Free Consent

Free consent concept

⚫ When the intentions of offeror and offeree meet upon
the same thing in a same sense is known a true consent
or consensus-ad-idem.
⚫ Free consent can be defined into two ways: Firstly;
consent is said to be free when it is made knowingly
and voluntarily. Secondly; it is not caused by coercion,
undue influence, misrepresentation, fraud or mistake.
Coercion
If knowingly Undue influence
Free
given Not caused Misrepresentatio
consent
by n
Fraud
voluntarily
Mistake
Importance of free consent
⚫ It binds the parties morally to their promises.
⚫ It provides proof of deliberate intention of the parties.
⚫ No restitution and damages
⚫ It assures the knowledge of the parties regarding the
subject mater of the contract.
⚫ Durable
 Coercion
⚫ Coercion also known as ‘duress’ means compelling a
person to do or abstain to something.
⚫ Coercion is:
i. Committing or threatening to commit any harm
against the life or dignity or property of one.
ii. Detaining or threatening to detain any property.
iii. The committing or threatening to commit any act
forbidden by law-in-force.
iv. Such must be done with an intention of causing the
other to enter into a contract.
Exception to coercion
⚫ A threat to prosecute
⚫ A threat to commit suicide
⚫ High price
⚫ High rate of interest
Legal effect to coercion
⚫ It is voidable at the option of the aggrieved party.
⚫ The party whose consent has been obtained by
coercion most go to the court within the time limit (one
year) prescribed by the for making such contract
invalid.
⚫ The aggrieved party can accept the contract but insist
on its performance by the other party.
⚫ The party rescinding a voidable contract must refund
money or any other benefit, received by him under the
contract, to the person from whom it was received.
⚫ Burden of proof: lies on the aggrieved party.
Undue Influence
Relation between the parties One party is in a position to dominate the
will of the other (such party is called as
dominant party)

Use of dominant position The dominant party uses his dominant position

Dominant party obtains an The dominant party obtains an unfair advantage

unfair advantage by entering into the contract.

Relationship between parties i. Real and apparent authority like master

and servant, police officer and the
accused,…
ii. Fiduciary relationship (mutual trust and
confidence) like lawyer and client, doctor
and patient, spiritual advisor and their
devotee…
iii. Mentally or physically weak person
Burden of proof
Unconscionable •The burden of proof is on the dominant party
transaction •The dominant party has to prove that undue
(unfair or influence was not employed.
unreasonable) •Usually takes place in moneylending charging high
rate of interest.
1. Moneylender was in a position to dominate the
will of the borrower, and
2. The bargain is unreasonable i.e. rate of interest is
unreasonably higher.
Any other transaction •The burden of proof is on the weaker party.
•The weaker party has to prove that undue influence has
been employed
No undue influence: every transaction where the terms are
disadvantageous to one party is not necessarily influenced by undue
influence if a contract is made in the ordinary course of business,
there is no undue influence.

Effects of undue influence same as coercion.

Misrepresentation
⚫ A representation means a statement of facts made by one
party to the other, either before or at the time of contract,
relating to some matter essential to the formation of the
contract, with a an intention to induce the other party to
enter into the contract. It may be expressed or implied.
⚫ A representation when wrongly made either innocently or
intentionally is termed as misrepresentation. In law, former
is known as misrepresentation and latter is known as fraud.
⚫ Nepalese muliki civil code, 2074, “submission of a false
statement on any matter without any reasonable basis of the
fact, misleading a party so as to aggrieve him, inducing
mistake about the subject matter of the contract and making
contract in another matter instead of a matter stated”
⚫ As per Indian contract act, sec 18,there is misrepresentation
in these cases
i. The positive assertion of unwarranted statement of a
material acts believing them to be true.
ii. Breach of duty which brings an advantage to the person
committing it by misleading the other to his prejudice.
(note: partial non-disclosure may also constitute a
misrepresentation)
iii. Causing mistake about subject matter innocently
Essentials for misrepresentation:
i. There should be a representation, made innocently, with
an honest belief as to its truth and without any desire to
deceive the other party, either expressly or impliedly.
ii. The representation must relate to facts material to the
contract and not to mere opinion or hearsay.
iii. The representation must be, or must have become untrue.
iv. The representation must have been instrumental in
inducing the other party to enter into a contract.
Effects of misrepresentation

i. He can rescind the contract, treating the contract as

voidable; or,
ii. He may affirm the contract and insist that he shall be
put in the position in which he would have been if
the representation made had been true.
Exception:
The above remedy is lost, if the party whose consent was
caused by misrepresentation, had the means of
discovering the truth with ordinary diligence.
Fraud
⚫ The term ‘fraud’ includes all acts committed by a person
with an intention to deceive another person.
Essentials of fraud
By a party to the It must be proved that fraud was committed by-
contract a. A party to the contract; or
b. Anyone with the connivance of a party to the
contract.
The party makes a • The party has made a representation of a fact.
representation • An opinion, a statement of expression, or a statement
of intention does not constitute a fraud.
⚫ The representation is false
⚫ The misrepresentation was made wilfully
⚫ The misrepresentation was made with a view to deceive the other
party
⚫ The other party is actually deceived
When is representation considered as
false?
Suggestion of Where the person makes a representation
false fact of a fact knowing that such fact is not
true.
Active Where a person actively conceals a fact even
concealment of though he has knowledge of such a fact.
a fact
Promise Where a person makes a promise with out
any intention of performing it.
An act or Any act of omission declared by law as fraud
omission also amount to fraud
Any other act Any other act fitted to deceive also amount
to fraud.
Silence as fraud
General rule Mere silence, which is likely to affect the willingness of
the other party, is not fraud.
Exceptions a. Where the parties stands in fiduciary relationship
(relationship of faith and trust)
b. Contract of insurance
c. Contract of marriage engagement
d. Share allotment contracts
e. When silence is equivalent to speech

Effects of Fraud:
⚫ Action to rescind or avoid the contract.
⚫ Ask for restitution and insist that the contract shall be
performed, and that he shall he put in the position in which he
would have been, if the representation made had been true.
⚫ The aggrieved party can also sue for damages, if any.
Loss of right of rescission
⚫ We have learned that the contract become voidable at the
option of the aggrieved party. But right of rescission is loss in
following case: If after becoming aware of his rights to rescind, the
Affirmation
aggrieved party affirms the transaction either by express
words or by an act which shows an intention to affirm it,
the right if rescission is lost.

Restitution is not Where the subject matter of the contract has been consumed
possible or destroyed, the right to rescind the contract cannot be
exercised
Lapse of time If the aggrieved party dose not go to the court within the
time limitation

Right of third party If a third party has acquired right in the subject matter of the
contract in good faith and for value.
Mistake
⚫ Mistake may be defined as an erroneous belief
concerning something. It be of two kinds:
1. Mistake of law
2. Mistake of fact

3. Mistake of law:
a. Mistake of law of the country or mistake of law
b. Mistake of foreign law.
 Mistake of facts
a. Bilateral mistake: Where the parties to an agreement
misunderstood each other and are at cross purpose, there
is a bilateral mistake.
According to Indian contract act, “where both parties to
an agreement are under a mistake as to a matter of fact
essential to the agreement, the agreement is void”.
Following conditions has to be fulfilled for an agreement
to be void-ab-initio:
i. Both the parties must be under a mistake
ii. Mistake must relate to some fact and not to
judgement or opinion, etc.
iii. The fact must be essential to the agreement i.e.
subject-matter, identity, the title, quantity, quality,
etc.
 b. Unilateral mistake: Where only one of the contracting
parties is mistaken as to a matter of fact, the mistake is a
unilateral mistake. Sec 22 of Indian contract act says, “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.”
A contract remains valid unless the mistake is caused by
misrepresentation or fraud, in which the contract is
voidable at the option of other aggrieved party.
Agreement is void-ab-initio in following cases:
i. Mistake as to the identity of person contracted with,
where such identity is important
ii. Mistake as to the nature and character of a written
document.