Agreements enforceable by law are contracts.
The Contract Law is mostly Commonsense
Points for discussion as based on The Indian Contract Act 1872
Free & genuine consent
Consent is said to be free when it is not caused by:
- Undue influence,
- Misrepresentation or
The committing or threatening to commit any act forbidden by the Indian Penal Code, 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.
Even threat to commit suicide amounts to coercion.
The threat need not proceed from the party to the contract, it may proceed from a third person also.
A threat to file a civil or criminal suit is not forbidden by the Indian Penal Code.
Burden of Proof: that the consent was obtained by coercion shall lie upon the aggrieved party who wants to set aside the contract.
Effect of Coercion:
The contract is voidable at the option of the party whose consent was so obtained. When the aggrieved party decides to set aside the contract, it must give back any benefit received from the other party under the contract. Moreover, the other party need not perform his part of the contract. If the aggrieved party does not opt to set aside the contract, it works as a valid contract.
Undue Influence is:
Where 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.
When is a person in a position to dominate the will of the other:
- Real or apparent authority.
- Fiduciary relation.
- Persons with affected mental capacity.
- When a transaction appears to be unconscionable, it is presumed that the stronger party has exercised undue influence over the weaker party.
Undue influence may be exerted by a person who is not a party to the contract.
Lack of foresight is not a ground for establishing a case of undue influence.
The law presumes undue influence in a contract with a ‘pardanashin woman’, and the courts throw the burden on the other party to prove that undue influence was not exercised.
Burden of proof: is on the party who is in a position to dominate the will of the other.
Effect of undue influence:
The contract is voidable at the option of the party whose consent was so obtained. The court may direct the aggrieved party to refund the benefit whether in whole or in part or set aside the contract without any direction for refund of benefit. If the aggrieved party does not opt to set aside the contract, it works as any other valid contract.
Fraud exists when it is shown that a false representation has been made,
- or without belief in its truth,
- or recklessly, not caring whether it is true or false,
and the maker intended the other party to act upon it.
It also exists when there is a concealment of a material fact.
Fraud cannot be committed by a stranger to the contract.
Fraud must have been committed upon the other party.
The following acts constitute a fraud:
- Suggestion that a fact is true, by one, who does not believe it to be true.
- An active concealment of fact, by one, having knowledge of the act.
- A promise made without any intention of performing it.
- Any such acts or omission which law specifically declares to be fraudulent.
Mere silence is not fraud, except;
- When silence itself is equivalent to speech.
- When it is the duty of the person keeping silence to speak.
- When it is the duty of the seller to disclose latent or hidden defect.
Effect of fraud:
The contract is voidable at the option of the defrauded party. The defrauded party is entitled to compensation for any damage he has sustained. The defrauded party may insist that the contract shall be performed and that he should be put in the position in which he would have been if the representation made was true.
Misrepresentation is a misstatement of a material fact made innocently with an honest belief as to its truth or non-disclosure of a material fact, without any intent to deceive the other party.
The effect of misrepresentation is that the agreement is voidable by the party whose consent is obtained by misrepresentation.
Mistake is erroneous belief about something.
It may be mistake of law or mistake of fact.
Mistake of law does not result in a voidable contract.
Bilateral mistake of fact renders a contract void. (lack of consensus ad idem).
The mistake must relate to fact, not opinion. The fact must be essential to the agreement & The fact must be existing at the time of contract.
Instances of Bilateral Mistake:
Mistake as to:
- the existence of the subject matter.
- the identity of the subject matter.
- title or rights.
- the quantity of subject matter.
- the quality of subject matter.
Unilateral mistake does not affect the validity of an agreement. However, if it can be proved that the mistake was caused by fraud or misrepresentation it can be avoided.
Instances of Unilateral Mistake:
Mistake as to:
1. Identity of the contracting party.
Said v Butt(1920)
(Case of the drama critic S, with whom the management, of which B was the managing director, never intended to enter into a contract.)
2. The character of document.
Mistake as to identity of the contracting party (caused by fraud):
Cundy v Lindsay (1878)
(Case where a fraudulent man called Blenkarn posing as a well known firm Blenkiron & Co ordered a large quantity of handkerchiefs in writing from Cundy – received the goods & disposed off the goods to Lindsay , who acted in good faith – held that there was no contract between Cundy & Blenkarn and therefore, he had no right to sell the goods.)
Philips v Brooks (1919)
(Case of a jeweler & a certain North masquerading as Sir George Bullough – mistake was not about identity but only about the attributes of the buyer.)
Ingram v Little (1961)
(Case of sale of car by three ladies including I – cheque offered but refused – buyer persuaded them to believe he was a certain Hutchinson, leading businessman quoting an address & a telephone number – particulars verified by the ladies – car given for the cheque – car resold to L – cheque proved worthless – I sued L for car or for its value – held that as the ladies intended to enter into contract with the real Hutchinson there could be no contract with a rogue – since the rogue had no title to the car, he could not convey a good title to L.)
Lewis v Averay (1971)
(Case of sale of car by L – cheque offered – buyer, masquerading as a famous film actor, asked to wait till cheque was cleared – sellers resistance broken – proof of identity, a special pass of admission to a film studio, given – cheque bounced – buyer had in the meantime sold it to innocent buyer A – held that L should suffer, it was he who had allowed the possession of goods to pass without waiting for the cheque to be cleared.)