Free Consent Ss.13-22

1. Free ConsentSs.13-22 JMM KLELC

2. Consent 13."Consent" defined.-Two or more persons are said to consent when they agree upon the same thing in the same sense (Consensus ad idem) 14."Free consent" defined.-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 JMM KLELC

3. Effect of Agreement without Free Consent 19.Voidability of agreements without free consent.-When consent to an agreement is caused by • coercion, • fraud or • misrepresentation, • the agreement is a contract voidable • at the option of the party whose consent was so caused. • 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. JMM KLELC

4. Effect of Agreement without Free Consent 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. JMM KLELC

5. Effect of Agreement without Free Consent 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. JMM KLELC

6. (c) A fraudulently informs B that A's estate is free from encumbrance. 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 the 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. JMM KLELC

7. Kinds of Contract S. 2(g) An agreement not enforceable by law is said to be void: S. 2(h) An agreement enforceable by law is a contract: S. 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: S. 2(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. JMM KLELC

8. Coercion 15. "Coercion" defined.-"Coercion" is – • 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 the intention of causing any person to enter into an agreement. Explanation.-It is immaterial whether the IPC is or is not in force in the place where the coercion is employed. Illustration 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 IPC. 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 IPC was not in force at the time when or place where the act was done JMM KLELC

9. Coercion - Analysis ChikhamAmiraju v. ChikhamSeshamma A Hindu induces his sons and wife to execute a deed release in favour of his brother under the threat of suicide. Held: voidable Astley v. Reynolds Pt. pledged property with dt. for $ 20. on redeeming the same dt. claimed additional interest of $ 10. Pt. paid & redeemed. But later sued for $ 10. Held: Pt. will succeed. JMM KLELC

10. S. 16 Undue Influence (1) 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 • He uses that position to obtain an unfair advantage over the other. (2) In particularandwithoutprejudice 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 apparentauthority over the other or where he stands in a fiduciaryrelation 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. JMM KLELC

11. (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 lie upon the person in a position to dominate the will of the other JMM KLELC

12. Relation between the Parties 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. Undue Influence JMM KLELC

13. Position to dominate the will of another - Presumption holding a real or apparent authority over the other or where he stands in a fiduciary relation to the other contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress JMM KLELC

14. S. 16 Undue Influence – 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 employs undue influence. JMM KLELC

15. (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 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 a transaction in the ordinary course of business, and the contract is not induced by undue influence. JMM KLELC

16. Undue Influence – Analysis“Position to dominate the will of the other” • Sometimes the relation between the parties is such that one of them is able to will of the other. The person occupying the superior position may prevail upon the other obtain his consent to an agreement. But for such influence he would not have consented. • Eg., spiritual adviser inducing his devotee to gift over the property for securing moksha • It is a kind of fraud, mastery is obtained over the mind of the victim, calculated to prevent expression of the free mind of the person JMM KLELC

17. Relations involving domination – Presumption • Every case where there is a trust and confidence between parties or the parties are not on equal footing – influence acquired and abused – confidence reposed and betrayed. • Presumption is rebuttable (without prejudice to the foregoing provisions) “Real or apparent authority” A person in authority may exert influence on other over whom he has authority. Eg. IT Officer, Police officer, Magistrate, etc. “fiduciary relation” Relation involving trust and confidence, innumerable instances, doctor-patient, solicitor-client, guru-devotee, etc., JMM KLELC

18. Moody v. Cox A solicitor sold his property to his client, who later alleges that property was over valued Held: voidable, party having influence over the other shall not make contract with him, if he does so he shall satisfy the court that it is advantageous to that other party. “Mental Distress” When a person’s mental capacity is temporarily or permanently affected he is said to be in distress. It may be due to old age, mental or physical illness or any other cause. He may give consent for what is unfavorable to him. Eg. A Hindu wife agreeing for a loan @ 100% interest for suing her husband for maintenance. Held: voidable, BOP is on the pt. to show that the other person was in a dominating position and he used it for the disadvantage of the other JMM KLELC

19. Nature of Presumption u/s.15(2) In some cases on showing that one was in a position to dominate the will of the other his use of the same to the disadvantage of the other is presumed. But dt. may show that the pt. consented freely. Eg. Married women of full age guaranteeing the repayment of loan obtained by her mother Held: though she was under the influence of her mother, facts and circumstances of the case shall guide and not general presumption. A parda lady of 70 years with 3 daughters gifted the property to his tenant who was in possession of it. Held: by the possession of the land he may have dominated the will of the lady, it is for him to show her free consent. JMM KLELC

20. Instances of presumption 1. Unconscionable bargains Where one of the parties to the contract is in a position to dominate the will of the other and the contract appears to be unconscionable i.e., unfair, law presumes that consent must have been obtained by undue influence. Burden then shifts on the dt. to prove that no unfair advantage was obtained over the pt. Wajid khan v. Raja Ewaz Ali khan An old illiterate woman incapable of any business confers on her managing agent with out any consideration a valuable pecuniary benefit. Held: voidable Eg. Money lending, suits in courts, poverty and distress, youth and spendthrift, Between equally placed parties no unconscionableness JMM KLELC

21. 2. Unconscionablegifts Eg., a person suffering from number of ailments confined to nursing home for long executes gift deed of whole of his property in favor of one son to the exclusion of other sons • An old, illiterate malay lady gifted all her rent-producing property to her nephew who assisted her always. Held: unconscionable 3. Inequality of bargaining power Presumption may also arise on the fact of inequality of bargaining power between parties causing duress on the other. Lyods Bank v. Bundy – a contractor obtained loan from bank. Not paid in time – bank presses for payment/security – contractor said his father might mortgage his only residential house – which was done by father by banker taking signature on the readymade papers. Contractor defaulted. Bank moved against father Held: bank exploited the vulnerability of his father caused by his desire to help his son. JMM KLELC

22. 4. Exploitation of the needy When the consent of the party is obtained as a result of exploitation undue influence is presumed A S Music Publishing Co. v. Macaulay Young song writer contracted to write songs for 5 yrs and to renew the same for another 5 yrs at he option of the music co. co. can terminate at anytime by a word of mouth. Boy wanted liberation Held: voidable 5. Contracts with paradanashin woman A contract with pardanashin woman has been presumed to have been induced by undue influence. She can avoid contract unless other party shows that it was her intelligent and voluntary act. Pardanashin woman is who is totally secluded from social intercourse. JMM KLELC

23. Effect of undue influence S. 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 there under, upon such terms and conditions as to the Court may seem just. Illustrations (a) A's son has forged 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, 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. JMM KLELC

24. Misrepresentation S. 18."Misrepresentation" defined.-"Misrepresentation" means and includes- (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 to the person committing it, or any one 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. JMM KLELC

25. Misrepresentation – Analysis 1. Positive assertion of unwarranted statement of fact • When a person positively asserts that a fact is true when his information does not warrant it to be so, though he believes it to be true, he makes misrepresentation. • Eg. Capacity of the ship – stated to be not more than 2800 tonnage – without information but honest belief – actual registered 3000 tonnage – • charter party was allowed to avoid the contract • Purchase of land for the construction of a complex – seller represents there is no difficulty in such use of the land – municipal authority refuses permission for such use of land unless sewage cost of $3000 is paid • buyer was allowed to avoid the sale. • When misrepresentation relates to a term of the contract buyer not only avoids the contract he may even claim damages for breach. JMM KLELC

26. 2. Breach of duty • Any breach of duty which brings an advantage to the person committing it by misleading the other to his prejudice is a misrepresentation. [constructive fraud] • Eg. Omitting to read relevant terms from the deed – though dt. is not under duty to do so, when he does so he should do it without concealing – pt. can avoid the contract • Eg. A female patient was told her sterilisation would be irreversible – not told that there’s minute risk of failure and pregnancy – she conceived, gave birth – claimed damages for breach. • HELD: Representation that the operation was irreversible did not amount to express statement that the operation was bound to achieve its acknowledged object. The representation merely meant that the operative system cannot be reversed. JMM KLELC

27. 3. Inducing mistake about subject matter • 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 • Suppression of vital facts • Suppression or concealment of vital facts amounts either to breach of duty or leading other party to make mistake • R v. Kylsant Prospectus of a co. stated the dividends are paid regularly crating an impression that it is making profits - in fact, co. was under for last several years – dividends were paid out of war-time accumulated profits • suppression of this fact was misrepresentation. JMM KLELC

28. Material facts • Misrepresentation shall be of material facts – mere commendatory expression of businessmen about their goods or mere expression of opinion is not misrepresentation • Sale of land - general statement that land is fertile and improvable – in fact, parts of which was abandoned as useless - substantial portion was fertile – cannot avoid the contract. • Bisset v. Wilkinson– certain lands were sold – seller was aware that the land was required for sheep farming. Therefore, expressed an opinion that the land had a carrying capacity of 2000 sheep – land turned out to be unsuitable for sheep farming – buyer opted to avoid the contract. JMM KLELC

29. Bisset v. Wilkinson Contd.. • Held: agreement was not voidable • There should be representation of specific fact, which may be inherent in a statement of opinion. It depends on material facts and knowledge of the parties • Both parties knew that vendor had not nor any other person had carried sheep farming on the land • In the circumstances, the buyer was justified in regarding anything said by the vendor as to the carrying capacity as being anything more than an expression of opinion on the subject. JMM KLELC

30. Change of circumstances • After the negotiation and before conclusion of contract, if any change occurs relating to stated facts, it shall be informed to the other party, otherwise amounts to misrepresentation. • Eg. Sale of medical practice – dt said his practice had brought him $ 2000 per annum in the last 3 yrs. – he had a specified no. of patients on his panel – negotiations resulted in a contract – in 5 month – in the mean time he became ill and could not practice as a result lost business – pt learnt about it only after the sale – pt. could avoid the contract. JMM KLELC

31. Inducement • Misrepresentation must be the cause of consent • But for the misrepresentation consent would not have been given • S. 19 - 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 • No misrepresentation if the other party has the means of discovering truth with ordinary diligence • S. 19 Exception.-If such consent was caused by misrepresentation or by silence, fraudulent u/s. 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. JMM KLELC

32. S. 17 Fraud “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--- (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. JMM KLELC

33. 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. JMM KLELC

34. Illustrations • 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 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 unsound. • 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. • 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. JMM KLELC

35. Essentials • Assertion of fact without belief in its truthfulness Derry v. Peek Prospectus of a co. represented that it had been authorized by a special Act of parliament to run trams by steam or mechanical power – it was in fact subject to approval of board of trade, no mention was made of this – board refused consent and co. wound up – pt. purchaser of shares sued the directors for fraud. JMM KLELC

36. Derry v. Peek Contd.. HELD: No fraud, Directors honestly believed that once parliament had authorised the use of steam, the consent of the board was practically concluded. It therefore follows that the person making false representation is not guilty of fraud if he honestly believes in its truthfulness. False representation – • Made knowingly or • Without belief in truth or • Recklessly careless about its truthfulness amounts to fraud JMM KLELC

37. II. Active Concealment • Active concealment and silence • Active concealment of material fact is fraud • Eg. A husband persuades his wife to sign few documents telling her that he would mortgage her two lands while it was mortgage of 4 lands in reality. • Non-disclosure of sudden change in price by a trader. JMM KLELC

38. Is Silence Fraud? Silence as Fraud Duty to Speak Change of Circumstances Deceptive Silence Half truth JMM KLELC

39. A. Duty to Speak • Silence amounts to fraud when person keeping silence is under a duty to speak Duty to speak Trust and confidence When one of the party does not have means of discovering truth and depends on other party JMM KLELC

40. Deceptive Silence • A person keeping silent knowing that his silence will be deceptive, is no less guilty of fraud • Eg., Buyer knowing value of the property, when keeps information without disclosing to the seller. He may avoid contract Change of Circumstances • True representation made at the time of negotiation if affected by change of circumstances before conclusion of contract – non-disclosure amounts fraud • Eg., Sale of medical practice JMM KLELC

41. Half truths • Even a person without duty to speak may commit fraud, if voluntarily discloses some thing and then he stops half-the-way • Half-truth is no better than false down-right hood • One who can keep silent, if speaks shall speak whole truth • Eg. Pt. purchased a plot of land. It was stated that the land was subject to a right of the Borough to open to 2 streets. In fact, it was subject to open to 3 streets. • Held: fraud JMM KLELC

42. III. Promise without intention to perform • Situation to be assessed from the facts of the case. • Eg. Purchase of goods without intending to pay for it IV. Any other act fitted to deceive – intentional cheating – abundant caution V. Any act or omission specifically declared fraudulent Eg. TP Act – Fraudulent transfer of property Insolvency law – fraudulent preference, etc JMM KLELC

43. Similarities Agreement becomes a contract voidable False Representation Discovering truth by ordinary diligence - Good defense Fraud and Misrepresentation JMM KLELC

44. FRAUD Intentional wrong Contract becomes voidable and cause of action in tort for damages MISREPRESENTATION May be quite innocent Makes the contract voidable and liability for compensation Differences JMM KLELC

45. Effects of fraud or misrepresentation • Right to rescind the contract • Agreement becomes a contract voidable at the option of the party whose consent was not free • He may insist that the contract be performed • He may insist that he should be in the same position in which he would have been if the misrepresentation made had been true. JMM KLELC

46. Right to rescind – Exceptions I. Affirmation – party becomes aware of his right to rescind and affirms it – express or implied • Eg. use of goods obtained under contract • Long v. Llyod – dt. falsely convinced the pt. that his lorry was in excellent condition – on the very first journey serious defects noticed - pt. accepted dt.’s offer to bear half the cost of repairs – the lorry completely broken down on the next journey • HELD: on the first breakdown pt came to know that representation was false. Instead of rescinding he has accepted to receive half the repair charges and sent the lorry on second trip. This amounted to final acceptance for better of for worse and conclusively extinguished right of rescission. JMM KLELC

47. Right to rescind – Exceptions II. Lapse of time– “reasonable time” • Eg. Allotment of shares – misleading prospectus – 6 months after allotment sues for setting aside the contract • Unexplained delay extinguished the right III. Acquiring of rights by third parties When third party acting in good faith acquires rights in the subject matter of the voidable contract. • Eg. Resale of goods by a buyer obtaining them under voidable contract. JMM KLELC

48. Effects of Rescission • I. Restitution - S. 64 • Eg. Person avoiding contract of loan obtained under undue influence shall return the amount received with reasonable interest. • II. Damages S. 75 • Intentional failure of a singer contracted to sing at the theatre for two months. JMM KLELC

49. Mistake Ss. 20 - 22 • When the consent of the parties is caused by mistake, it is not free consent. • One, or both parties may be under some misunderstanding or misapprehension of some fact relating to the agreement. Such contracts are said to have been caused by mistake. • Mistake may operate upon a contract in two ways : • Mistake in the mind of the parties is such that there is no genuine agreement at all - no consensus ad idem. i.e. the meeting of two minds. • There may be a genuine agreement, but there may be mistake as to a matter of fact relating to that agreement. JMM KLELC

50. In Raffles Vs. Wichelhaus (1864) Buyer and seller entered into an agreement - seller was to supply a cargo of cotton to arrive “ex peerless from Bombay”. - Two ships of the same name. i.e., Peerless - both were to sail from Bombay, one in October and the other in December. - buyer had in mind Peerless sailing in October, seller thought of the ship sailing in December - seller dispatched cotton by December ship but the buyer refused to accept the same - offer and acceptance did not coincide and there was no contract. It was HELD that the buyer was entitled to refuse to take delivery. JMM KLELC