free Consent

Prof Shweta Verma, Faculty,IMMProf Shweta Verma, Faculty,IMM

CONSENTCONSENT

A contract without free consent is A contract without free consent is voidable contract.voidable contract.


Flaw in consent

Coercion(sec15)

Undue influence(sec 16)

Misrepresentation(sec 17,18)

Mistake(sec 20,21)

Faudulent or wilful(sec 17)

Innocent orUnintentional

(sec 18)

Mistake of fact(sec 20)

Mistake of law(sec 21)


Bala Debi vs Majumdar,A.I.R (1956) Bala Debi vs Majumdar,A.I.R (1956) Cal 575Cal 575

An illiterate women executed a deed of gift in An illiterate women executed a deed of gift in favor of her nephew under the impression that favor of her nephew under the impression that she was executing a deed authorizing her she was executing a deed authorizing her nephew to manage her lands. The evidence nephew to manage her lands. The evidence showed that the woman never intended to showed that the woman never intended to execute such a deed of gift, nor was the deed execute such a deed of gift, nor was the deed ever read or explained to her. Held the deed ever read or explained to her. Held the deed was void and inoperative.was void and inoperative.


MEANING OF CONSENTMEANING OF CONSENT

According o section 13 two or more persons According o section 13 two or more persons are said to consent when they agree are said to consent when they agree upon the upon the same thing in the same sense. This means thatsame thing in the same sense. This means that there should be perfect identity of mind. there should be perfect identity of mind. consensus ad idem) regarding the subject consensus ad idem) regarding the subject matter of the contract. matter of the contract.


FREE CONSENTFREE CONSENT

To make a contract valid not only consent is To make a contract valid not only consent is necessary but the consent should also be free.necessary but the consent should also be free.

Section 13 says the consent is said to be free when it Section 13 says the consent is said to be free when it is not caused by any of the following :is not caused by any of the following :

(a) Coercion-sec 15(a) Coercion-sec 15

(b) Undue influence –sec 16(b) Undue influence –sec 16

(c) Misrepresentation –sec 17,18(c) Misrepresentation –sec 17,18

(e) Mistake –sec 20,21(e) Mistake –sec 20,21


CoercionCoercion

SECTION 15 –coercion is committing or SECTION 15 –coercion is committing or threatening to commit any act forbidden by the threatening to commit any act forbidden by the Indian Penal code, or the unlawful detaining or Indian Penal code, or the unlawful detaining or threatening to detain any property to the threatening to detain any property to the prejudice of any person ,whatsoever with the prejudice of any person ,whatsoever with the intension of causing any person to enter into intension of causing any person to enter into an agreement .an agreement .


An example of Coercion


Decided case of coercion Decided case of coercion Muthta vs Muthu Karuppa,Muthta vs Muthu Karuppa,

(1927) 50 Mad 786(1927) 50 Mad 786 An agent refused to hand over the account An agent refused to hand over the account

books of a business to the new agent unless the books of a business to the new agent unless the principal released him from all liabilities. The principal released him from all liabilities. The pincipal had to release deed as demanded. pincipal had to release deed as demanded. Held the release deed was given under Held the release deed was given under coercion and was voidable at the option of the coercion and was voidable at the option of the principal.principal.


Is Threat to commit suicide Is Threat to commit suicide coercion?coercion?

Madras high court has held by a majority judgment Madras high court has held by a majority judgment that that even a threat to commit suicide is coercion even even a threat to commit suicide is coercion even though it is not punishable under the Indian penal though it is not punishable under the Indian penal code .code .

Example: A man by giving a threat to commit suicide Example: A man by giving a threat to commit suicide induces his wife and son to execute a deed in favour induces his wife and son to execute a deed in favour of him in respect of certain property and they execute. of him in respect of certain property and they execute. Held that the consent of the wife and son has obtained Held that the consent of the wife and son has obtained through coercion.through coercion.


Effect of coercion-section 19Effect of coercion-section 19

When the consent of a party to an agreement is When the consent of a party to an agreement is obtained by coercion ,the contract becomes obtained by coercion ,the contract becomes voidablevoidable at the option of the party ,whose at the option of the party ,whose consent is so obtained consent is so obtained

The burden of proving that the consent was The burden of proving that the consent was obtained through coercion shall be upon the obtained through coercion shall be upon the party who wants to set aside the contract on party who wants to set aside the contract on the plea of contract.the plea of contract.


Example of effect of coercionExample of effect of coercion

Anuj executes a transfer bond for the house under Anuj executes a transfer bond for the house under fear of assault .it will be a contract voidable at the fear of assault .it will be a contract voidable at the option of Anuj since his consent was obtained by option of Anuj since his consent was obtained by coercion..coercion..

A railway company refuses to deliver up certain A railway company refuses to deliver up certain goods to the consignee, except upon the payment of goods to the consignee, except upon the payment of an illegal charge for carriage. The consignee pays the an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was entitled to recover so much of the charge as was illegally excessive.illegally excessive.


2.UNDUE INFLUENCE-section162.UNDUE INFLUENCE-section16

Undue influence is the improper use of any power Undue influence is the improper use of any power possessed over the mind of the contracting party. possessed over the mind of the contracting party. According to section 16 a contract is said to be According to section 16 a contract is said to be affected by undue influence when:affected by undue influence when:

The relations subsisting between the parties are such The relations subsisting between the parties are such that one of the that one of the parties is in a position to dominate the parties is in a position to dominate the will of other.will of other.

Uses that position to obtain an unfair advantage over Uses that position to obtain an unfair advantage over the other.the other.


Example of undue influenceExample of undue influence

By operation you just execute a deed of giving your Whole property to me


Following are the parties Following are the parties that can be affected by that can be affected by

undue influenceundue influence Doctor and patientDoctor and patient Lawyer and clientLawyer and client Guardian and wardGuardian and ward Trustee and beneficiaryTrustee and beneficiary Teacher and studentTeacher and student


Decided case on undue influenceDecided case on undue influence

In karnal Distillery Co. ltd V. Ladli prasad .In karnal Distillery Co. ltd V. Ladli prasad .1958 Punj1958 Punj 190,confirmed by the supreme court 190,confirmed by the supreme court in 1963 S.C 1279,the elder brother was shown in 1963 S.C 1279,the elder brother was shown to have exercised undue influence over his to have exercised undue influence over his younger brother in respect of a compromise younger brother in respect of a compromise arrangement the transaction was held to be arrangement the transaction was held to be voidable at the instance of the younger brother.voidable at the instance of the younger brother.


Difference between Difference between coercion and undue influencecoercion and undue influence

Moral force is used in undue influence

Some sort of relationship must exist between the two parties to the contract

Physical force is exercised

Relationship between the promisor and the promisee is not necessary

Undue Influence

The consent of the aggrieved party is obtained by dominating the party by taking an unfair advantage of his position.

Coercion

The consent of the aggrieved party is taken by committing or threatening to commit an act

forbidden by Indian penal code.


IMPORTANT POINTSIMPORTANT POINTSABOUT THE CASEABOUT THE CASE

Priyamvada Birla's will, which bequeaths the Rs 5,000 crore (Rs 50 billion) assets of the Madhav Prasad Priyamvada Birla's will, which bequeaths the Rs 5,000 crore (Rs 50 billion) assets of the Madhav Prasad Birla group to chartered accountant R S Lodha.Birla group to chartered accountant R S Lodha.

The family members have examined the will and the consensus is that we have the moral and legal right to The family members have examined the will and the consensus is that we have the moral and legal right to challenge the validity of the will. challenge the validity of the will.

They also refused to believe that Priyamvada could have left the will in the custody of the person who was They also refused to believe that Priyamvada could have left the will in the custody of the person who was its beneficiary.its beneficiary.

M P Birla had a 25 per cent stake in Pilani Investments while the holding of BK Birla and GP Birla is 30 M P Birla had a 25 per cent stake in Pilani Investments while the holding of BK Birla and GP Birla is 30 per cent and 25 per cent, respectively.per cent and 25 per cent, respectively.

The balance 20 per cent is held by the Krishna Kant and Sudershan Kumar families. The Birla clan is The balance 20 per cent is held by the Krishna Kant and Sudershan Kumar families. The Birla clan is opposing the transfer of MP Birla's 25 per cent stake in Pilani Investments to Lodha.opposing the transfer of MP Birla's 25 per cent stake in Pilani Investments to Lodha.

Pilani Investments holds shares in Century Textiles, Kesoram Industries, Mangalam Cement, Mysore Pilani Investments holds shares in Century Textiles, Kesoram Industries, Mangalam Cement, Mysore Cements, Grasim Industries, Hindalco, Indian Rayon, Jay Shree Tea, Mangalore Refinery, Orient Paper, Cements, Grasim Industries, Hindalco, Indian Rayon, Jay Shree Tea, Mangalore Refinery, Orient Paper, Saurashtra Chemicals, Zuari Industries, Birla VXL, Bihar Caustic & Chemicals.Saurashtra Chemicals, Zuari Industries, Birla VXL, Bihar Caustic & Chemicals.

Since these companies hold shares in other Birla companies, Pilani Investments has indirect holding in Since these companies hold shares in other Birla companies, Pilani Investments has indirect holding in virtually all the companies managed by the Birla group.virtually all the companies managed by the Birla group.

The will can also be challenged on another point: 'good presumption of undue influence' as R S Lodha was The will can also be challenged on another point: 'good presumption of undue influence' as R S Lodha was considered very close to Priyamvada Birla. If this is proven, the will could be declared invalid.considered very close to Priyamvada Birla. If this is proven, the will could be declared invalid.

The other basis for invalidation is if it is proven that the person was not of sound mind while signing it. The other basis for invalidation is if it is proven that the person was not of sound mind while signing it. The brief will -- apparently a mere four lines -- can be considered unusual though not bad in law,The brief will -- apparently a mere four lines -- can be considered unusual though not bad in law,


3.Fraud3.Fraud

Section 17


Meaning of fraudMeaning of fraud

Misrepresentation of facts may be intentional Misrepresentation of facts may be intentional or innocent. or innocent. Intentional misrepresentation has Intentional misrepresentation has been termed asbeen termed as FraudFraud and innocent and innocent misrepresentation has been termed simply as misrepresentation has been termed simply as ‘misrepresentation’‘misrepresentation’

in the contract actin the contract act


Definition under lawDefinition under lawsection 17section 17

According to section 17 fraud means and includes any of the According to section 17 fraud means and includes any of the following actsfollowing acts

Committed by a party to a contract or by any one with his Committed by a party to a contract or by any one with his connivance or by his agent with intent to deceive another party connivance or by his agent with intent to deceive another party thereto or his agent or to induce him to enter into contract:thereto or his agent or to induce him to enter into contract:

(a) (a) A suggestion as to fact of that which is not true by one who A suggestion as to fact of that which is not true by one who does not believe it to be truedoes not believe it to be true

(b) (b) An An active active concealment of a fact by one having knowledge or concealment of a fact by one having knowledge or belief of the fact.belief of the fact.

(c) (c) Any other act fitted to deceiveAny other act fitted to deceive(d) (d) A promise made without any intention of performing itA promise made without any intention of performing it


Essential of fraudEssential of fraud There must be a representation and it must be false.There must be a representation and it must be false.(Peek vs Gurney(1873) L.R 6 H .L 377)(Peek vs Gurney(1873) L.R 6 H .L 377) The representation must relate o material factThe representation must relate o material fact (Bisset vs Wilkinson (1972) A.C 177)(Bisset vs Wilkinson (1972) A.C 177) The representation must have been made before the conclusion The representation must have been made before the conclusion

of the contract with the intention of inducing the other party to of the contract with the intention of inducing the other party to act upon it.act upon it.

The other party must have been induced to act upon the The other party must have been induced to act upon the representationrepresentation

The other party must have relied upon the representation and The other party must have relied upon the representation and must have been deceived.must have been deceived.

(Horsefull vs thomas , (1862) 1 H & C 90)(Horsefull vs thomas , (1862) 1 H & C 90)


The prospectus of a company did not refer to the The prospectus of a company did not refer to the existence of a document disclosing liabilities. existence of a document disclosing liabilities. This gave the impression that the company This gave the impression that the company was prosperous. If the existence of the was prosperous. If the existence of the document had been disclosed the impression document had been disclosed the impression would have been quite different. Held, non would have been quite different. Held, non disclosure amounted to fraud and anyone who disclosure amounted to fraud and anyone who purchased shares on the faith of this purchased shares on the faith of this prospectus could avoid the contract.prospectus could avoid the contract.

There must be false representationThere must be false representationPeek vs Gurney(1873) L.R 6 H .L 377Peek vs Gurney(1873) L.R 6 H .L 377


The representation must relate to The representation must relate to material factmaterial fact

Bisset vs Wilkinson (1972) A.C 177Bisset vs Wilkinson (1972) A.C 177 The vendor of a piece of land told a The vendor of a piece of land told a

prospective purchaser that, prospective purchaser that, in hisin his opinionopinion the the land would carry 2000 sheep. In fact the land land would carry 2000 sheep. In fact the land could carry only a number less than this. Held could carry only a number less than this. Held there was no misrepresentation as the there was no misrepresentation as the statement was one of opinion which was statement was one of opinion which was honestly heldhonestly held


Examples of fraudExamples of fraud

Manoj was induced to buy shares in a company on Manoj was induced to buy shares in a company on account of a false statement made by a stranger. It account of a false statement made by a stranger. It was held that he could not get out of the bargains was held that he could not get out of the bargains because false statement was not made by the because false statement was not made by the company or its agent.company or its agent.

Manoj says to deepika his coat is made of pure Manoj says to deepika his coat is made of pure wool ,though he knows that it is untrue .Deepika wool ,though he knows that it is untrue .Deepika purchases the coat believing Manoj’s statement to be purchases the coat believing Manoj’s statement to be true ,It is a fraud by Manoj and therefore contract is true ,It is a fraud by Manoj and therefore contract is voidable at deepika’s option.voidable at deepika’s option.


Mere silence without any legal Duty to speak will not amountTo fraud except where (a) The circumstances of the case Are such that regard being Had to them ,it is the duty of thePerson keeping silence to speak (b)Silence in itself will be equivalentTo speech

Concealment by mere silence is not fraud

(c ) change of circumstances(d) Duty to speak-where contracting Party responses trust and confidence


Decided case on Decided case on silence is not a fraudsilence is not a fraud

Hands vs Simpson, fawcett & co ltd (1928) 44T LR Hands vs Simpson, fawcett & co ltd (1928) 44T LR 295295

H a commercial traveller, obtained an employment with H a commercial traveller, obtained an employment with S. S regarded driving as an essential part of H’s S. S regarded driving as an essential part of H’s duties but he did not specifically ask H if he is duties but he did not specifically ask H if he is qualified to drive a car. H kept quiet about his qualified to drive a car. H kept quiet about his disqualification to drive a car. S contended that H’s disqualification to drive a car. S contended that H’s silence is misrepresentation. But it was held that H silence is misrepresentation. But it was held that H was under no duty to volunteer the information and was under no duty to volunteer the information and there was no misrepresentation.there was no misrepresentation.


Essentials of fraudEssentials of fraud

The act must have been committed by a party to the The act must have been committed by a party to the contract or with his connivance or by agent .It should contract or with his connivance or by agent .It should not have been committed by a strangernot have been committed by a stranger

The act must have been committed with the intention The act must have been committed with the intention of inducing the deceived party to act upon it-It of inducing the deceived party to act upon it-It implies that the assertion should be such that it would implies that the assertion should be such that it would necessarily influence and induce other party to actnecessarily influence and induce other party to act

Plaintiff must have sufferedPlaintiff must have suffered


Effect of FraudEffect of Fraud

Section 19=The party whose consent to the Section 19=The party whose consent to the contract is obtained by fraud can exercised any contract is obtained by fraud can exercised any of the following rights:of the following rights:

He may avoid the contract and may (i) ask for He may avoid the contract and may (i) ask for the damages suffered because of the non the damages suffered because of the non fulfillment of the contract fulfillment of the contract

He may insist for the performance of the He may insist for the performance of the contract .contract .


Examples of fraudExamples of fraud

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

b)b) B is A's daughter and has just come of age. Here, the B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to relation between the parties would make it A's duty to tell B if the horse, is unsound.tell B if the horse, is unsound.

c)c) A and B, being traders, enter upon a contract. A has A and B, being traders, enter upon a contract. A has

private information of a change in prices which private information of a change in prices which would affect B's willingness to proceed with the would affect B's willingness to proceed with the contract. A is not bound to inform B.contract. A is not bound to inform B.


MisrepresentationMisrepresentation


MisrepresentationMisrepresentation

Misrepresentation is a false representation made Misrepresentation is a false representation made innocently without any intention of deceiving the innocently without any intention of deceiving the other party .It may include two things:other party .It may include two things:

(a) wrong statement of a (a) wrong statement of a material factmaterial fact not known to not known to be falsebe false

(b) Non-disclosure of facts where there is a legal duty (b) Non-disclosure of facts where there is a legal duty to disclose without intention to deceiveto disclose without intention to deceive

SECTION 18SECTION 18


Difference between fraud and Difference between fraud and misrepresentationmisrepresentation

fraudMisrepresentation

In fraud the injured party besides avoiding the contract may also claim the damages.

It makes the other contract only voidable at the option of the party whose consent has been so caused

In fraud the false statement is made deliberately with a clear intention of deceiving the other party

There is no intention to deceive or to gain any undue advantage


Mistake Mistake

Mistake are of two type Mistake are of two type

(b)(b) Mistake of lawMistake of law

(c)(c) Mistake of factMistake of fact


Mistake of lawMistake of law

Mistake of law is further divided into three Mistake of law is further divided into three categoriescategories

(a) mistake of Indian law(a) mistake of Indian law (b) mistake of foreign law(b) mistake of foreign law (b) mistake as to private rights of the parties(b) mistake as to private rights of the parties


Mistake of factMistake of fact

Bilateral mistakeBilateral mistake Unilateral mistake are two types of mistake of Unilateral mistake are two types of mistake of

factfact


Bilateral mistakeBilateral mistake

Section 20 states that were both the parties to an Section 20 states that were both the parties to an agreement are under a mistake as to a matter of fact, agreement are under a mistake as to a matter of fact, essential to the agreement shall be essential to the agreement shall be void. Thevoid. The mistake mistake shall be termed as bilateral mistake of fact only when shall be termed as bilateral mistake of fact only when both of the following conditions are satisfiedboth of the following conditions are satisfied

(a) it should be committed by both the parties(a) it should be committed by both the parties (b) it should relate to a matter of fact essential to the (b) it should relate to a matter of fact essential to the

agreement.agreement. E.g.-A agrees to buy certain horse from B .It turns out E.g.-A agrees to buy certain horse from B .It turns out

that the horse was dead at the time of the agreement that the horse was dead at the time of the agreement ,though neither party was aware about this fact. The ,though neither party was aware about this fact. The agreement is void.agreement is void.


Case of material factCase of material factreferring to previous slidereferring to previous slide

A and B believing themselves to be married A and B believing themselves to be married ,made a separation agreement in which A ,made a separation agreement in which A agree to pay B Rs 10000 .It was later agree to pay B Rs 10000 .It was later discovered that they were not duly married .B discovered that they were not duly married .B claimed the promised money .The agreement claimed the promised money .The agreement was held to be void as there was mistake of was held to be void as there was mistake of fact on their part which was material to the fact on their part which was material to the existence of the agreement.existence of the agreement.


Unilateral mistakeUnilateral mistake

One party to a contract is under a mistake of fact, the One party to a contract is under a mistake of fact, the contract is voidable .unilateral mistake do not affect contract is voidable .unilateral mistake do not affect the validity of contract unless they concern some the validity of contract unless they concern some fundamental fundamental

Example: A agreed to buy certain wheat from B Example: A agreed to buy certain wheat from B believing that they were old.Infact wheat offered believing that they were old.Infact wheat offered were new. It was held that A could not avoid the were new. It was held that A could not avoid the contract on the ground that he had a mistaken contract on the ground that he had a mistaken impression as to the oldness of wheat.impression as to the oldness of wheat.

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