently mortgaged his brother L. M' property, he represented himself to be L.M. The mortgagee, also the defendant transferred his interest to the plaintiff. The plaintiff insisted the owner join in the transfer of interest. So once again C joined in and executed the transfer fraudulently. Once the fraud was discovered, the plaintiff sued the defendant for the purchase money. Here the transfer of interest by the defendant to the plaintiff under an agreement was void as both the parties were under a common mistake of fact essential to the agreement. Section 20 would apply the return of purchase money under section 65 of the contract act.
MISTAKE AS TO QUALITY OF SUBJECT MATTER
A mistake as to the quality of subject matter, will not make the agreement void unless where –
· It is a case of sale by description
· If it is a mistake relates to the substance/essence of the agreement.
· It is a bilateral mistake
CASE LAW – SHEIKH BROS. LTD. V OCHSNER 1957 – in this case, the appellant was a company and a lessor of forest in Kenya. It gave the respondent a license to cut, process sisal fiber from the sisal area of the forest. On his part respondent promised an output of 50 tons/ month of fiber. But both the parties were mistaken as to the leaf potential of the sisal area in the forest, it was not enough to meet the required promise. The agreement was held to be void as it was in relation to the substance of the agreement.
· HOWARD MARINE AND DREDGING CO. LTD. V A. OGDEN & SONS LTD. (1978)
· THAKE V MAURICE (1986)
· SORABSHAH PESTONJI V. SECRETARY OF STATE FOR INDIA (1928)
PRATAP V PUNIYA BAI, AIR 1977
· BOULTON V JONES 1857
· ISMAIL ALLARAKHIA V DATTATRAYA 1916
· SHEIKH BROS. LTD. V OCHENER.1957
· THE INDIAN CONTRACT ACT,1872
· CONTRACT AND SPECIFIC RELIEF ACT, AVATAR SINGH
· NARENDRA KUMAR ON INDIAN CONTRACT ACT,1872
 Indian contract act, 1872 (No.9 of 1872), s. 19A.