Module II: INDIAN CONTRACT ACT-1872, PART-II

Chapter – I
1. Consent and Free Consent (Sec. 13 to 22)

Chapter - II
2. Void Agreements

Chapter - III
3. Contingent Contracts (Sec. 31 to 36)
4. Quasi Contracts (Sec. 68 to 72)
5. E-Contracts
6. Performance of Contracts

Chapter - IV
7. Modes of Discharge of Contract
8. Breach of Contract - Consequences and Remedies

▪ Case Studies
CHAPTER-1
CONSENT AND FREE CONSENT
Sec. 13 to 22
CONSENT (Sec. 13)
Two or more persons are said to consent when they agree upon the same
thing in the same sense.
Parties to the contract must give consent. Consent must be free. Free consent is
one of the essential elements of a valid contract, when both parties agree upon
the same thing in the same sense, they are said to be at ad-idem when parties are
not at ad-idem there is no consent.
Cundy Vs. Lindsay (1878-3 App. Cas. 459) One Blenkarn closely imitated the
address of a known respectable firm of Blenkiron & Co. and wrote his signature
so as to look like theirs Lindsay & Co mistook his order for that of Blenkiron.
Lindsay and Co delivered the goods to Blenkarn Blenkam sold the goods to
Cundy and did not pay Lindsay and Co. Lindsay & Co. filed a suit against Cundy.
It was held that due to a mistake caused by Blenkarm, there was no real agreement
between Blenkarn and Lindsay & Co. Cundy therefore, did not get any title to
the goods as Blenkarn acquired no property in the goods.
Free Consent (Sec.14) Defined
Consent is said to be free when it is not caused by (i) Coercion, (ii) Undue
influence, (iii) Fraud, (iv) Misrepresentation or (v) Mistake (Sec.14)

If the consent is caused due to Effect on Contract

any one of the following:
Coercion Voidable
Undue Influence Voidable
Fraud Voidable
Misrepresentation Voidable
Mistake Void

Coercion (Sec.15) Defined

Coercion is committing or threatening to commit, any act forbidden by the Indian
Penal Code 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.
It is immaterial whether the Indian Penal Code is or is not in force in the place
where the coercion is employed (Sec. 15)
Essentials of Coercion:
1. Coercion may proceed from anybody even a person who is not a party to the
contract and may be directed against even a member of his household not
necessarily the other contracting party.
2. Coercion includes physical compulsion, fear and even danger to goods.
3. Consent must be obtained by unlawfully detaining or threatening to detain any
property.
4. The act must have been done with the intention of causing any person to enter
into an agreement.
5. It does not matter whether the Indian Penal Code is or is not in force at the
place where coercion is employed.
Effects of Coercion:
1. When consent to an agreement is caused by coercion, the agreement is a
contract voidable at the option of the party whose consent was so caused.
(Sec.19)
2. A person to whom money has been paid or anything delivered under coercion
must repay or return it (Sec.72)

3. He may rescind the contract within a reasonable time under the specific Relief
Act 1963.
Illustration: A threatens to shoot B if he does not let out his house to A. B agrees
to do so. This agreement is brought about by coercion. B's consent to the
agreement is not a free consent and is caused by coercion. B can avoid the
contract.
Undue Influence (Sec.16)
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.
Presumptions as to undue influence
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
b) Where he stands in a fiduciary relation to the other or
c) 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.
Illustration: A, a man enfeebled by disease or age, is induced, by B's influence
over him as his medical attendant, to agree to pay to B unreasonable sum for his
professional services. B employs undue influence.
Essentials
1. The transaction is caused by undue influence and is unreasonable when one of
the parties is in a position to dominate the will of the other.
2. The dominating party uses that position to obtain unfair advantage over the
other.
3. Burden of Proof: Where the transaction appears on the face of it or on the
evidence produced to be unreasonable, the burden of providing that such a
contract was not induced by undue influence shall lie upon the person in a
position to dominate the will of the other.
4. Undue influence may exist for e.g.. between father and son, husband and wife
doctor and patient, trustee and beneficiary, solicitor and client etc.
Effects of undue influence:
1. When consent to an agreement is caused by undue influence, the agreement is
a contract voidable at the option of the party whose consent was so caused.
2. Any such contract may be set aside either absolutely or if the party who was
entitled to avoid it has received any benefit there under, upon such terms and
conditions as the court may deem just. (Sec. 19A)

3. Only a party to the contract can avoid or rescind the contract. This right does
not lie in the hands of a third party.
Distinction between Coercion and Undue Influence
Coercion Undue influence
1. The consent is given under the The consent is given by a person who is situated in
threat of an offence. relation to another that the other person is in a
position to dominate his will.
2. The consent is obtained by The consent is obtained by dominating the will of
committing or threatening to another.
commit an act forbidden by the
Indian Penal Code.
3. The consent is obtained by The consent is obtained by influencing the
detaining or threatening to detain subordinate party.
property unlawfully.
4. Coercion is mainly of a physical Undue influence is of a moral character. It involves
Undue influence is of a moral use of moral character. It involves use of moral force
character. It involves use of or mental pressure.
physical or violent force.
5. There must be intention of The influencing party uses its position to obtain an
causing any person to enter into an unfair advantage over the other party.
agreement.
6. It involves a criminal act. No criminal act is involved

Fraud (Sec.17)
Fraud means and includes any of the following acts committed by

a) A party to a contract or
b) with his connivance or
c) by his agent, with intent to deceive another party thereto or his agent, or to
induce him to enter into the contract.

1. The suggestion, as to a fact, of that which is not true by one who does not
believe it to be true (Suggestio falsi) i.e. giving false suggestions.
2. An active concealment of a fact which it is his duty to disclose (Suppressio
veri) i.e. suppressing important and relevant facts from the knowledge of the
other party.
3. A false promise
4. Any other act fitted to deceive.
5. Any such act or omission as the law specially declares to be fraudulent. (Sec.
17)

Mere silence as to facts likely to affect the willingness of a person to enter into a
contract is no 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. (Explanation to sec. 17)
Illustration: 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 Here, the relation
between the parties would make it A's duty to tell B if the horse is unsound.

Whether Silence amounts to fraud?

i) Mere silence without any duty to speak does not amount to fraud.
ii) Silence is fraudulent

a) Where 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
b) His silence is in itself equivalent to speech.
iii) In cases where there is a duty to disclose, non-disclosure amount to breach of
duty. If made with an intent to deceive it is fraud and if made without any such
intention, it is misrepresentation.

iv) If consent is caused by silence fraudulent, contract does not become voidable
if the other party had the means of discovering the truth with ordinary diligence.
Effects of fraud:
The following remedies are available to the party who has been induced to enter
into a contract by fraud:
i) The contract is voidable at the option of the party whose consent was caused
by fraud.
ii) He may insist that the contract shall be performed and that he shall be put in
the position in which he would have been if the representations made had been
true.
iii) He may rescind the contract within a reasonable time under the Specific Relief
Act 1963.
iv) He has a right to sue for damages.

However, a fraud, which does not cause the consent to a contract of the party on
whom such fraud is practised, does not render a contract voidable.
Misrepresentation: (Sec. 18)
Misrepresentation means and includes:
1. The positive assertion of what is not true, even though the person making it
might believe it to be true. Therefore untrue statement is made without any
reasonable ground of belief that it is true Belief must not only be reasonable, but
must also be definitely based on past information. If there is intention to deceive,
it is fraud. If there is no intention to deceive it is misrepresentation.
2. Any breach of duty which, without an intent to deceive, gains an advantage to
the person committing it, or anyone claiming under him, by misleading another
to his prejudice or to the prejudice of anyone 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 matter of the agreement. (Sec. 17)
Illustration: A says to B that C's horse is very good horse and runs 20 miles at a
stretch. A believes the statement to be true. B purchases the horse from C on A's
information. It turns out that the horse is only able to run 2 miles. This is
misrepresentation.
Misrepresentation of fact: Consent given under misrepresentation of fact is no
consent at all and gives the right to the party whose consent is so caused to avoid
the contract. Contract becomes voidable due to misrepresentation of fact.
Misrepresentation of law - gives no right to avoid a contract. But
misrepresentation of particular right, gives right to the party to avoid the contract.
Contract does not becomes voidable due to misrepresentation of Law.
Effects of misrepresentation:
The party whose consent is caused by misrepresentation can:
i) avoid the contract,

ii) rescind the contract within a reasonable time under the Specific Relief Act,
1963,
iii) insist that the contract shall be performed, and that he shall be put in a position
in which he would have been if the representations made had been true, and
iv) he is also entitled to damages
When misrepresentation does not avoid the contract?
1. If the party whose consent was caused by misrepresentation had the means of
discovering the truth with ordinary diligence.
2. A misrepresentation which did not cause the consent to a contract of the party
to whom such misrepresentation was made (Explanation to Sec 19)
Illustration: A, by a misrepresentation, leads B erroneously to believe that 500
maunds of indigo are made annually at A's factory B examines the accounts of
the factory, which show that only 400 maunds of indigo have been made. After
this B buys the factory. The contract is not voidable on account of A's
misrepresentation.
Distinction between Misrepresentation and Fraud
In both misrepresentation and fraud, there is misrepresentation of fact which is
misleading and therefore a contract is voidable at the option of the person who is
so misled.
Misrepresentation Fraud
1. There is no intention to deceive. There is an intention to deceive
2. A false innocent statement without any A false statement deliberately made deceive is fraud.
intention to deceive is to deceive is
misrepresentation.
3. The person making the statement believes The person making the statement does not believe it
it to be true. to be true.
4. It makes contract voidable at the Besides Besides making the contract voidable at the option of
making the option of the party injured. the party injured, it gives right to an independent
action in tort.
5. The contract cannot be avoided if the party This plea cannot be raised in case of fraud, except in
whose consent was so caused, had the means cases when silence amounts to fraud.
of discovering the truth with ordinary
diligence.
Mistake (Sec.20, 21 and 22)
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. (Sec. 20)
In order to render a contract void on the ground of mistake there should exist
three things as under;

Essentials
1. Both parties to the contract must be under a mistake i.e. Bilateral or mutual
mistake as to an existing fact, renders the agreement void. A contract is not
voidable merely because it was caused by one of the parties to it being under a
mistake. If mistake is unilateral, the agreement does not becomes void.

2. Mistake should be one of fact and not of law.

3. Mistake should be essential to the agreement
Illustration: 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.
4. 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. Any wrong
opinion about the value of thing is not considered as a mistake of fact.
5. Effect of mistake of law: A contract is not voidable because it was caused by
a mistake as to any law in force in India. This is based on the maxim "ignorantia
juris non-excusat" which means "ignorance of law is not an excuse".
Therefore, though a mistake of fact vitiates the contract, mistake of law does not.
Mistake of foreign law - has the same effect as a mistake of fact i.e. a foreign
law would vitiate a contract as a mistake of fact does.
6. Mistake may be as to identify of a person or as to subject matter of contract.
(Case-Cundy Vs. Lindsay-See under consent)
Effects of mistake:
i) The agreement is void.
ii) Any person who has received any advantage under the agreement is bound to
restore it or to make compensation for it to the person from whom he received it.
(Sec.65)
iii) A person to whom money has been paid or anything delivered by mistake,
must repay or return it. (Sec.72).
Questions:
1. "Two or more persons are said to consent when they agree up on the same
thing in the same sense". Explain this statement and give illustrations.
2. Discuss the law relating to the effect of mistake on contracts.
3. What is misrepresentation? Distinguish it from fraud.
4. When is contract said to be induced by undue influence? When is a party
deemed to be in a position to dominate the will of another? What is the effect of
undue influence on a contract?
5. When is consent said to be from (i) Coercion and (ii) Undue influence.
6. Whether silence amounts to fraud?
Objective Type Questions:
A. State whether the following statements are True or False:
1. When there is no consent, there is no contract. True
2. If both the parties believe the subject-matter of a contract to be in existence,
which in fact is non-existent, the contract is void. True
3. A unilateral mistake is not allowed as a defence in avoiding a contract. True
4. Misrepresentation it is a false statement which the person making honestly
believes it be true. True
5. A representation is true when it is made but to the knowledge of the party
making it. becomes untrue before the contract is entered into. If it is not corrected,
the other party can correct it. True
6. A contract induced by fraud is voidable at the option of either party to the
contract. False

7. Mere silence as to facts to affect the willingness of a person to enter into a

contract is not fraud. True
8. There is a presumption of undue influence in the relationship of husband and
wife. False
9. A threat amounting to coercion necessarily proceed from a party to the
contract. False
10. A threat to commit suicide amounts to coercion. True

B. Attempt the following problems, giving reasons:

1. A advances money to his son B for his education during his minority. Upon
B's coming of age A obtains by misuse of parental influence, a bond from B for
a greater amount than the sum due in respect of the advance Is B bound by the
bond?
Ans. No; The contract is voidable at the option of B as the contract is induced by
undue influence Sec. 16(2).
2. A tells his wife that he would commit suicide, if she did not transfer her
personal assets to him. She does so under this threat. Can the wife avoid the
contract?
Ans. Yes; She gave her consent under the threat of suicide.
3. P sold some land to S. At the time of sale both the parties believed in good
faith that the area of the land sold is 10 hectares. It however turned out that the
area is 7 hectares only. How is the contract of sale affected?
Ans. The agreement is void. Sec. 20 Mistake.
4. A threatens to shoot B if he does not let out his house to A. B lets his house to
A. Is the contract valid.
Ans. No; Consent is caused by coercion Sec. 15.
5. A, an old man, enfeebled by age and illness, B, his medical attendant, uses his
personal influence over him and induces him to pay an unreasonable fee for his
professional services Can A avoid the contract?
Ans. Yes; A's consent is caused by undue influence and therefore not a free
consent. A can avoid this contract Sec. 16(2).