Free Consent, Factors Vitiating Free Consent under Indian Contract Act

 

Free Consent, Factors Vitiating Free Consent

 

Q. 8. (a) Explain the term 'free consent'. What factors vitiate the consent given by a person? Give examples.

Or

What do you understand by consent? The parties must be aged for a valid contract. When is consent said to be not free? Discuss.

 

Ans. Consent-Section 13 of the Contract Act defines the term "consent". It provides :

"Two or more persons are said to consent when they agree to the same thing in the same sense".

The parties must agree to the same thing in the same sense; only then the parties are said to consent. Where the parties have different things in mind or understand the same things in different ways, there is no real consent. For example, two parties may enter into an apparent contract regarding a particular person or ship misled by the similarity of names. In such a case, there is no contract. On the other hand, if the parties agree to the same thing in the same sense a mere verbal error will not vitate or affect a contract. In some cases, it may so happen that the consent may have been given under the mistake and the mistake may be complete as to prevent the formation of any real agreement "upon the same things", Such fundamental error may relate to:

 

(1) the identity of the party; or

(2) the nature of the transaction; or

(3) the subject matter of the agreement.

 

(1) Mistake as to the identity of the party case where there has been a mistake or error as to the identity of the party or person with whom an agreement is made. It generally occurs when one of the parties represents himself to be some other person than he is.

 

Cundy v. Lindsay & Co. (1878) 3 AC 459.-One Blenkarn taking advantage of the similarity of his name with Blenkiron, wrote to Lindsay & Co. and ordered goods from them. They mistook his order for that of Blenkarn (because the signature on the letter ordering the goods was also made to look like Blenkiron's) a respectable firm, and delivered the goods to Blenkarn. Blenkarn sold the goods to Cundy and did not pay Lindsay & Co. for them. In a suit by Lindsay & Co. against Cundy, it was held that owing to the mistake caused by Blenkarn there was no real agreement between him and Lindsay & Co. and that Cundy could get no title to the goods.

 

The mistake of identity can be only when a particular identity exists in the knowledge of the plaintiff.

 

(2) Mistake as to the nature of transaction case where there is a mistake as to the nature of the transaction, the contract is void. If a person signs a gift deed under the mistaken impression that the deed pertains to the power of attorney. The deed will be void on this ground.

 

(3) Mistake as to the subject matter of the agreement, parties to an apparent agreement have made a mistake as to the identity of the thing (that is, the subject matter of the contract) contracted for, the case must fall under Section 13. If one party intends to contract about one thing and the other about something else, there is no agreement, for the parties are not one as to the subject matter of the agreement.

Raffles v. Wichelhaus, (1864) 159 ER 375 - A agreed to buy from B a cargo of cotton. "To arrive ex-Pearless from Bombay". There were two ships named "Pearless" both sailing from Bombay, and the plaintiff had in his mind one of these ships, the defendant the other. It was held that as there was a mistake as to the identity of the subject matter of the supposed contract, there was no contract at all.

 

Parties ad idem. Ad idem means agreeing to the same thing in the same sense. Where two or more persons agree upon the same thing in the same sense, they are said to be ad idem. They must be of the same intention concerning the matter agreed upon. They should come to the same determination. While dealing with the nature of "consent", it has become clear to us that the parties must be ad idem for a valid contract.

 

When consent is free

 

According to Section 14 of the Contract Act, "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), ог

(4) misrepresentation (as defined in Section 18), or

(5) mistake (subject to the provisions of Sections 20, 21 and 22).

 

Thus, "free consent" is the consent which has been obtained by the free will of the parties, voluntarily given out of their own accord and no pressure was used on either of the contracting parties in the form of (a) coercion, or (b) undue influence, or (c) fraud, or (d) misrepresentation, or (e) mistake.

In Smt. KiranBala v. Bhaire Prasad, AIR 1982 All. 242, the first marriage of a girl was annulled on the grounds of her unsoundness of mind. She was married a second time. Facts of unsoundness of her mind were concealed from the bridegroom, under these circumstances, it was held that consent of the husband was obtained by fraud and marriage could be annulled.

 

Effect:

 

When consent is not free. The effect of the first four circumstances, namely, coercion, undue influence, fraud and misrepresentation is that the contract becomes voidable at the option of the party, while the effect of mistake is to render the contract altogether void.

In short, it can be said that according to the definition of "free consent" contained in Section '14':

 

(i) Not only consent but free consent is necessary to complete the validity of a contract. (Section 10)

(ii) Where there is no consent or no real and certain object of consent, there can be no contract at all.

(iii) Where there is consent but not free consent there is generally a contract voidable at the option of the party whose consent was not freely obtained.

(iv) If consent is given under any of the first four circumstances, mentioned in Section 14, then the contract is voidable at the option of the party whose consent was so caused. (Sections 19 and 19-A)

(v) If the consent is caused by mistake of the parties then the agreement is void. (Section 20)

 

(vi) Thus, it is essential for the formation of a valid contract that there should be free consent of both parties to the contract.

 

Coercion and its effect on contract

 

Q. 8. (b) What is 'coercion' ? Explain its effect on the contract and distinguish between Coercion and Duress.

Or

What do you understand by the term Coercion? Whether the threat to commit suicide is coercion? Explain.

 

Ans. Coercion-Section 15 of the Indian Contract Act, 1872 defines the term "coercion". According to Section 15,

The consent of a party will be deemed to have been caused by coercion if it is obtained under any one or more of the following circumstances-

(i) Commission of an offence. If the other party commits an offence forbidden by the Indian Penal Code to obtain such consent.

(ii) Threatening to commit an offence. If the party threatens to commit an offence forbidden by the Indian Penal Code, to obtain such consent.

(iii) Unlawfully detaining any property of the other party:- unlawfully detains any property to the prejudice of any person whatever, to obtain such consent.

(iv) Threatening to detain unlawfully any property.-If the other party threatens to detain unlawfully any property, to the prejudice of any person whatever, to obtain such consent (Section 15).

 

Explanation of Section 15.-"It is immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed".

 

Illustration.-  A, on board an English ship on the high seas, causes B to agree by an act amounting to criminal intimidation under the Indian Penal Code. A afterwards sues B for breach of contract at Calcutta. Here A has employed coercion, although his act is not an offence by the law of England, and although Section 506 of the Indian Penal Code was not in force at the time when or place where the act was done.

 

(a) On the death of the husband the widow was threatened by the relatives that unless she adopted a boy they would not allow her to remove the dead body. It was held that the adoption was invalid since it had been obtained by coercion [Ranaganyakammav. Alwar Setti (1890) 13 Mad 2411.

 

(b) It was held by their Lordships that a threat to commit suicide is coercion against the wife and son of the person threatening to commit suicide [Ammiraju v.Sheshamma, (1917) 41 Mad. 33].

 

(c) The plaintiff was threatened that he would be arrested and detained under MISA, such a threat would fall within the mischief of Section 15 of the Indian Contract Act [Kishan Lal Kalra v. N.D.M.C., AIR 2001 Delhi 402].

 

Effect of "coercion" on contract [Section 19].-Section 19 of the Contract Act provides for the effect of "free consent" on agreements. It provides:

 

"When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused."

 

Threat to commit suicide, whether coercion. There is some controversy regarding the question of whether an attempt to commit suicide constitutes coercion within the meaning of Section 15 of the Contract Act. According to Section 15 of the Contract Act, an offence to constitute coercion should be an act forbidden by the Indian Penal Code. Under the Indian Penal Code, an attempt to commit suicide is punishable not a threat to commit suicide.

 

Ammiraju v. Seshamma, (1917) 41 Mad. 33.-In this case, a man gave a threat to his wife and son to commit suicide if they did not execute a release bond regarding some property which the wife and son claim as their own. The majority judgment held that the threat to commit suicide must be deemed to be forbidden since the attempt to commit suicide was punishable under Section 309 of the Indian Penal Code. However, in his dissenting judgment, Oldfield J. argued that Section 15 of the Indian Contract Act must be interpreted strictly. An act could be said to be forbidden by the Indian Penal Code only when it was punishable under it. Since the threat to commit suicide was not punishable, it could not be said to be forbidden.

Undue Influence

 

Q. 8. (c) Define undue influence. Who may apply to set aside the Contract induced by undue influence?

Or

Define undue influence and briefly explain the circumstances in which consent to a contract is said to be induced by undue influence. Differentiate between coercion and undue influence.

 

Ans. Undue influence:- The term "undue influence" has been defined under Section 16 of the Indian Contract Act, of 1872. According to Section 16 (1),

 

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 (the party which is in such position) uses that position to obtain an unfair advantage over the other.

The principle underlying undue influence is one of the most legitimate objects of all laws to protect people from being forced, tricked or misled in any way by others into parting with their property. "The equitable doctrine of undue influence has grown out of and been developed by the necessity of grappling with insidious forms of spiritual tyranny and with infinite varieties of fraud." (Allcard v. Skinner).

 

(1) Allcardv. Skinner, (1887) 36 Ch. D. 145.-In this case a woman became a sister of a protestant institution and took the vow of poverty, chastity and obedience. The vow of poverty required the absolute surrender forever of all individual property. She gave her property to the defendant. Later on, she left the sisterhood and sued for the recovery of the property on the ground that the property had been procured by the defendant under undue influence. It was held by the Court of Appeal that the influence of one mind over another is very subtle and of all influences religious influence is the most dangerous and the most powerful.

 

(2) Niko Deviv. Krip, AIR 1989 HP 11, the plaintiff and defendant were in a fiduciary relationship. The suit property belonged to the father and mother who died when the daughter was 10 years old. Her property was being managed by a defendant who got a gift executed from her, she was an illiterate girl, The Court held undue influence was there and the gift was avoided by the Court [Subhash Chandra v. Ganga Prasad, AIR 1967 SC878 followed].

 

Essentials of undue influence.-Section 16 (1) lays down the following essential elements to constitute undue influence:

 

(1) Relationship between the parties being such that one of the parties is in a position to dominate the Will of the other;

(2) He uses that position to obtain an unfair advantage over the other;

(3) An unfair advantage is obtained.

 

Presumption of domination.-According to Section 16 (2), a person is deemed to be in a position to dominate the Will of another:-

 

(a) Where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or

(b) Where he makes a contract with a person whose mental capacity is temporarily or permanently affected because of age, illness, or mental or bodily stress.

 

-M. Rangasamiv. Rangammal, AIR 2003 SC 3120. Generally speaking, the relations of solicitor and client, trustee and beneficiary, spiritual advisor and devotee, medical attendant and patient, parent and child are those in which such a presumption arises. But the presumption of undue influence merely based on a near relationship is not permissible.

 

Burden of disproving undue influence. Where a person who is in a position to dominate the will of another, enters into a contract with him and the transaction appears, on the face of it, or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.

(a) A, having advanced money to his son B during his minority, upon B's coming of age obtains by the misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence [Subhash Chandra v. Ganga Prasad, AIR 1967 SC 878).

 

(b) A, a man enfeebled by disease or age is induced by B's influence over him as his medical attendant, agrees to pay B an unreasonable sum for his professional service. B employs undue influence [Daya Shankar v. Bachi, AIR 1982 All. 376].

 

Contracts with pardanashin ladies. -A contract with a pardanashin lady is presumed to have been induced by undue influence. There is, however, no statutory definition of the term 'pardanashin lady'. According to the Bombay High Court, a woman does not become pardanashin simply because she lives in some degree of seclusion. Once it is shown that a contract is made with a pardanashin lady, the law presumes undue influence. The burden lies on the other party to prove that no undue influence was used and she had freely consented [Kalibaksha Singh v. Ram Gopal Singh, (1913) 41 ΙΑ 23].

 

Effect of undue influence on contract [Section 19-A].-Section 19-A deals with the consequences of agreements obtained by undue influence.

 

According to Section 19-A, (a) the party whose consent to the contract has been obtained under 'undue influence' may or may not treat the agreement as void, i.e., the transaction is voidable at the option of the party whose consent has been so caused;

 

(b) (i) Such a contract may either be set aside by the Court,

ог

(ii) if the person whose consent has been obtained under undue influence, has received any benefit from the other party than under such terms as seem to the Court just.

 

In Case of .-SunderRai v. Suraj Bali, 47 All. 392. It is perfectly under the discretion of the Court to direct or not to direct the refund of the benefit received while setting aside the contract. It may also direct the refund of the benefit as a whole or only part of it.

 

Illustrations - (a) A's son has forged B's name to a promissory note. B under threat of prosecuting A's son, obtains a bond from A for the amount of the forged note. If B sues on this bond the Court may set the bond aside.

 

(b) A, a money-lender, advances Rs. 100 to B, an agriculturist, and by undue influence induces B to execute a bond for Rs. 200 with interest at 6 per cent per month. The Court may set the bond aside, ordering B to repay Rs. 100 with such interest as may seem just.

Fraud

 

Q. 8 (d) What is 'fraud'? What are its essential ingredients Does silence amount to fraud? Discuss.

Or

Discuss the elements of 'fraud' and explain that mere silence does not amount to fraud.

 

Ans. Definition of "fraud".-Section 17 of the Indian Contract Act defines fraud as follows:

 

"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 a contract

 

1. the suggestion, as to fact, of that which is not true by one who does not believe it to be true;

2. the active concealment of a fact by one having knowledge or belief of the fact;

3. a promise made without any intention of performing it;

4. any other fact fitted to deceive;

5. any such act or omission as the law specifically declares to be fraudulent.

Illustrations.-(1) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing about the horse's unsoundness. There is fraud in A.

(2) B says to A, "If you do not deny it", I shall assume that the horse is sound. A says nothing. Here A's silence is equivalent to speech. Here the relation between the parties would make it A's duty to tell B if the horse is unsound.

 

Essential elements of Fraud

 

According to Section 17 of the Contract Act, there are the following essential elements of "fraud" dot =

 

1. The act of fraud must have been committed-

(i) by one of the parties to a contract, or

(ii) with his connivance, or

(iii) by his agent.

 

2. It must be - (i) A suggestion as to a fact (suggestio falsi) which is not true by one who does not believe it to be true. The statement must have been made without belief in its truth. If a false statement is made not deliberately but recklessly without inquiry whether it is true or false, it will amount to fraud. However, if a statement which turns out to be false is made in the honest belief that it is true, there is no fraud.

 

Illustrative Cases.    -A mere statement of intention or opinion must be distinguished from a suggestion of the act. A mere statement of opinion does not amount to fraud if the opinion is honestly held. [Abdulla Khan v. Girdhari Lal, (1904) Punj. Rev. No. 149];

or

"Fraud is committed where one person induces another to enter into some contract or to transaction on a false belief by representation of fact which is not true and which he does not believe to be true." [K. K. Paliwal V. P. D. Paliwal, AIR 1976 Raj. 79].

 

(ii) An active concealment of a fact (suppressio verii) by one having knowledge or belief of the fact. If a man conceals the fact that is material to the transaction, knowing that the other party is acting on the presumption that no such fact exists, it is as much a fraud as if the existence of such fact was expressly denied or the reverse of it expressly stated, for example, A, a horse dealer sold a mare to B. A knew that the mare had cracked hoof which he filled up in such a way as to defy detection. The defect was subsequently discovered by B. It was held that the agreement could be avoided by B as his consent was obtained by fraud.

 

(Such a case must be distinguished from the provision made to the exception to Section 19 where it is laid down that if consent is caused by misrepresentation or by silence, fraudulent within the meaning of Section 17 the contract nevertheless, is whose consent wading caused means of discovering the truth with ordinary diligence); or

 

(iii) A promise made without any intention of performing it.

(iv) Any other act fitted to deceive. -All surprise tricks, cunning, dissembling and other unfair ways that are used to cheat anyone are frauds. This sub-section covers all these cases of fraud; or

(v) Any such act or omission as the law specially declares to be fraudulent. Section 55 of the Transfer of Property Act lays down that the seller of immovable property is required to disclose to the buyer any material defect in the property of which the seller is aware and the buyer is not aware, and of which the buyer could not with ordinary care discover. An omission to make such disclosure amounts to fraud.

 

3. It must have been committed-

(i) with intention to deceive, and

(ii) the person on whom the deception was intended must have been deceived.

 

The deceit must have been aimed at

 

(i) the other party to the contract; or

(ii) his agent; or

(iii) to induce the other party to enter into the contract.

 

Representation doesn't need to be made to the other party. An act will be sufficient to amount to fraud if it is made with the intention that the other party should act upon it. (Langridge v. Levy).

 

In the case of .- Shri Krishan v. The Kurukshetra University, AIR 1976 SC 376.-It was observed by the Supreme Court that, "where a person on whom fraud is committed is in a position to discover the truth by due diligence, fraud is not proved".

 

Mere silence does not amount to fraud

 

Explanation to Section 17.-If a party remains silent about the defects in his goods or about other facts which might affect the willingness of the other party to enter into the contract his silence does not amount to fraud. 'Mere silence does not amount to fraud. But the contracting party is not bound to disclose the whole truth.

 

Illustration. A and B, being traders, enter upon a contract. A has private information about a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B.

If a candidate does not mention the fact of the shortage of attendance in his examination form, it will University must the University to scrutinize the forms and call for the candidate in case of doubt (Shri Krishan v. The Kurukshetra University, AIR 1976 SC 376). In K. K. Paliwal v. P. D. Paliwal (AIR 1976 Raj. 79) it was observed, "Thus to constitute fraud it is well known that the person making the statement must have been aware of the falsity of the statement and the party, defrauded remains ignorant of the correct situation".

 

When Silence amounts to speech?

 

Explanation to Section 17 mentions the following exception:

 

1. The circumstances of the case are such that regard being had to them, it is the duty of the person keeping silence to speak in case of contract 'uberrimae fidei' (contract of utmost good faith) it is the duty of one party to disclose all the material facts within the knowledge to the other and such contract may therefore, be invalidated by non-disclosure of a material fact. In other words, silence will amount to fraud.

2. His silence is in itself equivalent to speech, case where silence on the part of the party is in itself equivalent to speech, then silence can amount to fraud.

 

Illustration. A says to B, "If you do not deny it, I shall assume that the horse is sound", in connection with an agreement to purchase a horse belonging to B. B says nothing. Here B's silence is equivalent to speech and if the horse is unsound, the contract can be repudiated at the option of A.

 

"Mere silence is not the same thing as active concealment".- The distinction between active concealment and mere silence is broadly expressed by Lord Mansfield as follows:

 

"Good faith forbids either party, by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact and believing the contrary. But either party may be innocently silent as to the ground open to both to exercise their judgment open."

 

Leading Cases.-"Where a person on whom fraud is committed is in a position to discover the truth by due diligence, fraud is not proved." (Shri Krishan v. Kurukshetra University, AIR 1976 SC 376).

 

Where the buyer having the fullest opportunity of examining the article to be sold, is under a misapprehension as to its quality and the seller knowing of such mistake remains silent, the contract is valid. There is no legal obligation on a vendor to inform the purchaser that he is under a mistake not induced by the act of the vendor. If, however, there is a legal obligation on the part of the seller to disclose everything, for example, when the buyer relies on the seller or when there is a latent defect, the contract is bad. [Smith v. Huges, (1871)LR QB 597].

Illustration. A makes an offer to sell his room to B. There is a crack in the wall which A does not disclose to B, but that B could easily discover by using ordinary care. If B purchases the room, he cannot subsequently reject the contract by pleading that his consent was obtained by fraud created due to the silence of A. Mere silence is not fraud in this case.

 

3. Change of 'circumstances'.-The party to the contract should communicate to the other party the change of the circumstances. In such a position, the party who makes the representation should communicate it to the other party.

 

Q. 8 (e) Discuss the effect of fraud on contract.

Or

What is the effect of fraud on contracts? Examine.

 

Ans. Effect of Fraud on Contracts.-Section 19 lays down the effect of coercion, fraud or misrepresentation on contract as follows:

 

(i) Agreement caused by coercion, fraud or misrepresentation voidable. When consent to an agreement is caused by coercion, fraud or misrepresentation the agreements are voidable at the option of the party whose consent was so caused.

Illustration:- A, intends to deceive B, falsely representing that five hundred maunds of indigo are made annually at A's factory, and thereby induces B to buy the factory. The contract is voidable at the option of B.

(ii) The Party defrauded may insist on the performance of the contract:- A party to a contract whose consent was caused by fraud or misrepresentation may if he thinks fit, insist that the contract shall be performed, and he shall be put in the position in which he would have been if the representation made had been true.

Illustration. A fraudulently informs B that A's estate is free from encumbrances. B thereupon buys the estate. The estate is subject to a mortgage. B may either avoid the contract or may insist on it being carried out and mortgage debt redeemed.

(iii) In case, the party defrauded did not use ordinary diligence- The contract is valid [Exception to Section 19] If the party whose consent was obtained either by misrepresentation or silence which amounted to fraud had the means of discovering the truth with ordinary diligence and did not use these means then, the contract shall be deemed a valid one and not voidable. The Ordinary diligence may be taken to be of such diligence which a prudent man would consider appropriate to the matter having regard to the importance of the transaction in itself and of the representation in question as effecting its results.

Illustration. A goes to purchase a tin of oil from B and asks him, "Is this oil of superior quality". B says, "Yes, it is of superior quality, but if you have any doubt you can examine the oil present in the tin before you". A subsequently finds that the representation of B was not correct. A has no legal remedy against B. A had the means of discovering the facts with ordinary diligence.

 

(iv) Explanation of Section 19.-A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such misrepresentation was made, does not render a contract voidable.

 

Illustration-A, by misrepresentation, leads B, erroneously to believe that 500 maunds of indigo are made annually at A's factory. B examines the accounts of the factory, which show that only 400 maunds of indigo have been made. After this B buys the factory. The contract is not voidable on account of A's misrepresentation because it did not cause the consent of B to the contract and the contract is valid.

 

(v) The Person defrauded may claim damages. -The person whose consent has been caused by fraud is entitled to avoid the contract and claim damages from the party who committed the fraud for any loss caused by such fraud, the reason being that fraud is a tort of civil injury like defamation or negligence, etc.

 

'Misrepresentation'

 

Q. 8. (f) Define 'Misrepresentation'. What are its essential ingredients? Examine.

Or

What is 'Misrepresentation'? What are its effects on the contract? Discuss.

 

Ans. 'Misrepresentation': -Generally speaking, misrepresentation (which is known as 'innocent misrepresentation' is a misstatement of a material fact not known to be false or non-disclosure of facts (when there is a duty to disclose) without an intention to deceive. According to Cheshire and Fifoot, a representation is "a statement made by one party to the other before or at the time of contracting, about some existing facts or to some past event, which is one of the causes that induces the contract". A misrepresentation is innocent where the representor believes his assertion to be true and consequently has no intention of deceiving the represented.

 

Definition of "Misrepresentation" [Section 18].-Section 18 of the Contract Act lays down :

 

Misrepresentation means and includes: "

 

1. 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;

2.  any breach of duty which, without an intent to deceive gains an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice or the prejudice of anyone claiming under him;

 

3. 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

 following elements must be present in every case of misrepresentation:

 

(i) There must be representation by one party to another.

 

(ii) The representation must be an 'assertion of facts' and not relate to a matter of 'opinion'.

 

(iii) The representation must be untrue. -A man buys a plot under the misapprehension that it is rich in coal. He asks the seller, "Is your plot rich in coal?" The seller though knows that his plot is not rich in coal. Replies in the affirmative only to make the sale a certainty. But suppose, the purchaser subsequently finds the plot rich in coal according to his expectation but contrary to the expectation of the seller. In such circumstances, the representation of the seller would not be regarded as untrue.

 

(iv) The representation must have caused the consent of the other party to contract. If one party is guilty of misrepresentation but this misrepresentation has no effect on the other party and does not induce him to give his consent to the contract, the law will not recognise this as a case of misrepresentation. The aggrieved party shall have no remedy against this case.

 

In case, where one party is guilty of misrepresentation but the other party had the means of discovering the facts with ordinary diligence but he did not do so, the contract cannot be set aside on the ground of misrepresentation.

 

Effect of misrepresentation [Section 19] When consent to an agreement is caused by misrepresentation the party whose consent was so caused, has the following alternative courses open to him:

 

(i) May avoid the contract.  -He can treat the contract as voidable and can set it aside at his option; or

 

(ii) May insist on performance.-   He may insist that the contract shall be performed and he shall be put in the same position in which he would have been if the representation made had been true.

 

Illustrative Case.-Hindustan General Insurance Society v. S. Subramanium, [AIR 1957 Mad. 162].-   The respondent furnished incorrect information in the proposal form as to the insurance company. It was held that as the insurance company had been induced because of the misrepresentation the company is entitled to repudiate it.

Mistake under Indian Contract Act, 1872

 

Q. 8 (g) Define 'Mistake'. What are its essential ingredients? Examine.

Or

What is 'Mistake'? What are its effects on the contract? Discuss

 

Ans. Mistake means wrong belief which is innocent, and leads one party to rise misunderstanding against other. Mistake happened when the terms and conditions of the agreement is not clear between the parties. When one said something and white was not clear in the mind of other. The both parties understand consequences on the different terms and there was no consensus-ad-idem i.e. meeting of mind , and thus not understanding same thing in same sense.

Mistake has been further classified into two cases under Indian Contract Act , 1872.

1. Mistake of Fact

2. Mistake of law.

Mistake of Law under Indian Contract Act

Ignorance of law is not excusable under India Contract act. It can better be explained with the help of Latin Maxim Ignorantia juris non execusat, this means any party Under contract can’t take defense that they do not know any law enforced India at that time , everyone is deemed to know the law enforce , this is covered under section 21 of contract Act, and such Contracts are not voidable on mere grounds of being unaware of laws.

For example : If any person travels in a train without tickets and on being caught by the conductor he takes defense of not being aware of the law. The man under contract law can’t take this ignorance of law as a defense and the person will be punished under sec 138 of The Indian Railways Act, 1989.

Exceptions

1. Mistake regarding foreign law.

Under section 21 of Contract Act , Mistake regarding foreign law is considered as an excuse. Because no party is supposed to know the provision and law enforced in foreign country . Hence it will be treated as a exception of this law.

For example : An Indian company was supposed to sell 200 cans of concentrated sulphuric acid containing 45% of solution to American company. Although more than 30% of solution was banned in America unknowingly to this fact the Indian company took defense of Mistake of law. It was acceptable as a defense because no one is supposed to know the laws of foreign.

2. Mistake regarding private right.

The existence of any private right is a matter of fact although depending on the rules of law because it is not ok for a party to fully know the private rights of another party.

In Cooperv Phibbs The offended party took a rent of fishery directly from the litigant unconscious of the way that he previously had an actual existence enthusiasm for the fishery right. The offended party, thusly, brought a suit for the dropping of the rent and the respondent contended this was an error of law. It was held that a mix-up concerning the general proprietorship or right stands on a similar balance as a slip-up of law and consequently was announced void.

Mistake of Fact under Indian Contract Act

Ignorance of Fact is excusable under law of Contract. Ignorantia Facit Excusat that implies ignorance of Fact is excused. Under Section 20 of Indian contract this term is explained, contract is said to be void of both the parties are under mistake of Fact.

Further it has classified as:-

1. Bilateral Mistake – Section 20

Following conditions needs to be fulfilled to apply this

1) Mistake must be mutual that is committed by both the parties

2) Is should be related to certain Fact.

3) Facts should be necessary to contract.

Since there is no consensus-ad-idem hence contract would be void.

Different kinds of bilateral mistakes

1)Regarding Subject Matter :

It happens many a time that subject on which the contract is based ceases to exists and the parties to contract are not aware of this fact. If the subject matter to contract does not persists then it means that contract has perished and is termed to be void.

In the case of Galloway Vs. Galloway the couple demanded separation after marriage but it was held that the agreement of separation is void because it was mere assumption that they were married to each other.

2) Regarding Subject matter’s quality:

If the misconception is not regarding the matter but its quality then the contract is said to be valid.

In the case of Smith Vs. Hughes, one person entered into contract of buying oats, he thought it to be old whereas it was new hence contract can’t be said to be void on the mere basis of quality.

3)Regarding the quality of subject matter.

If there is mutual mistake of regarding the quantity of the subject, then the contract is said to be void.

4)Regarding the title of the subject matter.

If one person wants to buy something of which he already is owner, but both the parties are under mutual mistake of fact. Then in this case seller does not have any right to sell and contract in itself stands void

Example: Cooper V Phibbs case.

Unilateral mistake under Indian Contract Act

When only one party is under mistake regarding subject matter to contract. This part is elaborately discussed under Section 21 of the Contract Act. However a unilateral mistake does not affect the validity of the contract and is not mere ground to set contract aside.

In the case of Tapeline Vs. Jainee. The buyer wanted to buy a land and was well versed with its measurement, he was also provided with the plan to study it further, but he declined and when he purchase a land he saw that garden area which he thought to be included in the plan was not there and hence court held that contract can’t be revoked as it was Clearly mentioned in the plan provided. And it was mere mistake of one party. Hence the contract is valid.

Exception to Unilateral Mistakes

This type of contract can be termed void only if it is proved that contract is caused by misrepresentations or fraud by one party.

1) Mistake to one party as to nature of contract.

When one party makes any mistake regarding the nature of contract and it is known by the other it is said to be void. This happens when while entering into the contract the party is misrepresented or fraudulently pushed into contract or at the time of understanding its measures the person was unable to understand due to age factor or illness.

In the case of Dulari Devi V. Janardhan An illiterate woman was made to put her thumb impression on two papers believing them to be some gift deeds to her daughter, whereas in actual the papers were regarding transfer of whole property on someone else’s name without her consent. Although here also the mistake was unilateral but as the contract initiated with element of fraud it was held to be void by the court.

2)Mistake regarding identities of the parties to the agreement.

Usually, the identity of the parties is not relevant to contract but in certain cases where one party hides his real identity and shows to be someone else by misrepresentation or fraud, who he actually is not. Then such contracts are void.

In the case of Cundy V Lindsay. Lindsay and Co. Was a reputed company selling handkerchief in the market. One person named Blenkarn misrepresented and signed on the name of very famous company named “Blenkiron & Co.” ordered 123 pieces of handkerchief. Lindsay assuming it to be same delivered it to Blenkarn, who further sold it to innocent Cundy. On not getting a payment by “Blenkiron & Co.” Lindsay sued him. And it was held by the court that there was mistaken assumption, hence no real consent to the contract of sale.

 

Effect of Payment Made Under Mistake or Coercion

Section 72 deals with payments made or things delivered under mistake or coercion. It says that "A person to whom money has been paid or anything delivered, by mistake or under coercion, must repay or return it."

 

Illustration

 

A railway company refuses to deliver up certain goods to the consignee except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.

 

Section 72 in terms does not make any distinction between a mistake of law or a mistake of fact. The term 'mistake has been used without any limitation or qualification whatever; Sales Tax Officer, Benaras v Kanhaiya Lal Mukund Lal, AIR 1959SC 135: 1959 SCR 1350. In MafatlalIndustries Ltd. v. Union of India, (1997) 5 SCC 536, the majority decision dealing with the question of 'unjust enrichment held that the doctrine of unjust enrichment is a just and salutary doctrine "No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from his purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to law. The power of the court is not meant to be exercised for unjustly enriching a person."

 

In DeputyCommissioner, Andaman District, Port Blair v. Consumer Co-coperative SteresLtd., AIR 1999 SC 696 there was a question for refund of excise duty collected under Andaman and Nicobar Island Regulation (3 of 1876). Regulation 31A and Andaman Excise Rules, 1934, Rule 2. The levy of excise duty was found to be unconstitutional by the Supreme Court. The burden of payment was however, not passed on to the purchaser till then.

 

The Supreme Court referred the above two cases and held that the principles underlying the doctrine of 'unjust enrichment' as culled from the aforesaid two decisions will have no application to the case in hand, in view of the findings arrived at by the High Court on consideration of entire materials on record that it is nobody's case that the excise duty was recovered from the purchaser by the wine merchants. Since the burden has not been passed on to the purchaser as found by the High Court and the levy having been held to be unconstitutional, the State would not be entitled to resist the claim of refund by application of doctrine of 'unjust enrichment, (Ibid. at p. 698). Where the payment has been made by mistake and the payment is not gratuitous the doctrine of unjust enrichment would apply. See K.S. Satyanarayana v. V.R. Narayana Rao,AIR 1999 SC 2544 (2546-2547).

 

It is well settled that where a claim for refund of any duty or tax paid arises for consideration of the authorities apart from the merits of the claim and even if on merits it is found to be a justified claim the principle of unjust enrichment has also to be kept in view before directing the refund. Thus, while upholding the plea that the disputed import duty paid by it was not legally payable still the question survives for consideration as to whether refund could have been ordered to it if the burden of duty was passed on to third parties. If it is found that the burden was already passed on to the third parties on the principle

 

of unjust enrichment the refund application will have to be dismissed Union of India v.Raj Industries, AIR 2000 SC 3500, (3501-3502) following Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536. But the principle of unjust enrichment cannot be extended to give a right to the State to recover or realise vend fee after the statute has been struck down and it has been categorically staled that the "respondent States are restrained from enforcing any said levy further........... This has been held by the Full Bench " of the Supreme Court in Sumaiya Organies (India) Ltd.v. State of Uttar Pradesh, AIR 2001 SC 1723 (1735) (FB).