FREE &
GENUINE CONSENT
According to Section 14 of The Indian Contract Act, 1872,
consent is said to be free when it is not caused by—
(1) Coercion, as defined in section 15, or
(2) Undue influence, as defined in section 16, or
(3) Fraud, as defined in section 17, or
(4) Misrepresentation, as defined in section 18, or
(5) 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
Section 15 of The Indian Contract Act, 1872 defines
'Coercion' as 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.
·
Even the threat to commit suicide amounts to
coercion. [Chikkam Ammiraju And Ors. vs
Chikkam Seshamma And Anr. (1917)]
·
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.
The 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
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. [Williams v Bailey (1866)]
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. [Re Craig (deceased) (1971) & Re Brocklehurst (deceased) (1978)]
Note
· A person who is not a party to the contract may exert undue influence.· 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. (A pardanashin woman is one who, by the custom of the country or the usage of the particular community to which she belongs is obliged to observe complete seclusion (Parda). "A woman will not be a pardanashin woman if she goes to the court and gives evidence, settles rents with tenants and collects rents communicates in matters of business with men other than the members of her family.")
The 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 a refund of benefit. If the aggrieved party does not opt to set
aside the contract, it works like any other valid contract.
FRAUD
‘Fraud’ means and includes any
of the following acts committed by a party to a contract, or with his
connivance, or by his agent1, with intent to deceive another party thereto or
his agent, or to induce him to enter into the contract:
a.
The suggestion, as a
fact, of that which is not true, by one who does not believe it to be true;
b.
The active concealment
of a fact by one having knowledge or belief of the fact;
c.
A promise made without
any intention of performing it;
d.
Any other act fitted to
deceive;
e.
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 silent to
speak, or unless his silence, is, in itself, equivalent to speech.
Illustrations
a.
A sells, by auction, to B, a horse that A knows
to be unsound. A says nothing to B about the horse's unsoundness. This is not
fraud in A.
b.
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.
c.
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.
d.
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.
To summarise, the following acts constitute a fraud:
The 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. [Refer Derry v Peek
(1889)]
Note
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.
Fraud cannot be committed by a stranger to the contract.Fraud must have been committed upon the other party.
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
Misrepresentation” means and includes—"
1. 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;
2. Any
breach of duty which, without an intent to deceive, gains an advantage of 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;
3. 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.
Note
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.
Effect
The effect of misrepresentation is that the agreement is
voidable by the party whose consent is obtained by misrepresentation.
MISTAKE
According to section 20 of the Indian Contract Act, 1872, an
agreement is void where both parties are under 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 is void.”
Explanation An erroneous opinion as to the value of
the thing which forms the subject matter of the agreement is not to be deemed
a mistake as to a matter of fact.
Illustrations
a.
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 lost. Neither party was aware of these facts. The agreement is void. (a)
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 lost. Neither party was
aware of these facts. The agreement is void."
b.
A agrees to buy from B a certain horse. It turns
out that the horse was dead at the time of the bargain, though neither party
was aware of the fact. The agreement is void. (b) A agrees to buy from B a
certain horse. It turns out that the horse was dead at the time of the bargain,
though neither party was aware of the fact. The agreement is void."
c.
A, being entitled to an estate for 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. (c) A, being entitled
to an estate for 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."
Note
· The mistake is an erroneous belief about something.· It may be mistake of law or mistake of fact.· Mistake of law does not result in a voidable contract.
A bilateral mistake of fact renders a contract void. (Lack
of consensus ad idem).
The mistake must relate to the 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. [Couterier v Hastie (1856)]· The identity of the subject matter. [Raffles v Wichelhaus ( 1864)]· Title or rights. [Cooper v Phibbs (1867)]· The quantity of subject matter.· The quality of the subject matter. [Smith v Hughes (1871)]· Assumptions.
A 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), Cundy v Lindsay (1878), Philips v Brooks (1919), Ingram v Little
(1961) & Lewis v Averay (1971)]
2.
The character of the document. [Bala Devi vs Santi Mazumdar (1956)]
Cases
1.
Chikkam Ammiraju And Ors. vs Chikkam
Seshamma And Anr. (1917)
Section 15 speaks of ‘ an act
forbidden by the Indian Penal Code ’ and not of an offence punishable under the
Indian Penal Code. Suicide is an act forbidden as the attempt or abetment
thereof is an offence punishable under the Indian Penal Code. Prejudice need
not be in respect of property alone; section 15 provides for an exception where
freedom of consent is absent and any circumstance which influences the mind of
a party to a contract and destroys the freedom of volition would constitute
coercion. The loss of the husband to the wife or of a father to the son is
sufficient prejudice in law.
Summary
Chikkam Seshammas husband and
Ammiraju were brothers. Chikkam Ammiraju executed a mortgage deed in favour of
his brother and obtained a certain amount of money, later he failed to pay the
amount to his brother. Due to love and affection, Chikkam Seshamma’s husband
wanted to release the mortgage in favour of his brother. Seshamma and her son
did not accept this. Chikkam Seshamma’s husband threatened to commit suicide if
they did not listen to him. Due to such threat, they executed the release
mortgage in favour of the brother. Later they claimed the said properties as
their own.
2.
Williams v Bailey (1866)
The security is given for the debt
of the son by the father under the below-mentioned circumstances, was not the
security of a man who acted with that freedom and power of deliberation that
must be considered as necessary to validate a contract to give security for the a debt of another.
Summary
A son forged his father's
signature on promissory notes and gave them to their bankers. At a meeting of
all the parties at the bank, one of the bankers said to the father: "If
the bills are yours we are all right; if they are not, we have only one course
to pursue; we cannot be parties to compounding a felony." The bank's
solicitor said it was a serious matter and the father's own solicitor added,
"a case of transportation for life." After further discussion as to
the son's financial liability, the bank's solicitor said that they could only look
to the father. The father then agreed to make an equitable mortgage to the bank
in consideration of the return of the promissory notes. The father succeeded in
an action for the cancellation of the agreement.
3.
Re Craig (deceased) [1971]
C, an old man of 84 years whose
wife had died, employed Mrs M as secretary/companion. From the beginning, she
occupied a position of trust, and in addition to running the house, she took a
confidential part in running C's affairs. From the time of Mrs M's employment
and C's death (January 1959 - August 1964), he gave her gifts worth £28,000 from
his total assets of £40,000.
It was held that (1) All the
gifts complained of were such as to satisfy the requirements to raise the
presumption of undue influence, namely, that they could not be accounted for on
the ground of the ordinary motives on which ordinary men act, and secondly,
that the relationship between C and Mrs M involved such confidence by C in Mrs.
M as to place her in a position to exercise undue influence over him. (2) Mrs.
M failed to discharge the onus on her of establishing that the gifts were only
made after 'full, free and informed discussion' so as to rebut the presumption
of undue influence. The gifts would, therefore, be set aside.
4.
Re Brocklehurst (deceased) [1978]
Brocklehurst was a strong-minded,
autocratic and eccentric old man who was used to commanding others and had
served in the army in positions of command. He was impulsively generous. When
he was in his eighties he lived alone and became friendly with the owner of a local
garage. They had a common interest in shooting and B permitted the defendant to
shoot rabbits on the estate. B wrote to the defendant saying that he wished to
give him the shooting rights over his estate and pressed the defendant to
instruct a solicitor to draw up a lease. B executed the lease. After B died,
his executors brought an action against the defendant to have the lease set
aside on the ground of undue influence. The Court of Appeal upheld the lease.
The Court of Appeal held that the
nature of the relationship between the deceased and the defendant was not one
of confidence and trust such as would give rise to a presumption of undue
influence on the part of the defendant, for the evidence, established that the
relationship was one of friendship and did not indicate that it was such that
the defendant had been under a duty to advise the deceased or had been in a
position of dominance over him; on the contrary, it was the deceased who had
tended to dominate the defendant.
But even if the relationship had
been one that gave rise to a presumption of undue influence, the defendant had
rebutted the presumption for in the circumstances the presumption was
rebuttable not only by proof that the deceased had been independently advised
about the leases but also by proof that the gift of the leases had been the
spontaneous and independent act of the deceased.
5.
Derry v Peek (1889)
Derry v Peek established a 3-part
test for fraudulent misrepresentation, whereby the defendant is fraudulent if
he:
Knows the statement to be false,
or
Does not believe in the
statement, or
Is reckless as to its truth.
Summary
The Plymouth, the Devonport 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
statement sued the directors in fraud.
Held
The House of Lords held that the
shareholders' action failed because it was not proved that the director lacked
honest belief in what they had said.
6.
Couterier v Hastie (1856)
It is an English contract law
case, concerning a common mistake between two contracting parties about the
possibility of the performance of an agreement.
Summary
Couturier agreed with Hastie to
deliver some corn. They thought it was in transit between Salonica (now
Thessaloniki) and the UK. But the corn had already decayed. The shipmaster had
sold it. Couturier argued that Hastie was liable for the corn because Hastie
had already bought an ‘interest in the adventure’, or rights under the shipping
documents.
Held
The House of Lords held that
because the corn effectively did not exist at the time of the contract, there
was a total failure of consideration and the buyers were not liable to pay the
price
7.
Raffles v Wichelhaus (1864)
Often called "The
Peerless" case, is a leading case on mutual mistake in English contract
law. The case established that when both parties to a contract are mistaken as
to an essential element of the contract, the Court will attempt to find a
reasonable interpretation from the context of the agreement before it will void
it. (The case's fame is bolstered by the
ironic coincidence contained within: each party had in mind a particular ship,
with no knowledge of the other's existence, yet each ship was named Peerless.)
Summary
The claimant entered into a
contract to sell "125 bales of Surat cotton, guaranteed middling fair
merchant's Dhollorah" to the defendant at the rate of 17 1⁄4 d. per
pound. The contract specified that the cotton would be arriving in Liverpool on
the ship Peerless from Bombay ("to arrive ex Peerless from Bombay").
It so happened that there were two British ships named Peerless arriving in
Liverpool from Bombay, one departing in October and another departing in
December. The defendant, according to statements presented in court, thought
the contract was for cotton on the October ship while the claimant thought the
contract was for the cotton on the December ship. When the December Peerless
arrived, the claimant tried to deliver it, however, the defendant repudiated the
agreement, saying that their contract was for the cotton on the October Peerless.
The claimant sued for breach of
contract, arguing that the date of the ship was not relevant and the only
purpose of specifying the name of the ship is that in the contingency that the
ship sinks en route, the contract could be voided.
Issue
The issue before the Court was
whether the defendant should be bound by the agreement to buy the cotton of the
claimant's Peerless.
Held
It was held that the contract
between the complainant and defendant was not enforceable. When the contract
was being discussed, there was ambiguity in the Peerless and what ship was
being referred to, as well as no agreement on the terms of the sale. There had
been no consensus ad idem or meeting of the minds between the parties to form a
binding contract. The objective test made it clear that a reasonable person
would not have been able to identify with certainty what ship had been agreed
on.
8.
Cooper v Phibbs (1867)
It is an English contract law
case, concerning the doctrine of mistake.
Summary
The complainant, Mr Cooper, was
the nephew of the owner of the salmon fishery near Ballysadare, Ireland. He
leased this salmon fishery from his Uncle. When his uncle died and the lease
came up for the time of renewal, the complainant renewed the lease for the
salmon fishery with his Aunt. However, it was later found out that in the
Uncle’s will, Mr Cooper as his nephew, had been given life tenancy of the
salmon fishery. This meant that there was no need for the lease that existed
between him and the Aunt and the dispute arose when the next rental payment was
due.
Held
It was held that the contract and
lease that existed between the complainant and the defendant was voidable,
rather than void. This was due to the claim being in equity, as Mr Cooper had
beneficial ownership of the salmon fishery and not legal ownership. This case
concerned ‘res sua’ (one’s own property) and it was a mistake as to the title
of the property; Mr Cooper was already the beneficial owner of the salmon
fishery and there could not be a lease. It was held that such an agreement
would be set aside due to a common mistake by both parties as to ownership.
9.
Smith v Hughes (1871)
Summary
The complainant, Mr Smith, was a
farmer and the defendant, Mr Hughes, was a racehorse trainer. Mr Smith brought
Mr Hughes a sample of his oats and as a consequence of what he had seen, Mr
Hughes ordered 40-50 quarters of oats from Mr Smith, at a price of 34 shillings
per quarter. To begin with, 16 quarters of oats were sent to Mr Hughes. When
they arrived, he said that the oats were not what he had thought they were. As
he was a racehorse trainer and he needed old oats, as this was what the horses
had for their diet. The oats that were sent to Mr Hughes were green oats, the
same type as the initial sample. Mr Hughes refused to pay Mr Smith for the
delivery and remaining order.
Issues
Mr Smith argued that Mr Hughes
had breached the contract as he had not paid for the delivery and future oats
to be delivered. The issue, in this case, was whether the contract could be
avoided by Mr Hughes, as Mr Smith had not delivered the type of oats he had
expected.
Held
It was held that there was a
contract between Mr Smith and Mr Hughes and that it would not be avoided. There
had been no discussion between the parties regarding the delivery of old oats.
An objective test revealed that a reasonable person would expect the sale of
good quality oats in a similar contract since there was no express discussion
of old oats. The sample gave him the chance to inspect the oats and this was an
example of caveat emptor (buyer beware).
10. Said
v Butt(1920)
Summary
The plaintiff wanted to go to a
play’s first night. He had fallen out with the management of the theatre and
knew that he would not get a ticket in his own name. He got a friend to go to
the theatre and buy a ticket for him without disclosing the fact. When he
turned up for the performance he was refused admission.
Held
His claim was dismissed. A first
night is a special event with characteristics of its own, and tickets are only
given or sold to persons whom the management selects and wishes to favour. The
purchaser’s identity was a material element in the formation of the contract
and that the failure to disclose the fact that the ticket was bought on his
behalf prevented the plaintiff from asserting that he was the undisclosed
principal.
11. Cundy
v Lindsay (1878)
It is an English contract law case on the
subject of mistake, introducing the concept that contracts could be
automatically void for a mistake to identity, where it is of crucial importance.
Summary
The claimant received an order
for the sale of handkerchiefs from a person named Blenkarn, who signed in his name
in a manner resembling "Blenkiron & Co."- a reputed firm located
at "123, Wood Street". The purchaser further mentioned his address to
be at "37, Wood Street, Cheapside", to which the claimant sent the
goods. Although no payment was made by Blenkarn, he sold the goods to a third
person- the defendants.
Later, the claimants alleged
that, as they sold the goods to Blenkarn under the mistaken assumption that
they were selling it to Blenkiron & Co., there was no real consent to the
contract of sale. Consequently, there was no valid transfer of title, which
remained with the claimants, and accordingly, they sued the defendants for
conversion of goods.
Held
As the claimant did not intend to
sell the handkerchiefs to Blenkarn but to Blenkiron & Co., there was no
consent of the claimant to the contract with the former. Accordingly, as no
contract was concluded between the claimant and Blenkarn so as to constitute a
valid transfer of title which the latter could rightfully convey to the
defendants, the title remained with the claimant. Hence, the defendants, being
in possession without a good title over such goods, were held liable for
conversion.
12. Philips
v Brooks (1919)
It is an English contract law
case concerning mistake. It held that a person is deemed to contract with the
person in front of them unless they can substantially prove that they instead
intended to deal with someone else.
Summary
A rogue purchased some items from
the claimant's jewellers shop claiming to be Sir George Bullough. He paid by
cheque and persuaded the jewellers to allow him to take a ring immediately as
he claimed it was his wife's birthday the following day. He gave the address of
Sir George Bullough and the jewellers checked the name matched the address in a
directory. The rogue then pawned the ring at the defendant pawnbrokers in the
name of Mr Firth and received £350. He then disappeared without a trace. The
claimant brought an action based on a unilateral mistake as to identity.
Held
The contract was not void for
mistake. Where the parties transact face to face the law presumes they intend
to deal with the person in front of them, not the person they claim to be. The
jewellers were unable to demonstrate that they would only have sold the ring to
Sir George Bullough.
13. Ingram
v Little (1961)
Summary
Two sisters Hilda and Elsie
Ingram sold their car to a rogue calling himself Mr Hutchinson. They agreed on a
price for cash, but when the rogue offered a cheque Elsie said the deal was
off. She wanted cash or no sale. The rogue then gave them his full name and
address and Hilda went to the post office, which was two minutes down the road,
to check the details out. When she returned she informed Elsie that the details
checked out and the sisters agreed to let Mr Hutchinson take the car. The
cheque was dishonoured and the car was sold on to Mr Little. The sisters
brought an action to recover the car.
Held:
The contract was void for
mistake. The Court of Appeal held that the sisters only intended to deal with
Mr Hutchinson at the address given because they were not willing to offer a
sale for payment by cheque from anyone else. This case has received
widespread criticism and has not been followed since.
14.
Lewis v Averay (1971)
The complainant, Mr Lewis, was a
postgraduate that wanted to sell his car. He met with somebody interested in
buying the car, who was actually a rogue that was impersonating a famous actor,
Richard Greene. They agreed on the price of £450 for the car and the rogue
wanted to pay by cheque. Mr Lewis asked for identification before he agreed to
accept the cheque, with the rogue presenting a pass for Pinewood Studios and
his name and photograph. Once the rogue had the car, he sold it to the
defendant, Mr Averay, for £200. The cheque he had given to Mr Lewis bounced,
but the rogue had disappeared and could not be found.
Held:
It was held that the mistake to
the real identity of the rogue did not prevent a valid contract from being created
between him and Mr Lewis. There was a face to face interaction, where the law
presumes contract. However, this was fraud and impersonation by the rogue,
which would render a contract voidable and it could be set aside. Yet, this
must be done before a third party acquires the rights. In this case, the
contract was not set aside before Mr Averay, in good faith, purchased the car.
.
15. Bala
Devi vs Santi Mazumdar (1956)
An old illiterate woman executed
a deed under the impression that she was executing a power of attorney
authorising her nephew to manage her estate, while in fact, it was a deed of a gift in favour of her nephew.
The evidence showed that the
woman never intended to execute such a deed of gift nor was the deed read or
explained to her. The document was held to be void, as her mind did not go with
her signature.
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