MODULE 4

Q .Explain the concept of free consent’ according to the Indian Contract Act,
1872
In contract law, the concept of “free consent” is central to the validity of any agreement.
According to the Indian Contract Act, 1872, a contract is valid only if it is made with the
free consent of the parties involved. Consent essentially refers to an agreement
between the parties on the same terms and conditions, while “free consent” implies that
this agreement is not influenced by any external factors that could distort or undermine
the autonomy of the contracting parties. This principle ensures that both parties willingly
enter into an agreement and fully understand the implications of their actions.

### Legal Definition of Consent

Section 13 of the Indian Contract Act defines consent as when “two or more persons
are said to consent when they agree upon the same thing in the same sense.” This
means that there must be a common understanding between the parties on the subject
matter of the contract and its terms. This principle is often summarized by the Latin
phrase *consensus ad idem*, which means “meeting of the minds.” For instance, if two
parties are contracting for the sale of a specific piece of land, both must have a shared
understanding of the particular land being discussed.

### Free Consent Under Section 14

Section 14 of the Indian Contract Act defines free consent. It states that “Consent is
said to be free when it is not caused by (1) coercion, (2) undue influence, (3) fraud, (4)
misrepresentation, or (5) mistake.” If consent is obtained under any of these
circumstances, the contract may either be voidable or void, depending on the severity of
the defect. Each factor affecting free consent is detailed under the Act to ensure that
agreements are fair and just for all parties involved.

#### 1. Coercion

Coercion is defined under Section 15 of the Indian Contract Act 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
whatever, with the intention of causing any person to enter into an agreement.”
Essentially, coercion involves using physical force, threats, or intimidation to compel
someone to enter into a contract against their will. This vitiates the concept of free
consent, as the party is not acting voluntarily.
An agreement entered into under coercion is voidable at the option of the party whose
consent was obtained through coercion. They may choose to either enforce the contract
or rescind it upon realizing the nature of their consent.

**Example**: If A threatens B with physical harm to force B to sell a piece of land at a

lower price, this is coercion. B’s consent is not free, and B has the right to either cancel
or enforce the contract.

#### 2. Undue Influence

Undue influence, defined under Section 16, occurs when one party is in a position to
dominate the will of another and uses this position to obtain an unfair advantage. This
typically arises in relationships where one party holds power or authority over the other,
such as between a parent and child, doctor and patient, or teacher and student. The law
assumes that undue influence can distort a party’s free will, making their consent to the
contract not entirely voluntary.

If undue influence is proved, the contract is voidable at the discretion of the influenced
party. The court may also order a return to the original position of the parties or allow
the contract to proceed with fair terms.

**Example**: If an elderly person, influenced by a caregiver, transfers property to the

caregiver under pressure, the court may view this contract as one obtained by undue
influence. The elderly person’s consent is not free, and they may choose to void the
contract.

#### 3. Fraud

Fraud, as defined under Section 17, involves intentionally deceiving another party to
gain an unfair advantage. Fraud occurs when one party deliberately misrepresents
facts, conceals essential information, or makes false promises to induce the other party
into the contract. For a contract to be voidable due to fraud, it must be shown that the
aggrieved party relied on the fraudulent representation and was misled into giving their
consent.

A contract obtained by fraud is voidable at the option of the party deceived. Additionally,
they may claim damages to recover any losses suffered as a result of the fraudulent
actions.
**Example**: If A sells a car to B, falsely claiming that the car is brand new while
concealing the fact that it was in an accident, A has committed fraud. B’s consent is not
free, and B has the right to rescind the contract and seek damages.

#### 4. Misrepresentation

Misrepresentation, under Section 18, involves making a false statement without the
intent to deceive, but which nonetheless induces another party to enter into the contract.
Unlike fraud, misrepresentation lacks intent to deceive. However, it still affects the other
party’s ability to make an informed decision, as they rely on the inaccurate information
provided.

When misrepresentation occurs, the contract is voidable at the discretion of the

aggrieved party. The misled party has the option to rescind the contract but may not
claim damages since there was no malicious intent.

**Example**: If A, without intending to deceive, tells B that a house is free from

structural damage, but it later turns out there is damage, B’s consent was influenced by
misrepresentation. B can void the contract but may not be entitled to damages.

#### 5. Mistake

A mistake, as covered under Sections 20, 21, and 22, may relate to the identity of the
parties, the subject matter, or other terms of the contract. Mistakes can be classified as
unilateral (made by one party) or mutual (made by both parties). For a contract to be
void on the grounds of mistake, the mistake must be mutual and relate to a fundamental
fact of the contract. Unilateral mistakes, in which only one party is mistaken, typically do
not affect the validity of the contract unless the other party was aware of the mistake
and took advantage of it.

When both parties are mistaken about a fundamental fact, the contract is void, as there
is no true meeting of minds.

**Example**: If A agrees to sell a parcel of land to B, believing it is a certain plot, but B

believes it is a different plot, there is a mutual mistake regarding the subject matter.
Such a contract may be void, as the parties have not agreed on the same terms.

### Significance of Free Consent in Contracts

The concept of free consent ensures that all parties voluntarily and knowingly
participate in a contract, which is essential for fair dealing. By establishing the grounds
on which consent may be deemed lacking, the Indian Contract Act provides a
mechanism for protecting parties from unjust contracts. The ability to void contracts
tainted by coercion, undue influence, fraud, misrepresentation, or mistake provides legal
remedies to individuals who may otherwise suffer losses due to unfair practices.

When free consent is compromised, the affected party has the right to either continue
with or withdraw from the contract, depending on their circumstances. This provision
also deters unethical behavior in contracting and encourages transparency and good
faith.

### Conclusion

Free consent is a foundational principle in contract law under the Indian Contract Act,
1872. Consent must be freely given for a contract to be valid and enforceable. The Act
specifies that consent is not free if it is obtained through coercion, undue influence,
fraud, misrepresentation, or mistake. Each of these factors undermines the autonomy of
the contracting parties and can render a contract voidable or void, providing the
aggrieved party with the right to withdraw from the agreement. By protecting the right to
free consent, the Act safeguards individuals from entering into agreements that are
unfair, coerced, or deceptive, ensuring that all contracts are based on mutual
understanding and voluntary participation.

Q.Distinguish between fraud and misrepresentation. What is their effect on

validity of a contract?
In contract law, fraud and misrepresentation are both factors that can affect the validity
of a contract. They involve false statements or actions that mislead a party into entering
a contract but differ in terms of intent, effect, and legal consequences. Under the Indian
Contract Act, 1872, both fraud and misrepresentation can render a contract voidable,
meaning the aggrieved party has the option to either enforce or rescind the contract.
Understanding the distinction between these two concepts is crucial in determining the
remedies available and the nature of the violation in each case.

### Definition and Nature

#### Fraud (Section 17)

Fraud, as defined under Section 17 of the Indian Contract Act, 1872, involves intentional
deception by one party to induce another party to enter into a contract. It includes any
act committed by a contracting party or their agent with the intent to deceive the other
party or to induce them to enter into a contract. The key factor distinguishing fraud from
misrepresentation is the presence of intent. Fraud is a deliberate and intentional act
intended to mislead or deceive.

The Indian Contract Act outlines five acts that constitute fraud:

1. The suggestion of a fact that is false, 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 act fitted to deceive.
5. Any such act or omission as the law specifically declares to be fraudulent.

To establish fraud, it must be shown that the party committing the fraud had knowledge
of the falsehood or intended to deceive the other party.

**Example**: If A sells a car to B, claiming it is new when A knows it is actually a used

car, this is fraud. A intended to deceive B to induce B into buying the car, and A’s action
constitutes fraud under Section 17.

#### Misrepresentation (Section 18)

Misrepresentation, as defined under Section 18, refers to a false statement made by

one party that induces the other party to enter into a contract but without the intent to
deceive. It includes any statement that, while untrue, is not made with the intention to
deceive the other party. Misrepresentation can arise in cases where one party makes a
positive assertion about a fact that they believe to be true but which turns out to be
false.

There are three types of misrepresentation under the Act:

1. **Innocent Misrepresentation**: A positive assertion of a fact that is not true, but the
person making it believes it to be true.
2. **Negligent Misrepresentation**: Making a statement without reasonable grounds for
believing it to be true.
3. **Misleading Statements**: Any statement that is not fully accurate or complete, even
if the intent to deceive is absent.

Misrepresentation does not involve deliberate deception, which differentiates it from

fraud.
**Example**: If A sells a plot of land to B, stating that it is fit for construction, without
knowing that the land has soil issues, A’s statement would constitute misrepresentation.
A genuinely believed the statement to be true, but it was false and induced B to enter
into the contract.

### Differences Between Fraud and Misrepresentation

1. **Intent**:
- In fraud, there is an intention to deceive. The party committing fraud knowingly
provides false information or hides essential facts.
- In misrepresentation, there is no intention to deceive. The false statement is made
without knowledge of its falsehood, and the party believes it to be true.

2. **Knowledge of Falsity**:
- Fraud involves a deliberate assertion of falsehood with knowledge that the statement
is untrue.
- Misrepresentation involves a false statement made in good faith, without knowledge
that it is false.

3. **Effect on the Aggrieved Party**:

- In fraud, the aggrieved party is misled and suffers a greater loss due to deliberate
deceit.
- In misrepresentation, the aggrieved party is misled due to an honest mistake but
may still suffer some loss.

4. **Legal Consequences**:
- In cases of fraud, the aggrieved party may rescind the contract and also claim
damages. The party has the option to avoid the contract or proceed with it and claim
compensation for any losses suffered.
- In cases of misrepresentation, the aggrieved party can rescind the contract but is
generally not entitled to claim damages, as there is no malicious intent involved.

5. **Burden of Proof**:
- In fraud, the burden of proof is on the party alleging fraud, as they must prove that
the other party acted with intent to deceive.
- In misrepresentation, the aggrieved party only needs to show that a false statement
was made and relied upon, without needing to prove any intent to deceive.

6. **Types of Remedies Available**:

 - Fraud provides a wider range of remedies, including rescission, damages, and
compensation for losses suffered.
- Misrepresentation typically allows for rescission but not damages, given the absence
of fraudulent intent.

### Effect on Validity of a Contract

Both fraud and misrepresentation make a contract voidable at the option of the
aggrieved party, meaning the party misled by fraud or misrepresentation can choose to
cancel or enforce the contract. However, the nature of the remedies available varies
based on the degree of culpability involved.

#### Effect of Fraud

A contract induced by fraud is voidable at the option of the party deceived. The
aggrieved party may choose to:

1. **Rescind the Contract**: If the party chooses to rescind, the contract is treated as if it
never existed, and the parties are returned to their original positions.
2. **Claim Damages**: In cases of fraud, the aggrieved party has the right to claim
damages for any loss suffered due to the fraudulent act. Since fraud involves intent to
deceive, the law provides stronger remedies to compensate for losses incurred.

If the aggrieved party discovers the fraud but continues to act under the contract, they
lose the right to rescind. In such a case, they are deemed to have waived the fraud and
cannot later claim rescission.

**Example**: If A fraudulently sells a business to B, falsely claiming it is profitable, B can

rescind the contract upon discovering the truth and may also claim damages for any
losses suffered due to A’s fraudulent statements.

#### Effect of Misrepresentation

A contract induced by misrepresentation is also voidable, allowing the aggrieved party

to:

1. **Rescind the Contract**: The party misled by misrepresentation can choose to

cancel the contract and restore both parties to their original positions.
2. **No Right to Claim Damages**: Generally, misrepresentation does not entitle the
aggrieved party to claim damages, as there is no intentional deception involved. The
primary remedy is rescission, not compensation.

If the misled party affirms the contract after discovering the truth, they cannot later
rescind it. This is called waiver, and it effectively ratifies the contract despite the initial
misrepresentation.

**Example**: If A sells land to B, believing it to be suitable for construction, but B later

finds that it is not, B may rescind the contract. However, since A did not knowingly
deceive B, B cannot claim damages beyond rescission.

### Summary of Differences and Effects on Contract Validity

In summary, both fraud and misrepresentation affect the validity of a contract by making
it voidable. However, they differ primarily in intent and the availability of damages:

- Fraud involves intent to deceive, entitling the aggrieved party to both rescission and
damages.
- Misrepresentation lacks intent to deceive, allowing for rescission but generally
excluding damages.

The Indian Contract Act, 1872, distinguishes between fraud and misrepresentation to
provide justice by offering a range of remedies appropriate to the nature of each case.
Fraud is penalized more severely due to the deliberate intent to mislead, while
misrepresentation is treated less harshly, reflecting its lack of malicious intent. By
outlining these distinctions, the Act ensures that contracts are based on good faith and
protects parties from unfair practices, supporting the principles of fair dealing and
transparency in contract law.

Q.What do you understand by mistake of fact and mistake of law?

In contract law, mistakes can affect the validity and enforceability of a contract. Under
the Indian Contract Act, 1872, a "mistake" occurs when one or both parties to a contract
hold an incorrect belief about a fundamental aspect of the contract. Mistakes can be
classified into two main types: mistake of fact and mistake of law. The Act recognizes
these distinctions and provides different consequences based on whether the mistake
relates to facts or to legal principles. The impact of a mistake on a contract’s validity
varies depending on the nature of the mistake and whether it affects the basis of the
agreement between the parties.
### Mistake of Fact

A mistake of fact occurs when one or both parties to a contract hold an incorrect belief
about a material fact. This fact may relate to the subject matter, identity, or terms of the
contract. A "fact" is any element related to the transaction that is essential for the parties
to understand their rights and obligations within the contract. When a mistake of fact
exists, the contract may be void or voidable depending on whether the mistake is
mutual or unilateral.

#### Types of Mistake of Fact

1. **Unilateral Mistake**:
- A unilateral mistake occurs when only one party is mistaken about a fact relevant to
the contract. Generally, a contract is not voidable for unilateral mistake unless the other
party knew of the mistake and took advantage of it.
- In most cases, a contract entered into by a unilateral mistake remains valid, as the
other party did not contribute to the mistake or take advantage of it.

**Example**: If A agrees to buy a car from B, thinking it is a 2020 model, but B has
made no representations about the year, this is a unilateral mistake by A. The contract
remains valid since B did not contribute to or know about A’s error.

2. **Mutual Mistake**:
- A mutual mistake occurs when both parties are mistaken about a material fact
essential to the contract. In such cases, there is no true agreement between the parties
as they did not share a common understanding of the contract’s terms. Under Section
20 of the Indian Contract Act, a contract is void if both parties are mistaken about a fact
essential to the agreement.

**Example**: A agrees to sell a specific parcel of land to B, thinking it is Plot A, while

B believes it to be Plot B. Here, both parties are mistaken about the identity of the
subject matter. As there is no mutual consent regarding the subject matter, the contract
is void.

#### Effect of Mistake of Fact on Contracts

1. **Mutual Mistake of Essential Fact**:

- If a mutual mistake affects an essential fact, the contract is considered void under
Section 20. This is because there is no "meeting of the minds" (consensus ad idem) on
a fundamental aspect of the contract.
 - In cases of mutual mistake, the contract is treated as if it never existed, and both
parties are returned to their original positions.

2. **Unilateral Mistake of Fact**:

- A unilateral mistake does not typically render a contract void unless it is shown that
the non-mistaken party knew of the mistake and took unfair advantage. If the other party
is innocent and unaware of the mistake, the contract usually remains enforceable.
- However, in certain exceptional cases, courts may grant relief to the mistaken party if
the mistake is related to a critical aspect and enforcing the contract would be
unconscionable.

### Mistake of Law

A mistake of law occurs when one or both parties have an incorrect understanding of
the legal principles or rules governing the contract. Under the Indian Contract Act, a
distinction is made between a mistake regarding Indian law and a mistake regarding
foreign law. Section 21 of the Act states that ignorance of the law is not an excuse,
meaning that a mistake regarding Indian law does not render a contract void. However,
a mistake of foreign law is treated as a mistake of fact and may have different
implications for the contract.

#### Types of Mistake of Law

1. **Mistake of Indian Law**:

- Ignorance or misunderstanding of Indian law does not affect the validity of a
contract. The principle “ignorantia juris non excusat” (ignorance of the law is no excuse)
applies here. Parties are expected to be aware of the legal framework within their
jurisdiction, and contracts entered into based on a mistaken understanding of Indian law
are still enforceable.
- If a party makes a contract based on an incorrect interpretation of Indian law, they
cannot claim relief or invalidate the contract due to this mistake.

**Example**: A and B enter into a contract to lease property, believing that it does not
require registration under Indian law. Later, they discover that registration is required.
Despite their mistake, the contract remains valid and enforceable.

2. **Mistake of Foreign Law**:

- A mistake regarding foreign law is treated as a mistake of fact under the Indian
Contract Act. If both parties are mistaken about a foreign law relevant to the contract, it
may be considered a mutual mistake of fact, potentially rendering the contract void.
 - This treatment recognizes that foreign laws are less accessible and understood by
individuals, allowing some flexibility for errors regarding foreign legal principles.

**Example**: A and B, both in India, enter into a contract concerning property in

another country, mistakenly believing that foreign ownership is unrestricted in that
jurisdiction. If the foreign law prohibits such ownership, the contract may be voidable on
grounds of mutual mistake of fact.

#### Effect of Mistake of Law on Contracts

1. **Mistake of Indian Law**:

- Contracts entered into based on a mistake of Indian law remain valid and
enforceable. The parties have no recourse to void the contract solely because of their
misunderstanding or ignorance of Indian law.
- This rule promotes certainty and discourages parties from attempting to evade
contractual obligations by claiming ignorance of the law. It places the responsibility on
individuals to be informed about the legal implications of their actions within their
jurisdiction.

2. **Mistake of Foreign Law**:

- A mistake of foreign law is treated as a mistake of fact, and if it is mutual and affects
a fundamental aspect of the contract, it may render the contract void. This gives some
flexibility for parties who may not be familiar with foreign legal principles.
- When both parties are mistaken about a foreign law that has a direct impact on the
contract, they are seen as lacking the mutual agreement required to form a valid
contract. In such cases, the contract may be void.

### Summary of the Effects of Mistake on Contract Validity

1. **Mistake of Fact**:
- If there is a mutual mistake regarding an essential fact, the contract is void under
Section 20. Both parties lack a true understanding of the subject matter or terms, and
therefore, there is no valid agreement.
- If there is a unilateral mistake, the contract is typically valid unless the other party
knew of the mistake and took advantage of it. In such cases, the contract may be
rescinded to prevent unfair outcomes.

2. **Mistake of Law**:
 - A mistake of Indian law does not affect the validity of a contract. Contracts based on
an incorrect understanding of Indian legal principles are enforceable, as parties are
presumed to be aware of their domestic legal framework.
- A mistake of foreign law is treated as a mistake of fact, and if both parties are
mutually mistaken about the legal implications under foreign law, the contract may be
considered void.

### Conclusion

The Indian Contract Act, 1872, addresses the effect of mistakes on contracts,
distinguishing between mistakes of fact and mistakes of law. Mistakes of fact, if mutual
and fundamental, can render a contract void due to the absence of a true agreement
between the parties. Unilateral mistakes of fact generally do not affect the contract’s
validity unless one party takes advantage of the other’s error.

Mistakes of law are treated differently. A mistake of Indian law does not void a contract,
as parties are expected to know their domestic laws. A mistake of foreign law, however,
is treated as a mistake of fact and may void the contract if both parties are mutually
mistaken. These distinctions ensure that contracts are based on a shared
understanding of essential terms and that legal ignorance does not serve as an escape
from contractual obligations. Through these provisions, the Act aims to balance
fairness, accountability, and the enforceability of contracts.