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Vitiating Factors in Indian Contract Law

A contract is an agreement between parties, enforceable and binding by law. A contract involves reciprocal promises by the consigning parties and an amount of consideration. One of the essentials to prove the validity of a contract is free consent. According to Section 14 of the Indian Contract Act, 1872,[1] a consent is said to be free when it is not given out of:
  1. Coercion – Section 15;
  2. Undue Influence – Section 16;
  3. Fraud – Section 17;
  4. Misrepresentation – Section 18;
  5. Mistake – Section 20, 21, and 22.
If consent of the plaintiff is taken as a result of any of the above-mentioned factors, the contract shall not be a valid one. When the consent is taken out of coercion, undue influence, fraud, or misrepresentation, the agreement is voidable at the option of the plaintiff.[2] If the consent is taken by mistake, then the agreement is void.[3]

Section 15 – Coercion
According to Section 15 of the Indian Contract Act, 1872, “coercion is the committing or threatening to commit, any act that is forbidden and is unlawful as according to the Indian Penal Code, 1860, or the unlawful detaining or threatening to detain, any property, to the prejudice of any person, with the intention of making any person enter into an agreement.”

For example, ‘A’ approaches ‘B’, a stranger and threatens to stab him with a knife, if ‘B’ doesn’t surrender his belongings to ‘A’. The consent of ‘A’ here is obtained by coercion.

Coercion holds the capacity of making a contract voidable. The aggrieved party determines whether to enforce the contract or cancel it. The ultimate discretion is at the hands of the aggravated party to make the contract voidable. The Burden of Proof lies in the party who was coerced to enter into an agreement.[4] In the above-mentioned example, the burden of proof lies on ‘B’ to show that ‘A’ coerced him into surrendering his belongings.

Acts Forbidden By The Indian Penal Code:

any act prohibited/forbidden by the Indian Penal Code is an essential condition for the court to decide whether the committed act involves the element of coercion in it. The law states that any person who commits or threatens to commit an act forbidden by the IPC with the view of obtaining the consent of the other person to an agreement, such a case will amount to coercion. For example, if ‘A’ threatens to inflict harm on the family of ‘B’, so as to unlawfully gain the property of ‘A’ at cheaper rates, it will amount to coercion. For coercion, the applicability of IPC is immaterial. It means that it is not necessary for the IPC to be in force at a particular to constitute coercion.

In the case of Ranganayakamma vs. Alwar Sett,[5] the dead body of the husband was not allowed to be removed from his wife’s (widow) house for cremation until she consented to the adoption of his son by the relatives. The Madras High Court held that her consent was not free. The consent given by the widow was out of coercion. Similarly, in the case of Chikkan Ammiraju vs. Chikkam Seshamma,[6] the question raised before Madras High Court was if the threat to suicide amounts to coercion and falls under the category of forbidden acts by the IPC.

Here, it was held by Wallis, C.J. and Seshagiri Ayyar, J. that threat to suicide amounts to coercion and therefore the contract will be voidable as a threat to commit suicide can be considered an act forbidden by the IPC.

Unlawful Detention Of Property

unlawful detaining or threatening to detain property of a person in order to make that person enter into an agreement. For example, ‘A’ seizes official documents of ‘B’ so as to make the latter enter into an agreement with him will amount to coercion. Wherewith a specific end goal to acknowledge fine due from a child, the legislature appended the property having a place both of him and his dad, installment at that the point raised by Father was considered coerced to take into account the ultimate goal of saving the property for sale.[7]

It is vital to note, a threat to strike is no coercion. In the case of Appin Tea Estate vs. Industrial Tribunal,[8] it was held that threat to strike is no offense under IPC nor it is any unlawful detaining of property. It is the right of workers as guaranteed under Industrial Dispute Act. Similarly, coercion cannot arise when a statute requires a party to enter into a contract. Such a case cannot be deemed to be caused out of coercion, undue influence, fraud, misrepresentation, or mistake.

In coercion, the contract can be made voidable under Section 19, and if, some money has been paid, or goods have been delivered by a party under coerced conditions, then the same is recoverable under Section 72.

Duress

under the English Common Law, Duress is actual or threat of violence to a person. Duress only relates to fear of loss to life or bodily injury, including imprisonment, but not to the threat to damage of goods.[9]
 
Basis Duress Coercion
Existence Law in English Common Law Law in Indian Contract Act
Meaning Actual/threat to violence to a person Committing or threatening to commit any act forbidden by the IPC or unlawful detention or threatening to detain any property, so as to make any person enter into a contract
Condition Detention of goods is not duress. It involves only violence or threat to violence to a person Involves both goods and person
Violence Immediate Immediate violence is not an essential condition
Directed against Directed only against a person is coerced to enter into an agreement Directed against a party to the contract or members of his family or anyone within his knowledge

Section 16 – Undue Influence
A contract induced by undue influence is not valid in the eyes of law. One party is in a position to dominate the will of the other party and uses that position to gain an unfair advantage over the other party. A person dominates the will of another party when[10] :
  1. The former holds a real or apparent authority over the other – when one party holds authority over the other, it is usually assumed that it will not abuse and exploit the other party with its dominant position.
     
  2. The former stands for a fiduciary relation over the other – fiduciary means a relationship of trust or confidence. When one party shows confidence in the other, it is assumed that the former will not be betrayed or cheated. The suffering party has the option of avoiding the contract. Examples of fiduciary relations include Trustee and Trust, Solicitor and Client, Medical attendant and Patient, Parent and Child, Husband and Wife, etc.
     
  3. The former makes a contract with a party who is mentally incapacitated temporarily or permanently by the virtue of age, illness, or mental/bodily distress – in the case of Merci Celine D’souza vs. Renie Fernandez,[11] it was held that the gift deed was carried out by undue influence as it was not attested by two witnesses (required by law for a mentally infirm person). It was held that the defendants abused their position to gain an advantage over the plaintiff. The burden of proof lies on part of the defendant.

According to Section 11 of the Indian Evidence Act, 1872, the burden of proof in the cases of fiduciary relationships lie on the party who is in the position to dominate the will of the other party. For example, In the case of, K.M. Madhavakrishnan vs. S.R. Swami,[12] it was held that the contract was not vitiated by fraud as there was no evidence that the purchaser was in a position to dominate the will of the seller. Apart from that, the contact was initiated by adequate and reasonable consideration.

According to Section 19(A) of the Indian Contract Act, 1872, the aggrieved party has the option to avoid or rescind the contract framed as a result of undue influence. The party who gained the unfair advantage has to compensate the aggrieved party. A similar provision is mentioned in Section 30 of the Specific Relief Act, 1963 as well.

Undue Influence In Unconscionable Bargains:

It is an agreement that in nature is immoral, unethical, unscrupulous, and corrupt on the lines of undue influence. In these cases, the law raises a presumption of undue influence by itself. The burden of proof lies on part of the person who is in the position to dominate the will of another person. In Takri Devi vs. Rama Dogra,[13] it was held that the donee (lawyer) was in a position to dominate the will of the donor (illiterate lady living separately from her husband). Therefore, the transaction i.e., the gifted property was unconscionable and the contract could be declared voidable by the donor/plaintiff.

No Domination Of Will

there are certain cases where the terms of the contract are to the disadvantage of one person and advantage of the other, presumption of undue influence will not be raised. When one party is not in the dominant position even when the terms appear to be unconscionable, the contract will not arise out of undue influence. In the case of Shrimati vs. Sudhakar R. Bhatkar,[14] the defendant (tenant) persuaded the plaintiff (old, illiterate lady) to gift him her property. It was held that mere persuasion by the plaintiff did not amount to undue influence. The transaction was held valid as the defendant was in no position to dominate the will of the plaintiff.

Section 17 – Fraud
Fraud includes any of the following acts committed by a contracting party, or its connivance, an agent so as to deceive another party or its agent, or induce a party to enter into the contract by:
  1. Suggestion of a fact that is not true by someone who does not believe it to be true;
  2. Effective and active concealment of facts by the person who is aware of them;
  3. Promise made without any intention of carrying out;
  4. Any similar or other act fitted to deceive;
  5. Act or omission as the law deems to be fraudulent.

One of the essential elements is mere silence as to facts that can affect a person’s willingness to enter into a contract is not fraud unless the circumstances are such that it is the duty of the person to speak or unless his silence itself accounts or is equivalent to speech. For example, A sells, by auction, to B, a horse which A knows to be unsound and says nothing to B about the horse’s unsoundness. This is not a fraud.

It was stated in the case of Derry vs. Peek,[15] what constitutes fraud. Fraud is proved when:
  1. Representation is made after full knowledge:
    In Lillykutty v Scrutiny Committee[16], a false certificate was obtained in order to take unfair advantage. It was held that fraud vitiates every act. Acts that are fraudulent are not encouraged by the courts. Any action by the authorities or by the people claiming a right under the Constitution of India which subverts the constitutional purpose must be treated as a fraud on the Constitution.
     
  2. Without belief in the truth and facts:
    It must be proved that the representations made were not true to the knowledge of the party making the same In Jewson & Sons Ltd v Arcos Ltd,[17] giving a false impression and inducing a person to act upon it, was considered fraud, even if each fact taken by itself would be literally true.
     
  3. Recklessly or carelessly whether the same is true or false. Statements that are made without the belief of truth will be considered to be made recklessly.

Silence As Fraud:

Until and unless there is an obligation to talk, silence does not count as fraud. A contracting party is not in the position to disclose each and every piece of information that might affect the willingness of the other party to buy it or not. This is evident from the case of Keats vs. Lord Cadogan,[18] the defendant knew that the house he was selling was in disastrous condition. He did not disclose the information to the plaintiff. It was held that the defendant was not liable for fraud.

Duty To Speak:

There is no obligation on the party to disclose the facts that are or might be within the knowledge of both the parties but when the circumstances are such that it is essential for the person keeping the silence to speak, silence will amount to fraud. Certain contracts are uberrima fides, i.e., contracts of utmost good faith and hence it is the duty of the party in whom confidence is reposed to reveal full information without any suppression.

Evidence And Burden Of Proof:

The plaintiff has to prove and mention the circumstances that lead to the conclusion of the presence of fraud. The mere mention of fraud is not enough.

Section 18 - Misrepresentation
Under Section 18 of the Indian Contract Act, 1872, misrepresentation shall be:[19]
  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 the duty which, without an 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 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.

When a person makes a false statement without an intention to deceive the other person, it also amounts to misrepresentation. Omission to make a disclosure about a particular thing also amounts to misrepresentation.

Innocent Misrepresentation:

The person making the false statement is innocent and makes the statement without any intention to deceive the other person is known as innocent misrepresentation. The misrepresenting parson believes that the made statement is true even when it is false. For example, A sells to B a dog who is wild but himself doesn’t know about the correct facts. He tells B that the dog is perfectly friendly and amicable. There is misrepresentation on part of A.

Negligent Misrepresentation:

A statement made unreasonably, carelessly, or negligently on the grounds for believing it to be true. This was given in the case of Derry vs. Peek.[20]
 
Basis Fraud Misrepresentation
Believes the statement to be false Yes No
Intention Wrongful Innocent
Claim damages under torts Yes No
Discovering the truth by ordinary diligence Yes No

Voidability Of Agreement Without Free Consent:

when consent is taken by coercion, fraud, misrepresentation, or mistake, the agreement is said to be voidable on part of the person whose consent was so taken. This is given in Section 19 of the Indian Contract Act, 1872. In case of a flaw in the consent, one party or the other may have either:
  1. Right of Rescission of the contract.
  2. Right to claim compensation.

Damages For Misrepresentation:

recoverable under Section 2(1) of the Misrepresentation Act, 1967. Compensation is awarded instead of performance under Section 19 to put the representee in a position as if the contract was performed. Damages are also recoverable under Section 30 of the Special Relief Act, 1963.

Section 20 - Mistake
According to Section 20, Mistake works in the following ways:
  1. Mistake in minds of parties are such that there is no existence of a genuine agreement at all. It means NO CONSENSUS AD IDEM i.e., meeting of two minds may be absent. Offer and Acceptance may not coincide between the two parties.
  2. There may be a genuine agreement but there may be a mistake regarding the facts.

Mistake, When There Is An Absence Of Consent:

two or more persons who do not agree to the same thing in the same sense, there is deemed to be no consent on their part. It means, there may be the absence of a meeting of the minds of the parties, or there may be no consensus ad idem. Therefore, in these cases, the contract cannot be enforced.[21]

It is clear from the case of Raffles vs. Wichelhaus,[22] offer and acceptance did not coincide with each other forming no contract. there was the absence of a meeting of the minds on part of both the parties, hence, the buyer could refuse to take the delivery. Thus, the agreement was void. One of the similar cases is, Tarsem Singh vs. Sukhminder Singh[23] where the condition of consensus ad idem was not present. Here, the seller wanted to sell the land in terms of “kanals” and the buyer wanted to buy it in terms of “bighas”.

Mistake Of Facts:

when both the parties are under a mistake to a fact that is essential to the agreement, the agreement is said to be void. Ignorance of fact is excusable, i.e., IGNORANTIA FACIT EXCUSAT under Section 20 of the Indian Contract Act, 1872. For example, A agrees to buy a horse of a particular species from B but at the time of the agreement it turns out that the horse was dead already, neither party knew the fact.

Section 20 requires:
  1. Both the parties should be under a mistake (Section 21) – In Ayekam Angahal Singh vs. The Union of India,[24] the plaintiff was under a mistake of fact about the validity of the rent agreement. The agreement was not affected because the mistake was unilateral. Thereby the agreement was not avoided.
  2. Mistake should be regarding the matter of fact;
  3. Fact regarding which the mistake is made should be essential to the agreement – it means that mistake should be:
    1. Regarding the existence of the subject matter;
    2. Regarding the quality of the subject matter only;
    3. Regarding the possibility of performance of the contract;
    4. Regarding the title;
    5. Regarding the promise;
    6. Regarding the identity of the parties.


Conclusion
Free consent is one of the utmost factors to maintain the validity of the contract. A contract arising out of coercion, undue influence, fraud, misrepresentation, or mistake shall not be enforceable. It will be void/voidable at the hands of one party. The consent of the contracting party should be free from any pressure.

End-Notes:
  1. Sec. 14 – Indian Contract Act, 1872.
  2. Sec. 19 & 19(A) – Indian Contract Act, 1872.
  3. Sec. 20 – Indian Contract Act, 1872.
  4. Palanippa Mudaliar v Kandaswamy Mudaliar, (1971) 1 Mys LJ 258
  5. I.L.R. (1889) 13 Mad. 214.
  6. I.L.R (1918) 41 Mad. 33.
  7. Bansraj v. Secretary of State, AIR 1939 All 373: 183 IC 134
  8. AIR 1966 Assam 115
  9. Atlee vs. Backhouse, (1833) 3 M. & W. 633; Skeate vs. Beale, (1840) 11A. & E. 983
  10. M/S Chendur Forgings (P.) Ltd. vs. M/S Bhandari Interstate Carriers, A.I.R. 2008 Mad. 218.
  11. A.I.R. 1998 Kerala 280.
  12. A.I.R. 1995 Mad. 318.
  13. A.I.R 1984, H.P. 11.
  14. A.I.R. 1988 Bombay 122.
  15. (1986-90) ALI E.R. 1.
  16. S.C. And S.T. ... on 6 October 2005.
  17. (1933) 47 Ll.L.Rep. 93.
  18. (1851) 10 C.B. 591.
  19. Section 18 of the Indian Contract Act, 1872.
  20. (1889) 14 A.C. 337.
  21. Section 13, Indian Contract act, 1872. R.K. Bangia, Law of contracts.
  22. (1864) 2 H & C. 906.
  23. A.I.R. 1998 S.C. 1400.
  24. A.I.R. 1970 Manipur 16.

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