Contracts are an inevitable and indispensable part of our lives whether it be small contracts like buying a chocolate from a grocery store or big contracts like buying and selling properties and huge machineries. All of these contracts are governed by the Indian contract act 1872. There are few essential elements which forms a legally valid contract under Indian contract act 1872, these are-
- An offer to contract
- An acceptance of the offer
- An intention to enter into contact
Further elaborating on the basic elements of contract, according to section 10 of Indian contract act is made only-
- By free consent of the parties
- When the parties are competent to contract
- For the lawful consideration
- With the lawful object
- When it has not been expressly declared to be void.
CONSENT AND FREE CONSENT
According to section 13 of Indian contract act 1872, the consent is when two or more parties agree upon the same thing in the same sense. For example, A agrees to sell to B a “red colour Ferrari in perfect condition”. Now if B is aware and agrees to these particular specifications, then it is a valid contract.
One more important element of consent is that it should be free. According to Section 14 of Indian contract act 1872, the ‘Free consent’ is the consent which is not caused by-
- Coercion ( Section 15)
- Undue influence (Section 16)
- Fraud (Section 17)
- Misrepresentation (Section 18)
- Mistake (Section 20, 21, 22)
According to section 15 of Indian contract act, ‘Coercion’ is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 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.
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.
Here the person uses force and intimidation to get the other person to enter into a contract with them, thus defeating the clause of free consent and rendering the contract voidable. ( Section 19, ICA 1872)
Two important elements of coercion-
- When the person commits or threatens to commit an act forbidden by the IPC.
- When the person detains or threatens to retain the lawful property of the other person.
In case of ‘ Chikam Amiraju vs Chikam Seshama¹ , threat to commit suicide was used by the husband to coerce his wife and son in to executing the release deed in favour of his brother. This threat to commit suicide is coercion under section 15 of Contract act. The same has been penalised by IPC, 1860.
In another case of ‘ Muthiah Chettiar vs Karupan (1972)’², an outgoing agent refused to handover the account books to the new agent until the principal executive release in his favour. This unlawful detention of property is coercion under Contract act.
According to Section 16 of Indian Contract act-
(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—
(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).
Essential elements of undue influence are-
- Real and apparent authority over other.
- Fiduciary relationship
- Mental or bodily distress
Real and Apparent Authority-
When the person has authority over the other person and thus uses that authority to make the former enter into a contract, it is undue influence. For example, a police officer abusing his power.
It is a relationship where one is entrusted with the property and the power of another and is bound to act on their good faith and benefit. Abuse of this power to enter into contract with a person is undue influence.
Examples of fiduciary relationships are-
Advocate-Client, Teacher- Student, Doctor-Patient, etc.
One of the case is ‘ Manu Singh vs Umadat Pande³ in which a guru influenced one of his disciples to gift him property in return of benefits in afterlife. This was an undue influence.
Mental or bodily distress-
In the case of ‘Inder singh vs Dayal singh⁴’ the court states that the undue influence arises when one party taking the temporary or permanent advantage of another’s mental condition executes a contract.
Burden of proof-
The burden of proving that the contract was not induced by undue influence is upon the person in a position to dominate the will of the another.
In ‘ Shrimati vs Sudhakar R. Bhatkar⁵’ it was held that if the transaction appears to be unconscionable then the burden of proving that the contract was not induced by undue influence lies upon the person who was in the position to dominate the will of the other.
According to Section 17 of 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.
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.
Essential elements of a fraud-
- suggestion as to a fact;
- The fact should not be true;
- The suggestion should have been made by a person who does not believe it to be true;and
- The suggestion should be made with intent either to deceive or to induce the other party to enter into the contract.
For example in ‘Lillykutty vs Scrutiny committee ⁶, the false certificate was provided to gain an unfair advantage in the selection process and this was thus deemed to be a fraud.
Fraud renders the contract voidable at the discretion of the party whose consent was obtained. They can claim for damages as well.
According to Section 18 of 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;
(2) any breach of duty which, without an intent to deceive, gains an advantage of 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.
Misrepresentation is a false statement given by one party or their agent to another party which induces them to enter into a contract. A person making a contract under misrepresentation can and revoke the contract and claim damages.
In ‘Rattan Lal Ahluwalia vs Jai Janinder Parshad⁷ , it was held that the person making misrepresentation believes the fact to be true but this misleads the promisee and thus the action against this arises.
When one party enters into the contract under some misunderstanding of either facts or laws, the consent in this case is said to be given by mistake thus rendering the contract to be void/voidable.
Mistake can be of two types-
- Mistake of Law
- Mistake of facts
Mistake as to law-
According to Section 21 of Indian Contract act when the contract has been entered under the misunderstanding regarding any legal provision, this is a mistake as to Law. Misunderstanding regarding any law of India cannot render the contract voidable whereas misunderstanding regarding the provisions not in force in India can render the contract void.
Mistake of fact-
- Unilateral Mistake- Section 22 of Indian Contract act states the 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.
For example- A agreed to sell a Red car to B whereas B was under the mistake of fact that the said car is blue. The contract cannot be voidable.
- Bilateral Mistake- section 20 of Indian Contract act states that where both the parties to an agreement are under a mistake as to matter of fact essential to the agreement the agreement is void.
For example- A agrees to buy from B a certain cat. It turns out that the cat was dead at the time of the execution of contract but neither of the party was aware of it. This rendered the contract void.https://thelegallock.com/consideration-indian-contracts-act-1872
Free consent is an essential part of a contract. Without a free consent contract cannot be cannot hold a legal validity in the court of law. And if the consent is obtained through a mistake, coercion, misrepresentation, undue influence or fraud then it can read and render a contract void.
¹ 34 Ind Cas 578, (1917) 32 MLJ 494
² AIR 1926 Mad 178
³ (1890) ILR 12 All 523
⁴(1926) 28 BOMLR 1372
⁵ AIR 1984 HP 11
⁶ AIR 2005 SC 4313, JT 2005 (12) SC 569, 2005 (4) KLT 640 SC, 2005 (8) SCALE 288, (2005) 8 SCC 283
⁷AIR 1976 P H 200
By Muskan Gupta,
Gitarattan International Business school