CONSENT

Scheme of Discussion
 Concept of Consent
 Coercion
 Undue Influence
 Fraud
 Misrepresentation
 Mistake
• According to Sec 10 of the Indian Contract Act one of the essentials of a valid
contract is “Free Consent”
• Sec 13 defines “consent” as “Two or more persons are said to consent when
they agree upon the same thing in the same sense”.
• According to Sec 14, consent is said to be free when it is not caused by:
1.Coercion
2.Undue influence
3.Fraud
4.Misrepresentation
5.Mistake
• When a Consent to a contract is given due to 1-4 factors – the contract is
voidable at the option of the aggrieved party
• When an agreement is caused due to mistake, the same is void. – Section 20
to 22.
• Void Agreements cannot be enforced at the option of either parties.
COERCION
 MEANING & CONCEPT
‘Coercion’ defined.—‘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. 
 Techniques of causing Coercion:
 Committing or threatening to commit any act forbidden by the Indian Penal Code ; or
 Unlawfully detaining or threatening to detain any property.
 Act forbidden by IPC
 Chikham Amiraju v. Chikham Seshamma [ILR (1918) 41 Mad 33]
 Facts: By threatening suicide, a Hindu induced his wife and son to execute a release in
favour of his brother in respect of certain properties which they claimed as their own.
 Issue: Whether Threat to Suicide constitutes coercion?
 Held: Yes – Release Deed – Voidable
 MEANING & CONCEPT
 Unlawful Detention of Property?
 Muthia v. Muthu Kuttapa []
 Facts: An agent refused to hand over the books of accounts to the new
agent unless the principal had released him from all the liabilities
 Principal had to give him the release deed as demanded.
 Held: Release deed was given under coercion and the same was voidable
at the option of the Principal.
COERCION V. DURESS
CONSEQUENCES OR EFFECTS OF
COERCION
 Contract Voidable at the option of the party whose
consent was obtained by coercion
 Any benefit has to be restored back
 If the aggrieved party does not set aside the contract,
it shall work as an valid contract.
UNDUE INFLUENCE
 Section 16
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 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).
 Ability to dominate the will of the other
 Sometimes parties to an agreement are so related to each other that one of
them is able to dominate the will of the other.
 The person who occupies the superior position may prevail upon the other to
obtain his consent to an agreement to which he, but for the influence so exerted
would not have consented.
 The relationship between parties so as to enable one of them to dominate the
will of the other is a sine-qua-non for undue influence to come into play.
 Subtle species of Fraud – where mastery is obtained over the minds of the other
party.

Mannu Singh v. Umadat Pande [ILR (1888 -90) 12 All 523]

• A spiritual advisor induced the plaintiff, his devotee, to gift to him the whole of his property
to secure benefits to his soul in the next birth.
• Held: Gift of property – Invalid.
• Such a consent is said to be obtained through undue influence.
• Principle : Would any reasonable man in full possession of his senses and not under
unusual influence of some kind or the other do such a thing?
Relationship which involves Domination
 First step to establish influence
 To dominate the will of the other, one needs to establish a relationship of
active trust and confidence between the parties.
 Second step – to establish an abuse of this relationship
 Confidence is reposed and betrayed.
 Section 16 (2) : Person is said to dominate the will of the other in the
following ways:
 Where he holds a real / apparent authority over the other
 Where he stands in a fiduciary relationship to the other
 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.
Relationship which involves Domination
 Real Authority
 eg: Police Officer in relation to an accused person.
 IT officer in relation to an assessee
 Apparent Authority
 Those cases where the person has no real authority but is able to approach the
other with a show or colour of authority.
 Fiduciary Relationship:
 Every relationship of trust and confidence is a fiduciary relation.
 Eg: Solicitor & Client ; Spiritual Leader and Devotee ; Doctor & Patient ; Parent or
Guardian & Child.
 The relationship of trust and confidence presents a good opportunity to the
persons in whom confidence is held to be exploited to his own use.
 Contract between persons so related is thus voidable if the consent was
obtained by abusing the confidence.
 Relationship which involves Domination
Moody v. Cox [(1917) 2 CH 71]
• Explains the duty of the person in whom the confidence is reposed.
• Facts:
• A Solicitor sold some of his property to one of his clients.
• Client subsequently suggested that the property was overvalued
• Held:
• …Generally when you have made a legal contract and correctly expressed it in
writing and it has not been obtained by any misrepresentation, etc. the contract
stands valid and the fact that the contract is subsequently unprofitable is no
excuse to invalidate the contract.
• …..However there are certain relations in which a higher duty is imposed upon the
parties and they must not only tell the truth so far as it is material, they must not
only misrepresent by words, they must also not misrepresent by silence if they
know of something that is material.
• Some of those cases depend on relationship between parties and generally
speaking are cases where relationship are such that there is confidence reposed
byFiduciary
one party Relationship:
and influence exercised by another.
Mental Distress
 This category belongs to people whose will is vulnerable to all sorts of
influences
 Those persons whose mental capacity is temporarily and permanently
affected.
 Such a person is easily persuaded to give consent to a contract which may
be favourable to him
CONSEQUENCE OF EXERCISING UNDUE INFLUENCE
IN ORDER TO OBTAIN CONSENT TO A CONTRACT
 Contract is Voidable at the option of the aggrieved party.
 Time limit to set aside the contract – One Year from the date of cessation of
influence.
 Burden of Proof is on the Aggrieved party to show:
 The other party was in a position to dominate his will
 He actually used his influence to obtain plaintiff’s consent.
 Presumption of Undue Influence – Once it is established that the
defendant was in a position to influence the will of the plaintiff, it will be
presumed that he must have used his position to obtain an unfair
advantage.
 It will be then for the defendant to show that the plaintiff had freely consented.
 Numerous judicial precedents on the issue of Presumption of Undue
Influence
PRESUMPTION OF UNDUE INFLUENCES &
CONSEQUENCES
Wajid Khan v. Raja Ewaz Ali Khan [(1890-91) 18 IA 144]
• Facts:
• An old illiterate woman, incapable of any business, conferred on her
confidential managing agent, without any valuable consideration, an
important pecuniary benefit under the guise of the trust.
• Held: All the facts of the case go to show conclusively that the transaction
is honest, bona-fide, well-understood, the subject of independent advise
and free from undue influence.
PRESUMPTION OF UNDUE INFLUENCES &
CONSEQUENCES
Raghunath Prasad Sahu v. Sarju Prasad Sahu [(1924) 19 LW 470]
Facts:
• The defendant and his father were equal owners of a vast joint family
property over which they had quarrelled.
• Consequently the father had instituted legal proceedings against the son
• The Defendants in order to defend himself, mortgaged his properties to the
plaintiff and borrowed from him Rs. 10000/- on 24 % compound interest.
• In 11 years, this rate of interest had magnified the sum covered by the
mortgage more than 11fold i.e. Rs. 112885/-.
• The defendant contended that the lender had by exacting a high rate of
interest, taken unconscionable advantage of his mental distress and
therefore there should be presumption of undue influence.
PRESUMPTION OF UNDUE INFLUENCES &
CONSEQUENCES
Raghunath Prasad Sahu v. Sarju Prasad Sahu [(1924) 19 LW 470]
Held:
• Presumption – not valid
• As per Section 16, unconscionableness of bargain is not the first thing to be
considered, but instead the relationship between parties. …Were they such
as to put one in a position to dominate the will of the other?
• In this case, the borrower failed to prove that the lender was in a position
to dominate his will and thus the borrower got no relief.
PRESUMPTION OF UNDUE INFLUENCES &
CONSEQUENCES
Lloyds Bank v. Bundy [(1975) 1 QB 326]
Facts:
• A Contractor borrowed a sum of money from a bank and failed to repay in time.
• The Banker pressed for payment or for security.
• He suggested that his father might mortgage the family’s only residential house.
• The Bank officer visited the father and obtained his signatures upon readymade
papers.
• The Contractor still could not pay and the banker sought to enforce the mortgage
which might have meant throwing out of the family from its only residence.
• Accordingly Mr. Bundy relied on the unfair character of mortgage.
Held: Mortgage was set aside
• English Law gives relief to one who without independent advise enters into a
contract upon terms which are unfair or transfers property for sum which is grossly
inadequate.
• This case, the bargaining power of the Contractor / father was grievously impaired
by reason of his own needs and desires.
• The Bank exploited the vulnerability of the father to such an extent that he charged
his house to his ruin for a short moratorium which was highly inadequate
consideration for the mortgage.
 CONTRACTS WITH PARDANASHIN WOMEN

 Meaning of Pardanashin Women – No Judicial / Statutory Definition – A woman

who is totally secluded from social intercourse.
 A Contract with Pardanashin Woman is presumed to have been induced by undue
influence.
 She can anytime file for nullity of contract until the other party establishes that it
was her ‘intelligent’ and ‘voluntary’ act.

Kalibaksh Singh v. Ram Gopal Singh [(1913) 41 IA 23]

• Facts
• Around 2 months before her death, a Hindu widow (pardanashin) gifted half of her landed
properties to the son of her paramour, who was also the manager of her estate.
• Gift was challenged by the legal heirs
• Legal Heirs : No independent advise, hence the gift was made under undue influence
• Held:
• There is no rule of law which makes independent advise necessary in every case.
 CONTRACTS WITH PARDANASHIN WOMEN

Kalibaksh Singh v. Ram Gopal Singh [(1913) 41 IA 23]

• Facts

• Explains the extent of BoP Onus

• Once it is established that she is a pardanashin lady, the law throws around her a cloak of
protection.
• It demands the BoP in such cases rest not with those who attack, but those who found upon
the deed and the proof must go so far as to show affirmatively and conclusively that the deed
was not only executed but was explained to and was really understood by the grantor.
POWER TO SET ASIDE THE CONTRACT INDUCED
BY UNDUE INFLUENCE – SECTION 19-A

 [19A. Power to set aside contract induced by undue influence.—

When consent to an agreement is caused by undue influence,
the agreement is a contract voidable at the option of the party
whose consent was so caused.
 Any such contract may be set aside either absolutely or, if the
party who was entitled to avoid it has received any benefit
thereunder, upon such terms and conditions as to the Court may
seem just.
MISREPRESENTATION
 Section 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 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.
 FORMS OF MISREPRESENTATION
 UNWARRANTED STATEMENTS [Section 18 (1)]
 Where the person positively asserts and genuinely believes certain information
to be true, but the information doesn’t warrant it to be so.
 Unwarranted Information: Information received from un-trustworthy source.
 INDUCING MISTAKE REGARDING THE SUBJECT MATTER [Section 18 (3)]
 Causing however innocently, a party to an agreement to make a mistake as to
the substance of the thing which is the object of the agreement is also
misrepresentation.
 BREACH OF DUTY [(Section 18 (2)]
 Any breach of duty which brings an advantage to the person committing it by
misleading the other to his prejudice is a misrepresentation.
 Covers cases of constructive fraud – where there is no intention to deceive but
the circumstances are such so as to make the party who derives a benefit from
the transaction equally answerable as if he had been actuated by motives of
fraud / deceit.
 BREACH OF DUTY [18 (2)]
Khandu Charan Polley v. Chanchala Bhuniya [AIR 2003 Cal HC 213]
• Facts:
• An illiterate lady signed a document which she was given to believe by a trusted
agent was creating a license but in fact was a release deed.
• Held:
• The plaintiff was allowed to set aside the contract.
• The Defendants was under no obligation, legally or morally to communicate the
contents of the deed.
• But the plaintiff placed confidence in the defendant and then it became
defendant’s duty to state all the material facts in a contract.

Where one party has special knowledge or expertise regarding the subject matter of
negotiations – made a forecast with the intention of inducing the other party to
enter into a contract and the other party did so, the courts can construe that the
forecast was not only an expression/opinion but a warranty and accordingly they
were liable for breach of warranty.
Duty of reasonable care by persons possession special knowledge
 MISREPRESENTATION
 Misrepresentation : It is a positive statement of facts, which is made by
a party to a contract and is untrue.
 It may be made fraudulently, carelessly or innocently
 False representation.
 It can be a positive assertion / implied by conduct
 Relate to Material Fact – past / present
 Representation of Fact v. Statement of Opinion / intention
 A fact is said to be material when it would affect the judgement of a
reasonable person in deciding whether to enter into a contract and if
so, on what terms.
 Induced the other party to act upon it [Expl. Section 19]
 Misrepresentation to be the cause of consent
 MISREPRESENTATION – ELEMENTS
 MEANS OF DISCOVERING TRUTH:
If such consent was caused by misrepresentation or by silence, fraudulent
within the meaning of section 17, the contract, nevertheless, is not
voidable, if the party whose consent was so caused had the means of
discovering the truth with ordinary diligence.

Explanation.—A fraud or misrepresentation which did not cause the

consent to a contract of the party on whom such fraud was practised, or
to whom such misrepresentation was made, does not render a contract
voidable. 

 Issue: Where the person has the means of discovering the truth but still
relies on the statements made by the other party to the contract and
subsequently founds the same to be misrepresented… whether the
former is allowed to avoid that contract?
 MISREPRESENTATION – ELEMENTS
 MEANS OF DISCOVERING TRUTH:

Redgrave v. Hurd [(1881) LR 20 Ch D 1]

• Facts:
• A Medical Practice was under sale. The seller misrepresented
the income which the practice produed but gave the documents
to the purchaser from which he could have verified but he did
not do so and having only cursorily looked at them, purchased
the business.
• Later he sought to avoid the contract
• Held: Petition admissible
• If a man is induced to enter into a contract by false
representation, it is not sufficient answer to him to say: ‘if you
could use due diligence, you would have found out that the
report was untrue.’
FRAUD
 FRAUD – MEANING
 INTENTIONAL MISREPRESENTATION OF FACTS

‘Fraud’ defined.—‘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
FRAUD – CONCEPT

 Mere False Statement is not fraud.

 Fraud is said to be caused when one person causes another to act on a
false belief by a representation which he does not himself belief to be
true.
 When fraud causes damage to the other party, the party can not only
set aside the contract entered thereto, but also file a civil suit for
damages under tort.
 Under Indian Contract Act, we are only concerned with the effect of
fraud only so far as consent to contract is procured by it.
TYPES OF FRUAD

 False Assertion
 Active Concealment
 Promise without the intention of performing it.
 Any other deceptive act declared as fraudulent.

 Who should commit fraud? – Either party to the contract and / or

by any other person in connivance with the party to the
contract.

 IMPORTANT – INTENTION TO DECEIVE.

FRAUD v. MISREPRESENTATION
 Derry v. Peek [(1889) LR 14 AC 337]
 Facts:
 A Company’s prospectus contained a representation that the company had
been authorised by a special Act of Parliament to run trams by steam or
mechanical power.
 The Authority to use steam was, in fact, subject to a the approval of the Board
of Trade, but no mention was made of this. The Board refused consent and
consequently the company was wound up.
 The plaintiff having bought some shares sued the directors for fraud.
 They were held not liable.
 Held: - Guilty of misrepresentation not fraud
 The company honestly believed that once the Parliament has authorised the
use of steam, the consent of the Board was practically concluded.
 Person making a representation is not guilty of fraud if he / she honestly
believes in its existence.
 False Assertion under Section 17 (1)
 Ingredients:
 Assertion with respect to a fact
 The Fact suggested 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 not be made with an intent either to deceive ir to
induce the other party to enter into the contract.
 False representation made with an intention to deceive.
 The person making the statement should
 Know either the statement to be false or
 Know the statement to be not true.
 Proof of actual / honest belief is all that is necessary to satisfy the existance of
fraud.
 Active Concealment – Section 17 (2)
 Mere Silence – Does not amount to Fraud
 Active Concealment – an act done with the obvious intention of committing
fraud.
 Mere silence is no fraud unless
 is a duty to speak
 In contracts of trust & confidence – Contracts Uberrima Fides
 No other means of discovering the truth. Eg: Insurance company has to depend
upon the disclosures made by the insured.
 Where silent itself is deceptive
 A Person keeps silent knowing that his silent is going to be deceptive.
 Change of Circumstances –
 At the time of making the representation, it was true, but later due to change in
circumstances, the representation becomes false.
 Half Truth – When a person voluntarily discloses something and then stops halfway.
 Active Concealment v. Passive Concealment
PROMISE MADE WITHOUT THE INTENTION
OF PERFORMING IT (Section 17 (3)

 For eg: purchase of goods without the intention of paying the price.
 It has to be shown that the promisor had no intention to performing the
promise at the time of making it.
 Any subsequent conduct or representation is not considered for this
purpose.
 ACT OTHER ACT FITTED TO DECEIVE
[Section 16 (4)]
 Residual Clause
 For eg: A Party which signs an agreement with the knowledge that the other
party has recorded it erroneously and does so fraudulently seeking to take
advantage of the error, cannot subsequently take advantage of an agreement.
MANDATORY DISCLOSURES [Section
17 (5)]
 Where the law mandates disclosure of certain facts and non-compliance
with the law is expressly declared to be fraud.
 Section 55 of TOPA – Seller’s Duty to disclose any material defect in the
immovable property proposed to be sold.
 LEGAL ENFORCEABILITY OF
CONTRACTS WHERE CONSENT
IS NOT VOLUNTARILY OBTAINED
Section 19 & 19 - A
 VOIDABILITY OF AGREEMENT
WITHOUT FREE CONSENT – SECTION
19
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. —
A party to contract, whose consent was caused by fraud or
misrepresentation, may, if he thinks fit, insist that the contract shall be
performed, and that he shall be put in the position in which he would have
been if the representations made had been true.
(Exception) —If such consent was caused by misrepresentation or by
silence, fraudulent within the meaning of section 17, the contract,
nevertheless, is not voidable, if the party whose consent was so caused
had the means of discovering the truth with ordinary diligence.
Explanation.—A fraud or misrepresentation which did not cause the
consent to a contract of the party on whom such fraud was practised, or to
whom such misrepresentation was made, does not render a contract
voidable. Illustrations
 Contract Act does not make a distinction between Fraud &
Misrepresentation as long as setting aside the contract is concerned.
 Since the contract is voidable, it gives the person a right of choice or
election.
 Such a right once exercised, is exhausted.
 If such a person by express notice or by conduct elects to affirm, he
cannot later seek to avoid the contract and if he has elected to avoid, he
cannot later be allowed to affirm.
MISTAKE
 MISTAKE BY BOTH THE PARTIES

Section 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. 

Elements of Mistake :
1. Where both the parties to an agreement are mistaken
2. Mistake wrt Matter of Fact
3. The Fact about which they are mistaken is essential to the
agreement
 EFFECT OF MISTAKE

Section 21: Effect of mistakes as to law.—A contract is not

voidable because it was caused by a mistake as to any law
in force in India; but a mistake as to a law not in force in
India has the same effect as a mistake of fact.
Section 22: 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.
WHAT FACTS ARE ESSENTIAL?

 Depends on the nature of promise in each case.

 For instance
 Identity of the parties
 Subject Matter of Contract
 Nature & Content of the Promise.
 MISTAKE AS TO IDENTITY
 When one party represents himself/herself other than he really is.

Jaggan Nath v. Secy of State for India [(1886) 21 Punj 37]

Facts
• A person called ‘S’ a brother of the plaintiff and represented himself as the plaintiff and
thereby induced a Government agent to contract with him.
• The court finding that the Government’s agent was deceived by the conduct of the
plaintiff and his brother as to the person with whom he was dealing held that there was
no valid contract.
• The defendant’s agent intended to contract only with S’s brother and not with S and S
knew this.

Held:
• Government’s offer was meant for S and his brother posing as S accepted it.
• This prevented real consent
• It means that an offer which is meant for one person cannot be accepted by another.

This line of difference between Misrepresentation v. Fraud v. Mistake

 MISTAKE AS TO IDENTITY
 When one party represents himself/herself other than he really is.

Boulton v. Jones [(1857) 27 LJ Ex 117]

Facts
• The plaintiff had taken over the business of one Brocklehurst.
• The Defendant used to deal with Brocklehurst and not knowing of the change, sent him
an order for certain goods.
• The order was received by the plaintiff who sent the goods.
• The defendant came to know of the change only when he received the invoice and by
that time he had already consumed the goods
• The defendant has a set-off against Brocklehurst and therefore refused to pay the price
• Plaintiff sued him.

Held:
• Defendant was not liable
• Justice Pollock – ‘The rule of law is clear that if you propose to make a contract with ‘Á’,
then ‘B’ cannot substitute himself for A without your consent and to your disadvantage
securing to himself all the benefits of the contract’
MISTAKE AS TO IDENTITY

 Identity v. Attributes
 Mistake of Identity – Only when a person bearing a particular identity
exists within the knowledge of the plaintiff and the plaintiff intends to
deal with him only – Mistake – Voidable
 Mistake as to Attribute – Contract not voidable unless of personal nature.
 MISTAKE AS TO SUBJECT MATTER
 Non – Existent Subject Matter:

Gustavus Courturier v. Robert Hastie [(1856) 5 HL Cas 673]

Facts
• The defendant was employed to sell the plaintiff’s cargo which was on
voyage.
• After the defendant had sold the cargo to a third person, it was discovered
that the cargo having been damaged by bad weather had been sold at an
intermediate port.
• The buyer repudiated the contract and the defendant being an del-credere
agent was sued for the price.

Held – NOT Liable

• Lord Cranworth – ‘The contract plainly imports that there was something
which was to be sold at the time of the contract and was something to be
purchased.’ But as the goods had been totally lost before the contract was
made, the contract was void ab-initio.
 MISTAKE AS TO SUBJECT MATTER
 Mistake as to Title or Rights

Bell v Lever Bros Ltd [1932] AC 161]

Facts
• Mr Bell was the managing director for five years of a company that was
owned by Lever Bros Ltd.
• Mr Bell had traded for personal profit during his employment, which was
contrary to his contract with the company.
• Without knowledge of this, Lever Bros Ltd made an offer of redundancy to Mr
Bell, terminating his contract and offering a £30,000 payment as
compensation.

Issue: Whether the redundancy contract that was created and

accepted by Mr Bell, could be void by common mistake, due to later
finding out about his personal trading.
Defendant: Lever Bros Ltd argued that this concealment and misconduct was a
breach of his duty that was detailed in his employment contract.
 MISTAKE AS TO SUBJECT MATTER
 Mistake as to Title or Rights

Bell v Lever Bros Ltd [1932] AC 161]

Held:
• The court held that the contract was not void, as the mistake was
not an ‘essential and integral’ part of the contract.
• The personal trading that had happened during the employment was
not related to the subject matter of the contract and was said to be
minor compared to the profits Mr Bell had made for Lever Bros Ltd.
• Only a mistake to the identity of the parties or of subject matter to
the contract, as well as an item’s quality, would be able to
successfully negate consent and therefore void a contract, as if it
had never existed.
• The mistake must be essential to the identity of the contract.
 MISTAKE AS TO SUBJECT MATTER
 Different Subject Matters in Mind – Where the parties due to a
reasonable mistake of fact, have different subject – matters in
mind, the agreement will be void for want of true consent.

Raffles v. Wichelhaus [(1864) 2 H & C 906]

Facts
• The defendant bought of the plaintiff a quantity of Surat Cotton ‘to arrive ex
Peerless from Bombay’. Two ships with the name Peerless sailed from
Bombay, one in October which the defendant had in mind and the other in
December which the plaintiff had in mind.
• Held:
• The defendant meant one Peerless and the plaintiff another. That being so,
there was no consensus ad idem and therefore no binding contract.
 MISTAKE AS TO SUBJECT MATTER
 Mistake as to Substance of Subject Matter: The parties may be
mistaken as to the existence of some fact or facts forming an essential and
integral element of the subject matter.
 Mistake as to the Quality of Subject Matter v. Substance of Subject
Matter
Smith v. Hughes [(1871) LR 6 QB 597]
Facts:
• The defendant wanted to buy old oats for his horses.
• The plaintiff showed him the sample of the oats he had, but said nothing about their
age.
• The defendant kept the sample for 24 hours and then placed an order for the oats.
• After a portion of them was delivered to him, he found that they were new and
therefore rejected them on the ground that he was mistaken about their quality.

Held:
• Court found no ground entitling the buyer to reject.
• All that can be said is that the two minds were not ad idem as to the age of the oats;
they certainly were ad idem as to the sale & purchase of them.
 MISTAKE AS TO NATURE OF PROMISE
 When a deed of one character is executed under the mistaken impression that is of
a different character, then it is wholly void and inoperative.
 For instance: gift deed signed under an impression that it is wholly void &
inoperative.
 If a mistake of this kind is common to both the parties, the agreement is void under
Section 20, the parties being mistaken about the very nature of promise.
New India Rubber Works (P) Limited v. Oriental Fire & General Insurance Co. Limited
[(1969) 1 Comp LJ 153]
Facts:
• A policy of insurance, which had expired, covered risks arising out of fire, riot and strike.
• The company sent a renewal form to the assured showing the premium for the above risks
• The assured sent lesser amount being equal to cover the fire risk only
• The Company issued a policy in usual terms covering risks of fire, riot & strike.
• The factor was destroyed by fire due to riot.
• The Company contended that in so far as the policy purported to cover the risk of riot and strike, it
was void for mistake.
Held: Company was entitled to raise the defence.
• The principle of equity under which documents executed under mistake are allowed to be rectified
and that in reference to an insurance policy because equity treats as done that which ought to have
been done.
 LIMITATIONS AS TO MISTAKE
 Mistake operates to avoid an agreement subject to the following limitations:
MISTAKE OF BOTH THE PARTIES
 Mistake = No consensus ad idem = no consent
 Section 20: An agreement is void by reason of mistake when both the parties are
mistaken as to the matter of fact essential to the agreement.
 Section 22: A Contract is not voidable merely because it was caused by one of the
parties to it being under a mistake as to matter of fact.
 Unilateral Mistake – Doesn’t invalidate the contract / make the contract voidable. –
Exception:
 One party erroneously believed that the document sought to be rectified contained
a particular term / provision / possibly did not contain a particular term or provision
which mistakenly it did not contain and
 The other party was aware of the omission / inclusion
 The Party who was aware of the mistake omitted to draw the mistake to the notice
of the other party
 Mistake must be calculated to benefit one party.
 LIMITATIONS AS TO MISTAKE

ERRONEOUS OPINION ABOUT THE VALUE OF THE SUBJECT MATTER

 Explanation to Section 20 – 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.
MISTAKE OF FACT & NOT OF LAW
 Mistake should be of fact not law.