Name: Aditya Shukla.

Class: T.Y.B.L.S./LL.B. [Semester 5]

Roll Number: B/18

Subject: Contract – 1.

Submitted to: Assistant Prof. Shivalika Sharma.

Subject: A study on the effect of consent obtained by Fraud on the

validity of contract.
Date:17/09/2022
A study on the effect of consent obtained by Fraud on the validity of
contract.

What is a Contract?

The Indian Contract Act, 1872 defines the term “Contract1” under its section 2 (h) as
“An agreement enforceable by law”. In other words, we can say that a contract is anything that
is an agreement and enforceable by the law of the land.

This definition has two major elements in it viz – “agreement” and “enforceable by law”. So, in
order to understand a contract in the light of The Indian Contract Act, 1872 we need to define
and explain these two pivots in the definition of a contract.

A) Agreement:

In section 2 (e)2, the Act defines the term agreement as “every promise and every set of
promises, forming the consideration for each other”. Now that we know how the Act
defines the term “agreement”, there may be some ambiguity in the definition of the term
promise.

B) Enforceable by Law:

Upon agreeing the promise, it becomes an agreement but in order to be a contract as per
the definition of the Act, the agreement has to be legally enforceable. Thus, we can say
that for an agreement to change into a Contract as per the Act, it must give rise to or lead
to legal obligations. In other words, must be within the scope of the law.

To be legally binding and valid, a contract’s essential must always be fulfilled, which is
mentioned under Section 10 of ICA,1872.

The essential elements of are as follows:

1. Free Consent of the Parties

2. Competency to Contract3
3. Lawful Object & Lawful Consideration4
4. Not forbidden by Law

1
Indian Contract Act, 1872 Section 2(h)
2
Indian Contract Act,1872 Section 2(e)
3
Indian Contract Act,1872 Section 11
4
Indian Contract Act, 1872 Section 23
What is Consent?

Section 13 of ICA defines consent as “when two parties entered into the contract there should
agree upon the same thing in the same manner” there should be a meeting of minds between
the two parties. If there is no consensus ad idem5, meeting of minds, on the material terms of
the contract, then such contact will be void.

If two parties wish to reach an agreement, they can use a written contract that outlines the
rights and obligations of each party. A contract contains several important elements,
including consent. Fundamentally, consent is what the parties understand about the contract.

Both contracting parties must agree voluntarily. Consent will not be considered voluntary or
genuine if there are certain errors or if one party attempts to deceive or pressure the other.

Contractual Obligation and Nature:

When a contract has the potential to affect the general public, statutes can dictate the
contract's terms. Insurance contracts, for example, can include terms that are restricted by
statute so that the person carrying the insurance will have access to resources if they are hurt
in an accident.

If the contract may affect the community, the law may prescribe the terms of the contract. For
example, an insurance policy may contain legally restricted terms to ensure that the insured
person has access to resources if injured in an accident.

There is no contract if there is no implied or express agreement between the parties. Only
valid contracts can be enforced. Courts are the only bodies with the power to enforce
contracts between parties. Courts only enforce existing agreements. In other words, an
agreement cannot be created by imposing conditions on the parties.

Generally speaking, a contract is valid and legally binding if the parties to the contract are
deemed competent and the terms of the contract are reasonable. Any disagreement between
the parties must have arisen in good faith in order for the contract to be legally binding. Once
a valid contract has been formed, neither party may opt out of the contract.

One type of contract is a sealed contract. Such agreements are legally enforceable only if
they are sealed. The seal is intended to show that both parties have agreed to the contract and
are aware of the legal consequences of the contract.

Basics of Consent:

5
Latin phrase
In contracts, consent is a form of deliberation. If a person has the mental capacity to make a
rational decision, he or she can show consent by performing the action requested by the other
person. is considered. For consent to exist, the parties should not be subject to outside forces.
These circumstances revoke agreement acceptance:

• Extortion6

• Fraud7

• Certain types of errors

When only one party makes an error, it is called a unilateral error. If the other party is
unaware of the error, the enforceability of the contract will not be affected. If the unilateral
error relates to facts, the contract will not be affected. A contract is void if both parties to the
contract make exactly the same mistake and the mistake relates to a material fact of the
contract. However, if the error relates to legal consequences of the contract, the contract
remains valid and binding.

Consent is Required:

No contract can be valid or legally binding without consent. Consent is basically two parties
agreeing to enter into a contract with each other. Do not give consent under pressure. A
contract is not legally enforceable if one or both parties agree under duress8. A party shall be
deemed unable to give consent voluntarily if there is undue influence or coercion.
Both coercion and undue influence can lead to contract cancellation. This also means that
during confirmation the parties may lose the ability to cancel the contract. In other words, the
state before the contract cannot be restored. Failure to terminate the contract may result in the
loss of third party rights.

Free Consent of the Parties:

Initial consent is also the most important part of any valid contract and is referred to in Section
13 of the ICA of 1872. Consent simply means that the parties involved in the contract agree to
the same thing in the same spirit.
6
the crime of obtaining something from someone, especially money, by using force or threats
7
Indian Contract Act 1872, Section 17
8
Extrortion
It works on the principle of consent, which means that spirits meet.

For example, 'Z' has offered to sell his dog named 'Whisky' to 'X'. "X" considered "whiskey" an
alcoholic beverage and agreed to purchase it. The principle of consent was not fulfilled here as
both sides did not agree on the same thing and therefore no agreement was reached.

When entering into a contract, free consent may not exist and consent may be obtained in
improper ways prohibited by law. Here, the contract is void at the victim's choice, and they can
choose to void the contract or continue the contract on their previous terms.

Free consent may be obtained or violated by coercion9, undue influence, fraud,

misrepresentation, or error. This article primarily examines the effects of coercion and fraud-
induced consent by providing relevant illustrations and landmark case law. Analyze and deepen
the subject, highlighting examples, its meaning, and judgments on famous landmarks. Finally,
my personal thoughts and thoughts in the form of conclusions are included. It seeks to form
rational judgments and emphasizes important aspects of research work.

What is a Free Consent?

According to Section 10 of the Indian Contract Act, 1872, 'Free Consent' is one of the essential
elements of a valid contract. Consent finds its definition under Section 13 of ICA, 1872, which
states that when two parties involved in a contract agree on the same thing in the same sense is
known as consent. It works on the Latin term consensus ad idem which means the meeting of
minds. The concept of Consent can be better understood by the notable landmark case in English
Contract Law, known as Peerless Case or Raffles v Wichelhaus.

Raffles v Wichelhaus, 1864:

Plaintiff offered to sell cotton to Defendant, and Defendant agreed. According to the agreement,
cotton was to be delivered on the ship "Peerless10". Interestingly, Peerless was the name of her
two ships. Defendants believed they had agreed on the first ship to depart in October. The
plaintiff felt that an agreement had been reached for her second ship, which was due to sail in
December. When the defendant refused to accept the claim, the other party had to sue for
damages.

9
"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

10
unequalled; unrivalled
The Court ruled that no reasonable person could know in advance which trip was agreed upon.
As a result, the contract was voided due to the lack of ad idem contract.

Free Consent is defined under Section 14 of ICA, 1872 which states that consent is considered
to be not free if it is influenced by the following factors:

1. Coercion - Section 15;

2. Undue Influence11 - Section 16;

3. Fraud - Section 17;

4. Misrepresentation - Section 18;

5. Mistake

6. Mistake of Fact - Section 20 & Mistake of Law - Section 21

Definition of Fraud:

Fraud includes any of the following actions by a party or its implied consent or agent with
intent to deceive or induce another party or its agent to enter into this Agreement:

• The assertion as fact of something that is not true by someone who does not believe it to be
true.

• Active concealment of facts by a person who knows or believes the facts.

• Unfulfilled promises.

• Any other deceptive conduct.

• Any act or omission that the law expressly designates as wrongful.

Illustration: A auctions to B a horse that A knows is sick. A does not inform B about the
horse's health. This is not a scam.

11
influence by which a person is induced to act otherwise than by their own free will or without adequate
attention to the consequences.
Effect of Consent Induced by Fraud:

Section 17 of the Indian Contract Act, 1872 defines the concept of fraud. It can be defined as
an intentional misrepresentation of the facts by one of the parties. It can be done by the party
involved in the contract or his/her agent with an intention to deceive another party to enter into a
contract. It could involve the following acts:

a. Statements of Fact Not Believed to Be True,

If a person makes a statement or suggestion on the assumption that it is not true or with
knowledge that it is false, this constitutes fraud. The Officer has declared:

b. Fraud is proven if any false representation is made: voluntarily or

c. without belief in its veracity or

d. Accidentally inadvertently true or false. In the landmark case of

Derry v Peek, a court ruled that a person who honestly believed a fraudulent statement to be
true did not commit fraud. Therefore, only intentional misrepresentation is considered fraud. The
case also blurred the blurred line between misrepresentation and fraud.

According to the Section 19 in the Indian Contract Act,1872,

19. Voidability of agreements without free consent - 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.

If acceptance of a contract is fraudulently brought about, the contract is void at the victim's
option.

Section 64 of the 1872 ICA states that if a victim of consent obtained by fraud withdraws or
terminates the contract, the other party is not obliged to perform the contract. If a party has
received favours or received anything from the other, they may undo those favours and put them
back in place.

Section 65 of the ICA of 1872 deals with the principle of restitution which comes into force if
the contract is found to be void after some time and does not apply to void from the outset. It
states that the beneficiary is obliged to indemnify or indemnify the damages caused to the other
contracting parties.

Conclusion:
Considering the above facts in conjunction with the jurisprudence of the Indian Contract Act
1872, why free consent is one of the most important elements of a valid contract and its
voluntary nature is the very the reason for forming the foundation is clear.

If a party unintentionally obtains consent by use of coercion, undue influence, fraud,

misrepresentation or error of fact, consent takes precedence and the contract is void at the option
of the person from whom consent was obtained. will be

References:

1. Avtar Singh, Law of Contract & Specific Relief 176-225, (12th ed. 2017).
2. Ratanlal and Dhirajlal Constitution of India.
3. https://www.scconline.com/
4. https://indiankanoon.org/
5. https://www.casemine.com/