Mistake Sec.20

Mistake : an erroneous belief about something  - may be mistake of law or a mistake of fact.

Sec.20 – where both parties are under mistake as to matter of fact essential to the agreement – the agreement is void.

Sec.20 will come into play when –

(1)   both the parties to an agreement are mistaken;

(2)   their mistake is as to a matter of fact;

(3)   the fact about which they are mistaken is essential to the agreement.

Sec.21 – a contract is not voidable because it was caused by mistake of law of the country.  However, mistake as to law of a foreign country is treated as mistake of fact and makes the contract void.

Sec.22 – a contract is not voidable merely because it was caused by mistake of one party as to matter of fact.

Mistake of law -

a) Mistake of law of the country – (ignorantia juris non excusat , i.e. ignorance of law is not excuse) – contract cannot be avoided. 

Example : A and B enter into a contract - on the erroneous belief that a particular debt is barred by the Indian Law of Limitation – contract is not voidable.

But where person enters into a contract by making a mistake of law through inducement of another (whether innocent or otherwise), the contract is voidable.

(b) Mistake of law of a foreign country -  treated as mistake of fact – contract is void.

Mistake of fact – may be bilateral or unilateral.

Bilateral Mistake – both the parties are mistaken as to a matter of fact essential to the agreement – agreement is void.

1. The mistake must be mutual. 

Example – A agreed to purchase B’s motor car lying in B’s garage – Unknown to both, the garage and car destroyed by fire a day earlier – void agreement.

2. Mistake must relate to matter of fact essential to the agreement – as to what facts are essential to the agreement depends upon the nature of the promise in each case. 

Galloway Vs. Galloway  - man and woman entered into  separation agreement under which man to pay weekly allowance to woman – both mistakenly believe themselves to the lawfully married – Held, mutual mistake on a point of fact which was material to the existence of agreement – void agreement.

However, an erroneous view as to value of a thing which forms the subject matter of agreement is not deemed as mistake of fact 

Example – A buys an old painting for Rs.5000 – mistakenly assumed it to be an antique – actually it was new one and worth only Rs.500 – Mistake as to value of the subject matter – not voidable. 

Bilateral mistakes can be of following types –

1. Mistake as to the subject matter – agreement is void

Example – A agreed to buy B’s horse – unknown to both, the horse was dead at the time of bargain – agreement is void.

Couturier Vs. Hastie – H employed by C as del credere agent  to sell C’s cargo of corn which was in transit – H sold the cargo to a third person - Unknown to both,  the corn became fermented in transit and already sold by the master of the ship at an intermediate port – buyer repudiated the contract and H was sued for the price (being del credere agent) – Held, as goods had already been totally lost before the contract was made, the contract void ab initio - H not liable. 

2. Mistake as to identity of subject-matter – happens when one party intends to deal in one thing and the other intends to deal in another.

Raffles Vs. Wichelhaus – W agreed to buy a cargo of Surat Cotton from R ‘to arrive ex-Peerless from Bombay’  - actually two ships by that name sailing from Bombay, one in October and another in December – W meant the former while R meant the latter – Held, mutual mistake and hence no contract. 

Even if mistake caused by negligence of third party – contract void.

Henkel Vs. Pape – A inspected fifty rifles in B’s shop – Later, wired to B “send three rifles” – by mistake of telegraph office, the message transmitted as “send the rifles” – B sent fifty rifles – A accepted three rifles and sent back the rest – Held, there was no contract on account of mutual mistake as to identity of subject matter – however, A liable to pay for three rifles on basis of an implied contract. 

3. Mistake as to quality of subject matter – if the subject matter is qualitatively different from what the parties thought it to be – agreement is void.

Nicholson & Venn Vs. Smith Marriot  - table napkins sold at auction - by description “with the crest of Charles I and authentic property of that monarch” – actually napkins belonged to King George – Held, mistake as to quality of the subject matter – agreement void.

4. Mistake as to quantity of subject matter – if mutual mistake as to quantity of subject matter – agreement void.

Cox Vs. Prentice – Silver bar sold under a mistake as to its weight – Held agreement is void

5. Mistake as to title of subject matter – if seller intends to sell something which he is not entitled to sell – agreement is void.

Cooper Vs. Phibbs   - uncle had told his nephew, not intending to misrepresent anything but being in fact in error, that he (uncle) was entitled to a fishery – after uncle’s death, nephew entered into agreement with uncle’s daughter to rent the fishery – actually fishery belonged to nephew himself – Held the lease was void.

6. Mistake as to price of subject matter – where mutual mistake as to price – agreement is void.

Webster Vs. Cecil – W offered to buy C’s property for £2000 – C declined – thereafter C offered to sell the same property for £1250 -  W accepted the offer, knowing that this offer price was a mistake which should have been for £2250 – Held, W knew that offer was a mistake – contract void.

7. Mistake as to possibility of performance -  impossibility may be due to

a)Physical impossibility

Griffith Vs. Brymer  - contract for hiring of a room for witnessing the coronation procession of King Edward VII – unknown to the parties, the procession had already been cancelled – Held, the agreement void for impossibility of performance.

b) Legal impossibility – if subject matter of contract cannot be done as per law – agreement is void.

Unilateral Mistake  - Sec.22 – agreement not voidable merely because it was caused by unilateral mistake as to matter of fact – however, it can be allowed as defence where mistake brought about by other party’s misrepresentation or fraud.

Smith Vs. Hughes – H wanted to buy old oats for his horses – S showed him sample of oats which he had – W mistakenly thought that oats were old when they were actually new – Held, though two minds were not ad idem as to age of the oats, they certainly were ad idem as to the sale and purchase of them – H cannot avoid the contract.

Exceptions – In certain cases, when unilateral mistake goes to the root of the agreement, agreement is void.

1. Mistake as to identity of person contracted with – if one party represents himself to be some other person, there is mistake as to the identity of the person contracted with.

Example – A intends to contract with B – mistakes C to be B and enters into contract with him (C) – no agreement if B was a material element of contract.  Even in cases where A makes an offer to B, C cannot give get any rights under the contract by accepting the offer – if he does so, contract is void.

Boulton Vs. Jones – B purchased goods from H – H owed debt to J – J placed order on H – J accepted goods from B thinking that they were supplied by H – B had supplied the same intending to set off his debt against H – Mistaken identity of the acceptor – no contract.  However, B can recover the goods from J under quasi-contract. 

Cundy Vs. Lindsay  - Blenkarn ordered goods from Lindsay – signed the offer letter in such a way that L believed it came from well-known firm of Blenkiron & Co. – Held, L never intended to deal with Blenkarn, having heard of him – no contract.

This exception holds good only when identity of contracting party is important.

Said Vs. Butt – S wanted to go to first night of play – B, the managing director of theatre, gave instructions that ticket be not sold to S – because in past S had published virulent (strong) criticism of its production – S got his friend to buy a ticket – theatre manager refused admission to S – Held, no contract as theatre never intended to contract with S.

Where the identity of a party is immaterial to the contract – contract is not void – attribute of a party does not affect the contract. 

Philips Vs. Brooks – N bought jewellery from a jeweller’s shop – presented himself as Sir George Bullough – gave a cheque which bounced – jeweller sued for annulment (cancellation) of contract - Held, jeweller contracted to sell and deliver jewellery to person who came to his shop – here mistake not as to identity but to attribute of the buyer – valid contract.

2. Mistake as to nature of contract  - if document signed under mistaken belief that they are of different class and character altogether - void contract.

Foster Vs. Mackinnon – M, an old man of poor sight, endorsed a bill of exchange – had mistakenly thought it to be a guarantee – Held, the mind of the signer did not accompany the signature – no contract. 

Free Consent - Fraud – Sec.17 -

Fraud – Sec.17 -  

Fraud exists when –

1. a false representation made –

• knowingly, or
• without belief in its truth, or
• Recklessly careless whether it be true or false. 

2 concealment of a material fact or  partial statement of fact, so that the withholding of fact makes the statement made false .

3.  promise is made without any intention of performing it.

4. any other act to deceive.

5. any act or omission specially declared to be fraudulent.

A false statement must have been made intentionally with an intention to deceive the other party or to induce him to enter into a contract.

Derry Vs. Peek – Directors of a company issued a prospectus – made a statement that company had been authorised by a special Act of Parliament to run tramways by steam or mechanical power – actually authority to use steam was subject to consent of Board of Trade – however, no mention was made of this– directors honestly believed that permission would be granted  - permission was refused – consequently company later wound up – plaintiff who had bought some shares, sued the directors for fraud - Held, directors guilty of misrepresentation not fraud as they honestly believed that one the Parliament had authorised the use of steam, the consent of the Board was practically concluded.

Requirements of fraud :

1. there must be false representation – however, in few cases even silence or non-disclosure constitutes fraud.

Peek Vs. Gurney – Prospectus did not refer to existence of liabilities – gave impression that company was prosperous – Held, non-disclosure amounted to fraud and investors who had relied upon the prospectus could rescind the allotment.

If any statement made is true on the date when it is made – but becomes untrue before the contract is actually entered into – must be corrected – non-correction is fraud – contract can be rescinded. 

With Vs. O’Flanagan – Negotiations for sale of medical practice started in January – representation made that practice was worth £2,000 a year – contract concluded in May when earnings fell to £5 per week due to defendant’s serious illness – Held, failure to disclose the fall in takings is fraud – contract would be rescinded.

2. Representation must relate to material fact -  mere opinion, commentary or hearsay is not representation of fact.

Bisset Vs. Wilkinson  - Certain land sold – vendor aware that land required for sheep farming - Vendor told prospective buyer that in his opinion the land had carrying capacity of  2,000 sheep – land turned out to be unsuitable for sheep farming – Held, there was no misrepresentation as the statement was one of opinion which was honestly held.

3. Representation must be made before conclusion of contract – made with intention to inducing the other party to act upon it.

4. Representation must have been made with knowledge of its falsity or without belief in its truth or recklessly, not caring for its truth or otherwise  - can be made by the party to the contract or with his connivance or his agent.

5. The other party must have been induced to act upon the representation.

Smith Vs. Chadwick  - A bought shares in a company on faith of prospectus – a false statement contained in prospectus that B was a director in the company – B had never heard of B and therefore statement was immaterial to him – Held, the untrue statement had not induced A to buy the shares – A cannot claim damages on ground of fraud.

6. Other party must have relied upon the representation and must have been deceived.

Horsefull Vs. Thomas – T bought a cannon from H – cannon was defective but plugged by H – T did not examine the cannon – On use, the cannon burst – Held, the plug had not deceived T – Hence, contract not vitiated by fraud.

7. Other party, on acting upon the representation, must have suffered some loss – fraud without damage does not give rise to action on deceit/cheating.

Consequences of fraud : Contract induced by fraud is voidable at the option of the party deceived – until rescinded, it is valid – the defrauded party has following remedies :

1.he can rescind the contract – must be within reasonable time – if in the meanwhile, a third party has acquired an interest in the subject matter for value and good faith, contract cannot be rescinded.

Example – A purchases land from B by wilfully making false representation – A sells the goods to C before B rescinds the contract – B has lost the right to avoid the contract as a third party (C) has acquired interest in it. 

2.He can insist on the performance of contract on the condition that he be put in the position in which he would have been if the

3.representation had been true.

4.He can sue for damages.

Contract not necessarily voidable  - When consent caused by coercion, fraud or misrepresentation, contract voidable at the option of party whose consent is so caused (Sec.19).  However, in following cases, the contract is not voidable –

1.where consent caused by mis-representation or fraud but that party could discover the truth by ordinary diligence.

Example : A mis-represented to B to believe 500 tonnes of indigo made at A’s factory – B inspected the factory – found it could produce 400 tonnes only – B buys the factory – Held, contract is not voidable on account of mis-representation by A.

2.where plaintiff is ignorant of mis-representation or fraud.

3.Where before the rescission, third party acquires interest in subject matter of contract for value and bona fide.

4.Where the party after becoming aware of his right to rescind, affirms the contract.

Long Vs. Lloyd – A induced B to buy lorry – false representation that lorry was in excellent condition – when B used it and discovered it to be in bad shape – B wanted to return it – A agreed to bear half the cost of repairs and B agreed to it – Later lorry broke down completely – B wanted to rescind the contract – Held, acceptance of A’s offer to bear half the cost of repairs, implies B’s final acceptance of the sale – contact cannot be rescinded.

5.Where rescission not made within reasonable time – example - thus where shares allotted on basis of misleading prospectus in July and move to rescind the contract made in December – plaintiff precluded from obtaining the relief on account of unexplained delay of five months. 

Mere silence is no fraud  : A contracting party is under no obligation to disclose the material facts to the other party – but he must not make active concealment (like concealing a crack in a machine by filling it and repainting it) –

Keates Vs. Lord Cadogan – Before letting a house, landlord did not inform the tenant that house in ruinous condition – Held, landlord nor liable for fraud – tenant should have inspected the house.

Shri Krishan Vs. Kurukshetra University – candidate had full knowledge of fact that he was short of attendance – did not mention this fact in his examination form – Held, its is not fraud, it is duty of University to scrutinise forms and to call for verification or information in case of doubts – University failed to do so – estopped from cancelling the examination of the candidate.

However, there are statutory exceptions to the above rule :

1. where under given circumstances, the person keeping silence is under duty to speak.

Example – A father selling a horse to his son must tell him if the horse is unsound, as the son is likely to rely upon his father.  

The duty to disclose the truth will arise in all cases where one party reposes and other party accepts, confidence – also arises where one party is utterly without any means of discovering the truth and has to depend on the good sense of the other party – in absence of any such relationship, there is no duty to speak.

Haji Ahmad Yarkhan Vs. Abdul Gani Khan  - plaintiff spent a sum of money to mark engagement of his son – later discovered the girl to be epileptic – broke off engagement – sued other party for compensation for loss suffered due to deliberate suppression of vital fact – Held, law imposes no general duty on any one to broadcast the blemished of his female relations – not even to those who are contemplating matrimony with them – no fiduciary relation between parties -  voidable due to mis-representation – no compensation as no fraud. 

2.Where silence is equivalent to speech

Example – A says to B, “If you do not deny it, I shall presume that the horse that you are selling me is sound.” – If B says nothing, his silence is equivalent to speech. 

3.Change of circumstances  - where representation true when made, but becomes false on account of change in circumstances – actually acted upon by other party – duty of the person making the representation to communicate the change of circumstances. 

With Vs. O’Flanagan – Negotiations for sale of medical practice started in January – representation made that practice was worth £2,000 a year – contract concluded in May when earnings fell to £5 per week due to defendant’s serious illness – Held, failure to disclose the fall in takings is fraud – contract would be rescinded.

4.Half-truths – even where person is under no duty to disclose a fact, he may be guilty of fraud by non-disclosure if he voluntarily discloses something and then stops half way – a person may keep silence, but if he speaks, a duty arises to disclose the whole truth.

Junius Construction Corpn. Vs. Cohen – plaintiff purchased a tract of land – contract of sale stated that land subject to the right of Borough (local government in a small town) to open two streets within the area – actually the Borough had the right to open three streets – Held, though seller was under no duty to mention the projected streets at all, but having undertaken or professed to mention them, he could not fairly stop halfway – plaintiff had right to rescission. 

R.C. Thakkar Vs. Gujarat Housing Board – false estimates of costs of construction given in a tender – contractor agreed to some reduction on the belief that the estimate was correct – Held, representations contained in tender were fraudulent – no defence that plaintiff could have discovered the true costs by reasonable efforts. 

5.If seller fails to inform the buyer as to a latent defect (a defect known to the seller but not apparent on an ordinary inspection), silence amounts to fraud.

6.If trustee does not make full disclosure of facts to the beneficiary while entering into a contract with him as to the property of which he is a trustee  - his silence as to material facts amount to fraud. 

Distinction between fraud and misrepresentation –

Basis	Misrepresentation	Fraud
Intention	There is no intention to deceive the other party.  It is innocently made.	There is an intention to deceive the other party.  It is deliberate or wilful.
Belief	The person making the representation believes to be true.	The person making the representation does not believe it to be true or makes it recklessly without caring as to whether it is true or false.
Tort	Simple misrepresentation is no tort.	It is a cause of action in tort for damages.
Rescission and damages	The aggrieved party can rescind the contract or sue for restitution.  However, there can be no suit for damages.	The aggrieved party can rescind the contract and also sue for damages.
Discovery of truth	The aggrieved party cannot avoid the contract if he had the means to discover the truth by ordinary diligence.	Where there is active concealment, contract is voidable even though aggrieved party had the means to discover the truth with ordinary diligence.

Free Consent - Misrepresentation

Misrepresentation – Sec.18  - false statement – made honestly – believing it to be true or not knowing it to be false – includes non-disclosure of material fact without intent to deceive the other party.

Example :

1.      A offers to sell his horse to B telling him that the horse is sound.  A genuinely believes the horse to be sound though he has no sufficient ground for the belief.  Later, B finds the horse to be unsound.  The statement made by A is misrepresentation.

2.      Derry Vs. Peek – Directors of a company issued a prospectus – made a statement that company had been authorised by a special Act of Parliament to run tramways by steam or mechanical power – actually authority to use steam was subject to consent of Board of Trade – however, no mention was made of this– directors honestly believed that permission would be granted  - permission was refused – consequently company later wound up – plaintiff who had bought some shares, sued the directors for fraud - Held, directors guilty of misrepresentation not fraud as they honestly believed that one the Parliament had authorised the use of steam, the consent of the Board was practically concluded.

Requirements of misrepresentation –

1. Must relate to material fact – mere expression of opinion is not misrepresentation.
2. Must be wrong – but honestly believed to be true by the person making it.
3. Must be made before conclusion of contract – made to induce other party to enter into the contract.
4. Made with intention that it is acted upon by other party.
5. Must be actually acted upon by other party – must have induced him to enter into the contract.
6. Need not be made directly to the plaintiff – made to third party with the intention of communicating it to the other party to the contract is also misrepresentation.

Babul Vs. R.A. Singh – A tells his wife that bridegroom proposed for their daughter was young man - within hearing of the daughter – daughter gave consent to marry believing the statement of her father - actually bridegroom over 60 years – Held, consent was vitiated/ obtained by misrepresentation and fraud. 

Consequences of misrepresentation – The aggrieved party can –

1. avoid or rescind the contract; or
2. accept the contract but insist that he shall be placed in the position in which he would have been if the representation had been true.

However, the aggrieved party loses the right to rescind the contract for misrepresentation if –

• he takes a benefit under the contract or affirms it in some other way - even after becoming aware of misrepresentation or fraud;

Long Vs. Lloyd – A induced B to buy lorry – false representation that lorry was in excellent condition – when B used it and discovered it to be in bad shape – B wanted to return it – A agreed to bear half the cost of repairs and B agreed to it – Later lorry broke down completely – B wanted to rescind the contract – Held, acceptance of A’s offer to bear half the cost of repairs, implies B’s final acceptance of the sale – contact cannot be rescinded.

• where restitution to the original position is not possible – e.g. subject matter either consumed or destroyed.
• if contract cannot be rescinded in toto (in whole), it cannot be rescinded at all.

If a third party has acquired rights in the subject matter of the contract in good faith and for value.

Free consent - Undue Influence

Undue Influence : Sec.16 (1): A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. 

           

A person is deemed to be in a position to dominate the will of another –

(a) where he holds a real or apparent authority over the other – e.g. relationship between doctor and patient, master and servant.

(b) where he stands in a fiduciary relation (relation of trust and confidence) to the other – e.g. between father and son, solicitor and client, trustee and beneficiary and promoter and company.

(c) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by age, illness or mental or bodily distress – e.g. relationship between medical attendant and his patient.

The principle applies to every case where influence is acquired and abused, where confidence is reposed and betrayed.  Contracts entered into by undue influence are voidable at the option of the person whose consent is so obtained.

Examples :

(1) During minority of his son (B), A advanced money to him - upon B’s coming of age, misuses parental influence – obtains a bond from B for a greater amount than the sum due in respect of the advance – Held, A employs undue influence.

(2) Mannu Singh Vs. Umadat Pandey – spiritual guru induced his devotee to gift him the whole of his property in return for promise of salvation (nirvana) – Held, the consent of the devotee was given under undue influence.

(3) Ranee Annapurni Vs. Swaminath – poor Hindu widow was persuaded by money-lender to agree to pay 100% rate of interest on money borrowed – She needed the money to establish her right to maintenance – Held, consent obtained by undue influence and the Court reduced the rate of interest to 24%.

(4) Inche Nariah Vs. Sheikh Ali Bin Omar  - Illiterate elderly woman made gift of practically whole of her property to her nephew who managed her affairs – Held, the gift should be set aside on ground of undue influence.

(5) Niko Devi Vs. Kripa  - A minor female child who had lost her parents was living with her cousin brother who was in position of loco-parents (in the place of parents) – Deed executed by her in favour of latter – Held, there was undue influence. 

(6) A applies to banker for a loan at a time when there is stringency in the money market – Banker declines to make the loan except at an unusually high rate of interest -  A accepts the loan on these terms – This is a transaction in ordinary course of business and contract is not induced by undue influence.

(7) William Vs. Bayley  - son forged his father’s signature on several promissory notes and paid them into his banking account – When truth came to light, the manger of the bank threatened prosecution of the son and imprisonment – to avert this threat, father agreed to give an equitable mortgage to the bank on his property in return for the promissory notes – Held, the negotiation proceeded upon an understanding that the agreement to give security for the promissory notes would relieve the son from the consequences of the criminal act – fears of father were stimulated and operated on to an extent to deprive him of free agency and to exhort an agreement for the benefit of bankers – Held voidable at the option of the father.

In order to avoid a contract on ground of undue influence, the plaintiff has to establish that –

• the other party was in a position to dominate his will.
• The other party actually used his influence to obtain the plaintiff’s consent to the contract, and
• The transaction is unconscionable (unreasonable so as to shock the conscience)

Relationships which raise presumption of undue influence :

·         Parent and child

·         Guardian and ward

·         Trustee and beneficiary

·         Religious adviser and disciple

·         Doctor and patient

·         Solicitor and client, and

·         Fiancé and fiancée.

Raghunath Vs. Sarju Prasad – Father and son equal owners of a vast joint family property – both quarrelled over it – Father instituted criminal proceedings against the son – In order to defend himself, the son borrowed money from the plaintiff at 24% compound interest and mortgaged his properties – In eleven years, the amount payable magnified more than eleven fold – Defendant contended that plaintiff/lender taking unconscionable advantage of his mental distress and exercised undue influence  - defendant failed to prove that the lender was in a position to dominate his will – Borrower got no relief.

However, no presumption of undue influence in following cases and burden of proof lies on the party claiming as such -

• Landlord and tenant
• Creditor and debtor

i.            Husband and wife (wife should not be pardanashin otherwise the presumption will arise)

Rebuttal of presumption – the presumption of undue influence can be rebutted on following grounds –

(a)    full disclosure of facts is made by the influencing party to the party alleged to have been influenced.

(b)   The price is adequate – inadequacy of consideration is only an evidence of undue influence.

(c)    The weaker party was in receipt of independent advice, before making the promise – the advise must be shown to be competent and based on knowledge of all relevant facts

Lloyds Bank Vs. Bundy – contractor borrowed money from bank – he could not pay it in time and bank pressed for payment or security – Borrower suggested that his father  might mortgage the family’s only residential house – bank visited the father and obtained his signatures upon ready-made papers – contractor still could not pay – bank sought to enforce the mortgage – Held, bank exploited the vulnerability of the father, caused by his desire to help his son, to such an extent that he charged his house to his ruin for a very short moratorium (suspension/freeze/halt) which was a highly inadequate consideration for the mortgage. 

Contract with pardanashin woman is presumed to be induced by indue influence – a woman who observes complete seclusion because of custom of particular community to which she belongs.

Kalibaksh Singh Vs. Ram Gopal Singh – about two months before her death, a Hindu widow (who was a pardanashin woman) gifted half of her landed properties to the son of her paramour, who was also the manager of her estate – Held, she had no independent advice, and gift was the result of the influence the manager had over the lady – Gift voidable at her option.

However, where a woman goes to Court to give evidence, settles rents with tenants and collects rents, communicates in matters of business with men other than members of her family, she is not a pardanashin woman (Shaikh Ismail Vs. Amir Bibi).

Difference between coercion and undue influence –

Coercion	Undue Influence
1. The consent is given under the threat of an offence (i.e. committing or threatening to commit an act forbidden by IPC or detaining or threatening to detain the property unlawfully)	1. Consent is given by a person who is so placed in relation to another that the other person is in a position to  dominate his will.
2. Coercion is mainly of physical nature. It involves physical or violent force.	2. Undue influence is of moral character.  It involves moral force or mental pressure.
3. There must be an intention of causing any person to enter into a contract.	3. The influencing party must use his position to obtain unfair advantage over the other party.
4. It involves a criminal act.	4. No criminal act is involved.

Any statement - wrongly made by one party to the contract - during the course of negotiations - with a view to induce the other party to enter into a contract – is called misrepresentation.  May be made either –

• innocently or unintentionally – called misrepresentation.
• Intentionally or deliberately or wilfully with intention to deceive or defraud the other party – called fraud

Free consent - Coercion

Free consent : Sec 14 – consent said to be free when not caused by –

(1)   coercion as defined in Sec.15, or

(2)   undue influence, as defined in Sec.16, or

(3)   fraud, as defined in Sec.17, or

(4)   misrepresentation, as defined in Sec.18, or

(5)   mistake, subject to provisions of Sec.20-22.

When consent to an agreement caused by coercion, undue influence, fraud or misrepresentation – agreement is contract, voidable at the option of the party whose consent was so caused  (Sec.19) – If he confirms it, contract is binding on both parties.

Where consent caused by mistake – agreement is void.

Bala Devi Vs. S. Majumdar – illiterate woman – executed deed of gift in favour of nephew – under impression that it was deed authorising nephew to manage the lands – Evidence adduced that woman never intended to execute such deed – nor deed read or explained to her – Held, deed void and inoperative. 

Coercion : Sec.15 – coercion is committing or threatening to commit - any act forbidden by IPC - or unlawfully detaining or threatening to detain any property -  to the prejudice of any person – with intention to causing such person to enter into an agreement.

It is immaterial whether IPC (Indian Penal Code) is or is not in force in the place where the coercion is employed. 

Example :

(1)   A threatens to shoot B if B does not release him (A) from debt which A owes to B - B releases A under the threat - The release brought about by coercion.

(2)   Chikham Amiraju Vs. Chikham Seshamma – By threat of suicide, a Hindu induced his wife and son to execute a release in favour of his brother in respect of certain properties which they claimed as their own – Held, the threat of suicide amounted to coercion – release deed was voidable. 

(3)   Ranganayakamma Vs. Alwar  - Husband of a young girl of 13 died – relatives of husband prevented the removal of his body for cremation unless she adopts a boy to inherit the properties of her husband  - she consented – Held, the consent was not free but was induced by coercion – adoption set aside. 

(4)   Muthia Vs. Muthu Karuppa – an agent refused to hand over the account books of a business to the new agent unless the principal released him from all liabilities -  principal gave the release deed as demanded – Held, release deed given under coercion – voidable at the option of the principal.

(5)   Bansraj Vs. Secretary of State – T, son of B liable for fine – Government gave threat of attachment of property to B for recovery of fine from T – B paid the fine – Held, the contract was induced by coercion.

Sec.72 – a person to whom money has been paid or anything delivered by mistake or under coercion, must repay or return it.

Person who wants to relieve himself of the consequences of the contract – onus lies on him to prove that his consent caused by coercion – has also to prove that he would not have entered into it had coercion not been employed.

What Indian Law calls ‘coercion’, is called ‘duress’ or ‘menace’ in English Law – duress involves actual or threatened violence or imprisonment of contracting party (or his wife, parent or child) with a view to obtain consent to the agreement – coercion is much wider than duress and includes the unlawful detention of property also.

CAPACITY TO CONTRACT

Sec.10: Parties must be competent to contract.  Competence to contract is defined in

Sec.11: Every person is competent to contract who –

(a)    is of the age of majority;

(b)   is of sound mind; and

(c)    is not disqualified from contracting by any law.

Minors: Indian Majority Act, 1875 – Sec.3 specifies that –

(1)   a minor is a person who has not completed 18 years of age.

(2)   In following cases, a person attains majority on completion of 21 years of age :

(a)    where guardian appointed for person or property of minor under the Guardians and Wards Act, 1890, or

(b)   where superintendence of minor’s property is under Court of Wards.

Rules regarding agreements with minors :

1.      Agreement with or by minor is void: minor cannot bind himself by contract - such agreement is inoperative.

      Mohiri Bibi Vs. Dharmodas Ghose  - minor mortgaged his property to money-lender to secure loan of Rs.20,000 – Out of it, Rs.10500 paid to the minor – Subsequently, minor sued for setting aside the mortgage.  Held, the mortgage was entered into with a minor and hence voids – Request for repayment of the amount advanced to the minor as part of consideration also turned down.

2.      Minor can be promisee or beneficiary- can be beneficiary (payee, endorsee or promisee) – such contracts enforceable at the option of the minor

      Sharafat Ali Vs. Noor Mohd.  – A promissory note executed in favour of a minor.  Subsequently, the drawer refused to honour the note on the ground that it being drawn in favour of a minor, was void.  Held, that the contract was for the benefit of the minor and he can enforce it. 

3.      His agreement cannot be ratified by him on attaining age of majority– ratification relates back to date of making of contract – therefore, contract which was then void cannot be made valid by subsequent ratification - Consideration given during minority is not valid – if fresh contract entered into after majority, fresh consideration to be paid.

      Indran Ramaswamy Vs. Anthiappa Chettiar  - Minor borrows money and executes promissory note – after attaining majority, executed another promissory note in settlement of first note -  The second note is void for want of consideration. 

      Smith Vs. King – K, a minor, speculated in stock exchange and became liable to the stockbrokers for £547.  On attaining majority, he gave two bills of £50 each in satisfaction of the original debt.  Held, there was no consideration for the bills and K was not liable on them. 

      However, where services rendered at desire of minor during minority and continued after majority on same request  -  forms good consideration for subsequent express promise to pay.  Sindha Shri Ganpat Singh Vs. Abraham – services rendered to a minor at his request – continued after majority at the same request – good consideration for promise to pay.

4.      Minor receives any benefit under a void agreement, he cannot be asked to compensate/pay for it– if minor mis-represented his age - can be compelled to restore it, so long as the same is traceable in his possession - If the goods sold or converted into money, minor not liable to pay - The doctrine of restitution not applicable, where infant has obtained cash instead of goods.  Sec.65 which provides for restitution in case of rescission of voidable agreements, not applicable to agreements with minor, which is absolutely void – even no relief allowed under Specific Relief Act, 1877.

      Mohiri Bibi Vs. Dharmodas Ghose  - minor mortgaged his property to money-lender to secure loan of Rs.20,000 – Out of it, Rs.10500 paid to the minor – Subsequently, minor sued for setting aside the mortgage.  Held, the mortgage was entered into with a minor and hence void – Request for repayment of the amount advanced to the minor as part of consideration also turned down.

      Ajudhia Prasad Vs. Chandan Lal - two minors borrowed money under a mortgage deed.  They were over 18 but less than 21 years of age, but fraudulently concealed the fact that a guardian had been appointed for them.  Question was whether the lender could get a decree for the principal amount or sale of mortgaged property. Held, where property is not traceable, granting a money decree would tantamount to enforcing minor’s pecuniary (monetary) liability under a void contract – no decree under cloak of restitution.

5.      No estoppel against minor-Minor can always plead minority – Even if minor mis-represents his age, he cannot be sued.

      Leslie Vs. Shiell – A minor succeeded in deceiving some money-lenders by lying about his age and got them to lend him £ 400 on the faith of his being adult.  On his refusal to pay, the money lenders sued him for money.  Held, where the infant has sold the goods or converted them, he cannot be made to pay.

6.      No specific performance of agreement– if entered into by minor, no specific performance as void ab initio – However, if contract entered into by parent/guardian/manager within scope of authority and for benefit of minor, such contract is enforceable. 

      Srikakulam Subrahmanyam Vs. Kurra Sabba Rao – to pay off promissory note and mortgage of his debt, minor son and his mother sold a piece of land to the holders of the promissory note and to pay off mortgage debt.  He paid off the mortgage accordingly and possession of land was given over by him.   Afterwards the minor brought an action to recover back the land.  Held, the transaction was for the benefit of the minor and the guardian had the capacity to contract on his behalf – binding upon the minor. 

7.      Cannot enter into partnership– but can become a partner in an existing partnership for a share in the profits only – cannot be liable for liabilities of the firm. 

8.      Minor cannot be adjudged insolvent – As minor incapable of contracting debts, he cannot be held liable for any – so cannot be adjudged insolvent.

9.      Liable for ‘necessaries’ supplied- Minor not personally liable – Only his estate liable for ‘necessaries’ supplied or necessary services rendered to him - Things necessary are those without which an individual cannot reasonably exist – articles of luxury are always excluded though luxurious articles of utility are in some cases allowed considering the fortune and circumstances of the particular minor – liability not on account of contract but out of quasi-contract. 

      To render minor’s estate liable, the supplier has to prove that the goods supplied are necessary for the minor.  Two conditions must be satisfied – (i) the contract must be for goods reasonably necessary for his support in his station in life, and (ii) he must not have already a sufficient supply of these necessaries.  Also, loans incurred by minor to obtain the necessaries binds the minor and is recoverable.

      Ryder Vs. Wombwell  - minor was supplied a pair of jewelled solitaires and an antique goblet and though he moved in a high society, he was held not liable as the plaintiff could not prove that the articles were specially necessary for the minor. 

      Nash Vs. Inman  - an undergraduate in the Cambridge University, who was amply supplied with proper clothes according to his position, was supplied by the plaintiff with number of dresses, including eleven fancy waistcoats.  Held, the waistcoats were not necessaries and hence the price was irrecoverable.

      Roberts Vs. Gray  - G, a minor, entered into a contract with R, a renowned billiard player, to pay him certain sum of money to learn the game and play matches with him during his world tour.  R spent time and money in making arrangements for the matches.  Held, G was liable to pay as the arrangement was for necessaries as it was in effect for teaching, instruction and employment and was reasonable and for the benefit of the minor.

10.  Minor can be an agent – minor binds the principal by his acts without incurring any personal liability.

11.  Minor is liable in tort (civil wrong) – but where tort arises out of a contract, minor is not liable, as it would indirectly tantamount to enforcing an invalid contract. 

Persons of unsound mind : Sec.12 – Person said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and forming a rational judgement as to its effect upon his interest.  There is a presumption in favour of sanity.

Soundness of mind depends on –

(a)    capacity to understand the contents of business concerned, and

(b)   ability to form a rational judgement as to its effects on own interest.

      Person usually of unsound mind, may enter into contract when of sound mind – but person usually of sound mind, may not make a contract when of unsound mind.

Example:

1.      Patient in lunatic asylum - may contract during intervals of soundness of mind.

2.      Sane man – delirious from fever or drunk – incapable of forming a rational judgement as to its effects on his interest – cannot contract whilst such delirium (fever or restlessness) or drunkenness lasts. 

     

Inder Singh Vs. Parmeshwardhari Singh  - property worth Rs.25,000 agreed to be sold for Rs.7,000 – seller’s mother proved that he was congenital (hereditary) idiot and mostly wandered about – incapable of understanding the transaction – Held, person may to all appearances behave in a normal fashion, but he may be incapable of forming a judgement of his own as to the effects of the act on his interest – in present case, in capable of exercising own judgement.

Sec.68 – estate of persons of unsound mind liable for necessities supplied to them – however, no personal liability.

Persons debarred by law:

1.      Alien enemies: During war, contracts made before stand suspended or dissolved – no new contracts during the ward.

2.      Foreign sovereigns, diplomatic staff and accredited representatives: require prior permission of Central Government.

3.      Corporations: authority regulated by memorandum and articles – cannot enter into contracts of strictly personal nature.

4.      Insolvents: Property vests in Official Receiver or Official Assignee - deprived of power to deal in that property – may contract on discharge by Court.

5.      Convicts: cannot enter into contract during imprisonment – gets power to deal only on discharge or completion of sentence or pardon – Limitation held in abeyance during period of sentence.