Business Law

Topic: Free Consent

By: Riaz Hussain Ansari

Lecturer Department of Business Administration
University of Sahiwal

1
Learning Objectives

You will be able:

Define free consent

Know the effect of absence of free consent

Be aware of factors which may affect the

consent
Identify and understand coercion, undue

influence, fraud, misrepresentation and

mistake.

2
 Definition of consent
Two persons are said to consent when they
agree upon the same thing in the same sense.

Definition of free consent

The consent is said to be free when it is not
caused by: Coercion, Undue influence, Fraud,
Misrepresentation or Mistake.

3
 Coercion
Definition
Coercion is the committing or threatening to
commit any act which is forbidden by Pakistan
Penal Code or unlawful detaining or
threatening to detain,
Any property with an intention of causing any
person to enter into an agreement

4
 Coercion
Example
A beats B and compels him to sell his bike for Rs.
20,000. Here, B’s consent has been obtained by
coercion because beating someone is an offence
under the Pakistan Penal Code. Any property with
an intention of causing any person to enter into an
agreement.
A threatens to kill B if B refuses to sell his house to
C. B agrees to sell his house. Here, B’s consent has
been obtained by coercion though A is not a party to
the contract.

5
 Essentials of Coercion
Commit or Threat to Commit
If a person commits or threatens to commit an act
which is forbidden by the Pakistan Panel Code to
compel another person to enter into an agreement.
It is an agreement made under coercion.

Example
N threatens to kill M if he does not sell his house.
M agrees. The consent of M is obtained by
coercion.
6
 Essentials of Coercion
Detain or Threat to Detain
If a person unlawfully detains or threaten to detain
the property of another person to compel him to
enter into an agreement. The agreement is made
under coercion and it is voidable.

Example
A says to B “I shall not return the documents of your
property unless you sell your house to me” B agrees. A
employs coercion.

7
 Essentials of Coercion
Threat to Third Party
An act of coercion may be used against a party to
the contract or a person related to him, such as
friends or relatives. Similarly, coercion may be
used directly by a party to the contract or indirectly
by any person related to him.

Example
C threatens to kidnap‘ B’s son if he does not give
him Rs. 2 lac. B agrees The agreement is made by
coercion.
8
 Effects of Coercion
 The contract becomes voidable at the option of
the party whose consent was so caused. The
burden of proof lies on the party who rescinds
the contract.
 The party rescinding a voidable contract shall, if
he has received any benefit from another party,
restore such benefit i.e. restitution.
 A person to whom money has been paid or
anything delivered by coercion must repay or
return it.

9
 Effects of Coercion
Example
A threatens to kill B if he does not sell his BMW for
Rs 1 million to A. B contracted to sell his BMW to A
and receives the payments. Here, B’s consent has
been obtained by coercion. Hence, this contract is
voidable at the option of B but B has no right to
insist that contract shall be performed.

10
 Coercion
Burden of Proof
The burden of proof that consent was obtained by
coercion lies on the aggrieved party. The
aggrieved party must prove that he would not have
made the contract if coercion had not been used.

11
 UNDUE INFLUENCE
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 unfair advantage over the other.

12
 Nature of relationship
 holds the real or apparent authority
over the other e.g. parent and child
 stands in a fiduciary relation to the
other e.g. already indebted
 makes a contract with a person whose
mental capacity is temporarily or
permanently affected by reason of age,
illness or mental or bodily distress e.g.
medical attendant and patient.
13
Essentials of Undue Influence

Section 16(1)
It defines undue influence as “ 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.”
a)Position to Dominate

b)Unfair Advantage

14
Essentials of Undue Influence
Section 16(2)
A person is deemed to be in apposition to dominate
the will of another in following cases:
1.Where he holds a real or apparent authority over the
other.
2.Where he stands in a fiduciary relation to the other.

3.Where he makes a contract with a person whose

mental capacity temporarily or permanently affected by
reason of age, illness, mental or bodily distress etc.
A. Real or apparent authority
B. Fiduciary Relation
C. Mental Distress

15
 Presumption
It is presumed that the dominating person has
exercised undue influence in following cases: father
and son, guardian and minor, doctor and patient,
advocate and client, trustee and beneficiary, spiritual
advisor and follower, teacher and student, master
and servant.

16
Presumption and No presumption

17
 Contract with Pardanashin Lady

A pardanashin lady is one who observes complete seclusion, i.e. she

does not contact with people other than her family members. If a lady
keeps her face covered but transacts her own business, collects rent
from her tenants and deals with persons who are not her family
members, then she cannot be regarded as pardahnashin. There is
presumption of undue influence in a contract with pardanashin lady.
Such lady can avoid contract on the plea of undue Influence.

18
 Coercion Vs Undue Influence
 A contract is said to be
caused by coercion when it is
obtained by: committing or
threatening to commit any act
which is forbidden by
Pakistan Penal Code or
unlawful detaining or
threatening to detain.
 Consent is obtained by giving
a threat of an offence or
committing an offence.
 It involves physical pressure.
 Parties to a contract may or
may not be related to each
other.
 A contract is said to be
induced by undue influence:
Where the relations between
the parties are such that one
of them in a position to
dominate the will of the other
and uses that position to
obtain an unfair advantage
over the other.
 Consent is obtained by
dominating the will.
 It involves moral pressure.
 Parties to a contract are
related to each other under
some sort of relationship.
19
 Coercion Vs Undue Influence
 The objective is to compel a
person to enter into a
contract.
 Criminal liability is incurred,
therefore it is illegal.
 Coercion may be employed
on a person other than a
party whose consent is
desired, for instance his son.
 It can be excercised by a
stranger to the contract.
 The onus of proof is on the
party who wants to relieve
himself of the consequences
of coercion.
 The objective is to obtain an
unfair advantage.
 Criminal liability is not
incurred.
 Undue influence may only be
employed on the party whose
consent is desired.
 It can only be exercised by a
party to the contract and not
by a stranger.
 The onus of proof is on the
party in a position to
dominate the will of the other
party.
20
 Coercion Vs Undue Influence

 The aggrieved party has to  The party avoiding the

restore the benefit received. contract may or may not
restore benefits.

21
 FRAUD
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 to it or his agent, or

to induce to enter into a contract.

22
 FRAUD

A false representation of a fact made

Knowingly or

Without belief in its truth

Example
A sells to B locally manufactured goods representing them
to be imported goods charging a higher price, it amounts to
fraud.

23
 FRAUD
Active concealment
The active concealment of a fact by one having knowledge
or belief of the fact such as, where steps are taken by a
seller concealing some material facts so that the buyer
even after a reasonable examination cannot trace the
defects, it will amount to fraud,

Example
Z a furniture dealer conceals the cracks in furniture sold by
him by using some packing material and polishing it in such
a way that the buyer even after reasonable examination
cannot trace the defect, it would amounts to fraud through
active concealment.
24
 FRAUD
Empty promise
A promise made without any intention of performing it
constitutes to fraud.

Example
Buying goods under a contract of sale with an intention of
not paying the price is fraud.

25
 FRAUD
Intentional Non- performance
When a person enters into a contract with no intention to
perform his part of promise, it is considered an act of an
fraud.

Example
X purchases goods from Y on credit without any intention
of paying as he is about to be declared insolvent. X is guilty
of fraud.

26
 Essentials of Fraud

1. The statement or act made by the party must be

false.
2. The false statement or act must relate to a fact.
3. The false statement or act was made to induce
the other party to contract.
4. The statement or act was made with the
knowledge of it being false.
5. The false statement or act was made before
formation of the contract.
27
 Essentials of Fraud

6. The aggrieved party must have relied upon the

false statement or act.
7. The fraud must be committed by a party to the
contract or his agent.
8. The aggrieved party was deceived by the fraud.
9. The aggrieved party must have suffered a loss.

28
 Silence as to Fraud

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 parties stands in fiduciary
relationship or where silence itself is equivalent
to speech. [Section 17]

29
 Silence as to Fraud

Example
A sells by auction to B a horse which A knows
to be unsound. A says nothing to B about the
horse's unsoundness. This is not fraud by A. B
is A's daughter and has just come of age. H

30
 Effects of fraud

 The contract becomes voidable at the

option of the party whose consent was so
caused.
 The party whose consent was so caused
may insist on performance of the contract.
 The party whose consent was so caused
is entitled to claim damages.

31
 Effects of fraud

Exceptions to rescind the contract

silence amounts to fraud and the aggrieved party had the
means of discovering the truth with ordinary diligence
the party gave the consent in ignorance of fraud

the party after becoming aware of the fraud takes a

benefit under the contract

an innocent third party before the contract is rescinded

acquires for consideration and in good faith some interest

in the property passing under the contract,
the parties cannot be restored to their original position.

32
 MISREPRESENTATION
Unwarranted statement
When a person makes a positive statement that a fact is true when his
information does not warrant it to be so, though he believes it to be true
this amounts to misrepresentation.
Breach of duty
Any breach of duty which
without an intent to deceive,

gains an advantage to the person committing it, or

anyone claiming under him,

by misleading another
to his prejudice or

to the prejudice of anyone claiming under him.

33
 MISREPRESENTATION
Inducing mistake about subject matter
(Innocent misrepresentation)
A party to an agreement induces (however
innocently) the other party to make a
mistake as to the nature or quality of the
subject of the agreement.

34
 MISREPRESENTATION

Forms of Misrepresentation
1.Positive Assertion

2.Breach of Duty

3.Inducing Mistake

35
Essentials of Misrepresentation

36
 Effects of Misrepresentation

 The contract becomes voidable at the option of the party

whose consent was so caused.
 The party whose consent was so caused may insist on
performance of the contract. the party whose consent
was caused by misrepresentation had the means of
discovering the truth with ordinary diligence;
 the party gave the consent in ignorance of
misrepresentation
 the party after becoming aware of the misrepresentation
takes a benefit under the contract

37
 Effects of Misrepresentation

 an innocent third party before the contract is rescinded

acquires for consideration and in good faith some
interest in the property passing under the contract,
 the parties cannot be restored to their original position.

38
 Contract of Utmost Good Faith

1. Fiduciary Relationship
2. Contract of Insurance
3. Contract of Purchase of Shares
4. Contract of Sale of Land
5. Contract of Partnership
6. Contract of Guarantee
7. Contract of Marriage Engagement
8. Contract of Family Settlements

39
 Lose of Right of Cancellation

 Affirmation
 Restitution Not Possible
 Lapse of Time
 Rights of Third Party

40
 Mistake

Where both the parties to an agreement are

under a mistake as to matters of facts
essential to the agreement, the agreement is
void

41
Mistake

42
 Mistake

Bilateral mistake
Where both the parties to an agreement are under a
mistake as to a matter of facts essential to the agreement,
the agreement is void.
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 facts. [Section 20]

43
 Mistake

Example
A buys' a painting believing it to be worth Rs 100,000 while
in fact it is worth only Rs 10,000. The contract is not void.

44
 Mistake
Bilateral mistake as to the subject matter
A bilateral mistake as to the subject matter
includes the following mistakes as to the:
existence of subject matter
 quantity of subject matter
 quality of subject matter
 price of subject matter
 identity of subject matter
 title of subject matter
45
 Mistake
Unilateral mistake
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 facts.
[Section 22]
Example
AA buys' a painting believing it to be worth
Rs 100,000 while in fact it is worth only Rs
10,000.
46
Any Question?

47
Many Thanks

48