Business Law

Free Consent under Indian Contract Act

By Aditya Balaji (Student at O.P Jindal Global Law School)

A contract is essentially a legally binding agreement between two parties where one person signifies his willingness to do or not do something in return for a consideration from the other party. Every contract has a certain meeting of the minds in order to come to an arrangement. Section 10 of the Indian Contracts Act, 1872 states that – “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”. The section mentions the ingredients necessary for an agreement to become legally binding, i.e., a contract. One key word to bring attention to here is the word “Free Consent”.  Consent is defined by S.13 of the Act as agreement by two or more persons on the same thing in the same sense or in other words meeting of the minds. But this is different from free consent. Free Consent is defined in the  next section, i.e., section 14 and states that free consent is nothing but consent that is received when it is not affected by 1) Coercion as defined by S.15, 2) Undue Influence as defined by S.16, 3) Fraud as defined by S.17, 4) Misrepresentation as defined by S.18 and finally 5) Mistake which is subject to the provisions of S.20,21 and 22. These five elements essentially can influence the mind of one party in entering the contract and the idea behind free consent is essentially to ensure that an agreement is come to without any influence externally or based on circumstances but purely by the minds of the parties.

Coercion

S.15 defines Coercion and is as follows:

“Coercion” is 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.

The section is self–explanatory as it refers to the use of acts forbidden by the Indian Penal Code or any other unlawful means such as detaining or threatening to detain the property of the other party to acquire their consent. For example, in the case of Chickam Ammiraju v. Chickam Seshmma,  the then chief justice Wallis, in his judgement stated that according to the facts of the case a man who threatened his own life with suicide against his wife and son for signing a deed in the name of his brother amounted to coercion, a) the threat against his own life or the threat of suicide amounted to an act forbidden by the Penal code and b) the threat was prejudiced not only against the husband himself but also to his wife and son as it would be resulting in the loss of a husband and father respectively for each. Such an act thus resulted in coercion in this case.

Undue Influence

S.16 of the act states that –

“(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) where 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 face of it or on the evidence adduced, to be unconscionable, the 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. “

In other words, this section talks about how consent is affected in terms of influence of one party over another based on their relationship or the power dynamics between the two parties where one person can exert their power and influence over the other top get them to agree to enter into a contract which is unconscionable . Subsection (2) talks about how one can use their influence to receive consent and are of two types, a) where there exists a relationship between the two where one has authority over the other,  such as that of an employer and employee where due to the relationship, the employer has authority over the employee and that of a fiduciary relationship such as a doctor and a patient where the doctor is in the role of advisor and uses his position to gain consent of the other part. b) where the person makes a contract with a person who is mentally incapable as a result of age, illness or mental or bodily distress. The case of  Subhash Chandra Das v. Ganga prasad  is a great example. The facts of the case are that a grandson was gifted property by his grandfather who was of really old age, which excluded the rest of the family and after the death of the grandfather, the rest of the family challenged the validity of the grandson’s hold over the property on the grounds of undue influence. They contested that the grandson took advantage of the grandfather’s old age to get the property. The motion was rejected by the court and held for the defendant, the grandson. The judgement also refers to other cases which expands on undue influence by stating that mere undue influence is not enough and the precise nature of influence needs to be pinpointed too.

Fraud

S.17 defines fraud as:

“Fraud” means and includes any of the following acts committed by a party to a 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 a fact, of that which is not true, by one who does not 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 fitted to deceive; 

(5) 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 silence to speak, or unless his silence is, in itself, equivalent to speech.”

Fraud refers to an act done by a party which actively deceives the other party in order to gain the consent of the said party. By committing fraud, the consent achieved will not be free. An example of fraud is A enters into a contract with B to rent a bike, however B did not insure it and is aware of the fact. When asked by A if it is insured, he claims it is. Furthermore, it is mandatory by law to have vehicles insured. Thus, B commits fraud here.  However staying silent about a fact is not enough for fraud unless mandated by law to say so or when asked or in situation the silence of the person itself is an answer.

Misrepresentation

S.18 defines misrepresentation as follows: 

“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 to 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.” 

Misrepresentation is the wrongful assertion of fact, intent or even the subject matter of the thing though not willingly done. This is the element that distinguishes  misrepresentation from fraud as there is no intent deceive the other party here. A fine example of the issue is the case of Esso Petroleum Company Ltd. v Mardon. Here the plaintiffs, wanted to build a gas station on the main road and expected sale of over 200,000 gallons however they could get a permit for building on a side road and they build it front to back. They franchise it to Mr. Mardon and said that they expected sale of over 200,000 gallons. However, Mr.Mardon was unable to do so and thus was not able to generate enough revenue and was sued by Esso petroleum. However, Mr.Mardon counter-sued for misrepresentation and the court held in his favour, stating that the petroleum company should have revised the estimates when they were building for the side road and that the estimates provided were for if the station was built on the main road. 

Mistake

Mistake is contingent on section 20,21 and 22 which are as follows:

“S.20- Agreement 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. 

S.21-  Effect of mistakes as to law.—A contract is not voidable because it was caused by a mistake as to any law in force in [India]; but a mistake as to a law not in force in [India] has the same effect as a mistake of fact

S.22- Contract caused by mistake of one party as to matter of fact.—A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact. “

Section 20 states that contracts are void when both parties make a mistake to the matter of fact. What this essentially means is that when both the parties have an agreement An example of this would be say A wanted to purchase a car from B, however at the time of the bargain, the car was already sold to C by B’s wife who jointly owned the car. This was a mistake of fact from both parties and were unaware and thus is void.

Section 21 deals with mistake not as to fact but as to the law. However any mistake to the a low in force in India is not voidable, but for vice versa i.e., that is a law that is not in force and is mistaken to be so is void.  For example, A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation; the contract is not voidable.

Section 22 deals with mistakes made by one single party as to the fact and thus makes it non-voidable as opposed to section20 which deals with mistake made by both parties.

The result of consent that is received through the previously mentioned means will result in the contract being in voidability of contract as mentioned in S.19 of the Act. The section states that any consent to an agreement that is not received freely in the case of coercion, fraud or misrepresentation will render it voidable, which means that the contract can either be forgone or can be continued at the option of the party whose consent was not received freely.  Each of the five sections expanded above result in unfair advantage to one of the parties which can often result in a loss to the other parties and being in a situation where one may not want to be in. Thus, Free consent is an essential part of contracts upon which a lot of core contracting principles exist. The purpose of free consent is to ensure freedom to parties but also to ensure that they are protected and that they have rights. Thus, maintaining equality and providing justice.

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