7. Free Consent Legal Contract and agreement.pptx

Legal Aspects

1. SUBJECT: Legal Systems of Business Class: I MBA Class: I MBA -A,B & C Online Class (Google Meet): Prepared by P.Anusha Prabha 1

2. Online Class (Google Meet): Prepared by P.Anusha Prabha 2 Class: I MBA -A,B & C Free Consent F ree consent is an agreement made between two parties for the same purpose with the Union of thoughts. It is under the principle of consensus-ad-idem. It is the definition of free consent. Free Consent Example In order to understand more clearly, let us illustrate a case of free consent. Let us assume A and B are two parties, and 'A' had some financial crisis, so he wants to make a contract. After knowing all the information and after analyzing the situation, 'B' wants to accept the contract made by 'A'. Here the contract or agreement is made with the mutual consent of both the parties. This is nothing but the free consent of the contract.

3. Online Class (Google Meet): Prepared by P.Anusha Prabha 3 Class: I MBA -A,B & C Consent and Free Consent Even though the meaning of both consent and free consent seems to be similar, slight differences are observed when we go through them in detail. The differences between consent and free consent, where it varies and the importances etc. in detail as follows- Elements:- The elements of consent are limited to a similar purpose as well as the same sense of mind. On the other hand, the elements of free consent should be free from fraud, coercion, undue influence, misrepresentations, and other mistakes too. Void: The contract will be voidable if there is no consent. In contrast, the voidability of the contract will be decided by the aggrieved party in the absence of free consent.

4. Online Class (Google Meet): Prepared by P.Anusha Prabha 4 Class: I MBA -A,B & C Elements of the Free Consent  For consent to be considered Free Consent, it should meet certain requirements as given below : • The contract should not be formed under Someone’s pressure or undue influence. • The contract should be a result of the agreement of both the companies. There should be consent and willingness to work together in both   companies. • The contract should be free of any fraud. • There should be mutual trust in both parties. • All the points in the contract should be clearly stated to avoid misconceptions.

5. Online Class (Google Meet): Prepared by P.Anusha Prabha 5 Class: I MBA -A,B & C T he factors that contribute to the violation of Free Consent • Coercion:  When one party compels or forces the other party to enter into a contract with it by means of threatening or blackmailing. So there exists no free will, and hence it violates Free Consent. • Mistake or Misrepresentations:  When there is a lack of communication between two parties, or some other party gets involved in the decision-making, then there will be quarrels and misconceptions. It violates the rule of Free Consent as there is no room for quarrels or fights. It promotes peace. • Undue Influence:  When the party with higher authority dominates the other party and decides as per what the party with higher position wants and suppresses the desires of the other party, then it violates the  Free Consent as both the parties have equal rights in decision making. It’s mostly seen in husband and wife or tenants and landlords. • Fraud:  When one party cheats another party or hides or is dishonest or disloyal or then is no complete transparency between both the parties or if one of the parties fails to commit to its promises, then it’s a case of Fraud.

6. Online Class (Google Meet): Prepared by P.Anusha Prabha 6 Class: I MBA -A,B & C Illustration “A” is an old man who stays with “B”, his nephew and he takes care of him. “B” demanded to get the property of “A” as he was taking care of him and forced him to sign the papers. Here in this case, “A” is under undue influence. In this case it was observed that consent to an acquisition cannot be described as real consent. In the absence of these vitiating factors the contract binds and no one can get rid of it by unilateral action.

7. Online Class (Google Meet): Prepared by P.Anusha Prabha 7 Class: I MBA -A,B & C Mistake In The Free Consent When a contract is entered into by all the parties by mistake, then it is void. There are other types of mistakes, which are briefly discussed below. Unilateral Mistake When any one of the parties in a contract makes a mistake, then it is said to be a unilateral mistake. Bilateral Mistake When both parties' contract Makes a mistake, it is said to be a bilateral mistake. Bilateral mistakes are of two types - one is a mutual mistake, and another one is a common mistake. Mutual Mistake When, in an agreement, a mutual mistake is made, then the contract will be void. A mistake is said to be a mutual mistake when parties to a contract misunderstand each other. Common Mistake Section 20 of the Indian Contract Act 1872 defines the provision for common mistakes. The common mistake arises from any of the individual parties. When, in an agreement, a common mistake is made, then the contract will be void.

8. Online Class (Google Meet): Prepared by P.Anusha Prabha 8 Class: I MBA -A,B & C Examples Of Free Consent Sita is a housewife. Her husband Ram provides her expenses. Ram demands to get Sita and forces her to sign the papers. Here, in this case, Sita is under the influence. Coercion When a person risks the other person to do or not to do something with the intent to force a person to enter into a contract, it is said to be force. When Ram forces Sham to transfer him all his money, Ram will kill him. This is said to be coercion. When it is found that the contract is made under coercion, then the contract is canceled . A person who is a stranger or not in the contract, coercion can be employed against coercion.

9. Online Class (Google Meet): Prepared by P.Anusha Prabha 9 Class: I MBA -A,B & C Undue Influence When, in a contract, one person is at a higher position and dominates the other to take unfair advantage of the position, then it is said to be undue influence. Undue influence is based on the principle of the doctrine of equity. Parties that may be affected by undue influence are mentioned below Husband and wife Doctor and patient Adult child and parent Lawyer and client A person with a lower mental capacity Old age In all the above cases, the party who is in a higher position might impact the other person in a contract. But in case of undue influence, the aggrieved party has to prove the dominating position of the other. It is called the burden of proof. The aggrieved party must prove that the dominating party took unfair advantage of the person.

10. Online Class (Google Meet): Prepared by P.Anusha Prabha 10 Class: I MBA -A,B & C Difference Between Coercion And Undue Influence. Basis Coercion Undue Influence Meaning When a person threatens the other party in a contract or forces them to enter into a contract is said to be coercion. When the two parties enter into a contract, and between them, one party is in a higher position to influence the other person is said to have undue influence. Relationship In case of coercion, a relationship between the parties to a contract is not required. But in case of undue influence, the relationship between the parties must exist because they need to show the burden of proof. Nature Coercion is a criminal offense. But in case of undue influence, it is not a criminal offense. Objective Here the person forces another person to enter into an unlawful contract. In undue influence, the party in a higher position misuses his authority and dominates the other person to enter into a contract.

11. Online Class (Google Meet): Prepared by P.Anusha Prabha 11 Class: I MBA -A,B & C Fraud Section 17 of the Indian Contract Act 1872 defines fraud. When one party enters into a contract with another party without an intention to perform his duty is said to be a fraud. It includes a false representation of the facts or concealment of facts from the other party. Features Of Fraud It is said to be fraud conducted in a contract when the following points are present. Omission of any act that has been promised in the contract is considered fraudulent in the eyes of the law. A False representation of facts is considered fraud. Concealing the facts from the other parties in the contract. When any of the party promises to perform certain activities while entering into a contract, but the party do not have any kind of real intention to perform any of the activities.

12. Online Class (Google Meet): Prepared by P.Anusha Prabha 12 Class: I MBA -A,B & C Silence In Fraud Silence of the party is regarded as fraud when the following conditions are fulfilled. When it is the duty of a party to speak, but he stays silent, then his silence is equal to speech, and it amounts to fraud. When the person keeps silent on the facts which would deceive the other person while entering into the contract, then it is regarded as fraud. Effects Of Fraud Following are the effects of fraud which are explained below briefly. When fraud is conducted in a contract when it is a voidable contract. The party who conducted the fraud has to cover the damages due to the fraudulent activities in a contract. The aggrieved party has the right to revoke the contract.

13. Online Class (Google Meet): Prepared by P.Anusha Prabha 13 Class: I MBA -A,B & C Misrepresentation Section 18 of the Indian Contract Act 1872 defines miss representation briefly. Here Mr presentation means a false representation of the facts in a contract. Characteristics Of Misrepresentation The party conducted the misrepresentation to make the other person enter into a contract. The false statement that was made by the party was not just mere words but material facts.

14. Online Class (Google Meet): Prepared by P.Anusha Prabha 14 Class: I MBA -A,B & C Kinds Of Misrepresentation Generally, there are two kinds of Mis-representation: one is a negligent misrepresentation, and another one is an innocent misrepresentation. A few of the important points about these two are briefly discussed below - Negligent Misrepresentation Due to the lack of any reasonable ground or carelessness the negligent misrepresentation occurs in a contract. The parties to a contract will only be liable when she has neglected the duty which she has promised to perform in a contract. Innocent Misrepresentation When the representation is based on the grounds of belief, and it lacks negligence and fraudulent intention, then it is regarded as an innocent misrepresentation. Effects Of Misrepresentation The effects of misrepresentation are stated below. The aggrieved party can always opt for canceling the contract. The aggrieved party Can claim damages from the party who miss represented the facts.

15. Online Class (Google Meet): Prepared by P.Anusha Prabha 15 Class: I MBA -A,B & C Difference Between Fraud And Misrepresentation Basis Fraud Misrepresentation Meaning In case of fraud, stating the facts which are not true and concealing the facts to make the other person enter into a contract is called fraud. Misrepresentation means a false representation of the facts in a contract. Intention In case of fraud, it is the deliberate intention to deceive the other party in a contract. In the case of misrepresentation, it is a Bonafide intention while representing the false facts but believing them to be true. Here there is no intention to deceive the other party in a contract. Claim for Damages In case of fraud, the aggrieved party has the right to claim damages she has suffered due to fraud. In case of misrepresentation, the aggrieved party does not have any kind of right to claim for the damages he has suffered.

16. Online Class (Google Meet): Prepared by P.Anusha Prabha 16 Class: I MBA -A,B & C Free Consent

17. Consent A contract without free consent is voidable contract. Consent: According to Section 13 two or more persons are said to consent when they agree upon the same thing in the same sense. This means that there should be perfect identity of mind (consensus ad idem) regarding the subject matter of the contract. Online Class (Google Meet): Prepared by P.Anusha Prabha 17 Class: I MBA -A,B & C

18. Free Consent To make a contract valid not only consent is necessary but the consent should also be free. Section 13 says the consent is said to be free when it is not caused by any of the following : (a) Coercion - sec 15 (b) Undue influence - sec 16 (c) Fraud (d) Misrepresentation - sec 17,18 (e) Mistake –sec 20,21 Online Class (Google Meet): Prepared by P.Anusha Prabha 18 Class: I MBA -A,B & C

19. Coercion Coercion is 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 . Online Class (Google Meet): Prepared by P.Anusha Prabha 19 Class: I MBA -A,B & C

20. Is Threat to commit suicide coercion? Madras high court has held by a majority judgment that even a threat to commit suicide is coercion even though it is not punishable under the Indian penal code . Example: A man by giving a threat to commit suicide induces his wife and son to execute a deed in favour of him in respect of certain property and they execute. Held that the consent of the wife and son has obtained through coercion Online Class (Google Meet): Prepared by P.Anusha Prabha 20 Class: I MBA -A,B & C

21. Effect of Coercion-section 19 Online Class (Google Meet): Prepared by P.Anusha Prabha 21 Class: I MBA -A,B & C

22. Online Class (Google Meet): Prepared by P.Anusha Prabha 22 Class: I MBA -A,B & C

23. Online Class (Google Meet): Prepared by P.Anusha Prabha 23 Class: I MBA -A,B & C

24. Example of undue influence Online Class (Google Meet): Prepared by P.Anusha Prabha 24 Class: I MBA -A,B & C

25. Following are the parties that can be affected by undue influence Doctor and patient Lawyer and client Guardian and ward Trustee and beneficiary Teacher and student Online Class (Google Meet): Prepared by P.Anusha Prabha 25 Class: I MBA -A,B & C

26. Online Class (Google Meet): Prepared by P.Anusha Prabha 26 Class: I MBA -A,B & C Difference between coercion and undue influence

27. 3.Fraud Online Class (Google Meet): Prepared by P.Anusha Prabha 27 Class: I MBA -A,B & C Meaning of fraud Sec. 17 Misrepresentation of facts may be intentional or innocent. Intentional misrepresentation has been termed as Fraud and innocent misrepresentation has been termed simply as ‘misrepresentation’ in the contract act.

28. Definition under law section 17 According to section 17 fraud means and includes any of the following acts  Committed by a party to a contract or by any one with his connivance or by his agent with intent to deceive another party thereto or his agent or to induce him to enter into contract: suggestion as to fact of that which is not true by one who does not believe it to be true An active concealment of a fact by one having knowledge or belief of the fact. Any other act fitted to deceive A promise made without any intention of performing it Online Class (Google Meet): Prepared by P.Anusha Prabha 28 Class: I MBA -A,B & C

29. Examples of fraud Manoj was induced to buy shares in a company on account of a false statement made by a stranger. It was held that he could not get out of the bargains because false statement was not made by the company or its agent.  Manoj says to deepika his coat is made of pure wool ,though he knows that it is untrue . Deepika purchases the coat believing Manoj’s statement to be true ,It is a fraud by Manoj and therefore contract is voidable at deepika’s option. Online Class (Google Meet): Prepared by P.Anusha Prabha 29 Class: I MBA -A,B & C

30. Essentials of fraud The act must have been committed by a party to the contract or with his connivance or by agent .It should not have been committed by a stranger The act must have been committed with the intention of inducing the deceived party to act upon it-It implies that the assertion should be such that it would necessarily influence and induce other party to act. Plaintiff must have suffered Online Class (Google Meet): Prepared by P.Anusha Prabha 30 Class: I MBA -A,B & C

31. Effect of Fraud Section 19=The party whose consent to the contract is obtained by fraud can exercised any of the following rights:  He may avoid the contract and may (i) ask for the damages suffered because of the non fulfillment of the contract  He may insist for the performance of the contract Online Class (Google Meet): Prepared by P.Anusha Prabha 31 Class: I MBA -A,B & C

32. Misrepresentation Online Class (Google Meet): Prepared by P.Anusha Prabha 32 Class: I MBA -A,B & C Misrepresentation is a false representation made innocently without any intention of deceiving the other party .It may include two things:  (a) wrong statement of a material fact not known to be false  (b) Non-disclosure of facts where there is a legal duty to disclose without intention to deceive

33. Difference between fraud and misrepresentation Online Class (Google Meet): Prepared by P.Anusha Prabha 33 Class: I MBA -A,B & C

34. Mistake Mistake are of two type (a) Mistake of law Mistake of law is further divided into three categories (a) mistake of Indian law (b) mistake of foreign law (b) mistake as to private rights of the parties – treated as mistake of fact . Here , the agreement will be void in case of bilateral mistake only. (b) Mistake of fact Bilateral mistake Section 20 states that were both the parties to an agreement are under a mistake as to a matter of fact, essential to the agreement shall be void. The mistake shall be termed as bilateral mistake of fact only when both of the following conditions are satisfied  (a) it should be committed by both the parties  (b) it should relate to a matter of fact essential to the agreement.  E.g.-A agrees to buy certain horse from B .It turns out that the horse was dead at the time of the agreement ,though neither party was aware about this fact. The agreement is void.  Unilateral mistake are two types of mistake of fact  One party to a contract is under a mistake of fact, the contract is voidable .unilateral mistake do not affect the validity of contract unless they concern some fundamental  Example: A agreed to buy certain wheat from B believing that they were old. Infact wheat offered were new. It was held that A could not avoid the contract on the ground that he had a mistaken impression as to the oldness of wheat. Online Class (Google Meet): Prepared by P.Anusha Prabha 34 Class: I MBA -A,B & C

35. Mistake Online Class (Google Meet): Prepared by P.Anusha Prabha 35 Class: I MBA -A,B & C

36. Online Class (Google Meet): Prepared by P.Anusha Prabha 36 Class: I MBA -A,B & C