UNIT 2 – FREE

CONSENT
 FREE CONSENT
Section 10 of the Indian Contract Act laid down in clear terms free consent is

one of the essentials of a valid contract.

According to Section 13 of the Act has defined consent as “two or more persons

are said to consent when they agree upon the same thing in the same sense”.

According to this section which has laid down the basic principle of consensus ad

idem on which the law of contract is based, the parties to an agreement should

have identity of minds regarding the subject matter of the agreement.

 FREE CONSENT
• If the consent is there but it is not free or real, then the contract will be

voidable at the option of the contracting parties whose consent is not free.

The word “free consent” is defined in Section 14 of the Contract Act as

follows –
 “Consent is said to be free when it is not caused by…

1. Coercion, as defined in Section 15; or

2. Undue influence as defined in Section 16; or

3. Fraud, as defined in Section 17; or

4. Misrepresentation, as defined in Section 18; or

5. Mistake, subject to the provisions of Sections 20, 21 and 22.

 COERCION [SEC. 15]

• Coercion means compelling or forcing a person to enter into a contract under

a pressure or threat.

• Section 15 of the Indian Contract Act defines coercion as “the committing or

threatening to commit, any act forbidden by the Indian Penal Code, or the
unlawful detaining, or threatening to detain, any property, to the prejudice of any
person whatsoever, with the intention of causing any person to enter into an
agreement”.
 ESSENTIALS CHARACTERISTICS OF COERCION

(a) The committing of any act forbidden by Indian Penal Code:

When the consent of a person is obtained by committing any act which is forbidden
by the Indian Penal Code, the consent is said to be obtained by coercion.

(b) The threatening to commit any act forbidden by Indian Penal Code:

If a person attempts to commit an act which is punishable under the Indian Penal
Code, it leads to coercion, e.g., consent obtained at the pistol point, or by threatening
to cause death or by intimidation.
(c) The unlawful detaining of any property:

If a person unlawfully detains the property of another person and forces him to enter into a
contract, the consent is said to be induced by coercion.

(d) The threatening to detain any property unlawfully:

If a threat is given to detain any property of another person, this amount to coercion.

(e) The act of coercion:

It must be done with the object of inducing or compelling any person to enter into an
agreement.
 EFFECTS OF COERCION
• According to Section 19 states that, ‘when the consent of a party to an
agreement is obtained by coercion, the contract becomes voidable at the
option of the party, i.e., such party can put an end to the contract if he so
chooses’.

• According to Section 72 of the Act, which is based on the principle of equitable

restitution, a person to whom anything has been delivered or money paid under
coercion must return or repay it.
 UNDUE INFLUENCE [SEC. 16]
When a party enters into a contract under any kind of mental pressure, unfair

influence or persuasion by the superior party, the undue influence is said to be

employed.
According to Section 16 (1) of the Act, 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”.
 Presumption of undue influence
Section 16 (2), a person is deemed to be in a position to dominate the will of the other is the following
cases:

a) Real or apparent authority: Where he holds a real or apparent authority over the other, e.g., master
and the servant, parent and child, Income Tax officer and assessee, etc.

b) Fiduciary relationship: Fiduciary relation means a relation of mutual trust and confidence, e.g.,
guardian and the ward, solicitor and client, doctor and patient, guru and disciple, trustees and
beneficiaries, etc.

c) Mental distress: Where he contracts with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness, or mental or bodily distress.
 FRAUD [Sec. 17]
• The term ‘fraud’ may be defined as an intentional, deliberate or willful

misstatement of facts, which are material for the formation of a

contract.
According to Section 17, “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:
(a) the suggestion, as to a fact, of that which is not true, by one who does not believe it to be true;
(b) the active concealment of a fact by one having knowledge or belief of the fact;
(c) a promise made without any intention of performing it;
(d) any other act fitted to deceive;
(e) any such act or omission as the law specially declares to be fraudulent”.
 ELEMENTS OF FRAUD
• Mere silence is not a 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.

Example: A fraudulently informs B that A’s estate is free from encumbrance. B buys the estate. The estate is subject to
mortgage. B may avoid the contract or may insist on its being carried out and the mortgage debt repaid by A.
 Effect of Fraud
1. Right to rescind the contract: The party whose consent was caused by fraud can
rescind (cancel) the contract

2. Right to insist upon performance: The party whose consent was caused by fraud
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 representation made had
been true.

3. Right to claim damages: The party whose consent was caused by fraud, can claim
damage if he suffers some loss.
 MISREPRESENTATION [Sec. 18]
The term “misrepresentation” is ordinarily used to connote both “innocent

misrepresentation” and “dishonest misrepresentation”. Misrepresentation may,

therefore, be either (i) Innocent misrepresentation, or (ii) Wilful

misrepresentation with intent to deceive and is called fraud.

Tom agrees to a contract with Real Man Magazine Company. The details of the

contract state that, if Tom subscribes to the magazine for a year, he will receive a gift

worth over $100. After signing the contract, Tom realizes that the gift is not actually

free, but the company has instead incorporated the price of the gift into the contract

for the magazine subscription.

Had Tom known that beforehand, he would never have subscribed. Now, he is

out over $100 because he has both an expensive magazine subscription and a

“free” gift that he ultimately ended up paying for anyway.

If a person is selling a car and knows there is a problem with the transmission, yet

advertises it in perfect mechanical condition, they have committed

fraudulent misrepresentation.
“Misrepresentation” means and includes –
i) 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;

ii) any breach of duty which, without any 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 any one claiming under him;

iii) 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.
 Essentials of Misrepresentation
1. There must be a representation or breach of duty.

2. The representation must be of facts material to the contract.

3. The representation must be untrue.

4. The representation must be made with a view to inducing the other party to enter
into contract.

5. The other party must have acted on the faith of the representation.

6. The person making the representation honestly believes it to be true.

 Effects of Misrepresentation

The effect of misrepresentation is that it makes the contract voidable the

option of the party whose consent is so obtained. And such party may

put an end to the contract if he so chooses.

 Exceptions
1. Where the other party had the means of discovering the truth with ordinary
diligence: The party cannot complain of misrepresentation if he had the means
of discovering the truth with ordinary means.

2. Where the misrepresentation does not induce the other party to enter into
contract, the contract is not voidable: If the consent is given independently in
spite of misrepresentation, the contract is not voidable.
 MISTAKE
A mistake is said to have occurred where the parties intending to do one

thing by error do something else. Mistake is an erroneous belief

concerning something.
X engages Y as a teacher for his son appearing for IAS Preliminary. Y agrees to come daily

7. X think 7 a.m. but Y means 7 p.m. This is a bilateral mistake of fact but not

essential and can be rectified. Therefore the agreement is valid.

 Kinds of Mistake
Mistake may be of two kinds:

(I) Mistake of Law; and

(II) Mistake of Fact.

 (I) Mistake of Law:

It may be of the following types:

a) Mistake of law of the country: It does not render the agreement void. This is
based on the well established rule of law namely, ignorantia juris non excusat (i.e.,
ignorance of law is no excuse).

Section 21 lays down that "a contract is not voidable because it was caused by a
mistake as to any law in force in India".
b) Mistake of foreign law: The mistake of the foreign law has the same effect

as a mistake of fact. Therefore, it renders the agreement void.

Section 21 lays down that “a mistake as to a law not in force in India has

the same effect as a mistake of fact”.

 (II) Mistake of Fact:
Mistake of fact may be of two types –

(1) Bilateral mistake; and

(2) Unilateral mistake.

 (1) Bilateral mistake:
Where both the parties to an agreement are under a mistake as to matter
of fact essential to the agreement, the agreement is void. An agreement shall
be void if the following conditions are satisfied:

(i) Both the parties must be under a mistake: This means the mistake must
be mutual or common.

(ii) Mistake must relate to an essential fact: It is necessary that the mistake
must relate to a matter of fact which is essential to the agreement.
 Types of Bilateral Mistake
The following types of bilateral mistake, which render the agreement void, are
important from the subject point of view:
a) Mistake as to subject matter :The contract is void. It may be of the following
types:
(i) Mistake regarding existence of the subject matter:
(ii) Mistake regarding identity of the subject matter:
(iii) Regarding the title to the subject matter:
(iv) Regarding the quantity of the subject matter:
(v) Regarding the quality of the subject matter:
(vi) Regarding the price of the subject matter:
b) Mistake as to the possibility of performance

Where the parties to an agreement believe that the agreement is capable of

performance, while in fact it is not so, the agreement is treated as void. The

impossibility may either be physical or legal.

 (2)Unilateral mistake
• The term unilateral mistake means where only one party to the agreement

is under a 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 fact.

 Types of Unilateral Mistake
1. Mistake about the identity of the parties to an agreement: If there is a mistake
regarding the identity of the person contracted with, even if the mistake is caused by
fraud or misrepresentation of another party, the contract will be void.

2. Mistake about the nature of the agreement: If a party does not disclose the true
nature of the document but fraudulently induces the other party to sign it who
believes that he is signing some other document, in such a case there is no real
agreement.
 EXCEPTIONS TO THE RULE OF
STRANGER TO CONTRACT
• In case of Trusts:
• In case of marriage settlement, partition or other family arrangements:
• Acknowledgement of payment:
• In case of agency:
• In case of assignment of rights under a contract: etc.
 Exceptions to the General Rule of “No
Consideration, No Contract”
• Agreements made on account of natural love and affection [Sec. 25
(1)]:
• Promise to compensate for past voluntary services [Sec. 25 (2)]:
• Promise to pay time-barred debt [Sec. 25 (3)]:
• Contracts of agency [Sec. 185]:
• Remission [Sec. 63]: etc.
 Legality of Object
• The legality of an object refers to the requirement that the purpose or objective of a contract must
be lawful for the contract to be considered valid and enforceable.
• In other words, the object of a contract should not be contrary to any law, public policy, or
morality.
• Under the legal principle of the legality of objects in Contracts, if the object of a contract is
prohibited by law, immoral, or against public policy, the contract is considered void and
unenforceable. In this context, the term “object” refers to the purpose, intention, or goal that the
parties seek to achieve through their agreement.
• To determine the legality of an object, courts consider whether the object of the contract violates
any statutory provisions, infringes on the rights of others, or is contrary to the public interest or
public policy. The contract may be declared void due to an illegal object if any of these factors are
present.
 Definition of Legality of Object

• According to Section 23, a consideration or object of an agreement is

deemed lawful unless it is forbidden by law or if it would contradict any
existing law, be fraudulent, cause harm to another person or their property,
or be considered immoral or against public policy.
• In any of these cases, the consideration or object is considered unlawful, and
any agreement with an unlawful consideration or object is void.
 Let us look at some agreements that are
opposed to public policy..
• Trading with the Enemy: Entering into an agreement with a person from a country with whom India is
at war, void be a void agreement.
• Stifling Prosecution: This is a pervasion of the natural course of law, and such contracts are void. For
example, A agrees to sell land to B if he does not participate in the criminal proceedings against him.
• Maintainance and Champerty: Maintainance agreement is when a person promises to maintain a suit in
which he has no real interest. And champerty is when a person agrees to assist another party in
litigation for a portion of the damages or proceeds.
• An Agreement to Traffic in Public Offices
• An agreement to brokerage marriage for rewards
• Interfering with the Courts: An agreement whose object is to induce a judicial or state officials to act
corruptly and interfere with legal proceedings
• Agreement in restraint of personal liberty
• Agreement in restraint of parental rights
• Agreements tending to create interest opposed to duty: An agreement with a public servant which
obliges him to do something which is inconsistent with his official duty, shall be void as being opposed
to public policy.
• Agreements interfering with marital duties: For example, an agreement that the husband shall always live
at the wife’s house was held to be void.
• Agreements to defraud creditors or revenue authorities
• Agreement tending to create monopoly
• Agreement to commit a crime
 Illegal Agreement
• An illegal agreement in business law is a contract that was made for an illegal
reason and is consequently against the law. If the content of the agreement
causes the parties to perform illegal actions, then the contract is illegal.
 Void Agreement v/s Illegal Agreement
Void Agreement Illegal Agreement
An agreement that is not legally binding and cannot An agreement that is prohibited by law and is
be enforced by law. It is not considered as a valid considered criminal or against public policy. Such
contract by law and cannot be enforced by court. agreements are considered as illegal and against
the law.

It is considered as if it never existed, it is not valid It is considered as illegal and can lead to legal
contract and not enforceable in court. action, such as fines or imprisonment, by the
government or the court.

Example: A contract signed by a minor, as minors Example: A contract for illegal drugs, as it is against
are not considered to have the legal capacity to the law to engage in such activities.
enter into a contract.
 Void Agreement v/s Illegal Agreement
Can be avoided by either party without any legal Can be avoided by either party, but it could also
consequences. lead to legal action and punishable by law.

No legal remedies available, as it is not considered Legal remedies are available, as it is considered
a valid contract. illegal and against the law.

It is not punishable, as it is not considered a valid It is punishable by law, as it is considered illegal and
contract. against the law.
 Effect of Illegal Agreements
• If the contract entered between the parties is found to be illegal, it is not
enforceable by the court of Law. The court will declare that there was no
contract between the parties and leave the parties “as they are” at the time of
the breach.
• The parties who suffered the consequences of an illegal contract cannot
recover the damages as the contract does not exist in the “eyes of the law”.
 Unlawful Agreements v/s Illegal Agreements

• Unlawful Agreements: An unlawful agreement is a contract or arrangement that goes against

the law, public policy, or ethical principles. This makes it void, meaning it's legally invalid
from the start and cannot be enforced in court. Unlike illegal agreements, which involve
criminal activities, unlawful agreements typically involve actions that are prohibited by law
but not considered crimes. For instance, a contract that restricts trade or employment
unfairly is unlawful. Such agreements can harm competition and economic freedom by
limiting an individual's ability to work or conduct business beyond what's legally acceptable.
Agreement contrary to public policy or morality and agreement in violation of intellectual
property rights are also suitable examples of unlawful agreements. While the transaction
itself may not be criminal, it violates public policy and legal provisions, making the
agreement unlawful.
 Unlawful Agreements v/s Illegal Agreements

• Illegal Agreement: An illegal agreement is a contract or arrangement that violates

the law, rendering it void and unenforceable from the start. These agreements
involve actions explicitly prohibited by legislation, often encompassing criminal
offenses. Consequently, those involved in such agreements face both civil and
criminal penalties. The illegality of these agreements means they have no legal
standing and cannot be upheld in a court of law. Parties cannot seek legal recourse
for enforcement or damages related to the agreement. Instead, they may face
prosecution and legal consequences for their participation. Examples of illegal
agreements are, contract for the sale of illegal drugs and an agreement to launder
and conceal funds acquired through illicit activities.
 Enforceability in case of Separable Illegality
The Indian Contract Act (ICA) of 1872 has provisions that address the enforceability
of contracts with separable illegalities:
• It states that if a contract has an alternative promise with one legal branch and one
illegal branch, then only the legal branch can be enforced.
• Doctrine of Severability : This doctrine, also known as the "Blue Pencil Rule",
allows courts to enforce the legal parts of a contract while disregarding the illegal
parts. The goal is to save the valid parts of the contract and not make the entire
contract void. The illegal parts cannot change the overall intention of the parties
involved. The word "blue pencil" comes from the idea of using a blue pencil to
cross out the illegal parts and keep the rest.
• The general rule of law of contracts is that the illegal parts of a contract are illegal
and hence unenforceable. But there are many contracts containing one part of a
clause as illegal and the rest of the other parts as legal. The court in such cases
strikes out the illegal part and enforces the legal one when the parts are severable.
• However, as a concept, the rule of a blue pencil can be applied only "if the valid
stipulation is not affected by the illegality of the other part and the valid part
remains intact.
• The Indian Contract Act, 1872 provides that any part of the consideration or object
is unlawful, and then the contract becomes void. This section also includes the
application of Blue pencil rule.