Contracts-III
CLAT 2024
Situations lacking free consent
Coercion
Undue Influence
Fraud
Misrepresentation
Coercion
There are four elements of Coercion, they are as
follows –
Any act which is prohibited by the IPC
Threatening to commit any act prohibited by the
IPC
Detaining or causing harm to someone’s property
Threatening to detain or cause harm to someone’s
property
Examples of Coercion
Ex 1 : A kidnaps B and asks him to transfer his property to him at
negligible price. A signs the transfer papers and accepts the amount.
The above contract is voidable at the option of B as A has coerced B
into giving consent by kidnapping him, an act which is prohibited
under IPC
Ex 2 : A threatens to break B’s gold watch gifted to him by his wife
unless he lends him the watch for a day in return for a nominal
amount. A agrees to lend the watch.
The above contract is voidable at the option of B as A has coerced B
into giving consent by threatening to damage his property
Undue Influence
There are three elements of undue
influence, they are as follows –
Dominant position of one party
Misuse of the dominant position
Have obtained unfair advantage as a result
of such misuse
Examples of Undue Influence
A, a farmer whose crops have been destroyed in floods
asked B, a business man for a loan of Rs 10,000. B agrees
to lend the amount but only on the condition that A has to
pay 25% interest on the entire loan amount. A having no
other choice agrees to the condition.
In this case, there exists an undue influence of B over A
under which A has agreed to the unjustified condition.
This would be an example when a person has apparent
authority over the other and he misuses it to gain unfair
advantage
Fraud
Fraud occurs when one party to the contract intentionally provides false
information to the other party in order to deceive him into agreeing to
the contract
There are five ways in which fraud can occur –
False suggestion : When one party suggests to another party that a fact is
true, which is not true and the party making it is aware of this fact, it
results into an act of fraud.
Eg : A enters an antique shop and asks for a painting by the famous
painter Leo. B shows him a painting and tells him that the painting is by
Leo when it was a duplicate, a fact which is known to B.
Here, B suggests that the painting is genuine when it was a duplicate
which he was aware of and hence an act of fraud is constituted
Fraud (Continued)
Active Concealment : When one party actively conceals
or hides some information which is essential to the
contract or which he is bound to reveal, it constitutes an
act of fraud
Eg : A wants to buy a derby horse from B and asks him to
show the best breed. B sells him a horse suffering from a
terminal disease and conceals this fact while making the
transaction.
Here, B actively conceals a fact which was essential for
the contract and hence an act of fraud is constituted
Fraud (Continued)
Promise made with no intention of performing it : When one
party enters into a contract where he has no intention of
performing the contract but to gain some unfair advantage, an
act of fraud is constituted
Eg : A offers to buy B’s property and pays him an advance of Rs
1,00,000. B accepts the amount and agrees to sell him the
property while he had mortgaged the same to the bank.
Here, B does not have the possession of the property and the
act of accepting the advance and agreeing to the offer proves
that he has no intention of performing the promise and an act
of fraud is constituted
Fraud (Continued)
Other act of fitted to deceive : This results when one
party does some other act like signalling etc which results
in the other party getting deceived
Eg : A puts a board in front of his shop stating 100% cotton
shirts are up for sale, when he was selling artificial fibred
clothes in the name of the cotton.
Here, the act of declaration which was false if he
deceives a party, it would result in an act of fraud.
Fraud (Continued)
Any act or omission which has been declared to be
fraud : If any act or omission has been specifically
declared fraudulent, then the performance of the same
would result in the act of fraud
Eg : The government has declared future telling as an act
of fraud and prohibited it. Now if a party takes money
from another in lieu of predicting future, it would be
termed as fraud
Misrepresentation
Misrepresentation refers to an incorrect statement made by one party
to another without the intent to deceive
If the other party enters into the contract relying on that untrue
innocent statement an act of misrepresentation occurs
Three ways misrepresentation can take place –
An innocent statement made due to incorrect information –
When one party makes a positive assertion which is incorrect due to
lack of information with him and the other party relying on the
information enters into a contract, it amounts to misrepresentation
Misrepresentation (Continued)
Eg : A offers to buy B’s dog of X breed. B having no knowledge about dogs sells
him an identical looking dog of Y breed. Here, an incorrect statement was
made by B due to lack of information.
This would be a case of misrepresentation
Breach of duty –
When one party is under a duty to reveal all the information about the
product which he fails to do without the intent to deceive, it amounts to
misrepresentation
Eg : A bought some iron equipments from B, an ironsmith and was told they
were rust free. The equipments caught rust and became useless. B had no
knowledge of the equipments being susceptible to rust. Here, B was under a
duty to reveal the information about the product which he failed to do. This
would be a case of misrepresentation.
Misrepresentation (Continued)
Mistake regarding the substance of the thing –
When one party makes a mistake regarding the substance of the
product which is the subject matter of the agreement without
having intent to deceive, it would amount to misrepresentation
Eg : A asks for a 24 carat diamond ring from B. B sells him the
ring stating it to be of 24 carat. The ring was later found to be
22 carats. Here, an incorrect statement was made by B
regarding the substance which was the subject matter of the
contract. This would be a case of misrepresentation
Special Contracts
AGENCY
A contract of Agency occurs between a principal and an
agent
An agent is someone who can represent the principal with
third parties
Eg : Y, who sells cars, appoints X as a salesman. X sells a
car to A. There exists a contract between A and Y, even
though Y himself was not personally entering into the
contract
Here, Y is the principal and X is the agent
BAILMENT
A bailment is a contract wherein the property of one
person is in the possession of another for a temporary
period
The bailor is the person delivering the goods and the
bailee is the person to whom the goods are delivered and
who keeps the goods in his possession
Eg : A gives his car for repair in a garage run by B. In this
case, A is the bailor and B is the bailee
Contingent Contract
here one person loss/profit depend on the event happening or non-happening in future.
A contingent is said to be contingent when the terms
of the contract are not final
The performance of the contract depends upon the
happening or non-happening of a certain event in
future
Eg : A promises to pay B a sum of Rs 5,000 if he is
struck by lightning. Since the contract is based on the
happening of a certain event, the occurrence of
which is not certain, the contract would be termed as
a contingent contract
Wagering Contract
here one person loss is certain, and one person profit is also certain.
In this contract, the first party promises to pay a certain sum of
money to the second party on the happening of a particular
event in the future and the second party agrees to pay to the
first party on non-happening of that particular event
Therefore, one person always benefits while the other suffers
some loss
Eg : During a India-Pakistan cricket match, A tells B that if India
wins then B should pay A Rs 1000 and if Pakistan wins then A will
pay B Rs 1000.
This is an example of wager. All such agreements are void.
End of Contracts concepts
