Free consent (Section 13 and 14)

Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation
and Mistake.

Consent is an essential element of a valid contract. In its absence, the contract becomes void or voidable
depending on the circumstance. Consent means providing the party with an opportunity to exercise
his/her volition with respect to the contract. For a valid acceptance to the proposal, the assent must be
voluntary and genuine. As discussed earlier assent is required to form a valid agreement. Assent here
refers to the opportunity to exercise one’s volition. Where consent to an agreement is not free i.e. has
any of these factors- coercion, undue influence, fraud or misrepresentation, the agreement is a contract
voidable if the other party so chooses whose consent was obtained on the basis of vitiating factors. If, for
example, a person is induced to sign an agreement by fraud, he may, on discovering the truth, either
uphold the contract or reject it.

Where consent is caused by mistake, the agreement is void. A void agreement cannot be affected by the
party [Section 2(g)] An agreement which is void doesn’t give rise to legal consequences and is void ab
initio These agreements are not enforced by the court or we can call this agreement as ‘’ An agreement
not enforceable by law’.

Difference between consent and free consent

Section 13 defines consent:

An agreement where both parties share common intention relating to the terms of the contract is known
as true consent or consensus ad idem and is at the root of every contract.

Free consent is defined under the act as consent which is not caused by coercion, undue influence,
fraud, misrepresentation and mistake.

Every free consent is consent but every consent is not a free consent.

Void Agreement and Void Contract

Void agreement is an agreement not enforceable by law. A contract which is not recognised by law.
There can be no action instituted in a court of law to claim rights against parties.

Void agreement is void right from the day the agreement is constructed while a void contract becomes
void at a later stage. In a void contract, the voidness creeps because of some incident or change in
circumstance which is not through the fault of the parties.

Void agreements have been specifically stated in chapter 2 of the act under Sections 11,20, 23 to 30 and
56. No such specific mention has been made for a void contract under any chapter of the Act.
Coercion (Section 15)
It is defined under Section 15. Coercion is using force or creating circumstances wherein the other
parties’ consent is not free. It might be through taking some property, doing something which is an
offence under IPC, the purpose of these things should be to get the other parties’ consent.

Techniques of causing coercion

Consent is said to be caused by coercion when it is obtained by some act which compels the other
party;

1. Threatening or doing something which is a crime under IPC; or

2. Seizing or confining someone.

An illustration under the First category would be Consent given at the point of a knife, or by threatening
to injure someone, or by intimidation or by threatening to destroy a man’s property.

An example of the second type will be a case where the plaintiff had pledged his plate with the
defendant for $20. When he went to redeem it the pledge insisted that an additional $10 interest was
also owed. The plaintiff paid this to redeem his plate and then sued to recover it back. The court
allowed it and the defendant had taken advantage of the situation and extracted an amount which was
not lawful.

Undue influence (Section 16)

This is defined under Section 16. It is using one’s position to influence the decision of the other person
to his prejudice. There is a subtle difference between fraud and undue influence. The party is able to
persuade because of the relation they share or he enjoys a certain degree of confidence of the other
person.

What amounts to apply undue influence on someone?

Sometimes the parties to an agreement are so related to each other that one of them is able to apply
undue influence to the expression of choice, willingness and consent of the other.

The person who is in commanding position may use his position and the trust that the other person
reposes on him to his advantage. By ‘’advantage’’ we mean to cause the other person to express his
assent to the proposal.

It is the nature of the relationship that is a Sine qua non in these types of cases, which enables one party
to be at a superior position.

For Example: A spiritual adviser(guru), for example, in a case induced the plaintiff, his devotee, to gift
to him the whole of his property to secure benefits to his soul in the next world. Such consent is said to
be obtained by undue influence. The test is to examine this from a prudent man’s point of view.
Whether in the absence of the nature of the relationship a prudent man would have done the same?
Subtle species of fraud

The court describes this in Mahboob Khan v. Hakim Abdul Rahim. Undue influence is a kind of fraud
wherein the parties’ mind is hacked in a pernicious way. It can be through various means such as
coercion, fear or other methods which are directed to impair the reasoning of the person. The result is
the person thinks he is using his volition but in reality, his free will is affected by other parties’ scheme,

Undue influence and coercion

Coercion (duress) in the execution of a contract or deed involves some kind of physical or bodily threat.
The threat is not restricted to the party but to any person, the party is interested in.

When compared to Undue influence, the difference is that undue influence may exist without violence
or threats of violence against the victim. Undue influence exists because of the relationship the parties
share. It is usually without violence or threats against the victim. The confidence which the other party
reposes in the other is used to one’s advantage.

A person is said to be in a position to dominate the will of another in the following cases-

1. Where he holds a position of dominance or authority or some kind of trust is reposed in him.

2. Where the victim doesn’t have the mental capacity to understand the consequences of his
actions.

Fiduciary relation
Trust and confidence are essential elements of Fiduciary relation. Confidence is involved in many of
our interactions in everyday life. This category is, therefore, a very wide one. It includes the relationship
of solicitor and client, spiritual adviser and his devotee, doctor and patient, woman and her confidential
managing agent, parent or guardian and child, and creditor and debtor.

Presumption of undue influence

In certain cases, the presumption of undue influence is raised. The effect of presumption is once it is
prima facie established that the defendant has overpowered the will of the other, it will be assumed he
has used his position to influence the outcome. The defendant has to establish the contrary.

The presumption is raised at least in the following cases:

 Unconscionable bargains, inequality of bargaining power or economic duress

Unconscionableness: Where one of the parties to a contract is in a position to use undue

influence on the other and the contract is apparently skewed in one parties’ favour, the law presumes
that consent must have been obtained by undue influence. The burden is shifted to the stronger party to
prove that he did nothing to dominate the will of the other.

This case illustrates the above point wherein An old and illiterate woman, incapable of any business,
conferred on her confidential managing agent, without any valuable consideration, an important
pecuniary benefit under the guise of trust. The onus is on the grantee to show conclusively that the
transaction is honest, bona fide, well-understood, the subject of independent advice and free from
undue influence’’.

Position of dominance necessary for presumption to arise

For this presumption to be successful, one of the parties’ have to be in a superior position or in a
dominating position. Where the parties are on equal footing the mere unconscionableness of the
bargain does not create a presumption of undue influence. The mere fact that the bargain is a hard one
is no guard in itself for granting relief.

In Raghunath Prasad Sahu v. Sarju Prasad Sahu The defendant and his father were equal owners of a
vast joint family property over which they had quarrelled. Consequently, the father had instituted
criminal proceedings against the son. The defendant, in order to defend himself, mortgaged his
properties to the plaintiff and borrowed from him about ten thousand on 24% compound interest. In
eleven years this rate of interest had magnified the sum covered by the mortgage more than elevenfold,
viz., Rs1,12,885.

The defendant had contended that the lender had, by exacting a high rate of interest, taken
unconscionable advantage of his mental distress and, therefore, there should be a presumption of
undue influence.

Their lordships, however, held that there should be no such presumption in the circumstances of the
case.

Sub-Section (3) of Section 16, deals with three matters. There is a particular order which should be
followed while determining whether a party has dominated the will of the other.

In the first place, the relation is of a kind where the party can overpower the volition of the other.

Then comes the second stage where it will be examined whether the contract has been induced by
undue influence.

This leads to the third stage, where onus probandi emerges. The burden of proving that plaintiff
consent is not vitiated by any of the factors shifts on defendant.

This order should be maintained lest error is avoided Unconscionableness of the bargain cannot be the
first thing to be considered. We have to start from the relation that the parties share with respect to each
other

1. Contracts with Pardanashin woman

A contract with a Pardanashin woman is presumed to have been induced by undue influence. She can
avoid the contract unless the other party can show that it was her ‘’intelligent and voluntary act’’.

According to the Bombay High Court, a woman does not become pardanashin simply because ‘’she
lives in some degree of seclusion’’. The concept probably means a woman who is totally ‘’secluded from
ordinary social intercourse’’.
Once it is shown that a contract is made with a pardanashin woman, the law presumes undue influence.
In Moonshe Buzloor Raheem v. Shumsoonisa Begum, A window remarried. Subsequently, she
endorsed and delivered to her new husband certain valuable Government papers. In an action to
recover them back from him, she proved that she lived in seclusion and that she had given over the
papers to him for collection of interest. He contended that he had given her full consideration for the
notes. It was held that the mere fact of endorsement and the allegation of consideration were not
sufficient to lift the presumption of undue influence. He should prove that the transaction was bona fide
sale and that he gave full consideration for the paper which he received from his wife.

Misrepresentation (Section 18)

A contract the consent to which is caused by misrepresentation is voidable at the option of the deceived
party. Misrepresentation means the action of giving a false or misleading account of the nature of
something. This inaccurate information might make the difference with respect to a party deciding to
enter into an agreement or not entering the agreement. Misrepresentation means misstatement of a fact
material to the contract. Section 18 defines:

This Section includes the following types of misrepresentation:

 Unwarranted statements:
When someone declares a statement which is relevant to the contract and that statement doesn’t
have information which justifies those facts even though he believes to be true is misrepresentation.

 Breach of Duty
Any breach of duty which is beneficial to the person committing it by confusing the party to his harm is
a misrepresentation. This clause covers all cases which are called as cases of ‘constructive fraud’, in
which there is no intention to deceive, but where the circumstances are such as to make the party who
derives a benefit from the transaction equally answerable in effect as if he had been actuated by motives
of fraud or deceit’’.

 Inducing mistake about subject-matter

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 is also misrepresentation (Section 18 (3)). The subject-matter is
the core of the agreement. This has to be of the quality or value which the parties expected at the time
of constructing the agreement. If one of the parties leads the other, however innocently, to make a
mistake as to the nature or quality of the subject-matter, there is a misrepresentation.

Example: The government auctioned certain forest coupes. A part of the land was occupied by tenants.
The forest department knew this fact but did not disclose it to the purchaser. The contract was held to
be vitiated by misrepresentation. The purchaser was allowed to recover damages for loss.

 Suppression of vital facts

Misrepresentation may also arise from the suppression of vital facts. Cases of concealment or
suppression will fall either under sub-Section (2) when it amounts to a breach of duty or under sub-
Section(3) when it leads the other party to make a mistake about the subject-matter of the agreement.

In R. v Kylsant, the prospectus of a company stated that the company had regularly paid dividends,
which created the impression that the company was making profits, whereas the truth was that the
company had been running into losses for the last several years and dividends could only be paid out of
wartime accumulated profits. This was held as a Misrepresentation.

 Expression of opinion
A mere expression of opinion cannot be regarded as a misrepresentation of facts even if the opinion
turns out to be wrong. In some cases, a statement of opinion may also amount to misrepresentation.

It is a mistake to assume that a statement of opinion cannot involve a statement of fact. When
knowledge of the parties is not on the same footing then a statement of opinion by the person who is
more knowledgeable, his statement has a material fact for he tacitly claims information which justifies
his opinion.

 Of material facts
A fact is said to be material if it would affect the judgment of a reasonable person in deciding whether to
enter into the contract and, if so, on what terms. Misrepresentation of the age of a car, showing it to be
five years younger, was held to be material because it affected the price which a willing purchaser would
have liked to pay for it.

 Inducement
The misrepresentation must be the cause of the consent, in the sense that but for the misrepresentation
the consent would not have been given. It must have played a substantial role in the plaintiff’s decision
to enter or not to enter into the contract.

The representation must be made with the intention that it shall be acted upon by the other party.

There would be no misrepresentation, even if the advertisement was false if the buyer had inspected the
goods before buying them unless he was the victim of some concealed defect which could not be known
by external examination.

 Means of discovering the truth

A party cannot complain of misrepresentation if ‘’ he had the means of discovering the truth with
ordinary diligence’’.

A person who bought a quantity of rice was precluded from alleging misrepresentation about its quality
because he lived very near the place where the goods were lying and, therefore, might have discovered
the truth with ordinary diligence
Fraud (Section 17)
According to Merriam-Webster fraud is defined as ‘’An intentional perversion of truth in order to
induce another to part with something of value or to surrender a legal right. The distortion of facts
intentionally which are directed towards the other party, in order to receive their assent to the
proposal. Section 17 defines fraud.

Assertion of facts without belief in the truth

In English law ‘’fraud’’ was defined in the well-known decision of the House of Lords in Derry v Peek.
The judges had observed in this case that- ‘’Fraud is proved when it is shown that a false representation
has been made,-

1. Knowingly, or

2. Without belief in its truth, or

3. Recklessly careless whether it be true or false’’.

In this case:

A company’s prospectus contained a representation that the company had been authorised by a special
Act of Parliament to run trams by steam or mechanical power. The authority to use steam was, in the
Board refused consent and consequently, the company was wound up. The plaintiff, having bought
some shares, sued the directors for fraud. They were held not liable because they honestly believed that
once the Parliament had authorised the use of steam, the consent of the Board was something that was
bound to happen. It follows, therefore, that the person making a false representation is not guilty of
fraud if he honestly believes in its truth. Thus, intentional misrepresentation is of the essence of fraud.

Active concealment
‘’Active concealment’’ is different from ‘’passive concealment’’. Passive concealment means mere
silence as to material facts. Active concealment of a material fact is a fraud; mere silence, except the few
cases noted below, does not amount to fraud. Active concealment involves some kind of action,
behaviour or scheme to trick the other party into giving his consent to the proposal. The intention is to
commit fraud. For example, 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 no fraud

False impression is ordinarily conveyed by deliberate misstatement of facts. Misstatement of facts is just
one of the ways by which fraud can be caused. A false impression may be caused by trick or device or
ambiguous language, active concealment of material facts or other methods. Ordinarily, mere silence is
no fraud, even if its result is to conceal ‘’facts likely to affect the willingness of a person to enter into a
contract’’.

A contracting party is under no obligation to disclose the whole truth to the other party or to give him
the whole information in his possession affecting the subject-matter of the contract. It is under this
principle that a trader may keep silent about a change in prices. A seller who puts forth an unsound
horse for sale, but says nothing about its quality, commits no fraud.

When silence is fraud

 Duty to speak (contracts uberrima fides): Duty to speak arises where one contracting party
reposes trust and confidence in the other. A father, for example, selling a horse to his son must
tell him if the horse is unsound, as the son is likely to rely upon his father.

Duty to disclose the truth will arise in all cases where one party reposes, and the other accepts
confidence.

This duty to speak is also expected from the party when the other party has no means to discover the
truth and has to depend on other parties’ judgment or assessment

A perfect example of this would be a contract of insurance wherein an insurance company knows
nothing about the life or situation of the insured. It is, therefore, the duty of the assured to put the
insurer in possession of all the material facts affecting the risk covered.

A contract of insurance is, for this reason, called a contract of absolute good faith, uberrima fides.

This case where the plaintiff spent a sum of money to mark the engagement of his son. He then
discovered that the girl suffered from epileptic fits and so broke off the engagement. He sued the other
party to recover from them compensation for the loss which he had suffered on account of their
deliberate suppression of a vital fact which amounted to fraud.

The court concluded that a mere passive non-disclosure of the truth, however misleading in fact, does
not amount to fraud, unless there is a duty to speak. It was observed that the law imposes no general
duty on anyone to broadcast the blemishes of his female relations; not even to those who are
contemplating matrimony with them.

There was no fiduciary connection between the parties. The engagement was, however, held to be
voidable by reason of the misrepresentation, but the plaintiff was not entitled to recover any
compensation under Section 75 of the Contract Act.

 Where silence is deceptive: Silence is sometimes itself equivalent to speech. A person

who keeps silent, knowing that his silence is going to be deceptive, is no less guilty of fraud.
Where, for example, the buyer knows more about the value of the property, which is the
subject of sale, but prefers to keep the information from the seller, the latter may void the sale.

 Change of circumstances: Sometimes a change in circumstances might take place in the

intervening period, between the representation of facts and when the contract is entered into.
When this happens it is the duty of the person who made the representation to communicate
the change of circumstances.

A medical practitioner represented to the plaintiff that ‘his practice was worth $2000 a year’. The
representation was true. Five months later when the plaintiff actually bought the practice, it had
considerably gone down on account of the defendant’s serious illness. It was held that the change of
circumstances ought to have been communicated.
 Half-truths: Even when a person is under no duty to disclose a fact, he may become guilty of
fraud by non-disclosure if he voluntarily discloses something and then stops halfway. A person
may be silent, but if he speaks, a duty arises to disclose the whole truth. ‘’ Everybody knows that
sometimes half a truth is no better than a downright falsehood’’