LEGAL ENVIRONMENT IN BUSINESS

SEC: E
MD. Mostafizur Rohman
ID: 19-40659-1

The term FREE CONSENT cannot work when exceptions are present

FREE CONSENT: Consent means to agree to something. Free consent means to agree without coercion
without being forced or threatened. It is essential to the creation of a contract that both parties agree to
the same thing in the same sense. When two or more persons agree upon same thing, they are said to
consent.

CONSENT IS SAID TO BE FREE: For consent to be free, you must be old enough to consent. The age of
consent varies according to country, state, and type of contract. Second, in order for consent to be free,
you must not be coerced, or forced. And you must not be drunk or drugged or otherwise in a state of
body or mind which affects your decision-making ability.

Free consent is said to be free when it is not caused by-

1) Coercion

2) Undue influence

3) Fraud

4) Misrepresentation

5) Mistake

1.COERCION: Coercion is

i) The committing or threatening to commit any act forbidden by Indian Penal Code.
ii) 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.

CONSEQUENCES OF COERCION: When consent of an agreement is caused by coercion, the agreement is

a contract voidable at the option of the party whose consent was so obtained. In other words, the
aggrieved party can have the contract set aside or if he so desires to insist on its performance by other
party.
2.UNDUE INFLUENCE: Undue influence is the improper use of any power possessed over the mind of the
contracting party. According to section 16 a contract is said to be affected by undue influence when: The
relations subsisting between the parties are such that one of the parties is in a position to dominate the
will of other and uses that position to obtain an unfair advantage over the other.

Following are the parties that can be affected by undue influence-

a) Doctor and patient

b) Lawyer and client

c) Guardian and ward

d) Trustee and beneficiary

e) Teacher and student

CONSEQUENCES OF UNDUE INFLUENCE: An agreement caused by undue influence is a contract voidable

at the option of the party whose consent was obtained by undue influence. However, any such contract
may be set aside either absolutely or if the party who was entitled to avoid it has received any benefit
there under upon such terms and conditions as the court deems fit.

3.FRAUD: Fraud means and includes any of the following acts, committed by a party to a contract or by
any one with his connivance or by his agent with intent to deceive another party thereto or his agent or
to induce him to enter into contract:

(a) A suggestion as to fact of that which is not true by one who does not believe it to be true.

(b) An active concealment of a fact by one having knowledge or belief of the fact.

(c) Any other act fitted to deceive.

(d) A promise made without any intention of performing it.

ESSENTIALS OF FRAUD:

1. There must be a representation and it must be false.

2. The representation must relate to material fact.

3. The representation must have been made before the conclusion of the contract with the intention of
inducing the other party to act upon it.

4. The other party must have been induced to act upon the representation.

5. The other party must have relied upon the representation and must have been deceived.

6. The act must have been committed by a party to the contract or with his connivance or by agent. It
should not have been committed by a stranger.
2. The act must have been committed with the intention of inducing the deceived party to act upon it-It
implies that the assertion should be such that it would necessarily influence and induce other party to
act.

3. Plaintiff must have suffered.

EFFECT OF FRAUD: The party whose consent to the contract is obtained by fraud can exercised any of
the following rights:

1. He may avoid the contract and may (i) ask for the damages suffered because of the non-fulfilment of
the contract.

2. He may insist for the performance of the contract.

4.MISREPRESENTATION: Misrepresentation is a false representation made innocently without any

intention of deceiving the other party. It may include two things:

(a) wrong statement of a material fact not known to be false.

(b) Non-disclosure of facts where there is a legal duty to disclose without intention to deceive.

CONSEQUENCES OF MISREPRESENTATION: In the cases of misrepresentation the party aggrieved or

wronged can be-

a) Avoid the agreement.

b) Insist that the contract be performed and that he be put in the position in which he would have been
if the representation made had been true. Unlike fraud, misrepresentation by a party does not entitle
the other to claim damages. This, however is subject to certain exceptions, i.e., in 12 certain cases the
right to claim damages arises even in case of misrepresentation. These are-

a) breach of warranty of authority of an agent- where an agent believes that he has the authority to
represent his principal while in fact he has no such authority, the agent is liable in damages, even though
he is guilty of innocent misrepresentation.

b) negligent representation- made by one person to another between whom a confidential relationship
exists, e.g.- solicitor and client.

However, if the party whose consent was caused by misrepresentation had the means of discovering the
truth with ordinary diligence, he has no remedy.

5.MISTAKE: The term mistake is used in contract law to describe a situation in which one or both parties
to an agreement acted under an untrue belief about the existence or nonexistence of a material fact.

ESSENTIALS: The following conditions must be fulfilled;

1. There must be a mistake as to the formation of the contract.

2. It must be mistake of fact.

3. It must be about a fact essential to the agreement.

Kinds of Mistake of Fact: Mistake cases are classed as mutual or unilateral, depending on whether both
or only one of the parties were acting under a mistaken belief.

Bilateral Mistake: Section 20 states that were both the parties to an agreement are under a mistake as
to a matter of fact, essential to the agreement shall be void. The mistake shall be termed as bilateral
mistake of fact only when both of the following conditions are satisfied-

(a) it should be committed by both the parties

(b) it should relate to a matter of fact essential to the agreement.

Unilateral Mistake: When in a contract only one party is at mistake regarding the terms of the
agreement.

CONCLUSION: All the agreements are contracts if they are made by free consent of the parties. Without
the consent of the party’s contract cannot take place. Where the parties have different things in mind or
understand the same thing in different ways is not real consent.

Effect of Absence of free consent: When there is consent but it is not free (i.e. when it is caused by
coercion or undue influence or fraud or misrepresentation), the contract is usually voidable at the
option of the party whose consent was so caused.