A contract is an agreement between two or more persons creating rights & duties and which is enforceable by law. Section 10 of the Indian Contract Act lays down the essentials of a valid contract. Among which free consent of the parties is the primary requisite to constitute a valid contract. Lack of free consent will vitiate the contract completely.
Section 13 of the Act defines that two or more person are said to consent when they agree upon the same thing in the same sense i.e., there should be consensus ad idem. Consent needs to be free in order to constitute a valid contract. Section 14 of the Act defines ‘free consent’ and states
Consent is said to be free when it is not caused by –
- Undue influence
If any of the above-mentioned factors vitiating a contract exist, then consent cannot be said to be free and will render the contract voidable at the instance of the party whose consent was so caused.
FACTORS VITIATING FREE CONSENT
In layman language ‘Coercion’ is nothing but the action or practice of persuading someone to do something by using force or threats.
Section 15 of the Act defines ‘coercion’.
The following are the essential ingredients of coercion:
- 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: or
- With the intention of causing any person to enter into an agreement
Effect of coercion
Coercion vitiates Free Consent. The party or parties whose consent is taken under Coercion gets a right to avoid the contract if he so likes. However, if the aggrieved party has received any benefit under the contract which he is avoiding on the basis of Coercion, he has to return that benefit to the other party or parties.
Burden of proof
A Mere allegation that the consent was taken under coercion would not suffice and the aggrieved party must bring material to prove that Coercion was exercised upon him and his consent received is not voluntary.
Few landmark judgements on the question of coercion are
In Chikkam Amiraju v. Chikkam Seeshamma1, it was held that the threat of suicide amounts to coercion under Section 15 and the release deed was hence voidable. Wallis, C.J, and Seshhagiri Ayyar J. held the threat of suicide amounted to Coercion. The learned judged observed, “it was impossible to hold that an act which it is made punishable to abet or attempt is not forbidden by the Indian Penal Code, especially as the absence of any section punishing the act itself is due to the fact that the suicide is in the nature of things beyond the jurisdiction of the Court.” Hence, the threat by the husband amounted to coercion and the appeal by the younger brothers of the husband was, thus dismissed.
In Ambica Construction v. Union of India2, it was held that issuance of ‘no-claim’ certificate, while the work was already pending, is indicative of coercion since the said certificate should be issued after the works are finally measured up.
Distinction between Duress at English Law and Coercion at Indian Law
The scope of the term coercion is far wider than the term ‘duress’ under the English law. Following are the distinguishing features:
- Coercion can be aimed at a stranger to contract also while duress is applied to the party to the contract only.
- Coercion includes unlawful detention of both property as well as the person while duress includes threat to life or any other harm on the person only.
- In duress, threat to violence is a must while in coercion immediate violence is necessary.
- UNDUE INFLUENCE
Influence means the capacity to have an effect on the character, development, or behaviour of someone or something and undue influence is the act by which a person is induced to act otherwise than by their own free will or without adequate attention to the consequences. Any undue influence to gain consent will vitiate the free consent of parties. Such consent will make the contract voidable at the option of the party whose consent was so obtained.
Section 16(1) lays down the following essential elements of undue influence:
- The relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other.
- He uses that position to obtain an unfair advantage over the other.
Thus, to establish undue influence in any agreement, the aggrieved party will have to prove that the other party has used its dominant position and exercised undue influence thereby vitiating free consent of parties.
The three stages for consideration of a case of undue influence were expounded in the case of Raghunath Prasad v. Sarju Prasad 3, in the following words:
“In the first place the relations between the parties to each other must be such that one is in a position to dominate the will of the other. Once that position is substantiated the second stage has been reached – namely, the issue whether the contract has been induced by undue influence. Upon the determination of this issue a third point emerges, which is that of the onus probandi. If the transaction appears to be unconscionable, then the burden of proving that the contract was not induced by undue influence is to lie upon the person who was in a position to dominate the will of the other.
Error is almost sure to arise if the order of these propositions be changed. The unconscionableness of the bargain is not the first thing to be considered. The first thing to be considered is the relations of these parties. Were they such as to put one in a position to dominate the will of the other?”
Section 16(2) provides that a person is deemed to be in a position to dominate the will of another:
- Where he holds a real or apparent authority over the other. For e.g. the authority of relationship between a Judge and an accused, between a Guru and Devotee.
- Where he stands in a fiduciary relation to the other.
All those relations which are based on trust and confidence are called ‘fiduciary relations’ for e.g. relation between a doctor and his patient, between husband and wife etc.
- 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. For e.g. an infant or a minor.
Burden of proof - One who alleges undue influence should prove that:
- The other party was in a dominating position
- And that he used that influence to obtain an undue advantage over the first party
Section 16(3) provides that where a person who is in a position to dominate the will of another enters into contract with him, and the transaction appears on the face of it to be unconscionable, the burden of proving that undue influence was not induced on weaker party will be on the person who is in a dominant position.
In Wajid Khan v. Raja Ewaz Ali Khan4, where the old and illiterate woman conferred a great monetary benefit into her manager without any valuable consideration, it was held by the Privy Council that, undue influence was exercised. The onus was on the manager to prove the bonafide of the transaction and that no undue influence was used to him.
Contracts with Pardanashin Woman –
In Annapurna Barik Dei v Smt. Inda Bewa5, it was held that when a person enters into a contract with a pardanashin or illiterate lady, the burden of proof is upon such person to prove that their terms of the contract were unconscionable and that she was capable of rendering an independent opinion after having understood the document.
Effect of undue influence
Section 19A of the Act renders such contracts voidable and can be rescinded by that party whose consent had been vitiated by undue influence.
The court can set aside such contract-
(i) Either absolutely, or
(ii) Where the weaker party has enjoyed some benefit under the terms of the contract, then upon just and equitable terms as the court may deem fit.
For example - A, a money-lender, advances Rs. 100 to B, an agriculturist, and by undue influence induces B to execute a bond for Rs. 200 with interest at 6 percent per month. The Court may set the bond aside, ordering B to repay Rs. 100 with such interest as may seem just)
Misrepresentation means misstatement of facts or facts that are material to the contract by which one man misleads another to his injury and consequently vitiating free consent of parties.
Section 18 of the Act defines ‘Misrepresentation’.
Following are the essential elements of misrepresentation –
- Making of unwarranted statements which are not true although the person making it believes it to be true.
- There is a breach of duty whereby the person making a false statement gains some advantage at the cost of the other party.
- Causing a party of an agreement to make a mistake as to the substance of the thing which is the subject matter of the agreement.
Effect of misrepresentation
If consent was caused by misrepresentation or by silence, where the truth cannot be discovered with ordinary diligence, the party will be guilty of misrepresentation but if the party whose consent was so caused had the means of discovering the truth with ordinary diligence the contract will not be voidable at the option of either party.
Balraj Chibber v. New Okhla Industrial Development Authority6, it was held that if the party had the means of discovering the truth with the ordinary diligence, the party cannot complain of misrepresentation.
Fraud is an act or course of deception, an intentional concealment, omission, or perversion of truth, to gain an unlawful or unfair advantage, inducing another to part with some valuable item or surrender a legal right, or inflict injury in some manner. A false statement of facts made knowingly is called fraud and vitiates the contract and such a contract is voidable at the option of the aggrieved party.
Unintentional or innocent misrepresentation is not fraud when the person making the representation believes it to be true. Thus, where a false statement is made intentionally, with the knowledge that it is false, with a view to deceive the other party and thereby inducing him into entering the contract it is known as fraud.
Section 17 of the Act defines ‘Fraud’.
Fraud means and includes any of the following acts committed by a party to contract with intent to deceive another party or to induce him to enter into the contract:-
(1) The suggestion, as to fact, of that which is not true, by one who does not to 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 commission as the law specially declares to be fraudulent.
In S.P. Changalveraya Naidu v. Jagannath7,
In the words of the Hon’ble Supreme Court, “A fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another's loss. It is a cheating intended to get an advantage.”
Mere silence does not amount to Fraud
As per Explanation to Section 17, mere silence does not amount to fraud even if such concealment is likely to affect the willingness of a person to enter into a contract. But there are certain situations where keeping silence would amount to fraud:
- Duty to speak – There are certain contracts that are contracts of absolute good faith 1.e., uberrima fides. In such contracts, it is the duty of the person to disclose all the facts material to the contract. For example, the contracts of insurance.
- Deceptive silence – Sometimes, silence amounts to speech. A person, who keeps silence, knowing well that his silence is going to be deceptive, is guilty of fraud.
- Change of circumstances – Sometimes, a representation made is true when made but subsequently, due to a change in circumstances, becomes false. It is the duty of person making representation to communicate the change in circumstances to another party.
Free consent of parties is absolutely essential to make an agreement a valid contract. It is the prime requisite of a valid contract that consent of the parties is free and voluntary. Consent to the contract has to be given without any kind of pressure or delusions. There should be no influence from a party in a dominant position to gain an unfair advantage from the weaker party. All the facts to the contract known to the person should be disclosed to other party without any intent to deceive or gain any unlawful or unfair advantage. If the consent of the party was obtained or induced by coercion, undue influence, misrepresentation or fraud, such a contract is voidable at the option of the aggrieved party and would render the contract null and void.
 1918 Mad p. 414
 (2006) 13 SCC 475
 1924 PC 60
 (1891) L.R. 18 IA 144
 1995 Orissa 273
 1994 SC 853
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