)
Act forbidden by the Indian Penal Code It has been noted that if a person commits or threatens to commit an act forbidden by the Indian Penal Code with a view to obtain the consent of the other person to some agreement, the consent in such case is deemed to have been obtained by coercion. coercion. For instance, A threatens to shoot B if B does not agree to sell his property property to A at a stated price, B’s consent in this case has been been obtained by coercion. coercion.
For coercion to be there it is not necessary that the Indian Penal Code should be applicable at the place where the consent has been so caused. caused. Explanatio Explanation n to section 15 makes makes it clear that to constitute constitute coercion, “it is immaterial whether the Indian Penal Code is or is not in force in the place place where where the coercion coercion is employed employed.” .” The following following illustration would explain the point : A, on board an English ship ship on the high seas, causes causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Penal Code. A has employed employed coercion, coercion, although 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 at the place where, the act was done. In Chikkam Ammiraju Vs. Chikkam Seshama (1918) the question before the Madras High Court was that whether coercion could be caused by a threat to commit commit suicide. In this case a Hindu by a threat of suicide induced his wife and son to execute a release deed in favour of his brother in respect of certain properties claimed as their own by the wife wife and the son. son. The quest question ion before before the court court was whether a threat to commit suicide could be considered to be an act forbidden by the Indian Penal Code. It was held by Wallis, C.J. and Sesha Seshagiri giri Ayyar, Ayyar, J. that that a threat threat to commit commit suicid suicide e amounte amounted d to coercion within the meaning of Section 15 of the Indian Contract Contract Act and therefore the release deed was voidable. i)
Unlawful detaining of property According to Section Section 15 coercion could also be caused caused by unlawful 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.
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For example, if an outgoing agent refuses to handover the accounts books to the new agent until the principal executes release in his favour, favour, it is coerci coercion. on. ( Muthiah Chettiar Vs. Karupan (1927) If the detention of property property is not unlawful unlawful there is no coercion. coercion. Thus, if a mortgagee refuses to convey the equity of redemption except on the terms dictated by him, there is nothing unlawful in it and, therefore, no coercion is caused in this case. (Bengal Stone Co. Ltd. Vs. Joseph Hyam (1918) To the prejudice of a person Section 15 requires that there 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 whatever, with an intention of any person to enter into an agreement. It means means that the act causin causing g coerc coercion ion should should not not neces necessar sarily ily be directed directed against against the contracting contracting party, party, it is enough that that the act is to the prejudice of any person whatever, and with the intention of any person person to to enter enter into into an agre agreem ement ent.. If, for for examp example, le, A unlaw unlawful fully ly detains B’s friend C, in order to coerce B to enter into agreement, the case would be covered within this section. section. Threat to strike is no coercion In Workmen Workmen of of Appin Appin Tea Tea Estate Estate Vs. Industria Industriall Tribunal Tribunal (1966) (1966) the demand of the workers for bonus was accepted after a threat of strike. strike. The question question which which had arisen was, was, whether such such a decision between the Union of the workers and the Indian Tea Association could be declared void on on the ground ground that there was coercion. It was held that because of the doctrine of collective bargaining under the Industrial Dispute Act the demand of the workers could be backed by a threat of strike. Such a threat was neither a threat to commit an offence under the Indian Penal Code, nor was it unlawful detaining or threatening to detain any property and hence it did not amount to coercion, and as such the agreement was valid.
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Statutory Compulsion is no coercion When a Statue requires a contract to be entered entered into the consent consent in such a case is not deemed to be caused by coercion, undue influence, fraud, fraud, misrepres misrepresentat entation ion or mistake. mistake. In Andhra Sugars Ltd. Vs. State of A.P. (1968) if any cane grower offered to sell his sugarcane to a factory in a certain certain zone, zone, the factory factory was bound bound to accept the offer under the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Purchase) Act, 1961, and according accordingly ly the the agreeme agreement nt was was entered entered into. It was held that that in such a case case even though though there there was a legal compulsio compulsion n for the factory to make make the agreement, agreement, the agreemen agreementt could not be said to be entered into by lack of free consent, and there was no coercion either.
“Duress” under English law Under common law duress consists in actual violence or threat of violence violence to a person. person. It only includes fear of loss to life or bodily harm including including impriso imprisonmen nment, t, but not a threat of damage damage to goods. goods. The threat must be to do something illegal, i.e., to commit a tort or a crime. The duress must must be directed against against a party to the contract, or his wife, child, parent or other near relative, and also caused by the party to the contract, or within his knowledge. It has been noted above that the common law recognises only a threat to a man’s person, and not to his goods to constitute duress. It may be noted that Indian law also recognises an action for the recovery of money paid or goods delivered under coercion, through the provision contained in section 72,Indian Contract Act. The provision provision is as under : “ A person to whom money has been paid. Or anything delivered, by mistake or undue coercion, must repay or return it “ For example, a railway company refuses to deliver up certain goods to the the cons consig igne nee, e, exce except pt upon upon the the paym paymen entt of an ille illega gall char charge ge for for carriage. The consignee pays the sum charged in order to obtain obtain the goods. He is entitled to recover so much much of the charge as was illegally excessive.
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Difference between Coercion and Duress 1. Coercio Coercion n in India India means means committ committing ing or threaten threatening ing to commit commit an act forb forbid idde den n by the the Indi Indian an Pena Penall Code Code,, or unla unlawf wful ul deta detain inin ing g or threatening to detain the property. Thus it may be an act or threat dire direct cted ed agai agains nstt a pers person on or his prope property rty.. In Engl Englan and d dure duress ss is constituted only by acts or threats against the person of a man and not against his property. 2. In India India coercion coercion may proce proceed ed from a person person who who is not a party party to the contract, contract, and and it may also be directed directed against against a person person who, who, again, again, may be a stranger to the the contract. In England duress duress should proceed proceed from a party to the contract and is also directed against the party to the contract himself, or his wife, parent, child, or other near relative. 2.
UNDUE INFLUENCE
If the consent consent of a party to the contract contract has been been obtained obtained by undue influence the consent is not free consent which is needed for the validity of a contract and if the consent has been caused by undue influence, the contract is voidable at the option of the party whose consent had been been so obtained. Section 16 defines undue influence as as under : “16. “Undue “Undue influence” influence” defined.—(1) defined.—(1) A contr contract act is said said to be be induced by “undue influence” influence” where the relations relations subsisting between the parties are such that one of the parties is In a position to obtain an unfair advantage over the other. (2) (2) In parti particu cula larr and with withou outt preju prejudi dice ce to the the genera generalit lity y of the foregoing principle, a person is deemed to be in a position to dominate the will of another— (a) where he holds holds a real real or apparent apparent authority authority over the other ; or where he stands in a fiduciary relation to the other ; or (b) where he makes makes a contract with a person whose whose mental mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress. (3) (3) Wher Where e a person person who who is in a positi position on to dom domin inat ate e the will will of another, enters into contract contract with him, and the transaction transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burd burden en of prov provin ing g that that such such cont contra ract ct was was not not indu induce ced d by undu undue e influence shall lie upon the person in a position to dominate the will of the other.
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Nothing in this sub-section shall affect the provisions of Section 111 of the Indian Evidence Act, 1872.” Explaining the nature of the provisions contained in section 16, Indian Contract Contract Act and the adoptio adoption n of English law law in India, our Supreme Supreme Court has observed in the case of Ladli Parshad Vs. Karnal Distillery Co., (1963) “The doctrine of undue influence under the common law was evolved by the courts in England for granting protection against transactions procur procured ed by exercis exercise e of insidi insidious ous forms forms of influe influence nce spiritu spiritual al and temporal. temporal. The doctrine doctrine applies applies to acts of bounty as well well as to other tran transa sact ctio ions ns in whic which h one one part party y by exer exerci cis sing ing his his posi positi tion on of domina dominance nce obtain obtains s an unfair unfair advant advantage age over over anothe another. r. The Indian Indian enactment is founded substantially on the rules of English Common law. The first Sub-sec Sub-section tion of Section Section 16 lays down down the principle principle in general terms. By sub-section (2) a presumption arises that a person shall be deemed to be in a position to dominate the will of another if the conditions set out therein are fulfilled. Sub-section (3) lays down the conditions for raising a rebut table presumption that a transaction is procured procured by the exercise exercise of undue influenc influence. e. The reason reason for the rule in the third sub-section is that a person who has obtained an advantage over another by dominating his will, may also remain in a position to suppress the requisite evidence in support of the plea of undue influence.”
Effect of undue influence Section Section 19-A declares declares that when consent consent to an agreement agreement is caused caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. caused. For example, A’s A’s son has forged B’s name to a promissory note. B, under under threat threat of prosecuting A’s son, obtains a bond from A, for the the amount amount of the forged note. If B sues on this bond, the court may set set the bond aside. aside. Because of undue influence one party to the contract may take an undue advantage under the contract, or the party entitled to avoid the contract may have already received some benefit under the contract. The court in cases has been empowered to set aside the contract either absolutely or upon such terms and conditions as the Court may deem just. just. Second Second para to Section 19-A incorpor incorporates ates the following following provision in this regard :
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“Any such contract may be set aside either absolutely, or, if the party who was entitled to avoid it has received any benefit there under, upon such terms and conditions as to the Court may seem just” For For exa examp mple le,, a , a mone moneyy-le lend nder er,, adv advan ance ces s Rs. Rs. 100 100 to B, an an agriculturalist, and, and, by undue influence, induces B to execute a bond bond for Rs. 200 with interest interest at 6 per cent per month. month. The court court may set the bond aside, aside, ordering ordering B to repay Rs.100 Rs.100 with interest interest as may seem just. Essentials of undue influence In order to constitute undue influence it is necessary that : (1)
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.
(2)
such a person person uses uses his dominant dominant position position to obtain obtain an unfair unfair advantage over the other.
Person in dominant position and obtaining of unfair advantage Sometimes one of the parties to the contract may be in such a dominant dominant position position in rela relati tion on to the the othe otherr that that he has has pecu peculi liar ar opportunity of exercising that position to the prejudice of the other party. If the dominant party party takes an undue undue advantage of of his position in procuring a contract to the detriment of the other contracting party, the contract is voidable at the option of the party whose will is so dominated. In the following cases a person is deemed to be in a position to dominate the will of another – (1) where he holds a real or apparent apparent authority authority over the other, or, (2) where he stands in a fiduciary relation to the other, or, (3)
where he makes makes a contract with a person whose whose mental mental capacity capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.
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(1)
Real or apparent authority
If a person has an authority over the other contracting party it is expected that he would not abuse that authority to gain an undue advantage from the other. An employer may may be deemed deemed to be having having auth author ority ity over over his his empl employ oyee ee,, an inco income me-t -tax ax auth author orit ity y over over the the assessee, a police or a judicial officer over the accused, or a licensing authority over the licencee. (2)
Fiduciary relation
Fiduciary relationship means a relationship of confidence and trust. trust. When a person person reposes reposes confidence confidence in the other, it is expected expected that he will not be betrayed. betrayed. If a person betrays betrays the confidence confidence and and trust reposed in him and gains an unfair advantage over the other party in any contract contract,, the suffering suffering party has has an option to avoid the the contra contract. ct. The princip principle le of undue undue influenc influence e applie applies s to every case, case, where influence is acquired and abused, where confidence is reposed and betrayed. Examp Examples les of fiduci fiduciary ary relatio relationsh nship ip are solici solicitor tor and client, client, spiritu spiritual al advisor and devotee, medical attendant and patient, parent and child, husband and wife, master and servant, creditor and debtor, principal and agent, land lord and tenant, lover and beloved, guardian and ward. For exam example, ple, A,, having having advanced advanced money money to his his son son b, during during his his minori minority, ty, upon upon B’s comi coming ng of age age obtain obtains, s, by misus misuse e of parent parental al influence, influence, a bond from B for a greater greater amoun amountt than the the sum due in respect of the advance. A employs undue influence. In MannuSing MannuSingh h Vs. Umadat Umadat Pande, Pande, (1890) (1890) the plaintiff, an aged person executed a deed of gift in respect of whole of his property in favour of the defendant, who was plaintiff’s guru or spiritual adviser. The only reason for the gift was his desire desire to secure secure benefits to his soul in the next world and also in view of the plaintiff having heard recitation of the holy holy book, Bhagwat. Bhagwat. Soon after the execution of the the said deed the plaintiff applied for the cancellation of the same by a suit brought by him under section 39 of the specific relief Act, 1877.
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Section 111, Indian Evidence Act, 1872 was applied to this situation, according to which in case of a person being in a position of active confidence, the burden of proof lies on such a person who enjoys such a confidence. confidence. It was held that because because of the fiduciary fiduciary relationsh relationship ip between the parties, and the absurdity of the reason given by the plaintiff in the gift gift deed for executing executing the gift gift deed, and in view of the prov provis isio ion n cont contai aine ned d in sect sectio ion n 111, 111, Indi Indian an Eviden Evidence ce Act, the the defendant must prove the absence of undue influence. And since he fail failed ed to prov prove e the the same same the the plai plaint ntif ifff is enti entitl tled ed to obta obtain in the the cancellation of the deed. Similarly in Diala Ram Vs Sarga (1927) where there was a debtorcreditor relationship between the parties and the defendant signed a bond agreeing to pay exorbitant rate of interest on the loan taken from the plaintiff, who was a money lender of his village, the presumption of undue influence was raised. Person in mental or bodily distress A person is deemed to be in a position to dominate the will of another also in a situation, where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress. A person’s mental capacity may have been affected on account of his old age, illness, or mental or bodily distress, and there is every possibility that such a person’s posi positio tion n may may be expl exploi oite ted d and and unfa unfair ir adva advant ntag age e take taken n in such such a situation. The law tries to afford protection to such such persons also. If a contract is made to the prejudice of such a person, there is deemed to be undue influence in such such a case. case. For example. example. A, a man man enfeebled by dise disease ase or age, age, is indu induce ced, d, by B’s influen influence ce over over him him as his his medical medical attendant, attendant, to agree agree to pay B an unreasona unreasonable ble sum for his professional services, services, B employs undue influence. influence. Presumption of undue influence in Unconscionable Unconscionable Bargains In case cases s of unco uncons nsci cion onab able le barg bargain ain betw betwee een n the the part partie ies s on an unequa unequall footin footing g the law raises raises a presum presumpti ption on of undue undue influe influence nce.. Where a person who is in a position to dominate the will of another, enters enters into a contract with him, and the transaction transaction appears, appears, on the face of it or on the evidence adduced, to be unconscionable, the burd burden en of prov provin ing g that that such such cont contra ract ct was was not not indu induce ced d by undu undue e influence shall lie upon the person in a position to dominate the will of the other.
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When--1.
One One of of the the part partie ies s who who has has obt obtai aine ned d the the bene benefit fit of a trans transac acti tion on is in a position to dominate the will of the other, and
2.
The The tran transa sact ctio ion n betw betwee een n the the part partie ies s appe appear ars s to be unc uncon onsc scio iona nabl ble, e, the law raises a presumption of undue influence. It is, in such a case, for the dominant party to rebut the presumption of undue undue influence. influence. If a party has got exorbitant exorbitant gain at the cost cost of the other party, it is for him to prove that this advantage had not been gained by undue influence. For example, example, A being in debt to B , a money money lender lender of of his his village, village, contracts a fresh loan on terms which appear to be unconscionable. It lies lies on B to prov prove e that that the con contra tract ct was was not not induc induced ed by und undue ue influence. In Diala Ram Vs. Sarga, Sarga, (1927) (1927) the defendant, who was already indebted to the plaintiff, a village money lender, took a fresh loan from the plaintiff and executed a bond, wherein he agreed to pay i nterest up to 371/2 371/2 %, per annum, annum, and also also to deliv deliver er some some bhoosa bhoosa (wheat (wheat husk husk)) in addi additi tion on there thereto to.. It was was held held that that the the cont contra ract ct was was unconscionable and, therefore, the burden of proof was on the plaintiff to show that there was no undue influence in this case.
In Waji Wajid d Khan Khan Vs. Raja Raja Ewaz Ewaz Ali Ali Khan Khan (189 (1891) 1) an old, illiterate, pardan pardanash ashin in lady, lady, who was herse herself lf incapa incapable ble of transa transacti cting ng any business, conferred a grant of her substantial property without any valuable consideration in favour of her confidential managing agent. The Privy Council held that it was incumbent on the grantee to show that he had made proper use of confidence reposed by the lady in him and there was no undue influence. 3. FRAUD When When the consen consentt of a party party to the contrac contractt has been obtaine obtained d by fraud, the consent is not free consent, which is necessary for the formation of a valid contract. In such a case the contract is voidable at the option of the party whose whose consent has been been so obtained. Fraud or dece deceit it is also also tort tort,, for for whic which h an acti action on for for dama damage ges s can can also also lie. lie. Section 17 defines fraud as follows :
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“Fraud” means and includes includes any of the following acts committed committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent , or to induce him, to enter into the contract--(1) the suggestion, as a fact, of that which which is not true by by one who does does not believe it to be true : (2) the active concealment concealment of a fact by one one having knowledge knowledge or belief of the fact : (3) a promise made made without any intention of performing it : (4) any other other act fitted to deceive deceive : (5) any such such act or omissio omission n as the law specia specially lly declar declares es to be fraudulent. Explanation :-- Mere silence as to facts likely to affect affect the willingness of a pers person on to enter ter into into a contr ontrac actt is not frau fraud d, unles less the 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. The essentials of fraud are : 1. Ther There e shou should ld be a fals false e stat statem emen entt of fact fact by a pers person on who himself does not believe the statement to be true. 2. The The stat statem emen entt shou should ld be made made with with a wron wrongf gful ul inte intent ntio ion n of deceiving another party thereto and inducing him to enter into the contract on that basis.
1.
False statement of fact.
In order to constitute fraud it is necessary that there should be a statement statement of fact which which is not true. Mere express expression ion of opinion is not enough to constitute fraud. Thus, if while taking a policy of marine marine insura insuranc nce, e, the insure insured d commu communic nicate ates s to the insure insurers rs a letter from the master of his vessel mentioning that in the master’s opinion the anchorage of a place of destination of the vessel is safe and and good good,, ther there e is only only an expr expres essi sion on of opin opinio ion n and and not not a statement of fact, which could constitute fraud. If A intending to deceive B , falsely represents 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.
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Representation as to untrue facts may be made either by positively stating certain fats or by conduct. In Edington Vs. Fitzmaurice (188 (1885) 5) a comp compan any y was was in great great fina financ ncia iall diff diffic icul ulti ties es and needed funds funds to pay some pressing liabilities. The company company raised raised the amount amount by issue of debenture debentures. s. While raising raising the the loans the directors stated that the amount was needed by the comp compan any y for for its its deve develo lopm pmen ent, t, purc purcha hasi sing ng asse assets ts and and comp comple letin ting g buil buildi ding ngs. s. It was was held held that the dire direct ctor ors s has has committed fraud. Active concealment When there is an active concealment of a fact by one having knowledge or belief of the fact, that can also be considered to be equi equiva vale lent nt to a stat statem emen entt of fact fact and and woul would d amou amount nt to frau fraud. d. Active concealment is different from merely keeping silent as to certain facts. By an active concealment concealment of certain certain facts, there is an effort to see that the other party is i s not able to know the truth and he is made to believe believe as true which is in fact not so. Illustrations 1. B, havi having ng dis disco cove vere red d a vein vein of ore ore on the the esta estate te of A, adop adopts ts mea means ns to to conc concea eal, l, and and does does con conce ce4a 4al, l, the the existence of the ore from A. Through A’s ignorance, B is enabled to buy buy the estate on an under under value. The contract is voidable at the option of A. 2. A is entitl entitled ed to succ succeed eed to an an esta estate te at the the deat death h of B. “B” dies dies ; ‘ C’, havi having ng rece receiv ived ed inte intelli llige genc nce e of B’s B’s deat death, h, prevents prevents the intelligenc intelligence e reaching reaching A and thus induces induces A to sell him his his interest in the estate. The sale is voidable at the option of A.
Mere silence is no fraud It has been noted above that for constituting fraud there should be representation as to certain untrue facts. Active concealment concealment has also also been considered to be equivalent to a statement because in that case ther there e is a posi positi tive ve effo effort rt to conc concea eall the the trut truth h and and crea create te untr untrue ue impressio impression n on the mind of the other, other, Mere silence, silence, howeve however, r, as to fact facts s is no fraud. fraud. Expla Explana natio tion n to Sect Sectio ion n 17, 17, in this this connec connectio tion, n, incorporates the following provisions :
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“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 keeping silence to speak, speak, or unless his silence silence is, in itself, itself, equivalent equivalent to speech.” A contracting party is not obliged to disclose each and everything to the other party. If a person is to sell his goods he is under no duty to disclose disclose the defects defects in his goods. If he makes false false statement statement as to the quality of his goods, it would be fraud, but if he merely keeps silence silence as regards regards the defects defects in them there there is no fraud. In case of sale of goods the rule is caveat emptor, i.e., buyer be aware, which means that it is the duty of the buyer to be careful while purchasing the goods, and there is no implied condition or warranty by the seller seller as to the quality or fitness of the goods for any particular purpose. If A sells, by auction, to B , a horse which A knows to be unsound. A says nothing to B about the horse’s unsoundness. This not fraud in A . Similarly, if A and B, being traders, enter upon a contract A has private private information information of a change in prices prices which would would affect B’s willingness to proceed proceed with the contract. A is not not bound bound to inform B. In Keates Vs. Lord Cadogan (1851), A let his house house to B which he knew was in a ruinous ruinous condition condition.. He also knew knew that the house is going going to be occup occupied ied by B immedi immediate ately. ly. A did not not disclo disclose se the condition condition of the house house to B. It was held that that he he had committe committed d no fraud. In Shri Krishan Krishan Vs. Kurushetr Kurushetra a University University 1976 SC, Shri Krishan, a candidate candidate for the LL.B. Part I exam., exam., who was short in attendance, did not mention that fact himself in the admission form for the examina examination. tion. Neither Neither the Head Head of of the Law Depart Department ment nor the the University University authoritie authorities s made proper proper scrutiny scrutiny to discover discover the truth. It was was held held by the the Supr Suprem eme e Cour Courtt that that ther there e was was no fraud fraud by the the cand andidat idate e and and the the Unive nivers rsit ity y had had no pow power to with withdr draw aw the the candidature of the candidate. Exceptions Although as a general rule mere silence or non-disclosure of facts do not amount amount to fraud, but in some exceptional exceptional cases cases keeping keeping silence silence may de deemed deemed to be an an act of deception. Explanation to Section Section 17, which mentions the rule that mere silence is not fraud also mentions the following two exceptions :
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(1)
When there is a duty to speak, keeping silence is fraud.
(2)
When silence is, in itself, equivalent to speech, such silence is a fraud.
(1)
Duty to speak
When the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, keeping silence in such a case amounts to fraud. When there is a duty to disclose fats, one should do so rather than to remain silent. By remaining silent one may be be responsible for creating creating a false impressio impression n in the mind of the other. Certain Certain contracts contracts are uberrima uberrima fides , i.e., contra contracts cts of utmost utmost faith. faith. In such such a case case it is suppose supposed d that that the the part party y in whom whom good good fait faith h is repo repose sed d woul would d make make full full disclosures and not keep silent. silent. Suppression of truth in such cases cases is equivalent equivalent to suggestion suggestion of false hood. Withholdin Withholding g the facts, which ought to be disclosed, disclosed, is fraud. Contracts of insurance insurance are contracts of utmost utmost good faith. faith. Since Since some of the facts facts may be in the in the sole knowledge of the insured, he must must make full disclosure disclosure to the insurer. Speaking half—truth may also amount to misrepresentation as regards those facts which have not been disclosed. Withholding a part of the info inform rmat atio ion n may may be enou enough gh to conv convey ey a fals false e impr impres essi sion on and and it amounts amounts to fraud. Thus, Thus, if the cleaner of clothes clothes makes makes a customer customer sign a document orally telling him that the terms exempt the cleaner from from liab liabil ilit ity y for for dam damage age to bead beads s and and sequ sequin ins, s, but but in fact fact the the document contains a clause giving him exemption from any damage however arising, this is a fraud. (Curtis (Curtis Vs. Chemical Cleaning and Dyeing Co. 1951) Duty to disclose changes If a statement is true when made, but subsequently becomes false by the change of circumstances, there is a duty to disclose the change, before before the other other party party acts upon upon it. If the change change is notified notified to the other party it would amount to fraud (Briess Vs. Woolley, 1954)
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In with with Vs. O’Flan O’Flanaga agan n (1936) (1936) a medic medical al practi practition tioner er started started negotiatio negotiations ns in January, January, 1934 for the sale sale of his practice. practice. He stated stated that his average practice was worth 2000 pounds per annum. The contract for the sale of practice was signed on May1, 1934, but by that time the position of his practice had changed as his practice had fallen cons conside idera rabl bly y owin owing g to his his illn illnes ess s and and cons conseq eque uent nt abse absenc nce e from from practice. practice. These These changed changed circumstanc circumstances es were not disclosed disclosed to the purchasers of the practice and when they took charge they found that the the prac practi tice ce was was nonnon-ex exis iste tent nt.. They They brou brough ghtt an acti action on for for the the rescission ion of the contrac ract on the ground that the changed circumsta circumstances nces were were not communica communicated ted to them. It was held that the representation made in this case to induce the other party to the contract to enter into contract was a continuing one and it was the duty of the vendor to notify the change of circumstances to the purchaser if the same same occurre occurred d before before the contrac contractt was signed signed.. Under Under these these circumstances the plaintiff were entitled to rescind the contract (2) Silence being equivalent to speech Some Someti time mes s keep keepin ing g sile silent nt as to certa certain in fact facts s may may be capa capabl ble e of creating an impression as to the existence of a certain situation. In such a case silence amounts to fraud.. For example, B says to A -“if you do not deny it, I shall assume that the horse horse is sound.” sound.” A says nothing. Here A’s silence is equivalent to speech. Here, the relation between between the the parties parties would make it A’s duty duty to to tell tell B if the horse is unsound. Means of discovering the truth Even if, in any case, the silence is fraudulent, but if the other party could have discovered the truth by ordinary diligence diligence he cannot cannot avoid the contract. In this connection connection the provision in in the Indian contract contract Act is as under : “If such a consent was caused by misrepresentation or by silence, fraudulent within meaning meaning of section section 17, the contract, nevertheless, nevertheless, is not voidable, if the party whose consent was caused had the means of discovering the truth with ordinary diligence.” (Case of Shri Krishan Vs. Kurukshetra Univeersity ) In this case it was observed : “In the instant case the admission form of the appellant must have been forwarded in December 1971 where as the examination was to take place place in April/May April/May 1972. It is obvious that that during this period period of four to five months it was the duty of the University authorities to scrutinise the form in order to find out whether it was in order. order. Equally
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it was the duty of the Head of the Department of Law before submitting the form to the University to see that the form complied with all the requireme requirements nts of law. If neither neither the Head of the Departmen Departmentt nor the University authorities took care to scrutinise the admission form, then the question of the appellant committing a fraud did not arise. It is well sett settle led d that that wher where e a pers person on on whom whom frau fraud d is comm commit itte ted d is in a position to discover the truth by due diligence, fraud is not proved. It is neither neither a case of suggestio suggestio falsi, falsi, nor supressio supressio veri. The appellant appellant never wrote to the University authorities that he had attended the prescribed number number of lectures. There was ample ample time and opportunity opportunity for for the the Univ Univer ersi sity ty author authorit ities ies to have have out the the defe defect ct.. In these these circumstances, therefore, for the University authorities authorities acquiesced acquiesced in the infirmities which the admission form contained and allowed the appellant to appear in Part I Examination Examination in April, 1972, then by force of the University University Statute the University had no power power to withdraw the candidature of the appellant.” Promise made without any intention to perform it When When a pers person on make makes s a prom promis ise e ther there e is deem deemed ed to be an undertaking by him to perform it. If there is no such intention when when the contract contract is being being made, made, it amounts amounts to fraud. Thus if a man man takes a loan loan with withou outt any any inte intent ntio ion n to repa repay, y, or when when he is inso insolv lven ent, t, or purchases goods goods on credit without any intention to pay for them, there is fraud. If, however, there is no such wrongful intention intention at the time of making of the contract, but the promisor does not perform the contract, it does not amount to fraud. Any other act fitted to deceive We have already noted that either a false statement of fact, or active concealment, or a promise made without any intention to perform it have been declared to be fraudulent according to clauses (1), (2) and (3) to section section 17 respectively respectively.. Clause Clause (4) further provides provides that that “any other act act fitted to deceive” deceive” will also amount amount to fraud. fraud. This clause clause is general and is intended to include such cases of fraud which would otherwise not come within the purview of the earlier three clauses. Any act or omission which the t he law declares as fraudulent Acco Accord rding ing to sect section ion 17 (5) (5) frau fraud d also also incl includ udes es any any such such act act or omiss omission ion as the law specia specially lly declare declares s to be fraudule fraudulent. nt. In some cases the law requires certain duties to be performed, failure to do which which is expres expressly sly declar declared ed as a fraud. fraud. For instanc instance, e, section section 55, Transfer of property Act, 1882 declares certain kinds of omissions on the part of the seller seller or the buyer as fraudulent. It provides that :
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1. The The selle sellerr of immov immovab able le proper property ty is boun bound d to disclo disclose se to the the buyer any material defect in the property or in the seller’s title thereto of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover. And 2. The The buye buyerr of immov immovab able le prope property rty is boun bound d to disclo disclose se to the the seller any fact as to the nature or extent of the seller’s interest in the property of which the buyer is aware, but of which he has reas reason on to beli believ eve e that that the the sell seller er is not not awar aware e and and whic which h materially increases the value of such interest, and An omission to make the above stated disclosures is fraudulent. In Aktar Aktar Jahan Begam Begam Vs. Hazarilal, Hazarilal, the defendant defendant sold some property to the plaintiff stating in the sale deed that he would not be liable to the buyer if he suffered any loss owing to the seller’s defective title. The defendant defendant had, earlier to this transaction, sold this property property to somebody somebody else, else, but did not inform inform the buyer about about it. It was held that the defendant had committed fraud and the contract was voidable at the option of the buyer. 2. Wrongful intention In orde orderr to cons consti titu tute te frau fraud d it is nece necess ssar ary y that that a pers person on shou should ld intentionally make a false statement with an intent to deceive another party thereto thereto to induce induce him to enter into into the contract. contract. If that intention intention to deceive the other other party is absent there is no fraud. It may, in such a case, be a mere misrepresentation as defined in section 18 of the Act. In Derr Derry y Vs. Vs. Pee Peek, the the direc irecto tors rs of a comp compan any y iss issued ued a pros prospe pect ctus us stat statin ing g that that they they had had got got the the auth author orit ity y to run run tramwa tramways ys with with steam steam or mechan mechanica icall power power instea instead d of animal animal powe power. r. In fact fact a plan plan had been been submi submitte tted d for for the same same and and directors honestly believed that the Board of Trade, who had to accord its sanction for the same, would do so as a matter of cour course se.. The The boar board d of Trade Trade refus refused ed the sanc sancti tion on and the company company had to be wound wound up. The respond respondent, ent, who had taken taken shares in the company on the faith of the representation by the direct directors ors in the prospe prospectu ctus, s, brough broughtt an action action for the tort tort of dece deceit it.. It was held held by the the Hous House e of Lord Lords s that that since since the statement had not been made with an intention to deceive there was no fraud.
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Contract on the basis of a false statement It is necessary that the false statement must have been made to indu induce ce the the othe otherr part party y to ente enterr into into the the cont contra ract ct.. “If”, “If”, said said Lord Lord Blackburn, “it is proved that the defendants with with a view to induce the plaintiff to enter into a contract made a statement to the plaintiff of such a nature as would be likely to induce a person to enter into a contract, it is fair inference of fact that he induced to do so by the statement.” If a man, being induced by false statement enters into a contract contract which he would not have done otherwise, there is fraud. But if in spite of the false statement he was not misled. or did not enter into into the contr contrac actt on that that basi basis, s, there there is no fraud fraud.. This This may be explained by the following illustration : (a) A, intending to deceive B , falsely represents that five hundred maund maunds s of indigo indigo are made made annually annually at A’s factor factory, y, and thereby thereby induces B to buy the factory. The contract contract is voidable voidable at the option of A. (b) A, by a misrepres misrepresentat entation, ion, leads B erroneous erroneously ly to believe believe that five hundre hundred d maunds maunds of indigo indigo are are made made annually annually at A’s Factory Factory.. B exami examines nes the accou accounts nts of the factory factory,, which which shows shows that that only only four four hundred hundred maunds maunds of indigo indigo have been made. made. After this B buys the factory. The contrac ract is not not voida idable on acc account of A’s misrepresentation. In Kamal Kant Vs. PrakashDevi the Plaintiff, Kamal Kant filed a suit against his mother, Prakash Devi and some others seeking cancellation of a trust deed on the ground that his signatures to it were obtained by fraud by falsely telling him that it was attested by the plaintiff’s father and advocate. The plaintiff was an educated man man and had all the means to know the contents of the document. Under these circumstances it was held that there was no fraud in this case. In Horsfall Horsfall Vs. Thomas Thomas the plaintiff contracted to manufacture a gun for the defendant and and supply the same same to him. Thegun was made made for for the the defe defend ndan antt and and supp suppli lied ed to him, him, but but the the defe defend ndan antt neve never r examined examined the gun gun and he started started using it. There was was a defect in the gun, and if the defendant defendant had carefully carefully examin examined ed the gun he could detect the same and then he would have been justified in rejecting it. The defendant accepted two bills of exchange towards the payment for the gun. After some time the gun burst flew to pieces. pieces. One of the bills was paid by him, but when the second bill was not paid, the plaintiff sued him for for the same. At this stage the defendant defendant contended contended that that beca becaus use e of a conc concea eale led d defe defect ct in the the gun gun it was was weak weak and and consequently it had burst and broken into pieces and thus it amounted to fraud, as such he is not liable to pay.
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If there is a patent defect in an article supplied to a buyer and the buyer having an opportunity to examine the same neglects to do so, the supplier cannot be considered guilty of fraud for not pointing out the defect. Statement should be meant for the party misled It is necessary that the misleading statement should be meant for the part party y who who is mis misle led. d. In Peek Peek Vs. Vs. Gurn Gurney ey (187 (1873, 3, a pers person on purchase purchased d some shares shares of a company company from the market and then sued the promoters of the company for fraud on the ground that there were some false false statements contained contained in the prospectus. prospectus. It was held that the prospectus is meant for an original allot tee of the shares by the company and not a person like the present appellant, who buys the shares subsequently from the original allot tee and therefore the promoters were not liable for fraud. 4. Misrepresentation When a false statement is made with the knowledge that it is false and also with the intention intention to deceive deceive the the other party party and make make him to enter into a contract on that basis, it is known known as fraud. But when the person making a false statement believes the statement to be true and does not intend to mislead the other party to the contract it is known as “Misreprese “Misrepresentatio ntation”. n”. When the the consent consent of a party to a contract contract has been obtained by misrepresentation it is not free consent and the contract is voidable at his option. Section 18 defines misrepresentation as under : “Misrepresentation” means And includes— (1) (1) the the posi positi tive ve ass asser erti tion on,, in a manne mannerr not war warra rant nted ed by by the information of the person making it, of that which is not true, though he believes it to be true : (2) any breach breach of of duty which, which, withou withoutt an intentio intention n to deceive, deceive, gains gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice or to the prejudice of any one claiming under him ; (3) causing, however, innocently. innocently. A party to an agreement, agreement, to make make a mistake as to the substance of the thing which is the subject of the agreement.
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Positive assertion, i.e. an explicit statement, of of fact by a person of that which is not true rue, but he believ ieves it to be true rue amounts to misr misrep epre rese sent ntat atio ion. n. Ther There e shou should ld be a fals false e stat statem emen entt made made innocently, i.e., without any intention to deceive. When there is a breach of duty whereby the person making a false statement gains some advantage at the cost of the other party, and the statement statement though false is made made without without an intention intention to deceive, deceive, it also amounts to misrepresentation. For example, Section 57, Indian Easement Act, 1882, lays down that the grantor of a licence is bound to disclose to the licensee any defect, which is likely to be dangerous to the person or property of the licensee, of which the grantor is aware but the the licensee licensee is not. Omission Omission to make such a disclosur disclosure, e, if it is without any intention to deceive, would amount to misrepresentation. If one party, acting innocently, causes another party to make a mistake as to the substance of the thing which is the subject of the agreement, there is said to be misrepresentation. In case of misrep misrepres resent entati ation on the person person making making the statemen statementt is innocent and he makes the statement without any intention to deceive the other party. party. His statement statement is false false although although he himself believes believes that the same same is true. It is known as innocent innocent misrepres misrepresentat entation ion as against against fraud, fraud, where the person person making making the false statem statement ent knows knows that the same is false but makes the same intentionally to deceive the other party and make him enter into an agreement which he would not have done otherwise. For instance, A sells his horse to B which is unsound but A himself does not know about this fact. He tells B that the horse is sound. There is misrepresentation. misrepresentation. Fraud and Misrepresentation distinguished 1. Both in fraud fraud and misrepr misrepresen esentation tation the the statemen statementt is false, false, but in fraud the false statement is made by a person, who knows that that it is false false or does does not belie believe ve in its its trut truth, h, wher wherea eas s in misreprese misrepresentatio ntation n the person person making making the statemen statementt believes believes the same to be true. 2. In fraud fraud the intentio intention n of the person person making making a false false stateme statement nt is to deceive the other party and induce him to enter into the contract contract on that basis. basis. There is no such such wrongful wrongful intention intention in case case of misr misrepr eprese esenta ntation tion.. It has has been been note noted d in Derry Derry Vs. Peek Peek that that when the stateme statement, nt, althoug although h false, false, was made without any intention to deceive it did not amount to fraud. 3. Acco Accord rdin ing g to secti section on 19, when when the the cons consen entt of a party party to the contract has been obtained either by fraud or by
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misrepresentation, the contract is voidable at the option of the party whose consent consent has been been so obtained. obtained. In other words the contrac contractua tuall remedy remedy for both is the same. same. In case of fraud, fraud, however, there is an additional remedy available to the victim of fraud fraud,, i.e. i.e.,, an actio action n for for dama damage ges s unde underr the the law law of torts torts,, because because fraud fraud is also a tort. No remedy remedy under under the law of torts is avail availab able le if it is an innoce innocent nt misr misrep epre rese sent ntat atio ion. n. Indi Indian an Contract Act, however, provides that “a person who rightfully rescinds a contract is entitled to compensation for any damage whic which h he has has sust sustai aine ned d thro throug ugh h the the nonnon-fu fulfi lfilm lmen entt of the the contract” This remedy remedy of damages damages is available in every kind kind of rescission, whether on ground of misrepresentation or fraud, or on other ground and it is not similar to the remedy of damages available to a victim of the fraud under the law of torts. 4. Altho Althoug ugh h when when ther there e is misr misrep epre rese sent ntat atio ion n by one one part party y the the contract is voidable at the option of the other party, but no such remedy is available if the party seeking to avoid the contract had the means means of discovering discovering the truth with ordinary ordinary diligence. diligence. But except in case of fraudulent silence, a person obtaining the consent of the other party by fraud cannot be allowed to say that that the the othe otherr part party y coul could d have have disc discov over ered ed the the truth truth with with ordinary diligence. Effect of flaw in consent Section 19 deals with the effect of flaw in consent caused by coercion, misrepresentation and fraud and section 19-A when the consent has been obtained obtained by undue undue influence. The relevant provision contained contained in these sections are as follows : 19. Void Void abilit ability y of agr agreem eement ent with without out free free consen consentt -- When cons onsent to an agr agreem eement ent is caus aused by coerci ercio on, frau fraud. d.,, or misrepresentation the agreement is a contract voidable at the option of the party whose consent was so caused. A part party y to a cont contra ract ct,, whos whose e cons consen entt was was caus caused ed by frau fraud d or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representation made had been true. 19-A Power to set aside aside contract contract induced induced by undue influence. influence. When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused.
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Any such contract may be set aside either absolutely or, if the party who is entitled to avoid it has received any benefit there under, upon such term and conditions as the Court may seem just. When the consent of a party to the contract has been caused by coercion, misrepresentation or fraud the contract is voidable at the optio option n of such such part party. y. In case case of fraud, fraud, apart apart from avoi avoidi ding ng the contract, the person whose consent has been so caused may also bring bring an action action for damages damages becau because se fraud fraud is a tort also. When When a person at whose option the contract is voidable rescinds it, he is bound to restore the benefit, if any, received by him under such a contract. In case of undue influence also the contract is voidable at the option of the party whose consent consent has been so caused. Any such such contract may may be set aside either absolutely or, if the party who was entitled to avoid it has has rece receiv ived ed any any bene benefi fitt ther there e unde under, r, upon upon such such term terms s and and conditions as to the Court may seem just. Thus, in case of the flaw in consent one party or the other may have either, 1. a right right of reces recessio sion n of the the contra contract, ct, i.e., i.e., the cont contrac ractt may be voidable at his option, or 2. a right right to to claim claim compen compensat sation ion.. The two rights are discussed below. 1.
Right to Rescission of the contract It has been noted above that even when the consent of a party to a contract has been obtained by coercion, misrepresentation, fraud or undue influence, rescission of the contract is the common remedy available available in all these cases. cases. The party entitled entitled to rescind rescind a voidable contract may do so by a notice to the other party, or taking such steps as may be necessary necessary under the circumstances circumstances of the case. A voidable contract will be avoided only if the party having a right to do so avoids it. If instead, instead, he affirms the contract contract then then the contract contract will be binding on both both the the parties parties.. Ordina Ordinaril rily, y, a notice notice to the the other other party party of the the intention intention to avoid the the contract contract would suffice. suffice. If, however, however, the other party party is not availa available ble then then taking taking necess necessary ary steps steps which which may may be possible under the circumstances of the case would be enough.
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In Car Car and Universal Universal Finance Finance Co. Co. Ltd. Ltd. Vs. Caldwell, Caldwell, (1961) (1961) the purchaser of a car committed a fraud against the seller by making the payment through through a cheque which which was dishonoured. dishonoured. The seller wanted to avoid the contract and regain the possession from the buyer, but the buyer buyer was not traceable. traceable. The seller seller immediately immediately informed informed the police police and and also also the the Auto Automo mobi bile le Asso Associ ciat atio ion n abou aboutt the the same same.. In the the meanwhile the purchaser of the car sold it further to the plaintiffs, who had been acting in in good faith. The question was whether the plaintiffs had purchase purchased d it after rescission rescission of the contract contract by the seller, seller, and if that was so the plaintiffs could not have a good title to the car. It was held that even though the seller could not communicate the rescission to the purchaser himself, information to the police and the Automobile Asso Associ ciat atio ion n had had resu result lted ed in the the resc rescis issi sion on of the the cont contra ract ct and and therefore, the plaintiffs did not get a good title to the car. Limits to the rights of rescission The right of rescission of the contract is subject to the following limitations limitations.. In such situations situations the law may not permit permit the exercise of the right to rescind the contract. ‘ (i) When the contract is affirmed There are two alternatives open to a party having a right to avoid avoid a contract, contract, either to rescind rescind it, or to affirm it. If the contract contract is rescinded it becomes becomes void and unenforceable. unenforceable. On the other hand, if it is affirmed then it is valid and binding contract against both the parties. Section 19, which deals with the right of rescission of a contract where the consent of a party has been obtained by misrepresentation or fraud states : “A party to a contr contract act,, whose whose consen consentt was caused caused by fraud or misrepresentation, may, may, if he thinks thinks fit, insist that the the contract shall be performed, and shall be put in the position in which he would have been if the representation made had been true” tr ue” The affirmati affirmation on of the contrac contractt may be made made either either expre express ssly, ly, or impliedly or it could be inferred inferred from a person’s conduct. conduct. In Long Vs. Lloyd (1958) the defendant sold his lorry to the plaintiff by making a false representation that the lorry was in “excellent condition.” condition.” On the lorry’s first journey the plaintiff discovered serious defects in the lorry. He did not rescind the contract, but instead accepted the defendant’s offer of half the cost of repairs. The lorry completely completely broke in the next journey journey and then then the plaintiff plaintiff wanted to rescind rescind the the contract. contract. It was held that the plaintiff, by accepting the offer of sharing the cost of repairs by the defendant and thereafter continuing using the lorry, had affirmed the contract and he had now no right to rescind it.
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(2) Lapse of time A person having a right to avoid the contract must do so within a reason reasonab able le time. Failin Failing g to exerci exercise se this right right in time time may may mean mean affirmation of the contract. contract. If a person transfer his property to another another person while under a spiritual influence, but does not take steps to take back the property for six years after such influence has ceased, the right to retrieve the property comes to an end. (Allcord (Allcord Vs. Skinner . 1887) Similarly, if a person purchasing a picture on the basis basis of an innocent innocent but false representat representation ion that it has been painted by a particular renowned artist, wants to avoid the contract after five years of its purchase, the rescission would not be allowed (Leaf Vs. International Galleries, 1950) (3) Acquisition of a right by by a third party The right of rescission may be gone if before the contract has been rescinded some third party has acquired a right in the subject matter of the contract. contract. A voidable contract contract is valid until avoided avoided and it becomes void only after it has been avoided, there is a possibility that so long as the contract has not been avoided, there could be creation of an instrument in favour of a third party. Section 29, Sale of Goods Act, 1930, contains the following provision in respect of a contract of sale of goods : “When the seller of goods has obtained possession thereof under a cont contra ract ct void voidab able le unde underr sect sectio ion n 19 or sect sectio ion n 19A 19A of the the Indi Indian an Contract Act, 1872, but the contract has not been rescinded at the time of sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.” For example, in a contract of sale of certain goods between A and B, A’s consent consent has has been been obtained obtained by misrepr misrepresent esentation ation and so so he has a right to avoid the contract, B sells those goods to C, while C is acting in good good faith and he has no notice of the defective title of B. C has acquired a good good title to the goods and A’s right of avoiding the contract and taking back the goods has come to an end. If a shareholder is induced by misrepresentation to purchase shares, he may rescind rescind the contract. contract. In case the proceeding proceedings s for winding up of the compan company y starts starts,, shareh sharehold older’s er’s right right of rescis rescissio sion n cannot cannot be exercised because that wou8ld affect the interest of the creditors.
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(4) Inability to restore the goods When a party wants to avoid the contract he must do so, so long as the parties to the contract can be placed in the same situation in which they were before the contract was made. If restitutio in integrum is not possible there there can be no rescission. For example, example, A purchases a suit piece from B under a contract voidable at A’s option. A gets the piece converted converted into a suit. A’s right to avoid the contract contract cannot cannot be exercised because he will not be in a position to return the suit piece. piece. In a contract contract of sale of goods goods if the buyer has has a right to avoid the contract contract becaus because e of breach of a conditio condition, n, the buyer’s buyer’s right of rejecting those goods comes to an end if the buyer has accepted thos those e good goods. s. In such such a case case buyer buyer’s ’s only only remed remedy y is to clai claim m compe compensa nsation tion by treati treating ng the breach breach of condi conditio tion n as a breac breach h of warranty. warranty. Section Section 13 (2), (2), of the the Sale Sale of Goods Goods Act, 1930 1930 makes makes the the following provisions : “Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect.” In Wallis Wallis Vs. Pratt Pratt the buyer buyer purcha purchased sed seeds seeds descr describe ibed d as “English sainfoin sainfoin seeds.” The seeds seeds supplied by the seller were of an inferior and a different variety known known as “Gaint sainfoin seeds.” At the time of supply of seeds the buyer could not make out the defect as the two varieties varieties were indistin indistinguish guishable. able. The defect defect could only known known after the seeds seeds had been been sown and the crop was was ready. The buyer buyer could claim compensation only. There was no chance of avoiding the contract and rejecting the goods.
(5) Damages in lieu lieu of rescission rescission of contract
The The reme remedy dy of dama damage ges s in lieu lieu of rece recess ssio ion n prov provid ided ed here here is in respect of innocent innocent misrepresentation. misrepresentation. When the misrepresentation is fraudulent, the aggrieved party may recover damages in addition to the of avoiding the contract, because fraud is also a tort.
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2. Right to claim compensation Apart from the remedy of rescission of contract, the remedy of damages or compensation may also sometimes be available to the parties to the contract, in cases where the consent of one of the parties has been obtained by coercion, misrepresentation, fraud or undue influence.
(1) Damages in case of fraud : It has already been noted that fraud is a tort. Therefore, Therefore, a party whose whose consent consent has been obtaine obtained d by a frau fraudu dule lent nt stat statem emen ent, t, may may seek seek resci resciss ssio ion n of the the cont contra ract ct as a contractual remedy and may also claim damages under the law of torts.
(2) Duty of a party rescinding the contract contract to pay pay compensation compensation Sometimes a party entitled to rescind a voidable contract may have already already received received some benefit benefit under under the contract. contract. Equity Equity demands demands that if he avoids the contract, he should also restore the benefit which he may have received from the other party. (refer to section 64 of the Act) For exam exampl ple, e, A, a money oney lend lender, er, advan dvance ces s Rs. Rs. 100 100 to B, an agriculturist, and by undue influence, induces B to execute a bond for Rs. 200 with interest at 6 percent percent per per month. The Court may may set the bond aside, aside, ordering ordering B to repay Rs. 100 with such interest interest as as may may seem just.
Section 30, Specific Relief Act, 1963 also empowers the court to order payment payment of compensation compensation when when ordering ordering rescission rescission of a contract. It provides as follows :“On adjudging the rescission of a contract, the court may require the party to whom such relief is granted to restore, so far as may be, any benefit which he may have received from the other party and to make any compensation to him which justice may require.”
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Mistake When the consent of the parties is caused by mistake, it is not the free consent which is needed for the validity of a contract. contract. One, or both, of the the part partie ies s may may be work workin ing g unde underr some some misun isunde ders rsta tand ndin ing g or misapprehension of some fact relating to the agreement. If such a misunderstanding or misapprehension had not been there, probably they would not not have entered into the agreement. agreement. Such contracts are said to be have been caused by mistake. Mistake may work in two ways : 1. Mist Mistak ake e in the mind mind of the parti parties es is such such that that ther there e is no genuine agreement at all. all. They may be no consensus ad idem. idem. i.e. the meeting of the two minds. minds. The offer and acceptance do not coinci coincide de and and thus thus no genuin genuine e agreem agreement ent is consti constitut tuted ed between the parties. 2. There may may be a genuin genuine e agreemen agreement, t, but there there may may be mistak mistake e as to a matter of fact relating to that agreement. 1. Mistake may work in two ways : For a valid contract contract both the parties parties should should have given given their consent and the consent should be free also. al so. According to section 13 : “Two or more persons persons are said to consent when they agree upon the same thing in the same sense.” Sometimes even such a consent, where two or more persons agree to the same thing in in the same sense, sense, may not be there. there. In other words, there may be absence of meeting of the minds of the parties, or there may may be no consens consensus us ad idem. idem. In such case case there is no contract contract which can be enforced. In Raffles Vs. Wichelhaus (1864) the buyer and the seller entered into an agreement under which the seller was to supply a cargo of cotton to arrive “ex peerless from Bombay”. There were two ships of the the sam same e name name.. i.e. i.e.,, Peerless, and and both both were were to sail sail from from Bombay, Bombay, one in October October and and the other in Decemb December. er. The buyer buyer in mind Peerless sailing in October, whereas the seller thought of the ship sailing in December. The seller dispatched dispatched cotton by by December ship but but the buyer refused refused to accept accept the same. same. In this case case the offer and acceptan acceptance ce did not coinc coincide ide and there was no contra contract ct and, and, therefore, it was held that the buyer was entitled to refuse to take delivery.
Free Consent
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2. Mistake as to a matter of fact essential essential to the agreement Section 20 deals with such such mistake. mistake. It provides provides : 20. Agreement void where both parties are under mistake as as to matter of fact.-- Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement is void Illustration (a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away, and the the good goods s lost lost.. Neith Neither er par party ty was was awa aware re of the these se fac facts ts.. The The agreement is void. (b) A agrees agrees to buy from B a certain certain horse. horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement agreement is void. void. c) A being entitled entitled to an estate estate for the life of B , agrees agrees to sell it to C . B was dead at the time of the agreement, but both both the parties were ignorant of the fact. The agreement agreement is void. When the type of mistake contemplated is section 20 is present in an agreement, the agreement agreement is void. void. Section 20 requires that : (1) Both the parties to the contract should be under a mistake and and (2) Mistake should as regards a matter matter of fact. (3) The fact regarding regarding which the mistak mistake e is made should should be be essential to the agreement. 1. Mistake of both the parties Section 20 makes makes the agreement agreement void if there is mistake on the the part of both the parties. For example, A and B make an agreement for the sale and purchase of a particular horse. Unknown to both the parties the horse horse was was dead dead at the time of the agreement agreement.. Since both the parties are under under a mistake the agreement is void. If the mistake is a unila unilate tera rall one, one, i.e. i.e.,, only only one one of the the part partie ies s is havi having ng some some mismisimpression, the validity of the agreement is not affected thereby. thereby. This is made clear by section 22, which reads as under :
Free Consent
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22. Contract Contract caused caused by mistake mistake of one one party party as as to matter of fact.--- A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to matter of fact. In Ayekam Ayekam Angahal Angahal Singh Singh Vs. The Union of India, India, A.I.R. 1970 there was auction for the sale of fishery rights and the plaintiff was the highest bidder making making a bid of Rs. 40,000. The fishery right had had been auctioned for 3 years. years. The rental in fact was Rs. 40,000 per per year. The plai plaint ntiff iff sough soughtt to avoid avoid the the cont contra ract ct on the the grou ground nd that he was was working under a mistake and he thought that he ha made a bid of Rs. 40000 being the rent rent for all the three years. It was held that since the the mistake was unilateral the contract was not affected thereby and the same could not be avoided. (2) Mistake of fact There should should be mistak mistake e of fact and not not of law. The validity validity of the contract is not affected by mistake of law. Regarding mistake of law the provision contained in section 21 is as follows : 21. Effect Effect of mistake mistake as to law.--- A contract is not voidable because because it was caused caused by a mistake mistake as to any law law in force in India India : but a mistake as to law not in force in India has has the same effect as a mistake of fact. Illustration A and B make make a contract contract ground grounded ed on the erroneo erroneous us belief belief that a particular debt is barred by the Indian Law of Limitation : the contract is not voidable. Every one is supposed to know know the law of the land. Ignorance of law law is no excuse. excuse. If a person wants wants to avoid the contract contract on the ground ground that there was a mistaken impression in his mind as to the existence of some law while he entered into the contract, he will get no relief. (3) Mistake essential as to agreement It is also essential that the fact regarding which the mistake is made shou should ld be essen essentia tiall to the agre agreem emen ent. t. Whet Whethe herr the the mist mistak ake e is regarding a fact essential to the agreement or not depends on a particular contract.
Free Consent
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