Mutual free consent is an essential element of an agreement. Unless consensus and ad idem between parties is established, no enforceable contract takes place. There cannot be any agreement unless both the parties it to agree to it. If there is no consent, agreement will be void ab initio for want of consent.
Section 13: Which defines consent provides that. "Two or more persons are said to consent when they agree upon the same thing in the same sense."
One of the essential 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 not caused by-
(1) Coercion, as defined in section 15, or
(2) Undue influence, as defined in section 16, or
(3) Fraud, as defined in section 17, or
(4) Misrepresentation as defined in section 18, or
(5) Mistake, Subject to the provisions of sections 20, 21 and 22.
Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud misrepresentation or mistake."
Section 2(i): "An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract."
Section 2(g): "Where consent is caused by mistake, the agreement is void. A void agreement is not enforceable at the option of either party."
Explanation.-It is immaterial whether the Indian Penal Code (45 of 1860) is or is not in force in the place where the coercion is employed."
Illustrations
A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code (45 of 1860).
A afterwards sues B for breach of contract at Calcutta.
A has employed coercion, although his act is not an offence by the law of England, and although section 506 of the Indian Penal Code (45 of 1860) was not in force at the time when or place where the act was done.
(i) committing or threatening to commit any act forbidden by the Indian Penal Code, or
(ii) the unlawful detaining or threatening to detain any property to the prejudice of any person whatever,
(iii) with the intention of causing any person to enter into an agreement.
It has been noted that if a person commits or threatens to commit an act forbidden by the Indian Penal Code with a view to obtaining the consent of the other person to an agreement, the consent in such a case is deemed to have been obtained by coercion. For A threatens to shoot B if B does not agree to sell his property to A at the stated price, B's consent in this case has been obtained by coercion.
Ranganayakamna v. Alwar Setti, ILR (1889) 13 Mad 214: On the death of her husband, the husband's dead body was not allowed to be removed from her house for cremation, by the relatives of the adopted boy until she adopted the boy.
It was held that the adoption was not binding on the widow as her consent had been obtained by coercion.
Askari Mirza v. Bibi Jai Kishai, (1912) 16 IC 344: Consent obtained at the point of pistol, or by threatening to cause hurt, or by intimidation or by threatening to burn a man's house or slashing his valuable pictures.
Chickam Ammiraju v. Chickam Seshmma, ILR (1918) 41 Mad 33: A, a Hindu, by a threat of suicide, induced his wife and son to execute a release deed in favour of A's brother in respect of a certain properties claimed as their own by the wife and the son.
It was held that a threat to commit suicide amounted to coercion within the meaning of section 15 of Indian Contract Act and therefore the release deed was voidable.
According to section 15, coercion could also be caused by 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.
Workmen of Appin Tea Estate v. Industrial Tribunal, AIR 1966 Assam 115: The demand of the workers for bonus was accepted after a threat of strike. The question which had arisen was whether such a decision between the union of the workers and the Indian Tea Association could be declared void on the ground that there was coercion.
(1) 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 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 be upon the person in a position to dominate the Will of the other.
Nothing in the sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of 1872).
Illustrations
(a) A having advanced money to his son, B, during his minority, upon B's coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence.
(b) A, a man enfeebled by disease or age, is induced by B's influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services, B employes undue influence.
(c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.
(d) A applies to a banker for a loan at a time when there is a stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is transaction in the ordinary course of business, and the contract is not induced by undue influence.
Mannu Singh v. Umadat Pandey, (1890) ILR 12 All 523: A spiritual advisor induced the plaintiff, his devotes to gift to him the whole of his property to secure benefits to his soul in the next world. The plaintiff gave whole of the property to the advisor.
The consent is obtained by undue influence. The court said: would any reasonable man in the full possession of his essence and not under unusual influence of some kind or the other do such a thing.
Lakshmi Amma v. T. Narayan, MANU/SC/0355/1970 : AIR 1970 SC 1367: A person was suffering from a number of ailments which confined him to a nursing home. There he made a deed gifting all his properties to one of his sons to the exclusion of others.
The gift deed was caused by undue influence voidable.
Subhash Chandra Das v. Ganga Prasad, MANU/SC/0069/1966 : AIR 1967 SC 878: Some agricultural property was gifted by a person to his only grandson to the total exclusion of his sons. Although, the donor was of great age, he was taking active interest in his property. Four years after the gift he died and still 4 years after that the other sons questioned the validity of the gift on the ground of undue influence.
The gift deed was valid.
Wajid Khan v. Raja Ewaz Ali Khan, 1891 LR 18 Ind App 144: An old and illiterate woman, incapable of any business conferred on her confidential managing agent, without any valuable consideration an important pecuniary benefit under the guise of a trust.
All the facts show that there was active undue influence. The onus is on the grantee to show conclusively that the transaction is honest, bona fide well understood, the subject independence advice and free from undue influence.
Sheikh Ismail v. Amir Bibi, (1902) 4 Bom LR 146: It was found that a lady appeared because the Registrar for Registration of certain documents, that she stood as a witness in the box in a suit, that she put in tenants and fixed and recovered rents from them in respect of her house.
Section 19A: Power to set aside contract induced by undue influence.-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.
Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the court may seem first.
Illustrations
(a) A's son has forget B's name to a promissory note. B under threat of prosecuting A's son, obtains a bond from A for the amount of the forged note. If B sues on this bond, the court may set the bond aside.
(b) 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 per cent. per month. The court may set the bond aside, ordering B to repay the Rs. 100 with such interest as may seem just.
(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.
Illustrations
(a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A.
(b) B is A's daughter and has just come of age. Here the relation between the parties would make it A's duty to tell B if the horse is of unsound mind.
(c) 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.
(d) A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B.
State of Andhra Pradesh v. T. Suryachandra Rao, MANU/SC/0431/2005 : AIR 2005 SC 3110: By fraud is meant an intention to deceive whether it is from any expectation of advantage to the party himself or from the ill-will towards the other is immaterial. The fraud involves two elements deceit and injury to the person deceived.
Injury is something other than economic loss, that is deprivation of property, whether immovable or movable or of money and it will include any harm whatever caused to any person in body, mind, reputation or such others.
Derry v. Peek, (1889) 14 AC 337: Lord Herschell said fraud is proved when it is shown that a false representation has been made-
(i) knowingly,
(ii) without belief in its truth,
(iii) recklessly careless whether it be true or false.
Bhaurao Dagdu Paralkar v. State of Maharastra, MANU/SC/0495/2005 : AIR 2005 SC 3330: The court expressed that court is an act of deliberate deception with the design of running something by taking unfair advantage of another. It is a deception in order to gain by another's loss.
In order to constitute fraud, it is necessary that there should be a statement of fact which is not true. Mere expression of opinion is not enough to constitute fraud.
Derry v. Peek, (1889) 14 AC 337: A company's prospectus contained a representation that the company had been authorized to run trams by steam or mechanical power. The authority to use steam was subject to the approval of the Board of Trade but no mention was made of this. The Board refused consent and consequently the company was wound-up. The plaintiff having bought some shares, sued the directors for fraud.
The directors were not held guilty of fraud as they honestly believed that once the Parliament had authorised the use of steam, the consent of the Board will be given in normal course.
When there is an active concealment of a fact by one having knowledge or belief of the fact, that can also be considered to be equivalent to a statement of fact and amount to fraud.
Shri Krishan v. Kurukshetra University, MANU/SC/0061/1975 : AIR 1976 SC 376: The petitioner was the student of law 1st year. His attendance was short. He did not mention that fact in the admission form. Neither the Head of Department nor the university authority made proper scrutiny to discover the truth. The university authorities cancelled the candidature of the petitioner on the ground of fraud.
A mere silence is no fraud. Therefore, cancellation on the ground of fraud was not sustainable.
Kiran Bala v. B.P. Srivastava, 1985: When there is no duty to speak, mere silence will be no fraud even if it amounts to misrepresentation.
With v. O'Flanagan, (1936) Ch 575: A medical practitioner represented to the plaintiff that his practice was worth œ 2000 a year. The representation was true. But 5 months later when the plaintiff actually bought the practice, it had considerably gone down on account of her illness.
The doctor was required to be honest to his own profession. A professional and a trader are two different things. The doctor was under a duty to speak. Fraud was constituted there.
When the person makes a promise, there is deemed to be an undertaking by him to perform it, if there is no such intention when the contract is being made, it amounts to fraud.
Any Act which is fitted to deceive of this, it had been observed by Pollock and Mulla-The mention of "any other act fitted to deceive" appears to be inserted merely for the sake of the abundant caution.
This clause includes any such act or omission as the law specifically declares to be fraudulent. It also include section 55 of Transfer of Property
Act, 1882 declares certain kinds of omission on the part of the seller or the buyer as fraudulent.
(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 of the person committing it, or anyone 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.
Following are the essential elements-
(1) A positive assertion unwarranted, which is not true though the maker believes it to be true.
(2) A breach of duty which gains an advantage to the doer by misleading another to his prejudice to the other.
(3) Causing a party to an agreement to make a mistake as to the substance of the agreement.
Nursery Spinning and Weaving Co., 1880 Bom ***: The directors of a company while acting within their authority sold on the company's behalf a bill of exchange to a bank. The company denied liability on the bill.
Dambarudhar v. State of Orissa: The government auctioned certain forest coupes. A part of the land was occupied by tenants. The forest department knew this fact but did not disclose it to the purchaser.
The contract was vitiated by misrepresentation.
A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, 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.
Exception.-If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.
Explanation.-A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practised, or to whom such misrepresentation was made, does not render a contract voidable.
Illustrations
(a) A, intending to deceive B, falsely represents that five hundred maunds of indigo are made annually at A's factory, and thereby induces B to buy the factory. The contract is voidable at the option of B.
(b) A, by a misrepresentation, leads B erroneously to believe that five hundred maunds of indigo are made annually at A's factory. B examines the accounts of the factory, which show that only four hundred maunds of indigo have been made. After this B buys the factory. The contract is not voidable on account of A's misrepresentation.
(c) A fraudulently informs B that A's estate is free from incumbrance. B thereupon buys the estate. The estate is subject to a mortgage. B may either avoid the contract, or may insist on its being carried out and mortgage-debt redeemed.
(d) B, having discovered a vein of ore on the estate of A, adopts means to conceal, and does conceal the existence of the ore from A. Through A's ignorance B is enabled to buy the estate at an under-value. The contract is voidable at the option of A.
(e) A is entitled to succeed to an estate at the death of B; B dies: C, having received intelligence of B's death, prevents the intelligence reaching A, and thus induces A to sell him his interest in the estate. The sale is voidable at the option of A.
Sections 20, 21 and 22, of the Indian Contract Act deal with mistakes in the formation of the contracts. The rules of law dealing with effect of mistake on contract appear to be established with reasonable clarity. If mistake operates at all it operates so as to the negative or in some cases to nullify consent. The parties may be mistaken in the identity of the contracting parties or in the existence of the subject-matter of the contract at the date of the contract or in the quality of the subject-matter of a contract.
It is essential to the creation of a contract that both parties should agree to the same thing in the same sense. Thus if two persons enter into an apparent contract concerning a particular person or ship, and it turns out that each of them misled by a similarity of name, had a different person or ship in mind no contract would exist between them.
Explanation.-An 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.
Illustrations
(a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that before the day of the bargain the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of these facts, the agreement is void.
(b) 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.
(c) A, being entitled to an estate for the life of B agrees to sell it to C. B was dead at the time of agreement, but both parties were ignorant of the fact. The agreement is void.
Under section 20 of the Contract Act, a mistake of fact avoids the agreement when both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement. It is necessary that both the parties should be under a mistake.
Ganga Retreat & Towers Ltd. v. State of Rajasthan, MANU/SC/1072/2003 : (2003) 12 SCC 91: In case of common mistake both the contracting parties makes the same mistake. The minds of the contracting parties are ad idem and there is in fact no agreement at all.
Essentials
(1) Both the parties to an agreement are under a mistake.
(2) Their mistake should be as to matter of fact.
(3) Such a fact must be essential to the agreement.
Tarsem Singh v. Sukhminder Singh, MANU/SC/0158/1998 : (1998) 3 SCC 471: Where the defendant intended to sell the land in terms of Kanals, the plaintiff intended to purchase it in terms of 'bighas'. Bighas and Kanal are different units of measurement. Both, convey different impression regarding area of the land. It was held that the agreement is void under section 20.
(1) The identity of the parties
(2) The identity and nature of the subject-matter of contract,
(3) The nature and content of the promise itself.
Ayekam Angahal Singh v. Union of India, AIR 1970 Manipur 16: There was an auction for the sale of fishery rights and the plaintiff was the highest bidder making a bid of Rs. 40,000. The fishery rights had been auctioned for 3 years. The rent was Rs. 40,000 per year. The plaintiff sought to avoid the contract on the ground that he was working under a mistake and he thought that he had made a bid of Rs. 40,000 being the rent for all the three years. It was held that since the mistake was unilateral, the contract was not affected thereby and the same could not be avoided.
Section 65: When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the other person from whom he received it.
Section 72: A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.
Illustration.-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 21 of the Contract Act, which lays down that a contract cannot be avoided even if it was caused by a mistake of law gives statutory recognition to this doctrine. A mistake as to a law not in force in India has the same effect as to mistake of fact.
Therefore, it will have followings-
(i) a agreement under bilateral mistake of law shall be void,
(ii) a unilateral mistake of law shall not be voidable.
Section 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.
Dularia Devi v. Janardan Singh, MANU/SC/0219/1990 : AIR 1990 SC 1173: The Supreme Court held that-
"Where the plaintiff/appellant was totally ignorant of the mischief played upon her. She honestly believed that the instrument which she executed and got registered was a gift deed in favour of her daughter. She believed that the thumb-impression taken from her were in respect of that single document. She did not know that she executed two documents. One of which alone was the gift deed, but the other was a sale of property in favour of all the defendants."
Sales-tax Officers v. Kanhaiya Lal, MANU/SC/0129/1958 : AIR 1959 SC 135: Where a contract has been reduced to writing, or a deed owing to mutual mistake fails to express the concurrent intention of the parties at the time of its execution, the court will rectify the written instrument in accordance with true content.
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