Free Consent Unit II AD IDEM It is

Free Consent Unit - II

AD IDEM It is essential to the creation of a contract that the parties are ad idem, I. e. , they agree upon the same thing in the same sense at the same time and that their consent is free and real.

WHAT IS CONSENT “Consent” means that the parties should have the identity of mind, i. e. , the parties must understand the subject matter of the contract in the same sense. In sec 13 of the Indian Contract Act, “Two or more persons are said to consent when they agree upon the same thing in the same sense”.

WHAT IS FREE CONSENT Consent is said to be free when it is not caused by: (Sec. 14) Ø Coercion as defined in Sec. 15 or Ø Undue influence as defined in Sec. 16 or Ø Fraud as defined in Sec. 17 or Ø Misrepresentation as defined in Sec. 18 or Ø Mistake, subject to the provisions of Secs. 20, 21 and 22

When Consent is not free and cause by § Coercion § Undue Influence § Fraud § Misrepresentation Agreement is voidable Mistake Agreement Void

COERCION § § § When a person is compelled to enter into a contract by the use of force by the other party or under a threat, “coercion” is said to be employed. 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. Coercion includes Fear, Physical Compulsion, Menace.

WHEN CONSENT IS SAID TO BE CAUSED BY COERCION When it is obtained by: Committing or threatening to commit any act forbidden by the Indian Penal Code, 1860: Case: Ranganayakamma Vs Alwar Setty A young widow girl of 13 years was forced to adopt a boy to her husband who had just died by the relatives of the husband who prevented the removal of his body for cremation until she consented. Held, the consent was not free but was induced by coercion. Consequently the adoption was set aside

EFFECT OF COERCION 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 (Sec. 19) According to Sec. 72, a person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return it.

UNDUE INFLUENCE The term Undue Influence means the unfair use of one’s superior power in order to obtain the consent of a person who is in a weaker position. Sec 16 (2) “ A contract is said to be induced by “undue influence” where (i) 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 (ii) Uses the position to obtain an unfair advantage over the other”.

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. E. g. : Relationship between master and servant. b. Where stands in a fiduciary relation to the other. E. g. : Father and Son, Solicitor and client, promoter and company c. Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason or age, illness or mental or bodily distress.

CASES 1. Mannu Singh Vs. Umadat Pandey: A spiritual guru induced his devotee to gift to him the whole of his property in return of a promise of salvation of the devotee. Held, the consent of the devotee was given under undue influence. 2. Ranee Annapurni Vs Swaminath: A poor Hindu widow was persuaded by a moneylender to agree to pay 100% rate of interest on money lent by him to her. She needed the money to establish her right to maintenance. Held, it was a case of undue influence and the Court reduced the rate of interest to 24%

EFFECT OF UNDUE INFLUENCE When consent to an agreement is obtained by undue influence, the agreement is a contract voidable at the option of the party whose consent was so obtained. Any such contract may be set aside either absolutely or if the party who is entitled to avoid it has received any benefit there under, upon such terms and condition to the court may seem just and equitable.

DIFFERENCE BETWEEN COERCION AND UNDUE INFLUENCE Ø Ø Ø Definition: Under sec. 15 of Indian contract Act, 1872 is an act based upon the use of physical force, punishable under Indian Penal Code. Parties : Coercion can be employed by any person even by a stranger to the contract. Relationship: Parties need not have any relationship in between themselves. Rights: The aggrieved party has a right to avoid the contract, but has to restore the benefits to the other party, if he received such benefits. It is Punishable under Indian Penal Code and criminal act Ø Undue influence as defined under sec. 16 is an act based upon the use of moral force, which is not punishable. Undue influence is employed by any of the parties to the contract. The parties must have fiduciary relationship between them Contracts may be set aside in full by the aggrieved party or on the terms and conditions by the court, as it may decide. It is not punishable under Indian penal code and no criminal act is involved.

WHAT IS MISREPRESENTAION • It is a false statement which the person making it honestly believes to be true or which he does not know to be false. It also includes non-disclosure of a material fact or facts without any intent to deceive the other party. E. g. : A while selling his refrigerator to B, tells him that the refrigerator is in good condition. A genuinely believes the refrigerator in good condition, as he has no sufficient ground for the belief. Later, B finds the refrigerator is not in good condition. The representation made by A is misrepresentation.

Essentials of Misrepresentation It must be false, but the person who made it honestly believes it to be true. It must be relate to the material facts of the contracts. It must have been made without any intention to deceive the other party. The other party must have believed in it and acted upon. It must induce the other party to make a contract. It must have been made before conclusion of the contract. It may caused by representing half truth. It must be subsequently become false.

Effect of Misrepresentation (a) (b) In the case of misrepresentation by the other party, the aggrieved party can: Avoid or rescind the contract; or Accept the contract but insist that he shall be placed in the position in which he would have been, if the misrepresentation had been true.

FRAUD Fraud exists when it is shown that – 1. A false representation has been made Knowingly or without belief in its truth or recklessly, not caring whether it is true or false and the maker intended the other party to act upon it , or 2. There is a concealment of a material fact or that there is a partial statement of a fact in such a manner that the withholding of what is not stated makes that which is stated false.

ESSENTIALS OF FRAUD According to sec 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. Making a false suggestion as to a fact. 2. Active Concealment of fact. 3. A promise without intention to perform. 4. Any act fitted to deceive. 5. Representation of fact to deceive. 6. The party, subjected to fraud, suffered loss.

CONTRACTS “UBERRIMAE FIDEI” Uberrimea fidei contracts are contracts where law imposes upon the parties the duty of making a full disclosure of all material facts. The following are within these contracts : 1. Contracts of Insurance 2. Fiduciary relationship 3. Contracts for the sale of immovable property. 4. Contracts to take shares. 5. Family settlement. 6. Partnership contracts. 7. Contracts of Marriage.

CONSEQUENCES OF FRAUD A party who has been induced to enter into an agreement by fraud has the following remedies open to him: 1. He can avoid the performance of the contract. 2. He can insist that the contract shall be performed and that he shall be put in the position in which he would have been if the representation made had been rude. 3. An aggrieved party can sue for damages. Fraud is a civil wrong or tort; hence compensation is payable

DIFFERENCE BETWEEN MISREPRESENTATION AND FRAUD In the case of Misrepresentation , there is no intention to deceive. Is not an act of Punishable by the Indian Penal code It is an innocent wrong. The aggrieved party can rescind the contract or sue for restitution. In the case of fraud there is the intention to deceive. Fraud can become criminal act punishable under Indian Penal code. It is an intentional or wilful wrong. In Fraud, the contract is voidable. He can claim damages.

MISTAKE The term “Mistake” may be defined as an incorrect belief which leads one party to misunderstand the other. The mistake place where the concerned parties are not fully aware of the terms of the agreement, and they take the terms in a different sense. An agreement is valid as a contract only when the parties agree upon the same thing in the same sense.

MISTAKE Mistake of Fact (sec. 20) Bilateral Mistake Subject Matter Mistake of Law (sec. 21) Unilateral Mistake Possibility of performance Law of the Land Foreign Law Nature of Transaction 1. Existence 2. Identity 3. Quality Identity of Person 4. Quantity 5. Price 6. Title