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Free Consent in Contracts and its components

Contracts in India are regulated by the Indian Contract Act, 1872. The Act provides that no contract shall be made without both the parties being fully committed and willing to get the contract legally made. And thus the concept of free consent becomes very significant. Section 12 of the Indian Contract Act explicitly mentions the existence of free consent of both competent parties in order to make a contract legally enforceable and binding.

According to Section 13 of the Indian Contract Act, two persons are said to consent when they agree upon the same thing in the same sense. Section 14 is the primary section that this paper will focus on.

Section 14 defines free consent by stating that 'consent is said to be free when it is not caused by:

  • Coercion, as defined under Section 15
  • Undue Influence, as defined in section 16, or
  • Fraud, as defined in section 17, or
  • Misrepresentation, as defined in section 18, or
  • 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.

The Latin phrase consensus-ad-idem is the essence of these acts, meaning that there should be meeting of the minds of the parties to the contract. Without the consent of both parties being free, the purpose of a contract being a two-way deal is defeated. A contract made out of free consent protects the validity of an agreement, thus providing the parties a protecting shield. It provides the parties to withstand their autonomous power to frame their running policy or principle.

Concept of consent

Section 13 of the Indian Contract Act states that consent only exists when the parties to a contract agree upon the same thing in the same sense. Consensus ad idem or meeting of the minds must lie at the root of all contracts made under the law. This concept was elaborated in the cases of Raffles vs. Wichelhaus (1864) and Smith vs. Hughes (1871). The cases in a nutshell:

Raffles vs. Wichelhaus (1864)
Often addressed as the Peerless case, this case is a leading case in English contract law. Parties came into the contract for the delivery of cotton. The terms were such that the cotton would be delivered to the defendants at the Liverpool port by the ship named Peerless, departing from Bombay.

There were two ships named Peerless departing from Bombay and arriving at Liverpool. It was later discovered that the defendant and claimant had two different ships in mind when they had entered into the contract. Justices ruled that there was no existence of consensus-ad-idem and therefore the contract became void.

Smith vs. Hughes
In this case, the Queen's Bench decided that even if there was no explicit expression of assent by a party, but he or she conducts himself or herself in such manner that a reasonable man would believe him assenting to the terms proposed by the promisee, he/she would be bound by the contract as if he had expressly entered into the contract.

Kinds of violations of Free Consent

According to the Indian Contract Act, 1872, the free consent of parties to a contract is not obtained if it is adulterated by:

Coercion

Coercion is defined in Section 15 of the Indian Contract Act. It is the act of committing, or threatening to commit, any act forbidden by the Indian Penal Code (1860) 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. It is also immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed. Coercion means forcing an individual to enter into a contract. When intimidation or threats are used to gain the party's consent, it does not qualify as free consent. Coercion may involve the actual infliction of physical and psychological harm in order to enhance the credibility of a threat. The threat of further harm too can lead to the threatened person's cooperation or obedience.

Consent is said to be caused by coercion when it is obtained by threatening or pressuring the subject by either of the following techniques:

  1. Committing or threatening to commit any act forbidden by the Indian Penal Code: A person can only be held for coercion if he threatens to commit an act that is forbidden by the IPC and uses that threat in order to attain the consent of the plaintiff. If a person attains consent by threatening to do something that is legal according to the IPC, he cannot be held for coercion.

    In Ranganayakamma vs. Alwar Setti (1889)
    The question before the Madras High Court was regarding the validity of the adoption of a minor aged 13 years, by his widowed mother. On the death of her husband, the husband's dead body was not allowed to be removed from her house 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 she was coerced into doing so.
     
  2. Unlawfully detaining or threatening to detain any property: Consent can be said to be caused by coercion if it is induced by illegal confining or threatening to hold a legal property of the plaintiff, by the defendant.

    Essar Steel Ltd vs. Union of India (2006)
    A company entered into a contract with a Government company Gas Authority of India Limited (GAIL), for purchase of gas. The buyer company constructed the pipeline for the carriage of gas and was also responsible for its maintenance. GAIL demanded from the company transportation charges.

    The demand was also found to be against the price structure fixed by the Government. It was held that GAIL was acting against the Government pricing order. It was held that GAIL was employing coercion, and was withholding a lawful property of the buyer company (the gas bought). GAIL was not allowed to charge extra transportation charges.

Threat to commit suicide as coercion

The case of Ammiraju vs. Seshamma (1917) is the case primarily dealing with the question of threat to commit suicide amounting to suicide. It was seen that there was a threat by the husband to commit suicide, and he demanded his wife to release property in name of his brother. It was seen that the wife was prejudiced and it can't be forbidden by law. So here the threat to commit suicide by the husband amounts to coercion on the wife. The Indian Contract Act however cannot provide relief in such cases.

Undue Influence
Section 16 of the Indian Contract Act puts forward the concept of undue influence in contract law:
  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 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—where he holds a real or apparent authority over the other or where he stands in a fiduciary relation to the other; or 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 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.

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 uses that position to obtain an unfair advantage over the other. The elements to constitute coercion are – the existence of a position of authority, trust, and confidence of a party over another, and the use of unfair persuasion by the party with the authority.

Real or Apparent authority:

A person in authority is definitely able to dominate the will of the person over whom the authority is held. The authority may be real or apparent. The expression "apparent authority" would include cases in which a person has no real authority, but is able to approach the other with a show or color of authority. For example, an Income Tax Officer in relation to his assessee.

Fiduciary relationship:

Fiduciary relations are of several kinds. Indeed every relationship of trust and confidence is a fiduciary relationship. And confidence is at the base of innumerable transactions of mankind. This category is, therefore, a very wide one. It includes the relationship of solicitor and client, spiritual adviser and his devotee, doctor and patient. As in Mannu Singh v Umadat Pande, a guru influenced his disciple to take his property in gift by promising to secure benefits to him in the next world. The court set the gift aside as it was not formed with free consent.

The burden of proving that undue influence had been employed in gaining the consent of the plaintiff lies on the plaintiff itself. The person who files a plaint alleging that his consent was attained using undue influence must prove that the defendant was not only in a position to dominate his will, but also used that positing in gaining an unfair advantage. The mere presence of a party to a contract in a dominant position does not relieve the other party of his liabilities under undue influence. But according to Clause 3 of the Section, in cases where the contract prima facie appears unconscionable, the burden of proving that consent wasn't attained using undue influence lies on the party in a dominant position.

Fraud

According to Section 17 of the Indian Contract Act, '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.

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.

In English law "fraud" was defined in the well-known decision of the House of Lords in Derry vs. Peek, in which it was ruled that fraud includes the components as, a false representation made:
  1. Knowingly, or
  2. Without belief in its truth, or
  3. Recklessly careless whether it be true or false.

Derry vs. Peek
A company's prospectus contained a piece of information that the company had been authorized by a special Act of Parliament 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. But they were held not liable. They were not guilty of fraud as they honestly believed that once the Parliament had authorized the use of steam, the consent of the Board was not required.

Active concealment of facts

"Active concealment" is something different from mere "passive concealment". Passive concealment means mere silence as to material facts essential to a case. The expression "any other act fitted to deceive" naturally means any act which is done with the obvious intention of committing fraud.

Hingawwa vs. Byrappa Shiddappa Hireknrabar
The husband persuaded his illiterate wife to sign certain documents telling her that by those papers, he was going to mortgage her two lands to pay off his debts and in fact mortgaged four lands belonging to her. This was an act done with the intention of deceiving her.

Mere silence as to material facts is no fraud unless it is the duty of the person keeping silent, to speak.

A contracting party is under no obligation to disclose the entire truth to the other party or to furnish him the whole information pertaining to the case in his possession, affecting the subject-matter of the contract. A seller who puts forth an unsound horse for sale, but says nothing about its quality, commits no fraud. Duty to speak arises where one contracting party reposes trust and confidence in the other.

A father, for example, selling a horse to his son must tell him if the horse is unsound, as the son is likely to rely upon his father. In the absence of any such relationship there is no duty to speak and mere silence even if it amounts to misrepresentation, will be no fraud.

Misrepresentation

As defined by Section 18 of the Indian Contract Act, “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.
    A statement is said to be warranted when it is received from a trustworthy source. Unwarranted statements are statements that are not necessarily true with respect to the information that the speaker has.

    Mohunlal vs. Gungaji Cotton Mills
    A person (say A) told the plaintiff that a person (say D) would be the director of a company. 'A' had obtained this information not from 'D' directly, but from another person, called 'L'. The information proved untrue.
     
  2. Any breach of duty which, without intent to deceive, gains an advantage to the person committing it, or anyone claiming under him; by misleading another to his prejudice, or to the prejudice of anyone claiming under him. Such cases in courts of equity are stated as cases of 'constructive fraud'; in such cases, there is no intention to deceive, but the circumstances of the cases are such that they make the party which derives a benefit from the transaction, answerable as if he had acted with intent to cause fraud or deceit.

    Oriental Bank vs. John Fleming
    The plaintiff was given the impression by the defendant that a deed contained nothing but formal matters already settled between them. The plaintiff, having no time to read the contents of a deed signed it. The deed, however, contained a release in favor of the defendants. The Court set aside the agreement for the consent had been taken by misrepresentation.
     
  3.  Inducing mistake with respect to the 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.

    Illustration: 'A' told 'B' that his radio is in good condition, because of the confidence he had in 'A', 'B' bought the radio from him. The radio did not work properly after some time, 'B' thought he was misled by 'A', but 'A' believed his radio was in good condition and had no intention of deceiving him. So, here misrepresentation is in the part of 'A', because he did not know that the radio is not working properly.

A contract the consent to which is induced by misrepresentation is voidable at the option of the deceived party. Misrepresentation means misstatement of a fact material to the contract.

There are three primary types of misrepresentation:

  • Fraudulent representation:

    where a false representation has been made knowingly, or without belief in its truth, or recklessly as to its truth. Fraudulent misrepresentation will happen when an untrue representation is made and the party making the representation knew it was false or was reckless as to whether it was correct or incorrect.
     
  • Negligent misrepresentation:

    representation made carelessly and in breach of duty owed by a party, to the other, to take reasonable care that the representation is accurate. A declaration is made by one contracting party to another negligently or without reasonable grounds for believing its truth.
     
  • Innocent misrepresentation:

    Misrepresentation made completely without fault or intent to deceive, is described as an innocent misrepresentation. It is a representation that is neither fraudulent nor negligent.

The remedies for misrepresentation are rescission and/or damages. For fraudulent and negligent misrepresentation the plaintiff may claim rescission and damages. For innocent misrepresentation, the court has the discretion to award damages in lieu of rescission.

Mistake

Section 20 of the Indian Contract Act states, that 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. A mistake does not defeat consent but misleads the party such that the consent can no longer be considered free.

Explanation: An erroneous opinion as to the value of a thing that forms the subject matter of the agreement is not to be deemed as a mistake of fact.

Illustration: 'A' agrees to buy a cow from 'B', but it turns out that the cow was dead at the time of the deal, although the fact was not known to any party. The arrangement is considered invalid.

Supplementary provisions:

The concept of mistake as stated in Section 20 is supplemented under two other sections – Section 21 and Section 22.
  • Mistake of law:

    The Latin maxim 'ignorantia juris non excusat' means that ignorance of the law is no excuse. Section 21 of the Indian Contract Act states that a contract cannot be said to be voidable due to the mistake of the parties in understanding any laws that are in force in India. Hence the parties to the contract cannot claim relief on the grounds that they were unaware of the Indian law.

    Copper vs. Phibbs (1867)

    A nephew leased a fishery from his uncle. His uncle died. When the lease came up for renewal the nephew renewed the lease from his aunt. It later transpired that the uncle had given the nephew a life tenancy in his will. The lease was held to be voidable for mistake as the nephew was already had beneficial ownership right in the fishery. It was held that a mistake as to the general ownership or right stands on the same footing as a mistake of law and therefore was declared void.
  • Mistake of fact: The Latin maxim 'Ignorantia Facti Excusat' means that ignorance of fact can be an excuse under the law. Under Section 20 of the Indian Contract Act, 1872, a contract is said to be void when both the parties to the agreement are under a mistake as to a matter of fact. A mistake of fact can be one-way or both ways.

Bilateral mistake: Section 20 of the Indian Contract Act defines bilateral mistakes under the law.
Section 20 will only apply when three conditions are fulfilled:
  • The mistake must be committed by both the parties, that is, the mistake must be mutual.
  • The mistake must be regarding some fact.
  • It must relate to a fact which is essential to the contract.

Therefore if the mistake is made regarding the existence of the subject matter or a fact essential to the contract, it would be a void contract since there is no consensus ad idem.

Gallaway vs. Gallaway
This was a case of both the parties were under the mistake that they were married. The two of them agreed to separate and thus made an agreement. Then it was found out that the man's first wife was still alive which was actually unknown to both of them. The court held that the separation deed was void. It was on the grounds that the agreement had been done on the belief that they were married to each other, but turned out otherwise with the first wife being alive.'

Unilateral mistake: Section 22 of the Indian Contract Act says that a contract cannot be said to be voidable just because one of the parties to the contract was under a mistake as to a matter of fact concerned to the contract. Therefore a unilateral mistake does not affect the validity of the contract and cannot be a ground for setting aside the contract in the court of law.

Ayekpam Angahl Singh and Another vs. Union Of India and Ors.
The plaintiff, in this case, was the highest bidder in a fishery auction. The rent was 40,000 per year and the said rights were auctioned for three years. The plaintiff sought that he assumed the rent amount to be for all three years together. Thus, he claimed that he was under the same mistake. Since the mistake, in this case, was unilateral, the contract couldn't be avoided.

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 on the position in which he would have been if the representations made had been true. The exception to this is 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.

Illustrations:
  1. A, intending to deceive B, falsely represents that five hundred bails 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.
  2. A, by a misrepresentation, leads B erroneously to believe that five hundred bails of indigo are made annually at A's factory. B examines the accounts of the factory, which show that only four hundred bails of indigo have been made. Nevertheless, B buys the factory. The contract is not voidable on account of A's misrepresentation.

Conclusion
Free Consent is absolutely important to make an agreement with a valid contract. The importance of free consent cannot be stressed enough. The Party's consent must be free and voluntary. It is necessary to give consent to the contract without any pressure or delusions. It is essential that the parties' consent is free, as this may affect the contract's validity. If the consent has been obtained or caused by coercion, undue influence, fraud, misrepresentation, or mistake, then the aggrieved person has the right to void the agreement.

References:
  • Advocatekhoj publication on voidability of contracts.
  • ipleader publication by Soma Mohanty of KIIT School of Law.
  • ipleader publication by Avni Kaushik on the concept of free consent in Indian Contract Act.
  • LexForti Legal News Network

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