NEW LAW COLLEGE

● SUBJECT
THE INDIAN CONTRACT ACT,
1872
● TOPIC:
⮚ FREE CONSENT AND ITS EFFECT ON
CONTRACTS AS PER INDIAN CONTRACTS
ACT, 1872

NAME: KIRTI DUBEY

ROLL NO: 208 DIVISION: C

FREE CONSENT AND ITS EFFECT ON

CONTRACTS AS PER INDIAN CONTRACTS ACT,
1872
Introduction:
In general sense, the word ‘Contract’ is derived from the Latin word Contractum which means to meet
together or to bring together. Therefore, we can say that bringing two or more people together to make an
agreement is called a contract, where two or more people agree on the same thing in the same sense and
which is enforceable by law.

● Section 2(h) of the Indian Contract Act, 1872 defines contract as under:
An agreement enforceable by law is a contract;
Thus there are two essential requirements for a valid contract: An Agreement and Enforceability by law.
Certain conditions need to be fulfilled for an agreement to be called a valid contract under law. Thus the law
of contract is the field of law that establishes the conditions under which promises is legally binding on the
persons who make it.
Section 10 of the Indian Contract Act mentions that all agreements are contracts if they are made by:-
● Free consent of parties,
● Parties competent to contract,
● For a lawful consideration and with a lawful object, and
● Not expressly declared void.
Expanding the above points, we can say that the essential elements or necessary conditions of an agreement
to become a valid contract are as follows:-
 ● Existence of more than two parties
● Agreement between the parties
● Intention of the parties to create legal relationship
● Exchange of lawful consideration between the parties
● Capacities of the parties to contract
● Free consent of the parties to contract
● Lawful object of the contract
● Certainty of meaning
● Agreements which are not expressly
void The same can be pictorially depicted as under
Consent' as a word is heard very often by individuals
around the globe, as the feeling of ‘individuality’ is
given importance more and more, consent as a
provision is also evolving. Derived from the Merriam
Webster dictionary, ‘Consent’ is explained a
‘compliance in or approval of what is done or
proposed by another.’
In simple words a voluntary agreement of one party to the proposal of others in order to reach or not reach
the desired motive. Now even consents are of different types, these include implied, expressed, informed
consent and unanimous consent.
Consent is defined as under as per section 13 of the Contracts Act as under:
Two or more persons are said to consent when they agree upon the same thing in the same sense.
Thus Consent occurs when parties mutually agree to form a contract with each other. Consent given under
pressure will not be considered valid consent, and therefore the contract will become void.
But, again for a person to provide consent, he/she should not be diagnosed with a mental disorder, age more
than 18 years etc. Both consent and free consent are different and are often misunderstood as similar terms,
but both the terms are different under The Contracts Act.
Further, consent is when two or more individuals agree on the same thing in the same sense. According to
section 13 of the Indian Contract Act, the principle of consensus-ad-idem (the meeting of minds) is very
important while making a contract. It means that the person who is accepting the offer must accept it in such
a way as it was told to him by the offered without any interpretations or changes.
Example of consent: Z agrees to sell his house to X. Z owns two houses and wants to sell his flat. X thinks
he is buying a villa. In this case, Z and X did not agree on the same thing in the same sense. As a result,
there is no consent and, therefore, no contract.
Free Consent
Free consent is defined under section 14 of the Indian Contract Act, 1872 which is as under:
Consent is said to be free when it is not caused by--
(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of sections 20, 21 and 22.

It is important to note, that not every consent is a free consent. Agreeing on same subject and in same
manner may constitute “”consent”, but if such consent is caused by certain external force like coercion,
fraud, undue influence, fraud, misrepresentation or mistake. etc, it shall not constitute free consent.
Free consent is an essential element for a contract to be valid. Devoid of free consent, a contract becomes
voidable at the option of one party. This means if the consent obtained by any of the parties for a contract is
not free and is caused by either coercion, undue influence, fraud or misrepresentation, then the party has a
right to make the contract voidable at his wish. It is important that such external factors mentioned in the
section, must be instrumental for giving consent. If there were such external factors available, but if they
were remote or non-instrumental in obtaining consent, or such consent was given irrespective of coercion or
undue influence, such consent will fall under the definition of free consent.
The presence of factors which have effect on free consent to make a contract voidable are defined and
explained as under

A. Coercion (Section 15)

–
Definition:
"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.
A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to
criminal intimidation under the Indian Penal Code. (45 of 1860).
A afterwards sues B for breach of contract at Calcutta.
A has employed coercion, although his act is not an offence by the law of England, and although section
506 of the Indian Penal Code (45 of 1860) was not in force at the time when or place where the act was
done.

Meaning: Coercion is nothing but forcing a person to enter into a contract by adopting unfair means. In this
case the basic idea of Coercion arises where a person may be forced to make an agreement by use of fear or
physical harm. It is in a way threatening to commit or committing, any act forbidden by IPC (45 of 1860),
or the illegal retarding, or intimidating to retard, any property, to the preconception of any person however,
with the objective of inducing any person to set foot into an agreement.

Committing or threatening to commit any act: In this one party to contract actually commits or
threatens to commit any act which is forbidden by IPC in order to get consent from the party to contract.
E.g. “A” threatens to shoot “B” if “B” does not sign promissory note of 20,000 Rs to “A”. In this “B’s”
consent is obtained due to Coercion & “B” can cancel this agreement ( has right to cancel this agreement).

Unlawfully detaining or threatening to detain property: In this if the party to contract actually detains
or threatens to detain any property of the other party to contract in order to get consent to contract.
Coercion may move & direct towards anyone: The coercion may move from one person and may move
to any person other than contracting party to the contract. It may even move to the close relations of the
contracting party. E.g. “A” kidnaps “B’s” son in order to obtain the consent of “B” to contract. Even though
“B’s” son is not party to contract, the coercion has moved to him. Not only that but also Coercion may be
directed towards any person. In this case it is not necessary that the coercion should always be performed by
the parties to contract, sometimes it can also be exercised by a third party to contract. E.g. “A” hired “B” to
kidnap “C’s” son in order to get consent from “C” to contract.

Does threat to commit suicide comes under coercion? Suicide or threat to commit suicide is not an offence
under IPC, but attempt to commit suicide is an offence. A threat to commit suicide may amount to Coercion
if the relation between the parties are close enough.

Intention: This is a very important factor and an act should be done to induce the other party with an
intention to make the party agree for a contract.

Certain threats are exceptions to the coercion which are as hereunder:

1) Threat to sue – Threat to prosecute a person or file suit against a person is not coercion .
Approaching a court and seeking for remedy by filing suit is a fundamental right which is given to every
citizen.
2) Statutory Compulsion –If anything done by the order of court, then it is not coercion.
3) Threat to strike – A threat by employees to go no strike is not coercion but it is a right given under
Industrial Dispute Act to employees.

Effects of coercion: When coercion is employed, pursuant to which a contract has been entered then the
contract is voidable at the option of the aggrieved party. This means the contract is voidable at the option of
the party whose consent was not free. So the aggravated party will decide whether to perform the contract or
to void the contract. In this case any benefit received by the either parties to contract must be restored back.
Also, if any monies have been paid or goods delivered under coercion must be repaid or returned once the
contract is void. And the burden of proof proving coercion will be on the party who wants to avoid the
contract. So the aggravated party will have to prove the coercion, i.e. prove that his consent was not freely
given If the aggrieved party has suffered loss, he can recover the loss from the other party to contract..

Duress vs Coercion: The term Duress has been applied under the English Contract Act as Coercion is a
term applied under Indian Contract Law. However both are distinct as in coercion even third party can
perform the act but in duress only the party to contract should perform the act. Further in Duress, it can only
be applied for person and cannot detain property. Therefore the scope of coercion applied in Indian Contract
Act is wider than duress.
Coercion Duress
Duress can be employed against life or liability of
Coercion can be employed against any person
another party to the contract or members of his
including the stranger.
family.
Duress may be employed only by the party to the
Coercion may be employed by any person.
contract or his agent.
Unlawful detention of goods is a kind of Unlawful detention is not duress under English law.
coercion.
The following case laws explain Coercion more elaborately
In the famous case of Ranganayakamma Vs. Alwar Setti (1889), AaHindu Widow of 13 years, was coerced
into adopting a boy under the threat of not allowing cremation of her husband’s death. 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. Following which, the widow feared and adopted the boy. Later she
even applied for cancellation of the adoption. The matter was escalated to the High Court wherein The
Hon’ble Court decided in favour of the Widow. It was held that the adoption was voidable at her option as
her consent was not free and was rather obtained by coercion due to applicability of the offence under Sec
297 of the Indian Penal Code.
In another case Chikkam Ammiraju Vs. Chikkam Seshama (1918) the question before the Madras High
Court was that whether coercion could be caused by a threat to commit suicide. In this case a Hindu by a
threat of suicide induced his wife and son to execute a release deed in favour of his brother in respect of
certain properties claimed as their own by the wife and the son. The question before the court was whether a
threat to commit suicide could be considered to be an act forbidd en by the Indian Penal Code. It was held
by Wallis, C.J. and Seshagiri Ayyar, J. that a threat to commit suicide amounted to coercion within the
meaning of Section 15 of the Indian Contract Act and therefore the release deed was voidable.

B. Undue Influence (Section 16) –

1
[16. Undue influence defined.-- (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 lie upon the person in a position to
dominate the will of the other.
Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of
1872).
Illustrations
(a) A having advanced money to his son, B, during his minority, upon Bs coming of age obtains, by
misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the
advance. A employs undue influence.
(b) A, a man enfeebled by disease or age, is induced, by Bs influence over him as his medical attendant,
to agree to pay B an unreasonable sum for his professional services, B employs undue influence.
(c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear
to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.
(d) A applies to a banker for a loan at a time when there is stringency in the money market. The banker
declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms.
This is a transaction in the ordinary course of business, and the contract is not induced by undue influence.]

Meaning: Undue influence occurs when a person abuses a position of ‘trust and confidence' to pressure
another party to enter a legally binding contract against their will. A finding of undue influence requires that
there is a relationship where one party is dependent on the other. The person who is depended on must
occupy a position of ‘trust and confidence'. For undue influence to happen, this position will be abused,
resulting in the dependent party being pressured to enter a legally binding contract and subsequently put at a
 disadvantage. When one of the parties is in a position to dominate the will of the other and utilises that
position to gain an unfair advantage over the other, the contract is said to be induced by undue influence.
When one party is in a position to dominate the will of others and actually misuses the power, then it is a
case of undue influence, and the contract becomes voidable. When all the following three conditions are
fulfilled then only the situation is considered as an undue influence:

1. One person is in a position to dominate the will of others.

2. He misuses his position.
3. He obtains an unfair advantage.

The word undue means unnecessary, unwarranted, or more than required. Influence means convincing the
mind of a counterparty through changing his mind or changing his will, but this influence must be undue i.e
it is not required. Undue influence applies to a relationship which may be blood relation or some other kind
of relation i.e fiduciary or relation based on trust. It means the unfair use of one’s superior position to obtain
the consent of a person who is in a weak position. For example, A police officer bought a property worth Rs
1 lakh for Rs 5000 from Ram, an accused under his custody. Later this contract can be cancelled and it can
be held as void because there is a mental pressure on a person.
Ability to dominate the will of other
The dominant position is not defined in the Indian Contract Act but Section 16(2) provides certain
conditions when a person is in a position to dominate the will of another. Cases, where a person is in a
position to dominate the will of others, are as follows:

1. There must be a relation between the parties:

a) Real or apparent authority/relation in which one party can be dominated by the other party. For
example, father and son, mother and daughter.

b) Fiduciary relation is the relation which is made upon the belief and trust between the parties. One
party must believe the other. For example, Advocate and client, teacher and student, Doctor and patient.
2. Mental or bodily distress means the mental capacity of a person is affected. It can be either
permanently or temporarily affected. The reason behind such health condition can be age, illness, mental or
bodily distress.

Consent under pressure

Consent under pressure means when consent is obtained forcefully. In this manner, consent is not lawful, so
it had no binding effect.

Subtle species of fraud

Undue influence is said to be subtle species of fraud due to which a party controls the mind of the victim by
his clever skills and with gradual proceedings but with very harmful effects. Sometimes the contract is
signed due to fear, coercion, importunity or other domination. It was observed by the Privy Council in
Someshwar Dutt vs Tribhawan Dutt that acts of undue influence range themselves under the heads of
coercion or fraud. Generally, undue influence is often confused with coercion or duress. Duress occurs when
there is a physical compulsion or direct force upon a person or there is a threat to a person’s life. In contrast
to duress, undue influence may exist with or without force or threat to a person’s life. For example, ‘A’
advances a sum of money to his son ‘B’ in his age of minority and through his parental influence over his
son make him sign a bond of a greater amount of a sum due in respect of the advance. A used undue
influence in this case as there is a fiduciary relationship between father and son as there is natural
confidence between both which A abuses by making his son sign a bond.

Relations which involves domination

All cases where there is an active trust and confidence between the parties and both parties are not on equal
footing. The principle of undue influence applies to all the cases where influence is acquired and abused. It
applies to all relations where domination can be exercised by one party over another. i.e where exists a real
or apparent authority or fiduciary relationship. In the category of undue influence, the circumstances under
which the contract was made is taken in the account along with their relationships. The existence of a
dominating position along with its use is mandatory to invoke an action. Merely a dominant position does
not lead to undue influence. It arises only when this position is used for gaining an undue advantage. Undue
advantage means any kind of advantage which is not warranted by circumstances in which the contract was
entered. In the case of Ganesh Narayan Nagarkar Vs Vishnu Ramchandra Saraf, it was stated by the court
that unfair advantage is the advantage or enrichment which is obtained through unjust means. It comes into
existence when bargains favour a person who enjoys influence and which proves unfair to others.
Real or Apparent authority
Section 16(2) of the Indian Contract Act states that Undue Influence can arise wherever the donee stands in a
fiduciary relationship to the donor or holds a real or apparent authority. In this type of influence, there is a real
authority like a police officer or an employer who uses his dominance for his enrichment. Apparent authority
is pretending as a real authority without its existence.
Mental distress
An only mental distress state of mind does not amount to undue influence until the defendant has used this
opportunity to take unfair advantage from another party. Similarly, instigating a person to enter into a
contract who has just attained majority amounts to undue influence under this category due to a lack of the
plaintiff ‘s experience. In the case of Inder Singh Vs Dayal Singh, 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. For example, A entered a contract with B, who is a minor and is unable to understand the
complex terms of a contract. It will amount to undue influence unless A proves that the contract was entered
in good faith and with adequate consideration of B. A case of undue influence is established more easily
when there is evidence to establish to show that the person influenced was of feeble mental capacity or in a
weak state of health.
Burden of proof
Generally, the party bringing a claim has the burden to prove the truth of the facts on which he or she is
relying. The burden of proof is on the claimant to show that undue influence was exerted by a stronger party
over the weaker party, and the latter could not exercise free choice when entering the agreement. However,
this burden can be shifted to the defendant in an undue influence case if the plaintiff can demonstrate that a
confidential relationship existed between the testator and defendant, and that suspicious circumstance
surrounded the preparation and execution of the will. When this occurs, the burden shifts totally on the
defendant to prove that undue influence did not occur. When a person is found to be in a position by which
he can dominate the will of the other or a transaction appears to be affected due to dominance, the burden of
proof that no undue influence was exercised in the transaction lies on the party who is in a position to
 dominate the will of others. In the case of Diala Ram Vs Sarga, the defendant was already indebted to the
plaintiff, who was village moneylender. He again took a fresh loan from a plaintiff and then executed a
bond, wherein he agreed to pay some interest. The court held that the contract was unconscionable and
therefore, the burden of proof was on the plaintiff to show that there was no undue influence in this case.
The burden of proving that the contract was not induced by undue influence is to lie upon the person who
was in the position to dominate the will of others if the transaction appears to be unconscionable.
Presumption of undue influence
There are some cases in which the Honourable Courts of India presume the existence of undue influence
between the parties:
1. Where one of the parties to a contract is in a position to dominate the will of the other and contract is
prima facie unconscionable i.e unfair, the court presumes the existence of undue influence in such cases.
2. Where one of the parties to a contract is a Pardanashin Woman, the contract is presumed to be
induced by undue influence. In relation to Pardanashin Woman, Bombay High Court made an opinion that a
woman becomes Pardanashin because she is totally exempted from ordinary social intercourse not because
she is the seclusion of some degree.
A Transaction with Pardanashin Woman
When a Woman can be viewed from the screen or is placed behind the screen i.e veiled is called Pardanashin
Woman. The protection of those women is rooted in the principle of good conscience and equity. Special laws
are made for these women because they are subjected to ignorance, infirmity, illiteracy, etc and are thus easily
influenced. The burden of proof should be provided against the person who is transacting with a Pardanashin
woman. He has to prove that the transaction had taken place with the consent of the women and her decision
was taken by her without any coercion or enforcement and she was made well aware of the provision
mentioned in the document of the transaction by the other party with whom she has made the contract. In the
case of Tara Kumari vs Chandra Mauleshwar Prasad Singh, it was delivered by the court that the essential
thing to establish the burden of proof is that the party executing them should be a free agent and the women
should be informed about the terms and conditions of a contract. In the case of Kuna Dei vs Md Abdul Latif, it
was delivered by the court that showing of the document to the pardanashin women won’t be enough to
establish the burden of proof. Thus, he has to show that the women were explained clearly the facts in the
document of the transaction.
This principle also applies to men also, as in the case of Daya Shanker Vs Bachi, who by their physical or
mental capacity is prone to easy influence and after inducement tends to enter into a contract or transaction
relating to purchase and sale of the property. The principle on which the protection by law is made for a
pardanashin women is based on equity and good conscience of women.
Natural justice
Undue influence affects natural justice when the provision of a will are unjust, unreasonable and unnatural
doing violence to the natural instincts of a heart, to the dictates of parental affection, to natural justice, to
solemn promise, and to moral duty. Such unexplained inequality amounts to undue influence.
Illustration: Z is a rich landowner and Y a poor farmer. Y has a jersey cow valued at 5,000. If Z uses his
authority and forces Y to sell the cow for 2,000, he would be using undue influence.
As per section 16(2), A person is deemed to be in a position to control the will of another under the below-
mentioned circumstances:
1. Where he holds a real or apparent authority over the other, i.e. relationship between master and servant,
Income Tax Officer in relation as assessee.
2. When the party stands in a fiduciary relationship, i.e. a relationship of trust and confidence with the other,
like the relation between an advocate and client.
3. When a person’s mental capacity is temporarily or permanently impaired due to age, sickness, or mental or
physical distress, the party enters into a contract with that person. Such a relationship exists, for example,
between a doctor and his patient.
However, there are relationships where such information cannot be deemed to be undue influenced, like the
relationship between husband and wife or between mother and daughter.
Illustration: Under the undue influence, an elderly man who was ill and feeble was forced to sign a contract
to pay an expensive sum to the doctor for his care and treatment. The court will set aside the contract
because it was made under undue influence.
Effect: Now undue influence to be evident the dominant party must have the objective to take advantage of
the other party. If influence is wielded to benefit the other party it will not be undue influence. But if consent
is not free due to undue influence, the contract becomes voidable at the option of the aggravated party. And
the burden of proof will be on the dominant party to prove the absence of influence. While concluding, it
can be said that there is an inadequate consent in the presence of undue influence as defined in section 13 of
the Indian Contract Act. Thus, in a fiduciary relationship and in other such forms of relationship, the party
which enjoys the real or apparent authority must ascertain that the other party is free from external
manifestation

FRAUD - "Fraud" means and includes any of the following acts committed by a party to a contract, or with
his connivance, or by his agent1 , with intent to deceive another party thereto of 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 speak2 , or unless his silence is, in itself, equivalent to speech.
Illustrations
(a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horses
unsoundness. This is not fraud in A.
(b) B is As daughter and has just come of age. Here, the relation between the parties would make it As
duty to tell B if the horse is unsound.
(c) B says to A—"If you do not deny it, I shall assume that the horse is sound." A says nothing. Here, As
silence is equivalent to speech.
(d) A and B, being traders, enter upon a contract. A has private information of a change in prices which
would affect Bs willingness to proceed with the contract. A is not bound to inform B.According to Section 17
of the Indian Contract Act, when a party contracts with the other party with the intention to deceive, it
amounts to fraud by misleading the facts.

In simple terms, “Fraud” under section 17 of the Indian contract act, has been defined to include false
representation of a material fact related to the contract—regardless of whether by words or by conduct, by
bogus or misleading allegations, or by non-disclosure of what ought to have been revealed—that is intended
to deceive and deceives the other in such a way that the person acting on such misrepresentation, acts to his
own injury. Furthermore, it includes promises made without the intent of performing them and any other
act/omission declared fraudulent by law.

Fraud is of infinite variety and is thus hard to define. The use of the phrase “includes” indicates the intent of
the drafters to enlarge the definition of the phrase to include even those matters which would not be included
within its ordinary meaning. The essential features of fraud include –
1. Fraud must be committed by a party to the contract directly or indirectly or by his agent. However,
where the contract was a result of a 3rd person being instrumental for his own ulterior motives, the contract
cannot be avoided;
2. Intention to deceive or inducing the other party to contract is a must.
3. In a suit against fraud, to claim relief, the plaintiff has to show that the defendant made fraudulent
representations and the plaintiff was in fact deceived and acted to his prejudice. In lay terms, a plaintiff
cannot claim any right to redress in cases of both deceit without damage and damage without deceit.
WHAT CONSTITUTES FRAUD?
Based on the definition of fraud under section 17, the circumstances that constitute fraud are:

1. ASSERTING FACTS WITHOUT BELIEF IN THEIR TRUTH

In the widely referred to the English case of Derry vs peek, a company had made a false representation.
However, they honestly believed in the truth of the representation conveyed. This, it was observed by the
court that “Fraud is proved when it is shown that a false representation has been made – (1) knowingly, or
(2) without belief in its truth, or (3) recklessly careless whether it be true or false.” Therefore intentional
misrepresentation is the essence of fraud and it is dealt with under the first three clauses of section 17. The
ingredients contemplated under this clause of Fraud are – “(a) There should be a suggestion as to a fact, (b)
the fact suggested should not be true (c) the suggestion should have been made by a person who does not
believe it to be true, and (d) the suggestion should be found to have been made with intent either to receive
or to induce the other party to enter into the contract in question.” However, if the plaintiff has the means to
discover the truth by ordinary diligence, no fraud is proved.

2. ACTIVE CONCEALMENT
Active concealment is a situation where one party conceals material information related to the contract
despite having a duty to disclose such information. In simpler words, it refers to failure in disclosing private
information. It is more than mere passive concealment, that is to say, it requires an overt act for
concealment. It is crucial to note here that passive concealment referred to above means silence. The section
makes it clear that though mere silence doesn’t amount to fraud, it may constitute fraud under situations
where the party has a duty to speak or where such silence is equivalent to speech.

WHEN DOES SILENCE AMOUNT TO FRAUD?

a. Where there arises a Duty to Speak – Duty to speak arises when a party reposes trust and
confidence in the other party and the other party accepts the confidence reposed. Duty to speak may also
arise in case of a contract that is uberrima fides or where one party is short of resources required to discover
the truth and thus, has to depend on the information conveyed by the other party. Thus, where the parties
share no such fiduciary relation, there is no duty to speak and mere silence will not amount to fraud, even if
it is considered to be a misrepresentation. For example, in insurance contracts, the insurance company has
no way to determine the truth of details given by the insured. Thus, it has to solely rely on the information
provided by the insured. In situations where a party specifically enquires about a material fact related to the
contract property, a duty to speak arises.
b. Where silence is deceptive – In some cases, silence itself becomes equivalent to speech. Where a
person, despite the knowledge of his silence being deceptive, stays silent, is equally liable for fraud.
c. Change of Circumstances – It may sometimes happen that an assertion when made may be true;
however, on account of change in circumstances, it may become false at the time when it is actually acted
upon by the other party. In such cases, it is the duty of the person who originally made the representation, to
inform the other party about the change in circumstances.
d. Half-Truths – Whenever a person discloses something, whether out of his duty to speak or not, he
must disclose the information in toto. The informing party may be held guilty of fraud if he discloses
something voluntarily and then stops halfway through. A half-truth is a lie. Suppressio very may amount to
suggestio falsi.

3. PROMISE WITHOUT INTENTION OF PERFORMING THE CONTRACTUAL OBLIGATIONS

What has been contemplated under this clause is that the initial intention of not performing the promise that
is made is a necessary element to constitute fraud and the existence of such an intention cannot be inferred.
The fraud that has been contemplated under this clause is a one which is at the very inception, a fraud
vitiating the transaction itself and not any subsequent conduct or representation on the part of the party or
his representative. Various types of situations that fall under this clause include – where a person contracts
with another without the intent to perform, only to prevent the other from contracting with some third
person; contracting without the intending to pay the agreed consideration; one party promising the other,
something which he is certain of not being able to accomplish in the given contractual period.

4. ANY OTHER ACT FITTED TO DECEIVE

Since fraud can be of an infinite variety, it is futile to make an attempt to define fraud precisely and
exhaustively to cater to all the contingencies because it is highly likely that many loopholes may become
available to escape liability. Human innovation and creativity know no bounds and thus, this clause has been
drafted as a tool to enable the judiciary in doing effective and true justice. This clause may include all those
acts which may be used to trick or cheat someone by unfair means to cause wrongful loss to the one cheated
or wrongful gain to the one cheating. The intent of the person cheating must be to deceive the other person.

5. ANY ACT OR OMISSION SPECIALLY DECLARED TO BE FRAUDULENT BY LAW

For instance, concepts of “fraudulent transfer” under the Transfer of Property Act and “fraudulent
preference” in Insolvency laws:
NOTE – In the case of Avitel Post Studioz Limited and Ors. vs. HSBC PI Holdings (Mauritius) Limited and
Ors. , the Supreme Court reiterated that “Section 17 of the Contract Act only applies if the contract itself is
obtained by fraud or cheating. However, a distinction is made between a contract being obtained by fraud
and the performance of a contract (which is perfectly valid) being vitiated by fraud or cheating. The latter
would fall outside Section 17 of the Contract Act, in which the remedy for damages would be available, but
not the remedy for treating the contract itself as being void”.

EVIDENCE AND BURDEN OF PROOF – The circumstances which comprise fraud have to be pleaded
by the plaintiff by furnishing the specific details of the case. A case of fraud (irrespective of whether civil or
criminal suit) has to be proved beyond a reasonable doubt. It is to be noted that every allegation of fraud
must be specific and fraud of a type other than the one alleged cannot be proved. Fraud may not be directly
proved but may have to be deduced from the surrounding circumstances and the conduct of parties prior to
the agreement and post-contract. The conclusive decision of the commission of fraud cannot have its basis
on mere speculation; such a conclusion must be based on some constructive and worthwhile material placed
on record. The burden of proof in case of an alleged fraud is upon the plaintiff. However, where a party
stands in a fiduciary relation to the other party, the former party is required to exercise extreme good faith
and honesty in his dealings with the latter party and examine those transactions with vigilance and caution
higher than that ordinarily required. In situations where the parties do not stand on the same level, an
appropriate presumption of fraud is raised by law. However, where both parties to a contract stand in pari
delicto, none of them can take advantage of such a transaction. The court shouldn’t insist on direct proof in
case of fraud as fraud has been by its very nature – discreet, thereby leaving a higher unlikelihood of finding
direct proof. Thus, fraud can be deduced from such circumstantial evidence that overcomes the natural
presumption of good faith and fair transaction and convinces a reasonable person that such a presumption
has been negated satisfactorily.

EFFECT OF FRAUD – When consent has been obtained by fraud, the contract becomes voidable u/s 19 of
the Indian Contracts act. Thus, the party defrauded has an option either to rescind the contract or insist that
the contract be performed to place him in such a position as he would have been if the misrepresentation had
been true. If the defrauded party chooses to avoid the contract, he is liable to restore the benefit received (if
any) back to the fraudulent party u/s 64 and may claim damages. In order to ascertain damages for fraud, the
court ought to refer to certain principles which were laid down in Doyle v. Olby (Ironmongers) Ltd. and
reiterated by the Hon’ble Supreme court in Avitel Post Studioz Limited and Ors. vs. HSBC PI Holdings
(Mauritius) Limited and Ors. –
“(1) the Defendant is bound to make reparation for all the damage directly flowing from the transaction;
(2) although such damage need not have been foreseeable, it must have been directly caused by the
transaction;
(3) in assessing such damage, the Plaintiff is entitled to recover by way of damages the full price paid by
him, but he must give credit for any benefits which he has received as a result of the transaction;
(4) as a general rule, the benefits received by him include the market value of the property acquired as at
the date of acquisition; but such general Rule is not to be inflexibly applied where to do so would prevent
him obtaining full compensation for the wrong suffered;
(5) although the circumstances in which the general Rule should not apply cannot be comprehensively
stated, it will normally not apply where either
(a) the misrepresentation has continued to operate after the date of the acquisition of the asset so as to
induce the Plaintiff to retain the asset or
(b) the circumstances of the case are such that the Plaintiff is, by reason of the fraud, locked into the
property;
(6) In addition, the Plaintiff is entitled to recover consequential losses caused by the transaction;
(7) the Plaintiff must take all reasonable steps to mitigate his loss once he has discovered the fraud.”
The right of rescission may however be lost, when –
1. The party affirms the contract even after becoming aware of his/her right to rescind;
2. The party doesn’t exercise his right of rescission within a reasonable period of time, i.e., by lapse of time
3. A third party, in good faith, has acquired rights in the subject matter of the contract. However, if the
defrauded party rescinds/shows an intention to rescind the contract by doing an overt act before the 3rd
party acquires any rights in the contract property, rescission shall be granted. For instance, in Car &
Universal Finance Co. Ltd. v. Caldwell, the plaintiff gave possession of his car in return for a cheque, which
later turned out to be worthless. He was unable to get the defendant to rescind the contract. Thus, he filed a
complaint with the police and Automobile Association to tract his car. This overt act showed his intention to
rescind the contract and he was granted relief.

D. Misrepresentation (Section 18) –

18. “Misrepresentation” defined.—“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 to 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. It is called
misrepresentation when a contract is made by false representation of facts or when a party misleads the
other by showing false things and making them look genuine
In the legal aspect, we use Misrepresentation commonly in the law of torts. It is also mentioned in Section
18 of the Indian Contract Act, 1872. It defines Misrepresentation as a “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” or “any breach of duty which, without an intent to deceive, gains an advantage to 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.” or “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 literally means a
statement made by a party which is false but is made without an intent to deceive the other party, i.e. The
promiser(first party) believes that the statement is true. These definitions mentioned in the statute clearly
states that the Statement should be made with no malicious intent.

Essentials of Misrepresentation
● There must be a false representation of the fact.
● The cause of the consent must be such a false representation.
● The statement should be made with the intention to induce the other party to the agreement.
● The statement must be made before the conclusion of the contract.
● The statement should not be made to deceive the other party.
In Rickview Construction Co. v. Raspa, it has been held that when a contract is made by misrepresentation,
the disadvantaged party man, not only avoid the contract but also sue for
damage.

Historical Perspective -
The Principle of Misrepresentation in the INDIAN CONTRACT ACT, 1872 evolved from the English Law
Concept of Misrepresentation. In English Contract law, misrepresentation is divided into
● Fraudulent Misrepresentation- established when a person makes a false statement which he knows
is not true and has no belief in its truth or which he makes recklessly not caring whether it is true or
not.
● Negligent Misrepresentation- established when a false statement is made by the person which the
person may honestly believe to be true but with- out reasonable grounds for believing it to be true.
● Innocent misrepresentation: The last one of the three recognised types of misrepresentation is the
innocent misrepresentation in which the representer believes that the statement is factual and he can
demonstrate reasonable grounds for his belief in the truth of his statement. There is a special element
unique for the innocent misrepresentation. If the misrepresentation made does not benefit the person
who made it, or hurts both parties to the contract, it will not be considered a case of
misrepresentation by the courts.

Misrepresentation is mentioned in Section 18 of the Indian Contract Act, 1872. Misrepresentation becomes
a ground to make a contract voidable as mention in Section 19 of the INDIAN CONTRACT ACT, 1872.
But this is not an absolute ground, for making a contract voidable:
● If such a statement could have been found with ordinary diligence, then the contract is not voidable.
● If such a statement does not cause the consent to contract on whom the statement was
made. The following case is an example of Misrepresentation:
# Derry v. Peek
In this case, the defendant owned a tramways company and they issued a notice stating that the company
had received permissions for steam trams instead of the animal powered trams. But this statement was
actually false and was still pending approval. But the defendants honestly believed that it would be approved
and the process is just a formality. The plaintiff bought shares in the company believing the statement but
the permission was not approved and hence the Defendant company had to wind up creating injury to the
plaintiff. The court held that the Defendant company is not liable as they were honestly believing in the
statement.
The burden of proof for the misrepresentation is always on the party alleging the misrepresentation.
Comparative Analysis
● Misrepresentation and Fraud
Fraud and Misrepresentation are two terms which has just a hairline difference. Both fraud and
misrepresentation uses a false statement for making the other party enter the terms of a contract, but the
difference is that, in fraud, the statement is deliberately made to deceive the party whereas in the case of
misrepresentation, the statement is made in good faith and truly believing the statement to be true.

Effects of Misrepresentation
The Section 19 of the Indian Contract Act, when the consent to an agreement is caused by
misrepresentation, the aggrieved party to the contract may insist that the contract shall be performed or
avoid or rescind the contract.
In Long v. Lloyd (1958), the defendant sold his lorry to the plaintive by convincing falsely that it was in
very good condition. The plaintiff on his very first journey discovered serious defects but accepted the
defendants offer to bear half the cost of repairs. The Laurie completely broke down on the next journey and
the plaintiff claimed for the cancellation of the contract. But, it was held that the plaintiff had got known
about the representation in the very first drive and he could have had backed out of the contract, but, he did
not do it. Hence the Plaintiff could not claim for the damages.

Innocent Misrepresentation
Walker v. Boyle(1982), while selling his wife's house to the plaintiff, Walker, innocently represented that
there were no dispute regarding the land boundary. It has been held that Walker was entitled to get refund of
his deposit. Misrepresentation results not only from misstatement of facts, but also from suppression of
material facts as laid down in R V. Kylsant (1932).
In Babul v. R.A. Singh (1968), the father of the bride told her that the proposed bridegroom for her was a
young man. Believing this statement by her father, the bride gave her consent to marry but actually ended up
that the bridegroom was 60 years old. It was observed that it was the duty of the petitioner’s father to
disclose to the petitioner that the respondent was a man of nearly 60 years old and that she might be free to
give or withhold her consent to the marriage proposal. Therefore, the elements of fraud and
misrepresentation was undoubtedly present in this case.

Effects of misrepresentation
Misrepresentation means a false statement of fact. The consent of parties to a contract obtained by false
statement to enter into a contract. The consent obtained by misrepresentation is not a free consent. A
contract is voidable and the opinion of the party who entered the contract believing such a statement.
Misrepresentation may include positive assertions but there must be a false representation of the fact. Such a
statement of misrepresentation should be made with an intention to induce the other party and it must be
made before the contract is concluded.

E. Mistake (Section 20 to 22) Section 20 of the Indian Contracts Act defines mistakes as under:
20. Agreement void where both parties are under mistake as to matter of fact.
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.
Explanation.--An erroneous opinion as to the value of the thing which forms the subject-matter of the
agreement is not to be deemed a mistake as to a matter of fact.
21. Contract caused by mistake of one party as to matter of fact.—A 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.

Mistake means wrong belief which is innocent, and leads one party to rise misunderstanding against other.
Mistake happened when the terms and conditions of the agreement is not clear between the parties. When
one said something and white was not clear in the mind of other. The both parties understand consequences
on the different terms and there was no consensus-ad-idem i.e. meeting of mind , and thus not understanding
same thing in same sense.
Mistake has been further classified into two cases under Indian Contract Act , 1872.
1. Mistake of Fact
2. Mistake of law.

Mistake of Law under Indian Contract Act

Ignorance of law is not excusable under India Contract act. It can better be explained with the help of Latin
Maxim Ignorantia juris non execusat, this means any party Under contract can’t take defence that they do
not know any law enforced India at that time, everyone is deemed to know the law enforce, this is covered
under section 21 of contract Act, and such Contracts are not voidable on mere grounds of being unaware of
laws.
For example : If any person travels in a train without tickets and on being caught by the conductor he takes
defence of not being aware of the law. The man under contract law can’t take this ignorance of law as a
defence and the person will be punished under sec 138 of The Indian Railways Act, 1989.

● Exceptions
1. Mistake regarding foreign law.
Under section 21 of Contract Act , Mistake regarding foreign law is considered as an excuse. Because no
party is supposed to know the provision and law enforced in foreign country. Hence it will be treated as a
exception of this law.
For example : An Indian company was supposed to sell 200 cans of concentrated sulphuric acid containing
45% of solution to American company. Although more than 30% of solution was banned in America
unknowingly to this fact the Indian company took defense of Mistake of law. It was acceptable as a defence
because no one is supposed to know the laws of foreign.

2. Mistake regarding private right.

The existence of any private right is a matter of fact although depending on the rules of law because it is not
ok for a party to fully know the private rights of another party.
In Cooper v Phibbs the offended party took a rent of fishery directly from the litigant unconscious of the
way that he previously had an actual existence enthusiasm for the fishery right. The offended party, thusly,
brought a suit for the dropping of the rent and the respondent contended this was an error of law. It was held
that a mix-up concerning the general proprietorship or right stands on a similar balance as a slip-up of law
and consequently was announced void.

Mistake of Fact under Indian Contract Act

Ignorance of Fact is excusable under law of Contract. Ignorantia Facit Excusat that implies ignorance of
Fact is excused. Under Section 20 of Indian contract this term is explained, contract is said to be void of
both the parties are under mistake of Fact.
Further it has classified as:-

1. Bilateral Mistake – Section 20

Following conditions needs to be fulfilled to apply this
1) Mistake must be mutual that is committed by both the parties
2) Is should be related to certain Fact.
3) Facts should be necessary to contract.
Since there is no consensus-ad-idem hence contract would be void.
Different kinds of bilateral mistakes

1) Regarding Subject Matter :

It happens many a time that subject on which the contract is based ceases to exists and the parties to contract
are not aware of this fact. If the subject matter to contract does not persists then it means that contract has
perished and is termed to be void.
In the case of Galloway Vs. Galloway the couple demanded separation after marriage but it was held that the
agreement of separation is void because it was mere assumption that they were married to each other.

2. Subject matter’s quality:

If the misconception is not regarding the matter but its quality then the contract is said to be valid.
In the case of Smith Vs. Hughes, one person entered into contract of buying oats, he thought it to be old
whereas it was new hence contract can’t be said to be void on the mere basis of quality.

2) Regarding the quality of subject matter.

If there is mutual mistake of regarding the quantity of the subject, then the contract is said to be void.

3) Regarding the title of the subject matter.

If one person wants to buy something of which he already is owner, but both the parties are under mutual
mistake of fact. Then in this case seller does not have any right to sell and contract in itself stands void
Example: Cooper V Phibbs case.

Unilateral mistake under Indian Contract Act

When only one party is under mistake regarding subject matter to contract. This part is elaborately
discussed under Section 21 of the Contract Act. However a unilateral mistake does not affect the validity of
the contract and is not mere ground to set contract aside.
In the case of Tapeline Vs. Jainee. The buyer wanted to buy a land and was well versed with its
measurement, he was also provided with the plan to study it further, but he declined and when he purchased
a land he saw that garden area which he thought to be included in the plan was not there and hence court
held that contract can’t be revoked as it was Clearly mentioned in the plan provided. And it was mere
mistake of one party. Hence the contract is valid.
Exception to Unilateral Mistakes
This type of contract can be termed void only if it is proved that contract is caused by misrepresentations or
fraud by one party.

1) Mistake to one party as to nature of contract.

When one party makes any mistake regarding the nature of contract and it is known by the other it is said to
be void. This happens when while entering into the contract the party is misrepresented or fraudulently
pushed into contract or at the time of understanding its measures the person was unable to understand due to
age factor or illness.
In the case of Dulari Devi V. Janardhan An illiterate woman was made to put her thumb impression on two
papers believing them to be some gift deeds to her daughter, whereas in actual the papers were regarding
transfer of whole property on someone else’s name without her consent. Although here also the mistake was
unilateral but as the contract initiated with element of fraud it was held to be void by the court.

2) Mistake regarding identities of the parties to the agreement.

Usually, the identity of the parties is not relevant to contract but in certain cases where one party hides his
real identity and shows to be someone else by misrepresentation or fraud, who he actually is not. Then such
contracts are void.
In the case of Cundy V Lindsay.Lindsay and Co. Was a reputed company selling handkerchief in the market.
One person named Blenkarn misrepresented and signed on the name of very famous company named
“Blenkiron & Co.” ordered 123 pieces of handkerchief. Linday assuming it to be same delivered it to
Blenkarn, who further sold it to innocent Cundy. On not getting a payment by “Blenkiron & Co.” Lindon
sued him. And it was held by the court that there was mistaken assumption, hence no real consent to the
contract of sale.

Conclusion
The legitimacy of an agreement is obstructed when assent is increased because of a mix-up by the
gatherings. As examined, an error can be of two kinds, Mistake of certainty and Mistake of law. At the point
when agree to an agreement is increased because of a two-sided misstep of actuality, the agreement is said to
be void yet when the slip-up happens because of a one-sided mix-up of certainty, the understanding is
legitimate with the exception of in the instances of mix-up in regards to the idea of the agreement or
character of the gatherings to the agreement. Correspondingly, when agree to an agreement is increased
because of a slip-up of the Indian law it is a substantial agreement yet in the event that it is expected an
outside law by both the gatherings, the agreement is said to be void.