Free Consent under the Indian Contract Act

Section 13 of the Indian Contract Act defines Consent as “when two parties entered into the contract there should agree upon the same thing in the same manner”, there should be a meeting of minds between the two parties. Consent occurs when one person voluntarily agrees to the proposal or desires of another.

Meaning and Definition of Free Consent

Consent exists when one person voluntarily acknowledges the proposal or desire of another person. The definition of Free consent under the Indian Contract Act is consent that is free from coercion, undue influence, fraud, misrepresentation, or mistake.

According to Section 13, “Two or more persons are said to be in consent when they agree upon the same thing in the same sense (consensus-ad-idem)”. Free consent means consent given to an individual for the performance of an act on his will.

Free consent under the Indian Contract Act has been defined in Section 14. The section says that consent is considered free consent when it is not caused or affected by the following:

• Coercion
• Undue influence
• Fraud
• Misrepresentation
• Mistake

Importance of Free Consent

• Protects the validity and enforceability of an agreement
• It protects parties from coercion, undue influence, misrepresentation, fraud and mistake.
• The principle of consensus-ad-idem is followed.

Illustration

“A” is an old man who stays with “B”, his nephew and he takes care of him. “B” demanded to get the property of “A” as he was taking care of him and forced him to sign the papers. Here in this case, “A” is under undue influence.

Case Law- Nokhia vs State of H.P[1]

In this case it was observed that consent to an acquisition cannot be described as real consent. In the absence of these vitiating factors the contract binds and no one can get rid of it by unilateral action.

Vitiating Factors to Free Consent

The main vitiating factors in the law of contracts are:

• Coercion
• Mistake
• Undue influence
• Fraud
• Misrepresentation

Coercion under the Indian Contracts Act

Definition of Coercion (Section 15)

Coercion is the committing or threatening to commit, any act forbidden by the Indian Penal Code 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.

Chikkam Ammiraju v. Chickam Seshamma[2]

In this case, the husband by a threat of suicide induced his wife and son to execute a release deed in favour of his brother in respect of certain proprieties claimed as their own by the wife and son. 

The court held that to commit suicide amounted to coercion within the meaning of section 15 of the Indian Contract Act and therefore release deed was voidable. 

Illustration

‘B’ gives his car, causing his agreement to be coerced. ‘A’ threatens to hurt ‘B’ if he doesn’t give his son, ‘C’ a large sum of money. ‘B’ believes the threat and gives ‘C’ the money. This agreement is believed to be coerced.

Undue Influence under the Indian Contracts Act

Undue Influence is the manipulation of a person who is vulnerable or dependent on someone else. It occurs when an individual is able to persuade another’s decision due to the relationship between the parties.

Definition of Undue Influence (Section 16)

 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. 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—

(a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or

(b) 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.

(3) 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 be upon the person in a position to dominate the will of the other. Nothing in the sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872.

Illustration

James, an old man suffering from cancer, is induced by Daniel, his doctor, to pay a huge amount for his treatment. James transfers the money to Daniel’s account. Here, Daniel employs undue influence.

Lakshmi Amma Vs T. Narayana[3]

In this case, a person was suffering from a number of ailments, which confined him to a nursing home. There he made a deed gifting all his properties to one of his sons to the exclusion of others. The court held that the gift was caused by undue influence voidable.

Fraud under the Indian Contracts Act

Section 17 of the Indian Contract Act, includes to essentials to prove that an act is a fraud;

1. A person should make a false statement having the knowledge that the facts are false.
2. There should be a wrongful intention to deceive the other party.

Illustration

‘A’ sells, by auction, to ‘B’, a horse which ‘A’ knows to be unsound. ‘A’ says nothing about the horse’s unsoundness. This is not fraud in ‘A’.

Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not a fraud.

In English law ‘fraud’ was defined in the very well-known case of “Derry v. Peek”[4]

“Fraud is proved when it is shown that a false representation is being made-

1. Knowingly
2. Without belief in its truth
3. Recklessly careless whether it be true or false.

Facts of the Case: Derry v. peek

The Plymouth, the Development and District Tramways company issued a prospectus stating that the company had permission to use steam trams, which would replace their horse-powered trams. In fact, the company had no such permission because the right to use steam power was subject to the Board of Trade’s consent. The company applied, honestly believing that they would get permission because it was a mere formality. In reality, after the prospectus was issued, permission was refused and the company ended up in liquidation.

Led by Sir Henry Peek, shareholders who had purchased their stakes in the company on the faith of the states sued the directors in misrepresentation.

Judgment in Derry v. Peek

The House of Lords held that the shareholders’ action failed because it was not proved that the director lacked an honest belief in what they had said.^[4] Lord Herschell, however, pointed out that although unreasonableness of the grounds of belief is not deceitful, it is evidence from which deceit may be inferred. There are many cases,

“where the fact that an alleged belief was destitute of all reasonable foundation would suffice of itself to convince the court that it was not really entertained and that the representation was a fraudulent one.”

Active Concealment in Contracts

Active concealment can cause a contract to be invalid or result in liability to the concealing party, it includes hiding information from the other party by concealment intentionally.

EX- A husband persuaded his illiterate wife to sign certain documents telling her that by them he was going to mortgage her two lands to secure his indebtedness and in fact mortgaged four lands belonging to her. This was an act done with the intention of deceiving her.

Mere Silence is not Fraud

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.

A party is under no obligation to disclose all material facts unless there exists a duty to speak or when silence amounts to fraud, or when half-truths are uttered or when there is a change of circumstances.

Ex- when ‘A’ agrees to sell a horse to ‘B’ and ‘A’ knows that horse is not mentally stable and ‘B’ does not ask then in that instance, ‘A’ cannot be made liable as there was no duty to speak.

Keates v Lord Cadogan

A let his house to B which he knew was in ruinous condition. He also knew that the house is going to be occupied by B immediately. A didn’t disclose the condition of the house to B. It was held that he had committed no fraud.

When Silence is Fraud

1. When there is a Duty to Speak
2. Where silence is deceptive
3. Change of circumstances
4. Half-truths

Case Laws

(1) A.L Mustaneer Establishment v. Varuna Overseas Pvt. Ltd.[5] In this case, it was held that  Fraud is a facet of dishonesty, fraud in connection with letters of credit.

(2)Ratan lal Ahluwalia v. Jai Janider Parsad– Under common law, fraud will not only render the contract voidable at the option of the party whose consent is obtained but will also give rise to an action for damages in respect of deceit.

Misrepresentation under the Indian Contracts Act

Misrepresentation means misstatement of a fact material to the contract.

Misrepresentation is defined in Section 18 of The Indian Contract Act. A misrepresentation is an untrue or false statement of law or fact made by one party, which induces the other party to enter into an agreement or contract.

• Misrepresentation is false statements of truth that affect another party’s decision related to a contract.
• Misrepresentation can void a contract and in some cases allow the other party to seek damages.
• Misrepresentation is a basis for contract breach for transactions, no matter the size.
• Misrepresentation applies only to statements of facts, not to opinions or predictions.

Types of Misrepresentation

There are three types of misrepresentation present in the contract:

1. Fraudulent Misrepresentation– Fraudulent misrepresentation is where a false representation has been made knowingly, or without belief in its truth, or recklessly as to its truth. The injured party can seek to void to contract and recover damages from the defendant.
2. Negligent Misrepresentation- Negligent misrepresentation under the misrepresentation act befalls where a declaration is made by one contracting party to another negligently or without reasonable grounds for believing its truth. The remedy for negligent misrepresentation is contract rescission and possibly damages.
3. IInnocent Misrepresentation- Misrepresentation made completely without fault can be described as an innocent misrepresentation. The remedy in this situation is usually rescission or cancellation of the contract.

Difference Between Fraud and Misrepresentation

Damages under Sec 75 Indian Contract Act

SEC 75- Party rightfully rescinding contract entitled to compensation- A person who rightfully rescinds a contract is entitled to compensation for any damage which has been sustained through the non-fulfilment of the contract.[6]

Raharman Prodhan v. State of West Bengal[7]

A work order for repairing the bank of the river was issued directing the work to be completed within 45 days. The alignment was given after 10 months which turned out to be wrong. Correct alignment was given subsequently when a substantial portion of the work had already been done. The work already done was not taken into account. The wrong alignment became the cause of washing away by devastating floods. The plaintiff’s claim for compensation for the work already done was taken to be established.

Illustration- A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to pay her 100 rs for each night’s performance. On the sixth night, A willfully absents herself from the theatre, and B in consequence, rescinds the contract. B is entitled to claim compensation for the damage which he has sustained through the non-fulfilment of the contract.

Mistake under the Indian Contracts Act

 Mistake is not defined in the Indian Contract Act. Sections 20, 21 and 22 deal with the concept of mistake. A mistake is said to occur when parties intend to do one thing by error to do something. Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.

Case Law- Phillips v. Brooks Ltd.- In this case, it was held that a person is deemed to contract with the person in front of them unless they can substantially prove that they instead of them intended to deal with another person.

Illustration- 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 had been cast away, and the goods were lost. Neither party was aware of these facts. The agreement is void.

Section 20 will come into play:

1. When both parties to an agreement are mistaken
2. Their mistake is as to matter of fact
3. The fact about which they are mistaken is essential to the agreement.[8]

Section 21 Effect of mistake of law

A contract is not voidable because it was caused by a mistake as to any law in force in India, but a mistake as to a law not in force in India has the same effect as a mistake of fact.

Grant v. Borg– In this case, the person was not knowing the clauses of the Immigration Act 1971, for staying beyond the time by the leave. Here, he cannot apply for defence under the mistake of law.

Section 22

Contract caused by mistake of one party as to matter of fact- A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to matter of fact.

The State of Maharastra v. Mayer Hans George– In this case, A is an officer of the court and he is ordered to arrest Y. A arrests Z by mistake, as he believes Z is Y. Here, A can take the basis of bona fide intention as a defence in the mistake.

Effect on Contracts Influenced by Any Factor Vitiating Free Consent

Coercion

Coercion means forcing an individual to enter into a contract. When intimidation or threats are used under pressure to gain the party’s consent, i.e. it is not free consent.

Effect of Coercion

Coercion can make the contract voidable. This means the contract is voidable at the option of the party whose consent was not free. So the aggravated party will decide whether to perform the contract or void the contract.

Undue Influence

It states that when the relations between the two parties are such that one party is in a position to dominate the other party.

Effect of Undue Influence

If the consent is not free due to undue influence, the contract becomes voidable at the option of the aggravated party. And the burden of proof will be on the dominant party to prove the absence of influence.

Fraud

It means deceit by one of the parties i.e. when one party makes a false statement knowingly.

Effect

1. The contract arising from fraud is a null contract.
2. The misled party has the right to withdraw from the contract.
3. Due to the fraudulent agreement, the party is responsible for recovering the damages.

Misrepresentation

It means the truth is misrepresented. It is also when a party makes a representation that is false, inaccurate, incorrect etc.

Effect

If misrepresentation is identified, the contract can be declared void. If the party that has suffered as a result of the misrepresentation when entering into a contract may choose to terminate the contract, rescind the contract within the reasonable time under the specific relief act 1963.

Mistake

It is a misunderstanding between the parties entering into a contract as to a material fact.

Effect

A mutual mistake will only affect the validity of the contract if the mistake is so fundamental that it nullifies the contract. If the mistake goes to the heart of the contract, the contract will be rendered void. [9]

[1] Avatar singh ,pg no-176

[2] Avatar singh. Page no178 ILR (1918

[3] AIR1967 SC 878

[4] (1889) L R AC 337 at p.374

[5] (1998) 72 DLT 186.

[6] Avatar singh p.557

[7] (2009) 4 CHN 701

[8] Avatar singh p.227

[9] Blog.ipleaders/concept of free consent

This article is contributed by Madheeve Singh, a student at Shri Ramswaroop memorial university, Lucknow.