Free Consent in Contract Law

Principle: Coercion is the committing, or threatening to commit, any act forbidden by the penal law, with the intention of causing any person to enter into an agreement. An agreement to which consent was caused by coercion is voidable at the option of the party whose consent was so caused. Facts: Karan tells Lalit that he will have Lalit's son killed unless Lalit sells him his farmland at a fraction of its value. Frightened, Lalit signs the sale agreement.

What is the legal position of the sale agreement?

Answer: C. It is voidable at Lalit's option, because his consent was obtained by coercion.

A threat to kill is a threat of an act forbidden by the penal law, made to bring about the agreement: coercion as defined in Section 15 of the Indian Contract Act. Under Section 19 the agreement is voidable at the option of the party coerced, not of the wrongdoer. The threat need not be directed at the contracting party himself.

Principle: A contract is induced by undue influence where the relations between the parties are such that one of them is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Such a contract is voidable at the option of the party whose consent was so obtained. Facts: An elderly devotee has for years relied wholly on his spiritual guru for guidance in every matter. The guru tells him that he will secure benefits for his soul in the next world if he gifts his entire property to the guru. The devotee executes a deed of gift of all he owns.

Can the gift be set aside?

Answer: D. Yes, because the guru was in a position to dominate the devotee's will and used it to obtain an unfair advantage.

The facts follow Mannu Singh v Umadat Pande (1890), where a gift by a disciple to his guru was set aside. Undue influence under Section 16 needs no threat; it is the abuse of a position of dominance. The transaction is voidable, not void, and not every gift to a spiritual adviser is affected, only one obtained by abuse of the relationship.

Principle: Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances are such that it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech. Facts: Mohan sells a horse to Naresh by auction. Mohan knows that the horse is unsound. He says nothing to Naresh about the horse's condition, and Naresh asks him nothing. There is no special relationship between them.

Has Mohan committed fraud?

Answer: D. No, because mere silence is not fraud where there is no duty to speak and the silence is not equivalent to speech.

This is illustration (a) to Section 17 of the Indian Contract Act. Mohan said nothing, was asked nothing and was under no duty to speak, so under the principle his silence is not fraud. The answer would change if he had actively concealed the defect or if the parties stood in a relationship that required disclosure.

Principle: Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances are such that it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech. Facts: Naresh is about to buy a horse from Mohan. He says to Mohan: 'If you do not deny it, I shall assume that the horse is sound.' Mohan, who knows the horse is unsound, says nothing. Naresh buys the horse.

Has Mohan committed fraud?

Answer: A. Yes, because in these circumstances Mohan's silence was equivalent to a statement that the horse was sound.

This is illustration (c) to Section 17. Naresh made it plain that he would treat silence as an assurance, so Mohan's silence spoke for him. The general rule that silence is not fraud remains; this case falls within its second exception.

Principle: A false statement made by a person who honestly believes it to be true is misrepresentation. A false statement made by a person who knows it to be false, or does not believe it to be true, with intent to deceive, is fraud. In either case the contract is voidable at the option of the party misled. Facts: Omar sells his car to Priya, telling her it has run 20,000 km. He believes this because the odometer shows that figure. Unknown to Omar, a previous owner had tampered with the odometer, and the car has in fact run 60,000 km. Priya bought the car relying on Omar's statement.

What is the legal position?

Answer: B. Omar's statement is a misrepresentation, and the contract is voidable at Priya's option.

The statement was false but honestly believed, which under the principle is misrepresentation and not fraud; falsity alone does not make a statement fraudulent. The contract is nonetheless voidable at the option of the party misled, so Omar's honesty does not bind Priya to it. Neither party was mistaken about the price.

Principle: 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. Facts: Qasim agrees to sell to Rohit a specific cargo of goods which both believe to be on its way by ship from England to Mumbai. Unknown to either of them, the ship carrying the cargo had been wrecked and the goods lost on the day before the bargain was made.

What is the legal position of the agreement?

Answer: C. It is void, because both parties were mistaken about the existence of the goods, a fact essential to the agreement.

This is illustration (a) to Section 20 of the Indian Contract Act. The existence of the goods was essential to the agreement and both parties were mistaken about it, so the agreement is void. Qasim did not mislead Rohit; he was as mistaken as Rohit was.

Principle: 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. Facts: Sana sees an old painting in a shop and, believing it to be the work of a famous artist, buys it for Rs 50,000. The shopkeeper said nothing about who painted it and did not know what Sana believed. The painting turns out to be by an unknown painter and worth Rs 5,000. Sana seeks to cancel the purchase.

Can Sana avoid the contract?

Answer: C. No, because the mistake was hers alone and the shopkeeper did nothing to cause it.

Under the principle, which is Section 22 of the Indian Contract Act, a mistake of fact by one party alone does not make the contract voidable. The shopkeeper made no representation, so there is no fraud or misrepresentation, and the agreement is not void under Section 20 because the mistake was not shared.

Principle: A contract is not voidable because it was caused by a mistake as to any law in force in India. Facts: Tarun owes Uma a sum of money. Both wrongly believe that the debt has become barred by the Indian law of limitation, and on that footing they enter into a fresh arrangement under which Uma accepts a much smaller sum in full settlement. Uma later learns that the debt was not time-barred and seeks to have the settlement set aside on the ground of mistake.

Can Uma avoid the settlement on the ground of mistake?

Answer: C. No, because the mistake was about a law in force in India, which does not make a contract voidable.

This is the illustration to Section 21 of the Indian Contract Act: a contract made on the erroneous belief that a debt is barred by the Indian law of limitation is not voidable. Section 20 applies to a common mistake of fact, not of Indian law.

Principle: Coercion is the committing, or threatening to commit, any act forbidden by the penal law, with the intention of causing any person to enter into an agreement. A threat to commit suicide has been held to amount to coercion. An agreement to which consent was caused by coercion is voidable at the option of the party whose consent was so caused. Facts: Vikram tells his wife and son that he will kill himself unless they sign a deed releasing their share in certain property in favour of his brother. They sign the deed.

What is the legal position of the release deed?

Answer: A. It is voidable at the option of the wife and son, because their consent was obtained by coercion.

The facts follow Chikham Amiraju v Chikham Seshamma (1917), in which the Madras High Court held that a threat of suicide amounted to coercion and the release deed was voidable. The principle states that holding, and the option to avoid belongs to those whose consent was coerced.

Principle: A contract is voidable at the option of a party whose consent was caused by misrepresentation. A misrepresentation which did not cause the consent of the party to whom it was made does not render the contract voidable. Facts: Wasim, wishing to sell his factory, tells Yash that it produces 500 tonnes a year. Before agreeing to buy, Yash examines the factory's accounts, which show plainly that it produces only 400 tonnes a year. Having seen this, Yash buys the factory. He later seeks to avoid the contract because of Wasim's statement.

Can Yash avoid the contract?

Answer: D. No, because he knew the true output before he bought, so the misrepresentation did not cause his consent.

This follows illustration (b) to Section 19 of the Indian Contract Act. Yash learned the truth from the accounts and went ahead, so the false statement did not induce the purchase. A misrepresentation must cause the consent before the contract becomes voidable.