contract free consent unit 2 law of contract pptx

law of contract, free consent

1. Law of Contract Unit 2

2. Unit 2: Consent: 2.1 Free Consent – meaning and importance 2.2 Elements vitiating free consent: Coercion, Undue Influence, Fraud, Misrepresentation 2.3 Effects of coercion, undue influence, fraud and misrepresentation on contract 2.4 Mistake

3. FREE CONSENT Sec 13 Indian Contract act, “two or more persons are set to concent when they agree upon the same thing in the same sense.” Sec 14 of this act states that, concent is said to be free when it is not caused by : 1. Coercion: Application of physical force 2. Undue influence: Use of mental pressure 3. Misrepresentation: Innocent false representation 4. Fraud: Cheating or deceiving 5. Mistake: Wrong impression about anything

4. Section 10  of the Indian Contract Act provides that an agreement in order to be a  contract,  must satisfy the following conditions: It must be made by  free consent of the parties . The parties must be  competent to contract. It must be made for a lawful consideration and with a lawful object. It should not have been expressly  declared as void by law . Also there must be consensus ad idem or identity of minds in the sense that parties have agreed about the subject matter of the contract at the same time and in the same sense, as evidenced by offer and acceptance(Section 13). It has been observed that the agreement must import an intention to create a legal relationship between the parties, and that agreements relating to social matters are not enforceable by law. A Contract is an  agreement  between private parties creating mutual obligations enforceable by law. But how should we verify whether both the parties has entered willingly or not? From here the concept of free consent emerges.

5. ELEMENT OF FREE CONSENT:  1. COERCION: it implies use of some kind of physical force by doing some act forbidden by law to seek concent of other party. 2. UNDUE INFLUENCE: It implies unfair use of dominating position to cause the concent of other party for a contract. In undue influence some kind of mental and moral pressure is brought upon a party to cause his concent . 3. MISREPRESENTION: While making a contract, one of the party may make any statement regarding the subject matter of a contract. Such statement, if turns to be untrue amounts to misrepresentation. It is a misstatement of material facts. 4. FRAUD: An intentional misrepresentation of the facts amounts to fraud. Fraud is always committed with a view to diceive to cheat another person . Thus, when one person does anything or makes false statement knowing to induce other for causing this concent , it is known as fraud. 5. MISTAKE:It maybe defined as a wrong impression or erroneous opinion in the mind of a person about any subject matter, event or it may concent something .

6. A mistake is a erroneous conviction that is honest in nature. It prompts a misconception between the two parties. Now while discussing mistake , the law distinguishing two types of mistakes. i . A Mistake of law. ii. A Mistake of fact. MISTAKE OF LAW This concept includes mistaking of the laws either it be Indian or Foreign . If the mistake is regarding Indian law then it is not excusable i.e. ignorance of law it no defense under Indian Contract Act . It means party can’t simply claim to be unaware of the law, as no relief on this ground would be allowed . This clause also include wrongful interpretation of any legal provisions. However ignorance of foreign law is given some leeway it is not treated same. Because parties here are not supposed to know the foreign law, mistake of foreign law is considered to be mistake of fact under Indian law. MISTAKE OF FACT This is a mistake when both the misunderstands each other’s terms and conditions leaving each others at crossroad. Ignorance, hiatus or fallacy in understanding are some of the reasons for this mistake. This does not include intention it is innocent . Mistake of facts can be of two types that are unilateral (caused by one party) and bilateral ( caused by both the parties to the contract).

7. Landmark Judgements on Coercion under Indian Contract Act Chikham Amiraju v. Chikham Seshamma : (1) For the current scenario situation, a man of a Hindu religion threatens of suicide instigateing his better half and child to execute an arrival of a few properties for his sibling which they guaranteed their own. It was held that the danger of suicide adds up to intimidation and the discharge deed because of the utilization of segment 15 is in this way voidable. Askari Mirza v. Bibi Jai kishori :(2) A criminal indictment was initiated against an individual and dreading the consequence of arraignment, he went into an understanding with regards to the next gathering deserting the indictment. It was held that the risk of criminal indictment isn’t essentially a demonstration taboo by the Indian Penal Code. Subsequently, assent is substantial. Defending Against Coercion The possibility of ‘unclean hands’ is a protection that can be utilized for intimidation in an agreement. The general thought behind unclean hands is that one gathering can’t be held at risk for compulsion on the grounds that the other party was blameworthy of a similar demonstration. Other approach to comprehend this thought is that the two parties constrained one another so as to shape the agreement.

8. Undue influence Lakshmi Amma Vs T. Narayana [3] In this case, a person was suffering from a number of ailments, which confined him to a nursing home. There he made a deed gifting all his properties to one of his sons to the exclusion of others. The court held that the gift was caused by undue influence voidable.

9. Free consent Case Law- Nokhia vs State of H.P[1] 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.

10. Fraud Facts of the Case :  Derry v. peek The Plymouth, the Development and District Tramways company issued a prospectus stating that the company had permission to use steam trams, which would replace their horse-powered trams. In fact, the company had no such permission because the right to use steam power was subject to the Board of Trade’s consent. The company applied, honestly believing that they would get permission because it was a mere formality. In reality, after the prospectus was issued, permission was refused and the company ended up in liquidation. Led by Sir Henry Peek, shareholders who had purchased their stakes in the company on the faith of the states sued the directors in misrepresentation. Judgment in Derry v. Peek The House of Lords held that the shareholders’ action failed because it was not proved that the director lacked an honest belief in what they had said. [4]  Lord Herschell , however, pointed out that although unreasonableness of the grounds of belief is not deceitful, it is evidence from which deceit may be inferred. There are many cases, “where the fact that an alleged belief was destitute of all reasonable foundation would suffice of itself to convince the court that it was not really entertained and that the representation was a fraudulent one.”

11. Mere Silence is not 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, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence, is, in itself, equivalent to speech. A party is under no obligation to disclose all material facts unless there exists a duty to speak or when silence amounts to fraud, or when half-truths are uttered or when there is a change of circumstances. Ex- when ‘A’ agrees to sell a horse to ‘B’ and ‘A’ knows that horse is not mentally stable and ‘B’ does not ask then in that instance, ‘A’ cannot be made liable as there was no duty to speak. Keates v Lord Cadogan A let his house to B which he knew was in ruinous condition. He also knew that the house is going to be occupied by B immediately. A didn’t disclose the condition of the house to B. It was held that he had committed no fraud. When Silence is Fraud When there is a Duty to Speak Where silence is deceptive Change of circumstances Half-truths

12. Fraud   Misrepresentation Fraud is more or less an intentional wrong.   Misrepresentation may be quite innocent. Fraud means willful misrepresentation of a material facts.   Misrepresentation means a bonafide representation which is false. Fraud id done to deceive the other party.   Misrepresentation is not done to deceive the other party. Fraud is defined in Sec 17   Misrepresentation is defined in sec 18 In fraud, the aggrieved party can claim damages for any loss sustained.   Misrepresentation, the aggrieved party cannot claim damages for any loss sustained. Difference Between Fraud and Misrepresentation

13. Raharman Prodhan v. State of West Bengal [7] A work order for repairing the bank of the river was issued directing the work to be completed within 45 days. The alignment was given after 10 months which turned out to be wrong. Correct alignment was given subsequently when a substantial portion of the work had already been done. The work already done was not taken into account. The wrong alignment became the cause of washing away by devastating floods. The plaintiff’s claim for compensation for the work already done was taken to be established. Illustration- A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to pay her 100 rs for each night’s performance. On the sixth night, A willfully absents herself from the theatre, and B in consequence, rescinds the contract. B is entitled to claim compensation for the damage which he has sustained through the non-fulfilment of the contract.

14. Mistake Case Law-   Phillips v. Brooks Ltd.-  In this case, it was held that a person is deemed to contract with the person in front of them unless they can substantially prove that they instead of them intended to deal with another person. Illustration- A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away, and the goods were lost. Neither party was aware of these facts. The agreement is void. The State of Maharastra v. Mayer Hans George –  In this case, A is an officer of the court and he is ordered to arrest Y. A arrests Z by mistake, as he believes Z is Y. Here, A can take the basis of bona fide intention as a defence in the mistake.