CONTRACT Study Notes: Free Consent

In English law free consent is known as “Consensus ad idem” it means, meetings of mind
Section 13: Two or more persons are said to consent when they agree upon the same thing in the
same sense.

One of the essentials of a valid contract mentioned in section 10 is that the parties should enter into
the contract with their free consent.
According to section 14: Consent is said to be free when it is free from or in other words when it is
not caused by any one or all of the following:-
● Coercion
● Under Influence
● Fraud
● Misrepresentation
● Mistake

Coercion:
Coercion is said to the when the consent of the person has been caused either by committing or
threatening to commit any act for hidden by law.

Example: A threatens to shoot B if B does not agree to sell his property to ‘A’ at a stated price. B’s
consent, in this case, has been obtained by coercion.
Case Law: Ranganaya Kamma V. Alwar

A widow was forced to adopt a boy before cremation of her husband. The relatives did not allow the
cremation until the widow agreed to adopt the child. The high court held such adoption is not valid as
the consent was attained by coercion.

Effect of Coercion:
A Contract brought about by coercion is voidable at the option of the party whose consent was
obtained by coercion.
Note: Threat To Commit Suicide Amount Coercion.
Case law: Chikkam Amiraju V. Chikkam Seshamma
The Madras High Court answered the question in the affirmative, holding that a threat to commit
suicide does amount to coercion. In that case, a person, by a threat to commit suicide, induced his
wife and son to execute a release deed in favour of his brother in respect of certain properties, which
they claimed as their own. The transaction was set aside on the grounds of coercion.
Undue Influence
A contract is said to be induced by undue influence where the relation subsisting between the parties
are such that one of the parties is in a position to dominate the will of the other. He uses the position
to obtain the unfair advantage on other.
Section 16(2) - 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, e.g., the relationship between master
and the servant, police officer and the accused; etc.
(b) Where he stands in a fiduciary relation to the other. Fiduciary relation means a relationship of
mutual trust and confidence. Such a relationship is deemed to exist in the following cases: father and
son, guardian and ward, solicitor and client, doctor and patient, Guru (spiritual adviser) and disciple,
trustee and beneficiary, etc.; 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, e.g., old illiterate persons. In all these
above-mentioned situations, a law would presume that the contract has been procured by undue
influence and burden of rebutting the same will fall on the other party.
Case Law: Mannu Singh Vs Umadatt Pandey
A spiritual advisor told his disciple that if the latter gives away all his properties to the Guru, he would
attain “Mukti”. The disciple, accordingly made out a release deed. Later, he sought to set it aside and
the Court held that the contract was affected by undue influence. Effect of Undue Influence: When
consent to an agreement is caused by undue influence, the agreement is a contract voidable at the
option of the aggrieved party.

Fraud
Fraud is defined as an act of a party to deceiving the other.
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 or his agent, or to induce
him to enter into the contract. Fraud includes any of the following acts:

1.The suggestion, so to a fact, of that which is not true by one who does not believe it to be true.
Example: P sells to Q a chain representing it to be a gold chain, while it is actually not. It amounts to
fraud.

2. The active concealment of a fact by one having knowledge or belief of the fact.
Example: X, a furniture dealer, conceals the crack in the furniture and sells it to Y. This would amount
to fraud through active concealment.

3.A promise made without any intention of performing it.

Example: A man purchased some goods on credit knowing fully well that he will not be able to pay
for it.
4.Any other act was done to conceal.
Example: It covers those acts which are meant to deceive but are not covered under the
above-mentioned clauses

5.Any such act or omission as the law specially declares to be fraudulent.

Example: Under the Transfer of Property Act, if a seller fails to reveal to the buyer any material
defect of which he is aware, it amounts to fraud.

Misrepresentation
According to Anson “Misrepresentation is a false statement which the person making it honestly
believes it to be true, which he does not know to the false, it will include won non-disclosure of facts
without any intention to deceive any party”.
A representation when wrongly made, though innocently is termed as misrepresentation.
Example: A sells a camera to B, genuinely believing it to be of China make. However, it turns out to
be of Nepal make. The buyer gets the right to cancel the contract, as B’s consent has been affected
by misrepresentation.
Note: In the above example, had An intentionally made the statement, it would have turned out to be
a case of fraud.

Fraud & Misrepresentation - A Comparison

In both cases, the representation made is untrue. However, in the case of fraud, the intention to
cheat is willful, whereas, in the case of misrepresentation, the wrong statement is made innocently
without any willful intention. In both cases, the contract becomes voidable and the aggrieved party
may set it aside. However, in the case of fraud, which is also a civil wrong the aggrieved party may
file a suit for damages, in addition to rescinding the contract.
Can silence amount to Fraud?

Generally, silence as to facts is not fraud. However, where there is a duty to speak and the person
keeps silence, it is fraud.
Following are cases where silence is fraudulent: Contracts “Uberrimae fidei” [Contracts requiring
utmost good faith] these are contracts where one party has peculiar means of knowledge, which is
not accessible to the other.
Example:
i. Contract of insurance
ii.Contract of marriage engagement
iii. Share allotment contracts
iv. Contract of family settlement.

Case Law: Peek Vs Gurney

 The prospectus of a company did not refer to the existence of a document disclosing liabilities. This
gave the impression that the company was prosperous. If the existence of the liability had been
disclosed, the impression would have been quite different. Held, non-disclosure amounted to fraud
and anyone who purchased shares on the faith of the prospectus could avoid the contract.
It may be defined as a wrong belief about something.

Mistake
The following classification will be useful in understanding how it is dealt with under Contract Act.
(i) Mistake of Law: “Ignorance of the law is no excuse” is the maxim, which applies in this context.
Thus, if a party makes a mistake of law and wants to avoid the contract on this ground, it is not
viable and no relief can be granted.
(ii) The mistake of Foreign Law: This stands on the same footing as that of mistake of fact. Hence,
mistake of foreign law makes the agreement void.
(iii) Unilateral Mistake: When only one party to a contract, makes a mistake, regarding facts related
to the contract, it is termed unilateral mistake.
Example: Akash signs a sale deed for a sum of Rs.8000/-. Later on, he cannot avoid the sale by
stating that he had signed the deed thinking that the sale consideration was for Rs. 10000/-. This is a
unilateral mistake and the effect of such a mistake shall not render a contract void or voidable. The
contract is valid.

NOTE: Thus, when only one party to the contract makes a mistake, the contract is valid. However,
under certain circumstances, a unilateral mistake shall render a contract void or voidable.
Thus, the effect of a unilateral mistake can be summed up as

Exception No. 1 Circumstance under which unilateral mistake renders a contract voidable: When a
party to the contract obtains the consent of the other party, by fraudulent means.
Example: Satish sells a house to Ramesh, representing that it is in good condition, and free from
defects. Actually, the building had developed quite a few cracks, which were cleverly concealed by
Satish by sealing and painting them. In this case, if Ramesh buys the house, believing that the
building is in good condition, he can later on the set aside the contract, if he learns the truth at a later
date.

Exception No. 2 Circumstances under which a unilateral mistake makes a Contract Void:
(a) Mistake as to Nature of Transaction: When there is a mistake, touching the very root or nature of
the Contract, it is said to be a mistake with regard to nature of the Contract.
Case Law: A v. B:
A blind man was induced to sign a bill of exchange. It was represented to him that it was only a
guarantee. Held, the blind man was not liable on the bill of exchange. The court observed that the
document was void, as his mind did not accompany his signature.
(b) Mistake as to the Identity of Party Contracted with: When one party, let us say A, makes an
agreement with C, thinking him to be B, this agreement is not valid because there is a mistake with
regard to the identity of persons. To understand this point, a study of the following case laws will be
very useful.

Case Law: Cundy v. Lindsay:

One Belkaran imitating the signature of Belkiran induced Lindsay to supply goods to him. Belkaran.
sold the goods to Cundy, who paid for them. Lindsay sued Cundy for the recovery of the goods. The
court held Lindsay could recover the goods from Cundy. This was not the mere case of fraud. This
was a case of the mistake as to the identity of party contracted with. The court observed as follows
“of him, he never thought”. “About him, he never knew”. “With him, he never intended to deal”. So,
there was no contract, in the first, place between Lindsay and Belkaran. In the absence of a contract,
Belkaran. could not have passed any title to Cundy. With the result, the Court held that Lindsay could
recover the goods from Cundy.

Case Law: Philips v. Brookes:

A man called North entered a jeweller’s shop and selected some jewels. When he took out his
chequebook, the shopkeeper asked him to identify himself. North identified himself as Sir George
Bullough. North signed the cheque as Sir George Bullough. North pledged the jewels with a
pawnbroker. The cheque was dishonoured. The shopkeeper sought to recover the jewels from the
pawnbroker. Held, the shopkeeper could not recover. The shopkeeper did not make any mistake as
to the identity of the party contracted with him. He only entered the contract with the person who
appeared before him.
Note: This is a case of fraud and no mistake as to the identity of person contracted with.

Bilateral Mistake:
When both parties to a contract are under a mistake of fact, essential to the contract, the contract is
rendered void. An agreement is a void where there is a bilateral mistake as to the subject matter.
Example: Sohan agrees to buy from Rohan a cow. It turns out that the cow was dead at the time of
the bargain, though neither party was aware of the fact. The agreement is void. This is the situation,
where both the parties have made a mistake pertaining to the existence of the subject matter of the
contract. Similar mistakes can be made with respect to
(a) Mistake as to quantity of subject matter
Case Law: Henkel v. Pope:
A customer enquired the prices of rifles and said he might need about 50 numbers. Later he sent a
telegram with the words “send three rifles”. But the telegraph clerk transmitted the message as “send
the rifles”. The seller, recalling the earlier remark of the buyer, sent 50 rifles. The buyer accepted
three of them and returned the remaining ones. The seller filed a suit against the buyer to recover
the prices of remaining rifles. Held that there was the bilateral mistake, hence the contract relating to
47 rifles was declared void.

(b) Mistake as to quality of subject matter

Example: X agrees to buy a particular horse from Y. Both believe it is a racehorse, but it turns out to
be a cart horse. The agreement is void because there is a bilateral mistake as to the quality of the
subject matter.
(c) Mistake as to Title
Under very rare circumstances a person agrees to purchase some goods which unknown to him and
the seller is his own already. This agreement is void ab-initio.
Example: An agreed to take a lease of the fishery from B, though contrary to the belief of both
parties at the time A was the tenant for life by inheritance of the fishery and B had no title at all. It
was held that the lease agreement was void.

(d) Mistake as regards to identity of the subject matter

Where both parties are working under a mistake as to the identity of the subject matter i.e. one party
had one thing in mind and the other party had another, the agreement is void for lack of identity of
minds of both parties.

PRACTICE EXERCISE
1. Sec. 13 of The Indian Contracts Act deals with
A. Valid contract
B. Capacity to contract
C. Consent
D. Acceptance
Ans: C

2. What is the meaning of consensus ad idem

A. Meeting of the mind
B. Persons of unsound mind
C. Persons disqualified by law
D. None of the above
Ans: A

3. Free consent is_____ element for contract

A. Essential
B. Discretional
C. Exceptional
D. None of the above
Ans: A

4. Free consent has been defined under which Sec.

A. 16
B. 18
C. 21
D. 14
Ans: D

5. Consent is free under section 14 if not caused by

A. Coercion & undue influence
B. Fraud and misrepresentation
C. Mistake
D. All the above.
Ans: D

6. Consent under section 13 means

A. Agreeing on the same thing in the same sense
B. Agreeing on the same thing at the same time
C. Agreeing on the same thing at different time
D. Agreeing on different things at different times
Ans: A

7. The 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
intention of causing any person to enter into an agreement is called
A. Free consent
B. Coercion
C. Both (a) and (b)
D. None of the above
Ans: B

8. Coercion has been defined under which Sec.

A. 13
B. 14
C. 15
D. 16
Ans: C

9. Does threat to suicide fall under coercion?

A. No
B. Yes
C. Maybe
D. None of the above
Ans: B

10. Consent obtained through coercion is?

A. Void
B. Voidable
C. Valid
D. None of the above
Ans: B

11. If one party is in a position to influence the other and he uses this position to do so. It is known as
A. Fraud
B. Misrepresentation
C. Undue influence
D. Mistake
Ans: C

12. Undue influence has been defined under which Sec. of The Indian Contract Act
A. 13
B. 14
C. 15
D. 16
Ans: D

13. A person is deemed to be in a position to dominate the will of another if

A. he holds a real or apparent authority over the other
B. he stands in a fiduciary relation to the other
C. 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
D. All of the above
Ans: D

14. A spiritual advisor told his disciple that if the latter gives away all his properties to the Guru, he
would attain “Mukti”. This falls under Undue influence.
A. No
B. Yes
C. Maybe
D. None of the above
Ans: B

15. Consent obtained through undue influence is?

A. Void
B. Voidable
C. Valid
D. None of the above
Ans: B