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Every day-to-day transaction that is conducted involves the usage of contracts, whether verbal or written. Contracts are an indispensable part of any individual’s life and are utilized at every part. Contracts are essentially a bundle of rights and obligations that tend to bind one party with another in exchange for some consideration. In India, the making and enforcement of contracts is governed by the Indian Contracts Act 1872, which extends to the whole of India except Jammu and Kashmir.
This act defines Contracts as an agreement between two or more parties, which is enforceable by law. Thus, it is pertinent to note that only those agreements which are able to be enforced by law can be termed as contracts. The agreement must satisfy certain essential conditions as laid down in Section 10 of the Indian Contract Act in order to be enforceable. These conditions are-
- It is essential to have an agreement between both the parties. In order to have an agreement, there must be a proposal by one party and it should be accepted by the other party.
- The parties entering into the agreement must be competent to contract.
- It is essential to have a lawful consideration and lawful object in the agreement.
- Free consent must be given by both parties while entering into a contract.
- The agreement should not expressly be declared void by the law.
There are 3 types of contracts which are valid contract, which is an agreement enforceable by law; void contract is an agreement which is not enforceable by law and voidable contract which is valid at the option of the party which is aggrieved. In case there is flawed consent, it would amount to voidable contract.
What is free consent?
In order for a valid contract to persist, it is essential to ensure free consent of the parties. There is a concept of consensus-ad-idem which implies that the parties entering into the contract must mean the same thing in the same sense. The understanding about the terms of the contract between both the parties should be on the same subject matter and footing. The entire structure of law of contract is based on the concept of consent, which is placed on the highest pedestal during any agreement. In order to validate the formation of a contract, the main ingredient would be the obtainment of genuine and free consent of the parties. Thus, the mere acquisition of consent is not enough but the consent must be obtained in a free and voluntary manner.
According to the Indian Contract Act, consent is said to be achieved in all situations except when it is caused by coercion, undue influence, fraud, misrepresentation or mistake. These methods of obtaining consent render the agreement voidable at the instance of the aggrieved party and can invalidate the contract. However, if mistake was a part in obtaining consent, the agreement is said to be void. The main objective of this aspect is to be fair to both the parties and ensure that the judgment of either of the party was not clouded or influenced before entering into a contract. This doctrine helps in the promotion of individual autonomy and freedom to contract.
Relevant legal provision(s)
Section 13 and 14 of the contract Act define consent and free consent respectively. Consent, under Section 13, is said to be achieved when two or more individuals agree upon the same thing in the same manner. The elements that are said to vitiate consent are also given under the Indian Contract Act and are Coercion (Section 15), Undue Influence (Section 16), Fraud (Section 17), Misrepresentation (Section 18) or Mistake (Sections 20, 21 and 22).
- Coercion can be defined as the physical or mental force that is used upon a person to enter into a contract against his will. The consent in such a situation is not free and there is usage of force or threats to obtain consent. Section 15 of the Indian Contract Act defines coercion as committing or threatening to commit any act forbidden by law in the IPC or unlawful detention or threaten to detain any property or person with the aim of causing a person to enter into a contract. Coercion makes a contract voidable at the instance of the aggrieved party. If any consideration is paid or goods are delivered at such a time, it must be returned or delivered if the contract is void. The burden of proof rests on the party who wants to avoid the contract and he must prove that the consent was not given freely.
- Undue Influence refers to a situation wherein the relations between the two parties are such that one party is in a position to dominate the other and thus, uses said position to influence the other party and obtain an unfair advantage. This is given under Section 16 of the Act. This situation can occur if the people are in a fiduciary or superior – subordinate relationship. This can also occur when a contract is made with a person whose mental capacity is affected by age, illness or distress. However, for an agreement to become voidable, it must be proved that the dominant party had the objective to take advantage of the other party. The burden of proof, here, rests on the dominant party to prove the absence of influence.
- Fraud, under Section 17, occurs when a person deceits another person by making false statements, thereby compelling him to enter into contracts. This is done with the complete knowledge that the statement is untrue or in a manner that is reckless without checking its validity and thus impairs free consent. According to Section 17, there are certain instances where frauds occur which are suggesting a fact that it is not true and there is no belief of it being true, the active concealment of fact, a promise made without any intention of it being performed. It is essential that the aggravated party suffer from some actual loss due to the fraud and has incurred damages. The false statement must be a fact rather than an opinion to constitute a fraud.
- Misrepresentation, as given in Section 18 occurs when a party makes a statement that is false and inaccurate. However, the misrepresentation is supposed to be innocent and non intentional and the party making it must believe it to be true. There can be 3 ways in which misrepresentation occurs and it is that the person makes a positive assertion believing it to be true. However, the breach of duty should lack the intent to deceive and the breach gives the person committing it an advantage by misleading the other. The third way is when one party acts innocently and thus, causes the other party to make any mistake with respect to the subject matter of the agreement. The burden of proof is placed on the party claiming the occurrence of misrepresentation and this becomes voidable.
- Mistake occurs when there is a misunderstanding with respect to legal provisions when it comes to obtaining consent. If it weren’t for the misunderstanding, the party would not have consented to enter the agreement. There are 2 types of mistake namely mistake of law and mistake of fact. Mistake of law occurs when a party has any misunderstanding with respect to any legal provision, and in most cases the contract cannot be avoided as ignorantia juris non excusat (ignorance of law is no excuse) prevails. However, if the parties have any confusion or misunderstanding with respect to the subject matter or terms of contract, it is said to be mistake of fact. The agreement is valid if there is misunderstanding on the part of one party.
- Chikkam Ammiraju v. Chikkam Seshama (1917) 32 MLJ 494
This is a case involving coercion wherein the question before the Court was whether coercion could be caused by a threat to commit suicide. In this case, a husband threatened to commit suicide and thus induced his wife and son to execute a release deed in favor of his brother in respect if certain properties that they claimed to be their own. It was held that a threat to commit suicide amounted to coercion and the deed was voidable.
- Wajid Khan v. Raja Ewaz Ali Khan, (1891) ILR 18 CAL 545
In this case, an old and illiterate woman conferred a high monetary benefit onto her manager without any valuable consideration and it was held that undue influence was applied. The burden of proof was on the manager to show that it was a bonafide transaction and no undue influence was exercised.
- Shri Krishan v. Kurukshetra University, 1976 AIR 376
The plaintiff was a candidate for the LLB exam. The candidate was short of attendance and failed to mention it in the admission form of the exam. Neither the head of the department not University authorities bothered to conduct a check and discover the truth. The Court held that the candidate had not committed any fraud and there was no power in the University to withdraw the candidature of the candidate.
- Long v. Lloyd,  1 WLR 753
The defendant, in this case, sold his lorry to the plaintiff by making a representation which was false that the lorry was in excellent condition. However, after buying it the plaintiff discovered serious defects in the lorry and instead of rescinding the contract, accepted the defendants offer of half the cost of repairs. Subsequently, the lorry broke completely and the plaintiff wanted to rescind the contract however the court held that this right did not exist any more as the plaintiff had affirmed the contract by accepting to share costs.
The concept of free consent is a very important one in the law of contracts and provides the basis in making contracts. However, it becomes hard to prove consent in cases and thus proper scrutiny is required. It is essential that there be meeting of minds, i.e., both the parties must agree on the same thing in the same manner. Only then will consent be fulfilled. In order for there to be informed consent, it is essential to embody volition, information and comprehension. In order to be able to exercise ones own free will, there must not be any undue influence or coercion. Coercion occurs when a person threatens to do something to harm the other party or his property if consent is not given.
Undue influence consists of the exercise of power or dominance from a person who is in a fiduciary relationship with the other party or a person with authority. Another aspect of consent is the requirement of information and to achieve this, it is pertinent that there is no fraud or misrepresentation. Comprehension would occur when there is no mistake on the part of either of the parties in understanding the terms of the agreement. Contracts are the most intricate part of any transaction and must be handled delicately so. A contract is voidable when there is absence of free will.
The concept of consent is an integral part of any decision making process and is the basis for contract making. However, in recent times it has become extremely hard to ascertain free consent. Thus, there is a need to come up with means to find out whether consent has been given freely or not. People tend to rely on the defenses if they are being charged for coercion, undue influence etc.
The ways in which consent can be influenced are discussed and in cases of coercion, undue influence, fraud and misrepresentation, the contract tends to be voidable at the option of the aggrieved party. However, in case of mistake, the parties can only avoid the contract in situations where there exists a bilateral mistake of the party with respect to the important facts of the agreement or if there is a problem regarding knowledge of foreign law.
Author: Ankita Sethi from Symbiosis Law School, Pune.
Editor: Dhawal Srivastava from Rajiv Gandhi National University of Law, Patiala.