9/3/2018 Study Material-1: Free Consent

(Paper-5) Business Law

Study Material-1

1 Contents
1.6 Free Consent
Free Consent
Contracts are usually described as valid, void and voidable. Valid Contract is an agreement enforceable
at the law courts. Those agreements which are not enforceable at the law courts, i.e., for the
enforcement of which legal recourse cannot be taken, are known as Void Contracts. In between the
valid and the void contracts are the voidable contracts. Such contracts are the outcomes of Flaw in
Consent. At an early stage you have read that, “an agreement can be called a contract provided it is
made with the Free Consent of the parties, competent to contract for a lawful consideration and for a
lawful object and is not expressly declared to be void”. When we analyse this statement we come to
know that to be a contract, an agreement must be made with the Free Consent of the parties to the
contract. Here is the importance of “Free Consent” which is very much necessary for the validity of the
contract. The genuineness of the consent implies that the parties to the contract must mean the some
thing in the same sense and not only that but they should mutually agree voluntarily. If their minds do
not meet at the same thing in the same sense voluntarily, then their consent shall not be called Free or
Voluntary. The consent in such case might have been obtained under Fraud or Misrepresentation or
Coercion or undue influence. In such a case the party giving his consent under any of these four
elements shall have a right to withdraw his consent. Such a contract where the consent of a party or
parties to the contract is caused by any of the elements stated above, i.e. Fraud Misrepresentation,
Coercion or Undue Influence/shall be called a Voidable Contract and shall be enforceable at the option
of the aggrieved party or parties and not at the option of the other or others.
Let us make our point clear with the help of an example. Suppose A is willing to sell his car to B for Rs.
15,000, but B is willing to purchase it for Rs. 10,000 only. A tells B if he (B) refuses, to purchase the car
for Rs. 15,000 he (A) shall fire upon him. Due to this threat of getting himself hit by A’s gun, B gives his
consent to purchase the car for Rs.15,000 only. Here B’s consent cannot be said to be obtained freely or
voluntarily. It is cause by threat to the injury of B’s person. Therefore B has a right to withdraw his
consent even at a later stage. B’s consent shall be said to be caused by Coercion. Such similar examples
can be multiplied. Thus Free Consent plays a very important role in the validity of a Contract. If there is
no Consent, there is no Contract. Sir John Salmond has called flaws in Consent as ‘Error in Causa’.
According to him error has been made in causing consent of one of the parties to the agreement which
has become responsible for vitiating the validity of the contract. Error in Causa is created by the cause
of either  Coercion, or Undue Influence or Fraud or Misrepresentation.
Let us now take up these elements, i.e. Coercion, Undue Influence, Fraud and Misrepresentation
responsible to vitiate Free Consent one by one.

Coercion (Section 15)

Meaning: It is committing, or threatening to commit, any act forbidden by the Indian Penal Code (XLV
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 (XL V of 1860) is or is not in force in the
place where coercion is employed.
Characteristics:
The above definition as stated by Sec. 15 of the Indian Contract Act specific certain characteristics of
the term ‘Coercion’ which vitiates the consent of the parties to a contract. These characteristics are:

Example: An agent refused to hand over the account books to a business man to a new agent unless the
principal released him from all liabilities. The principal had to give a release deed as demanded.
It was decided in Muthia vs Muthu Karuppa (1927, 50 Mad. 786) that the release deed was given under
Coercion and the principal could avoid it. It is necessary that the Indian Penal Code is in force at the
place where Coercion is employed.
Example : A on a ship on the high sea threatens to murder B, if he (B) does not write a pronote in his
(A’s) favour A’s act amounts to Coercion, although Indian Penal Code does not apply on the high seas.
Coercion by threat need not necessity be directed by a party to the contract. It may or may not
emanate from a stranger to the contract. Similarly, it may be aimed at any person. either a party to the
contract or a strange to the contract. But the idea or intention of the party resorting to coercion should
be to cause a person to enter a contract.
x
Example : Please Ask
https://sol.du.ac.in/mod/book/view.php?id=644&chapterid=365
( कृपया पछ
ू 1/6)
 (a) 
 A threatens to Kill C (B’s son), if B does not lend Rs. 10,000Study
9/3/2018 to Material-1:
A. B agrees to lend the aforesaid
Free Consent

amount. The agreement is caused by Coercion.

(b)    A threatens to Kill B if B does not lend Rs. 10,000 C.B agrees to lend the amount to C. This
agreement is made under Coercion.

Effect of Coercion
Coercion vitiates Free Consent. The party or parties whose consent is taken under the effect of Coercion
get a right to avoid the contract, if he so likes. However, if the aggrieved party has received any benefit
under the contract which he is avoiding on the basis of Coercion, he has to return that benefit to the
other party or parties (S.72). The point can be made clear by the following example:
A enters into a contract with B to sell his horse for Rs. 5000 B takes A’s consent under Coercion. A at the
time of entering into an agreement receives Rs. 1000 as an advance from B. Later on, A avoids the sale
of the horse on the basis of Coercion. A has to return Rs. 1000 to B. He cannot retain the money
received as an advance from B.
Burden of Proof: The party avoiding the contract has to prove that Coercion was exercised upon him
and his consent received is not voluntary or he has not exercised his consent freely.
Threat to commit suicide : It is an important question whether threat to commit suicide amounts to
‘Coercion? The act of committing suicide is forbidden by the Indian Penal Code and on this basis Madras
High Court has decided in Amiraju vs Seshamma (1918, 41 Mad. 33) that threat to commit suicide
amounts to Coercion and the party affected is entitle to avoid the contract. Wallis, C.J and Seshhagiri
Iyer J. held the threat of suicide amounted to Coercioin The learned judged observed, “it was
impossible to hold that an act which it is made punishable to abet or attempt is not forbidden by the
Indian Penal Code, especially as the absence of of any section punishing the act itself is due to the fact
that the suicide is in the nature of things beyond the jurisdiction of the Court.” However, Old Field J.
gave a dissent. He held that the section should be strictly construed and that an act not punishable
under the Penal Code could not be said to be forbidden by the code.
However, it is not a well recognized fact that threat to commit suicide is an offence punishable under
the Indian Penal Code and amounts to Coercion.
The facts of the case are as under:
Amiraju held out a threat to commit suicide to his wife and son, if they did not execute a release in
favour of his brother in respect of certain properties. The wife and the son executed the releasse deed
under the threat. Later on the wife and the son took the plea of Coercion to avoid the release deed.
 Coercion and Duress distinguished
(a)    Coercion is the term applied under the Indian law of Contracts while Duress is the term applied
under the English law of Contracts.(b) Coercion has a wide scope than Duress, Coercion includes threat
to property also while Duress includes actual act of violence over the person and not of property. (c)
Coercion can be applied by even a stranger, while Duress must be applied by a party to the Contract
upon the other party or to his wife or patent or child.
Undue Influence (S.16)
Definition as per S.16: (1) 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.
(2)   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)    when 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 fact of it or on the evidence adduced, to be unconscionable,
he 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 provision of section III of the Indian Evidence Act 1872.

Illustrations
(a)    A, a man enfeebled by desease or age, is induced, by B’s influence over him as his medical
attendant, to agree to pay B an unreasonable sum for his profession services. B employs undue
influence.
(b)   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 indue influence.

Salient Features
The above definition has got the following salient features:- x
Please Ask
https://sol.du.ac.in/mod/book/view.php?id=644&chapterid=365
( कृपया पछ
ू 2/6)
 (1)   One
9/3/2018 of the two parties to the contract is in a position to dominate the will
Study Material-1: and mind of the other
Free Consent

party. This is presumed when the parties to the contract have a real or apparent authority over the
other or one of the parties has got a fiduciary relationship which puts him in a position to win over the
mind of the other party. Such position or relationship exists in the cases of minor and guardian; trustee
and beneficiary; son and father, wife and husband or vice-versa.
The positon is also presumed where the party is disabled or infirm and has to depend upon the other
party to the contract. Mentally deficient and physically disabled people can take the plea of undue
influence in avoiding the contract.
(2)   The dominating party should have obtained an unfair advantage from the weaker party: and
(3)   The transaction between the contracting parties is unconscionable. The bargain is called
‘unconscionable’ where the two parties are not on equal footing and one of them is making an
exhorbitant profit of the other’s distress.
Unless all the three above stated conditions exist, the contract can not be avoided on the pretext of
Undue Influence. In the words of Sir Samuel Romilly undue influences is presumed in “all the variety of
relations in which dominion may be exercised by one person over another”.

Effect of Undue Influence (S.19-A)

A contract vitiated by undue influence is voidable at the option of weaker party. The court can set aside
such contract-
(i)    either wholly: or
(ii)    where the weaker party has enjoyed some benefit under the terms of the contract, then upon just
and equitable terms
Examples
(a)   A’s son has forged B’s name to a promissory note. B under threat of prosecuting A’s son obtains a
bond from A for the amount of the forged note. If B sues on this bond, the court may set the bond aside.
(b)   A, a money-lender, advances Rs. 100 to B, an agriculturist, and by undue influence induces B to
execute a bond for Rs. 200 with interest at 6 per cent per month. The Court may set the bond aside,
ordering B to repay Rs. 100 with such interest as may seem just.
Burden of Proof
The weaker party has a right to avoid the transaction on the plea of Undue Influence. It is the other
party who is to prove that he has not exercised any undue influence in getting the consent of the
weaker party. If the other party is unable to prove it, the court shall set aside the transaction. (Refer to
example (b) given after definition of Undue (Influence).
(a)   Parties suffering with physical or mental distress e.g. a patient suffering with actue pain entering
into a contract with a doctor.
(b)   Parties having confidential relations. Confidential relationship is presumed in between parent and
child; guardian and ward; solicitor and client; managing clerk of an attorney and his client; trustee and
cetstui que trust; doctor and patient Chela (disciple) and a Guru (spiritual advise; fiance and fiancee.
There is no undue influence in the relationship of mother and daughter; husband and wife; grandfather
and grandson and landlord and tenant; credtior and debtor.

Rebuttal: all cases of prescribed Undue Influence can be rebutted on the following grounds: (i)    full
disclosure of material facts was made to the weaker party;
(ii)    adequate consideration existed; and
(iii)  the weaker party received independent legal advice.

Transaction with Parda-nishin women: Who is a parada-nishin women? A woman who observes
complete seclusion due to the prevailing custom in her community is said to be parda-nishin. She does
not act independently but has to depend upon someone else for performing her outward duties. A
woman going to the Court to give her evidence, settling gent with her tenant, collecting rents from
them, dealing with other parties in matters of business, falling to outsiders can not be regarded as a
Parda- nishin woman. The training, habit and surrounding circumstances are the main elements to be
considered to decide whether a woman is a Parda-nishin or not Wearing a Burga does no make a woman
a Parda- nishin.
A Parda-nishin woman can be influenced by undue influence. Persons entering into contracts with such a
woman have to be very careful because they may be required to prove (1) that such woman understood
the contents of the contracts; (2) she had free and independent advice and (3)she exercise her free
will.
The Privy Council has stated in 1931 in Tara Kumari Vs Chandra Mauleshwar that the principles to be
applied to transactions with such women are not merely deductions from the law as to undue influence
but have to be founded upon wider basis of equity and good conscience. A good number of cases have
been decided not only by the privy Council but also by the Indian High Courts over the point.
Distinction between Coercion and Undue Influence
x
We can distinguish between Coercion and Undue Influence. The distinction can be made on the Please Ask
following basis:
https://sol.du.ac.in/mod/book/view.php?id=644&chapterid=365
( कृपया पछ
ू 3/6)
   Definition, Coercion is an act punishable under the Indian Study
(a) 
9/3/2018 Penal Code,
Material-1: Freewhile
ConsentInfluence is not a

penal act.

(b)    Nature of force used, Coercion requires physical force exercised by one of the parties to
contract, while undue influence requires moral force.

(c)   Parties Even a stranger’s act may account to coercion, but undue influence can be exercised only
by one of the parties to the contract. Stranger has no place in undue influence.
(d)    Effect. Coercion gives a right to the effected party to repudiate the contract in full but under
undue influence court may set aside the contract absolutely or modify the terms of the contract on such
terms which it feels just and equitable. 

2. FRAUD AND MISREPRESENTATION 

“Fraud” : (S.1)
“Fraud” means and includes any of the following acts committed by a party to contract or with his
connivance, or by his agent, with intent to deceive another party thereto of his agent, or to induce him
to enter into the contract:
(1)   the suggestion, as to fact, of that which is not true, by one who does not to 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 fited to deceive;
(5)   any such act or commission 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. 
1.   Sir Samuel Romilly argued in Hurgamin Vs. Raseley (1807) Ves. 285;Mulla on the Indian Contract Act
10th Ed. P. 53.

Examples
(a)   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 by A.
(b)    B says to A “If you do not deny it, I shall assume that the horse is sound”. Here, A’s silence is
equivalent to speech. Here, the relation between the parties would make it A’s duty to tell B if the
horse is unsound.
(c)   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.
(d)    A and B, being traders, enter upon a contract. A has private information of a chnage in prices
which would after B’s willingness to proceed with the contract. A is not bound to inform B.
Characteristics
From the above definition we can state the following characteristics of Fraud:
(1)   The act done by the party is done with an intention to device.
(2)   The act may be done by the party himself or with his connivance by some one else or by his agent.
(3)   The act amounting to fraud may be a suggestion of fact (suggestion false) i.e., the statement being
made is without belief to its truth.
(4)    The act may amount to an active concealment of a fact (suppressio veri) i.e. the party has
concealed a fact which was duty bound to disclose.
(5)   The act amounting to fraud is in the form of a false promise.
(6)   The act or mission is declared fraudulent by the Court or regarded by the Court as a deceit. (7) 
 The act committed must have deceived the other party and the party has suffered the damage
on account of it. If the party does not suffer a damage on account of the fraudulent act committed by
the other party, it shall not amount to fraud.

Is silence a Fraud?
Explanation to S.17, states in clear terms that mere silence is not fraud. Where silence amounts to
active concealment, it shall amount to fraud. Thus generally silence does not amount to fraud. However
where a party chooses to speak, he must do so clearly and fully. He should not make a partial and
fragmentary statements of fact, so that the other party is misled. The court has decided in Bimla Bai vs
Shankarlal (AIR 1959 M.P. 8) that a partial statement verbally accurate may be as false a statement as if
it has been misstated fully. A father called his illegitimate son, a ‘son’ at the time of fixing his
marriage. It was held that the statement was false and thereby fraudulent.
Effects of Fraud x
Please Ask
Fraud gives the following rights to the aggrieved party. ( कृपया पछ
https://sol.du.ac.in/mod/book/view.php?id=644&chapterid=365 ू 4/6)
 (1)   He
9/3/2018 can avoid the contract and file a suit on the other party for damages;
Study or Consent
Material-1: Free

(2)   He can revoke the contract, or

(3)   He can refuse to fulfill his part of the promise and defend the suit filed by the other party for the
breach of contract for damages or specific performance, or
(4)   He can treat the contract as a valid one and ask for the specific performance, or for damages in
addition to the substitution of the original contract.
 Misrepresentation (S.18)
Misrepresentation has been defined by the Act as follows: “Misrepresentation” means and includes:-
(a)   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;
(b)    any breach of duty which without an intent to deceive, gains an advantage to the person
committing it, or any one claiming under him, by misleading another to his prejudice or to the prejudice
of anyone claiming under him.
(c)   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.
Characteristics
The ingreditients of a contract vitiated by misrepresentation are: (a)   There must be a misstatement of
a material fact.
(b)   The statement must not be a mere opinion, or hearsay, or commendation, because praise carries
no obligation.
(c)    The mis-statement must be made with the intention that the other party shall act upon he
contract.
(d)   The other party must have been induced by the mis-statement.
(e)   The statment being made is a wrong one, although the party making it has not known it to be false.
(f)    The statement has been made by the party to the contract or his agent and not by a stranger.

Kinds
The term misrepresentation as defined by S.18 is quite exhaustive as can be seen by the words
“Means and Includes”. Misrepresentations may be of any of the three kinds:-

(1)   It may take the form of an unwarranted positives statement which is not true, but the party
believes it to be true; or
(2)   It may take form of breach of duty on the part of one party which misleads the other party to his
prejudice or to the prejudice of anyone claiming title under him. This kind of misrepresentation
includes such cases which are named as ‘Constructive Fraud’ by the Courts of equity. The party getting
a benefit under the Act even under an obligation is not making full disclosure of facts but his non-
disclosure misleads the other party.
(3)   It may take the form of causing a party to the contract to make a mistake as to the subject matter
of the contract. For example, if erroneous statement is made as to the tonnage of a ship, the contract
can be avoided on the basis of misrepresentation. This decision was given in Oceanic Steam Navigation
Co., vs Soonderdas (1890, 14 Bomb.92).
Effect of Misrepresentation
The party being affected by misrepresentation has got the following rights: (1)   He can avoid or revoke
the contract; or
(2)   He can affirm the contract and insist on the misrepresentation to be made good, if it is possible to
do so; or
(3)   He can rely upon the misrepresentation as a defence to an action of the contract.

When the aggrieved party loses his rights?

The aggrieved party shall not be able to exercise any of the above rights in the following cases:- (a)   If
he comes to know of mis-representation and even then takes the benefit of the contract or approves the
contract; or
(b)    If the parties can not be brought back to their original position. Such situation arises where the
subject matter of the contract has already been consumed or destroyed.
(c)   If the contract cannot be rescinded in full, then it can not be rescinded at all. Such decision has
already been given in Sheffield Nickel Co. vs Dawin (1872, 2 Q.B.D. 215).
(d)   If the aggrieved party has transferred the rights under the contract ot the third party and the has
acquired these rights in good faith and for consideration. (Phillips Vs Brroks, 1919, K.B. 243)

Distinction between Fraud and Misrepresentation

x
Fraud and Misrepresentation can be distinguished on the following basis: Please Ask
https://sol.du.ac.in/mod/book/view.php?id=644&chapterid=365
( कृपया पछ
ू 5/6)
 (a) 
 Intention: In Fraud the party’s intention is to deceive the Study
9/3/2018 other partyFree
Material-1: and got the benefit from
Consent

him, while in Misrepresentation the party does not have any intention to deceive. It makes a careless
misstatement of facts of only.

(b)   Rights: Faurd gives two rights to the aggrieved party, a right to action for damages and also to
avoid the contract, i.e. while misrepresentation give only one right, i.e. to avoid the contract. It does
not allow any damages.
(c)   Plea: Fraud does not allow the defendant to take the place that the plaintiff had means to discover
the truth but defendant is allowed to take this plea in case of misrepresentation.
(d)   Penalty: The party defrauding the other can be prosecuted for cheating under I.P.C. also but such
is not the case in misrepresentation. 

x
Please Ask
https://sol.du.ac.in/mod/book/view.php?id=644&chapterid=365
( कृपया पछ
ू 6/6)