Consent and Free Consent (Section 13-14 of the Indian Contract Act, 1872)

1. Consent (Section 13)

Definition of Consent:

• Consent is the agreement between two parties to enter into a contract. It is an essential element for the formation of a
contract.

• Section 13 of the Indian Contract Act defines consent as "when two or more persons agree upon the same thing in the
same sense." This is called consensus ad idem, which means there must be mutual understanding and agreement on the
subject matter.

Conditions for Valid Consent:

• Agreement must be clear: The parties must have a common understanding of the subject matter, the terms, and
conditions.

• Communication of consent: Consent must be communicated by words, actions, or conduct.

• Intention to be bound: Both parties must show an intention to be legally bound by the agreement.

Examples:

1. Example 1: If a seller agrees to sell a car to a buyer at a particular price and the buyer agrees to buy it at that price, this is
valid consent.

2. Example 2: If one party mistakenly thinks the contract is about a different car model than the other party, there is no valid
consent.

2. Free Consent (Section 14)

Definition of Free Consent:

• Free consent is consent that is not obtained by coercion, undue influence, misrepresentation, fraud, or mistake.

• Section 14 of the Indian Contract Act defines free consent as "consent which is not caused by coercion, undue influence,
fraud, misrepresentation, or mistake."

Factors Affecting Free Consent:

• Coercion

• Undue Influence

• Fraud

• Misrepresentation

• Mistake

Detailed Explanation:

a. Coercion (Section 15)

• Definition: Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code or the
unlawful detaining or threatening to detain any property.

• Effect on Consent: Consent obtained by coercion is not free, and the contract is voidable at the option of the party whose
consent was coerced.

• Example: A person is forced to sign a contract under threat of harm or imprisonment. The contract is voidable at their
discretion.

Case Example:

• K.L. Johar & Co. v. Kunj Behari (1961): In this case, the court held that if consent is given under the pressure of force or
threats, it is not valid.

b. Undue Influence (Section 16)

• Definition: Undue influence occurs when one party exerts pressure on the other party to the extent that the weaker party
is unable to make an independent decision.

• Key Elements:

o One party must be in a position to dominate the will of the other.

o The dominant party uses that position to obtain an unfair advantage.

• Effect on Consent: A contract obtained by undue influence is voidable at the option of the party who was influenced.
 • Example: A child or an elderly person being persuaded by a guardian to sign a contract that they would not have otherwise
agreed to.

Case Example:

• Raghunath Prasad v. Laxmi Devi (1959): The court invalidated the contract as the consent of the party was obtained
through undue influence.

c. Fraud (Section 17)

• Definition: Fraud involves the intentional misrepresentation or concealment of a material fact with the intention of
deceiving another party.

• Effect on Consent: Consent obtained through fraud is not free, and the contract is voidable.

• Example: A seller sells a car and knowingly hides the fact that it has major defects. The buyer’s consent to the contract was
based on false information.

Case Example:

• Derry v. Peek (1889): The court held that fraud involves a false statement made with the intention to deceive.

d. Misrepresentation (Section 18)

• Definition: Misrepresentation occurs when a false statement is made innocently, without any intent to deceive, but the
statement leads the other party to make an error.

• Effect on Consent: Misrepresentation affects consent, but unlike fraud, there is no intent to deceive. The contract is
voidable.

• Example: A person sells a painting as an original, but it is actually a reproduction, and they did not know it was a copy.

Case Example:

• Bisset v. Wilkinson (1927): The court ruled that if a statement is made innocently, without the intention to deceive, it is
misrepresentation.

e. Mistake (Section 20-22)

• Definition: A mistake occurs when both or one party misunderstands the terms or subject matter of the contract.

o Mutual Mistake (Section 20): Both parties make a mistake about the subject matter or the terms of the contract.

o Unilateral Mistake (Section 22): Only one party is mistaken about the contract, and the other party is aware.

• Effect on Consent: If the mistake affects the core of the contract, it may render the contract void.

• Example: A person buys a piece of land, believing it to be in a different location, and the seller knows about the mistake.

Case Example:

• Smith v. Hughes (1871): The court held that a contract is voidable if there is a mutual mistake about the subject matter.

Voidability of Agreement Without Free Consent (Sections 19 and 19A of the Indian Contract Act, 1872)
1. Section 19 – Voidability of Agreements without Free Consent

Section 19 of the Indian Contract Act stipulates that an agreement entered into without free consent is voidable at the option of
the party whose consent was not freely given. This section makes it clear that an agreement cannot be enforced against a person
who has given consent under duress, influence, fraud, misrepresentation, or mistake.

Key Points of Section 19:

• Voidable Agreement: If consent is obtained by coercion, undue influence, fraud, misrepresentation, or mistake, the
contract becomes voidable. The contract remains valid until the party whose consent was not free exercises their right to
avoid the contract.

• Party’s Option: Only the party whose consent was affected can choose to void the contract. They may either affirm or
rescind the contract.

• Affirmation or Rescission: If the affected party affirms the contract, it remains valid; if they rescind, the contract becomes
void.

Examples:

1. Coercion: A person is forced to sign a contract under threat of violence. The contract is voidable at the option of the
coerced party.

2. Undue Influence: If an elderly person is persuaded by their caretaker to sign a contract to sell property at an unfair price,
the contract is voidable by the elderly person.
Case Law Example:

• Carter v. Taylor (1956): In this case, the court held that a contract made under undue influence is voidable at the discretion
of the influenced party.

2. Section 19A – Contracts with Minor

Section 19A deals with contracts where a minor (a person under the age of 18) is involved. In such cases, the contract is voidable
at the option of the minor, as they cannot give free and informed consent to a contract.

Key Points of Section 19A:

• Contracts with Minors: If a minor enters into a contract, the contract is voidable by the minor when they reach the age of
majority.

• No Liability on Minor: The minor cannot be compelled to perform the contract or be bound by its terms.

• Disaffirmance of Contract: Once the minor reaches the age of majority, they may either ratify the contract (continue to be
bound by it) or disaffirm it (reject the contract).

Example:

1. Minor’s Contract: A 17-year-old enters into a contract to buy a car. Upon reaching 18, the minor can choose to disaffirm
the contract, and the seller cannot enforce it.

Case Law Example:

• Mohiri Bibi v. Dharmodas Ghose (1903): This case established that a contract entered into by a minor is voidable at the
minor's discretion when they reach the age of majority. The contract was disaffirmed, and the minor was not liable.

3. Types of Consent Issues that Lead to Voidability

As per Sections 19 and 19A, an agreement becomes voidable if consent is not free due to the following issues:

a. Coercion (Section 15)

• Consent obtained through coercion, i.e., by threatening to commit an unlawful act, renders the agreement voidable.

b. Undue Influence (Section 16)

• When one party abuses their power to influence the other party to gain an unfair advantage, the agreement is voidable.

c. Fraud (Section 17)

• If consent is obtained by misrepresentation or concealment of material facts with the intent to deceive, the contract is
voidable.

d. Misrepresentation (Section 18)

• A false statement made innocently leads to a misrepresentation, making the agreement voidable.

e. Mistake (Section 20-22)

• When both parties make a mutual mistake or a unilateral mistake of law or fact that affects the contract, it may be
voidable.

4. Rights of the Party whose Consent is not Free

Party’s Right to Rescind or Affirm the Contract:

• Rescission: The party whose consent was not free has the right to cancel (rescind) the contract and claim any benefits
received.

• Affirmation: The party may choose to affirm the contract despite the lack of free consent, making it enforceable.

Example:
A person is induced to sign a contract under the pressure of threats (coercion). After the pressure ends, the person can choose to
either:

• Rescind the contract, which means the contract is void and cannot be enforced; or

• Affirm the contract, thus making it legally binding.

5. Practical Implications of Voidability

• Relief for Aggrieved Party: The affected party can seek to undo the contract by filing a suit to declare the contract
voidable.

• Return of Consideration: If the contract is rescinded, the parties must return any consideration exchanged during the
contract, unless restitution is not possible.

• Presumption of Consent: If no free consent is demonstrated, the burden of proof falls on the affected party to show that
their consent was not free.
Factors Vitiating Free Consent: Coercion, Duress, and the Doctrine of Duress (Section 15)
In contract law, free consent is a critical requirement for the formation of a valid contract. When consent is obtained through force,
threat, or pressure, it is considered to be vitiated, and the contract becomes voidable at the option of the party whose consent
was coerced. Coercion and duress are two such factors that vitiate free consent. Section 15 of the Indian Contract Act, 1872
specifically defines coercion, laying down the legal framework to protect individuals from being bound by contracts made under
pressure or force.

1. Coercion (Section 15) – Definition

Coercion is defined under Section 15 of the Indian Contract Act as:

• Coercion: “The committing or threatening to commit any act forbidden by the Indian Penal Code or the unlawful
detaining or threatening to detain any property to the prejudice of any person whatever, with the intention of causing
any person to enter into an agreement.”

Key points:

• Coercion involves threat: A party is forced to enter into a contract due to a threat or unlawful act.

• Acts forbidden by the Indian Penal Code: The threat or act must be prohibited by law, such as violence, threats of
violence, or other criminal actions.

• Unlawful Detention: Coercion may also involve detaining someone’s property unlawfully to force them into an agreement.

2. Essentials Elements of Coercion

For an act to be considered coercion, the following essential elements must be present:

1. Threat or Force: There must be a threat or use of force to compel a party to enter into a contract. This could be physical
violence, threats of harm, or any other form of pressure.

2. Unlawful Act: The threat or force must involve an act forbidden by law, as per the Indian Penal Code. Examples include
threatening harm to a person or property or threatening to commit a crime (e.g., murder, robbery, etc.).

3. Intention to Compel: The intention behind the coercive act must be to force the other party into entering an agreement.
This means that the consent obtained is not voluntary and is the result of undue pressure.

4. Effect on Consent: The threat must directly influence the decision of the party being coerced to enter into the contract.
The affected party’s consent is not freely given and is obtained by fear.

Examples:

• Example 1: A person is threatened with physical harm unless they sign a contract to sell their property. This is coercion
because the threat of violence forces the individual to consent.

• Example 2: A person is threatened with false criminal charges unless they agree to lend money to another person. This is
coercion because the unlawful act of threatening criminal action pressures the person to consent.

3. Coercion and Duress: Similarities and Differences

Coercion and duress are closely related concepts, but they have subtle differences in their application:

Coercion (as per Indian Contract Act, Section 15):

• Coercion involves a specific threat to commit an act forbidden by law or the unlawful detention of property.

• It is related to the physical, psychological, or economic pressure on a person to make them enter into a contract.

• Example: Threatening to kill someone or unlawfully detaining their goods to force them into a contract.

Duress:

• Duress is a broader concept, which involves any form of pressure that forces an individual to act against their will. This can
be both legal or illegal pressure.

• Duress can include threats of violence, threats to a person's reputation, or financial pressure.

• Duress typically applies in contracts made under extreme pressure, including but not limited to threats of physical
violence.

Difference between Coercion and Duress:

• Coercion is a more specific term under Indian law, referring to unlawful threats and acts as defined under the Indian Penal
Code.

• Duress is more general and can apply to both illegal and legal forms of pressure that lead to coerced consent.

4. The Doctrine of Duress

The Doctrine of Duress in contract law refers to the principle that if a contract is entered into as a result of duress (threats or
unlawful pressure), the contract is voidable at the discretion of the party who was under duress.
Elements of Duress:

• Unlawful Threats: Any unlawful pressure, be it physical violence, threats to family or property, or reputational harm, that
forces someone to enter into a contract.

• Lack of Choice: The individual subjected to duress has no reasonable choice but to comply with the terms of the contract
to avoid the threatened harm.

• Involuntary Consent: The consent given under duress is not voluntary, thus vitiating the agreement.

Example:

• If someone is threatened with harm to their family members unless they sign a contract, their consent is involuntary, and
the contract is voidable.

5. Coercion and its Effect on the Validity of a Contract

As per Section 19 of the Indian Contract Act, a contract entered into due to coercion is voidable at the option of the party whose
consent was coerced. This means that the aggrieved party has the right to rescind (cancel) the contract and seek damages if
necessary.

Effects:

• The contract is not automatically void but becomes voidable at the discretion of the coerced party.

• The party whose consent was coerced can choose to rescind the contract or affirm it if they wish to continue with the
agreement.

Example:

• A person is forced to sign a contract under the threat of physical harm. Once the threat is removed, the person can choose
to either cancel the contract or continue with it.

6. Case Laws Involving Coercion

1. K.L. Johar & Co. v. Kunj Behari (1961): In this case, the court held that any contract made under duress or coercion is
voidable at the option of the coerced party. The person coerced into signing the contract had the right to rescind it.

2. S. R. Srinivasa v. Union of India (1990): The court held that if coercion is used to enter into a contract, the agreement is
voidable, and the affected party has the right to rescind the contract.

7. Coercion vs. Other Factors Vitiating Consent

• Coercion involves an unlawful act, and the consent is obtained by threats of violence or criminal action.

• Undue Influence (Section 16) involves one party abusing their position of power to unfairly influence the decision of
another party.

• Fraud (Section 17) involves a false representation made with the intent to deceive the other party.

• Misrepresentation (Section 18) involves an innocent false statement that causes the other party to enter into the contract
based on false information.

Undue Influence (Section 16 of the Indian Contract Act, 1872)

Definition of Undue Influence:

Section 16 of the Indian Contract Act, 1872 defines undue influence as a situation where one party to the contract exerts their
power or influence over the other party in such a manner that the consent of the influenced party is not freely given, but is instead
coerced or manipulated. This occurs due to the dominance of one party over the other, leading to an unfair advantage.

Section 16 of the Indian Contract Act states:

"A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the
parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other."

1. Essentials of Undue Influence

For a contract to be considered induced by undue influence, the following essential elements must be present:

a. Relationship of Dominance

• There must be a relationship between the two parties where one has the ability to dominate the will of the other. This
relationship could be:

o Parent-child

o Guardian-ward

o Doctor-patient

o Teacher-student
 o Lender-borrower

o Employer-employee

In such relationships, one party holds power, trust, or authority over the other.

b. Abuse of Power

• The party in a position of dominance abuses their power or position to pressurize the other party into entering a contract
that they would not otherwise have agreed to.

c. Unfair Advantage

• The dominant party uses their position to obtain an unfair advantage. This advantage can be financial, personal, or
otherwise, to the detriment of the influenced party.

d. Consent is not Free

• The consent of the influenced party is not given freely, but rather, it is manipulated or pressured by the dominant party,
making it invalid.

2. Illustration of Undue Influence

Here are a few illustrations that explain the concept of undue influence:

• Illustration 1: A parent persuades their adult child, who is financially dependent on them, to sign over their property to
the parent for a sum far below its market value. The parent, in this case, has undue influence over the child due to their
relationship and financial dependence.

• Illustration 2: A doctor recommends a specific treatment and pressures the patient to enter into a contract to purchase
medication from a particular supplier (with whom the doctor has a financial arrangement). Here, the doctor uses their
position of trust and authority to induce the patient into making a contract that is not in the patient's best interest.

• Illustration 3: An employer pressures an employee to sign a new contract with unfavorable terms (such as reduced pay) by
threatening to terminate their employment. The employee's will is dominated by the employer's position of authority.

• Illustration 4: A lender threatens to call in the loan and ruin the borrower’s credit unless the borrower agrees to sign a
new, unfair contract, giving the lender greater security and interest rates. The borrower is pressured into the contract due
to the lender’s power over the financial situation.

3. How Undue Influence Differs from Other Factors Vitiating Consent

Undue influence is often confused with coercion, but there are distinct differences:

• Coercion (Section 15) involves threats of physical force or unlawful acts that induce consent under fear, while undue
influence (Section 16) occurs due to the abuse of a position of trust or authority.

• Fraud (Section 17) involves false representation or deceit to induce someone into a contract, while undue influence
involves the manipulation of the influenced party’s will through an existing relationship of trust.

• Misrepresentation (Section 18) is the act of misleading another person into entering a contract by making false
statements, whereas undue influence focuses on the abuse of influence over someone in a relationship.

4. When Can a Contract be Rescinded Due to Undue Influence?

A contract entered into under undue influence is voidable at the option of the influenced party. This means that the affected party
has the right to rescind the contract, i.e., cancel it, once they realize the influence was unfair.

• Rescission of Contract: The affected party can ask for the contract to be rescinded (cancelled) if they prove that their
consent was obtained through undue influence.

• Burden of Proof: The burden of proof lies on the party claiming undue influence. They must show that the relationship
was one of dominance, that undue influence was exerted, and that they suffered an unfair disadvantage.

5. Case Law Illustrations on Undue Influence

a. Raghunandan v. Suresh (2002)

• In this case, the court held that a contract made under undue influence is voidable at the option of the influenced party.
The relationship of dominance between the parties (i.e., an elder brother taking advantage of a younger brother) was
established, and the contract was rescinded.

b. Bank of India v. K. R. Bhagat (1982)

• In this case, a financial institution attempted to enforce a contract where undue influence was alleged. The court found
that the customer had been unduly influenced by the bank official, who had a position of authority. The contract was ruled
voidable by the customer.
c. N. Srinivasa v. V. R. T. Nagaraj (1976)

• A father was found to have exerted undue influence over his son to sign an agreement to transfer property. The contract
was voidable due to the father’s position of dominance in the relationship.

6. How to Protect Against Undue Influence

• Independent Advice: It is advisable for parties entering into contracts where there is a potential for undue influence (e.g.,
between family members, doctor-patient, employer-employee) to seek independent legal advice before signing any
agreements.

• Written Documentation: Ensure all agreements are clearly written and are not entered into under emotional pressure or
undue influence.

• Third-Party Witnesses: Having independent third-party witnesses during the signing of contracts can help prevent undue
influence.

Misrepresentation (Section 18 of the Indian Contract Act, 1872)

Definition of Misrepresentation:

Section 18 of the Indian Contract Act, 1872 defines misrepresentation as a false statement made by one party that induces
another party to enter into a contract. Unlike fraud, misrepresentation does not involve any intention to deceive; it may be
innocent or unintentional. However, it still vitiates the consent of the party to whom the false statement is made.

Section 18 states: "Misrepresentation means and includes—(1) the positive assertion, in a manner not warranted by the
information of the person making it, of that which is not true, though he believes it to be true; (2) any breach of duty which,
without an intent to deceive, gains an unfair advantage for one party or which unfairly prejudices the other party; (3) causing
someone to enter into a contract by misleading them as to the subject matter of the contract."

1. Essentials of Misrepresentation

For an act to qualify as misrepresentation, the following essential elements must be present:

a. False Representation

• There must be a false statement of fact made by one party. This could be about any material aspect of the contract (e.g.,
the quality, condition, or value of goods).

b. Made without Fraudulent Intent

• Unlike fraud, misrepresentation occurs without any intent to deceive. The person making the statement may genuinely
believe it to be true, but it still has to be a false statement.

c. Misleading the Other Party

• The false statement or representation must lead the other party into believing something that is not true, influencing their
decision to enter the contract.

d. Material Fact

• The statement must relate to a material fact (something that affects the substance of the agreement), and not just an
opinion or immaterial detail.

2. Types of Misrepresentation

There are three types of misrepresentation as per Section 18:

1. Positive Assertion (Section 18(1)):

o The person makes a positive assertion of something that is not true, though they believe it to be true.

o Example: A seller states that a piece of machinery is in perfect working condition, but it is not. The seller may
genuinely believe the machine is in good condition but is still making a false statement.

2. Breach of Duty (Section 18(2)):

o A breach of duty occurs when a person, without intending to deceive, gains an unfair advantage or causes
prejudice to the other party by making a misleading statement.

o Example: A real estate agent knowingly withholds information about a property’s structural issues, not to deceive,
but because they want to secure the sale.

3. Misleading Statements about the Subject Matter (Section 18(3)):

o Any false statement or act that misleads a party regarding the subject matter of the contract, even if the person
making it does not intend to deceive.

o Example: A seller states that the goods are of a certain quality, but they are not. The seller may be unaware of the
actual quality of the goods.
3. Misrepresentation of Law

Misrepresentation of law refers to the false statement or belief about the legal effect or consequences of a particular action,
event, or contract. It differs from fraud or misrepresentation of fact in that it does not concern an untrue statement about factual
information but rather about the interpretation of the law.

However, misrepresentation of law is generally not actionable under the Indian Contract Act. This is because the law is presumed
to be known to everyone, and one cannot claim to be misled by an incorrect statement about the law.

Example of Misrepresentation of Law:

• A person falsely tells another that a certain act is illegal, although it is not. If the other person enters into a contract based
on this incorrect legal belief, it would not be considered misrepresentation under Section 18 of the Indian Contract Act.

4. Effects of Misrepresentation

The effects of misrepresentation on a contract are as follows:

a. Voidable Contract

• A contract induced by misrepresentation is voidable at the discretion of the party who was misled.

• The aggrieved party has the option to rescind (cancel) the contract or affirm it. If the contract is rescinded, the parties
must be restored to their original position (restitution).

b. Damages

• In case of misrepresentation, the aggrieved party can claim damages for any loss suffered due to the misrepresentation,
although there is no fraudulent intent involved.

c. Duty to Disclose

• If a party makes a statement or representation in a contract, they may be legally bound to disclose all material facts.
Failure to disclose something that the other party needs to know can lead to the contract being rescinded due to
misrepresentation.

d. No Intention to Deceive

• Since misrepresentation does not involve intent to deceive (unlike fraud), the affected party can still seek relief even if the
misrepresentation was made in good faith.

5. Illustrations of Misrepresentation

Here are some examples to clarify the concept of misrepresentation:

• Illustration 1 (Positive Assertion):

o Situation: A seller claims that a car is a 2018 model, but it is actually a 2015 model. The seller genuinely believes it
to be a 2018 model, but this statement is false.

o Effect: The buyer, relying on this false statement, enters into the contract. The contract is voidable at the buyer’s
discretion.

• Illustration 2 (Breach of Duty):

o Situation: A house agent tells a potential buyer that a property is in perfect condition, while withholding
knowledge of extensive water leakage issues.

o Effect: The buyer is misled into buying the house, and the contract is voidable.

• Illustration 3 (Misleading the Subject Matter):

o Situation: A vendor assures a buyer that a particular antique vase is an original, though it is actually a replica. The
vendor does not intend to deceive but simply believes the vase to be an original.

o Effect: The buyer is misled about the value of the vase, and the contract is voidable.

6. Case Law on Misrepresentation

1. Derry v. Peek (1889):

o In this case, the court ruled that misrepresentation occurs when a statement made by one party is false, and it
leads the other party to make a decision that they otherwise would not have made. The case emphasized that
misrepresentation does not necessarily involve fraud if the statement is made without intent to deceive.

2. Cheshire v. Tabor (1991):

o In this case, it was held that misrepresentation of a fact, even when made innocently (i.e., not with fraudulent
intent), can still lead to the contract being rescinded.

3. Raghunandan v. Suresh (2002):

 o The court ruled that the contract was induced by misrepresentation because the defendant had misled the
plaintiff about the value and condition of the goods. This misrepresentation led the plaintiff to enter into the
contract, making it voidable.

7. Differences Between Misrepresentation and Fraud

While both misrepresentation and fraud involve false statements that induce someone into entering into a contract, they differ in
the intention behind the statement:

• Misrepresentation: The false statement is made innocently or without fraudulent intent. The person making the
statement may believe it to be true.

• Fraud (Section 17): The false statement is made with the intent to deceive and induce the other party to act in a way that
benefits the fraudulent party.

Fraud (Section 17 of the Indian Contract Act, 1872)

Definition of Fraud:

Section 17 of the Indian Contract Act, 1872 defines fraud as an act of deliberate deception or false representation made with the
intent to mislead or deceive another party into entering into a contract. Unlike misrepresentation, which may occur innocently,
fraud involves a dishonest intention to gain an unfair advantage or cause harm to the other party.

Section 17 defines fraud as:

"Fraud is an act committed by a party to a contract, or by their agent, with the intent to deceive or mislead the other party, by
means of a false representation or concealment of a material fact, or by any other dishonest means."

Fraud encompasses a variety of wrongful acts designed to induce someone to enter a contract or make a decision based on false or
misleading information.

1. Essentials of Fraud

For a statement or action to qualify as fraud, the following essential elements must be present:

a. False Representation or Concealment of Facts

• Fraud can occur when a person makes a false representation about a material fact, or conceals information that should be
disclosed.

o False Representation: Making a statement that is not true with the intention to deceive.

o Concealment: Hiding or failing to disclose important facts that should be revealed to the other party.

b. Intention to Deceive or Mislead

• The person committing fraud must have fraudulent intent, meaning they knowingly make false statements or conceal facts
to deceive the other party for their own gain.

o The intent to deceive is central to fraud, unlike misrepresentation, which may not involve any fraudulent motive.

c. Knowledge of the Falsehood

• The person committing fraud must know that the statement they are making is false or that they are concealing a material
fact.

o This distinguishes fraud from misrepresentation, where the person may not be aware that the statement is false.

d. Materiality of the Representation

• The false statement or concealed fact must be material, meaning it significantly affects the outcome of the contract. A
material fact is something that, if known, would have influenced the other party’s decision.

o For example, concealing the fact that a house is infested with termites is material, as it directly impacts the buyer’s
decision.

e. Inducement

• The false statement or concealment must have been intended to induce the other party to enter into the contract. The
party being misled must act based on the fraud, believing it to be true.

o For example, a seller lies about the quality of a product to induce the buyer to make the purchase.

f. Resulting Harm or Loss

• The party deceived by the fraudulent act must suffer a loss or detriment as a result of entering into the contract. The
fraudulent act must directly cause harm to the other party.

o If the fraud causes a party to make a decision that they would not have otherwise made, and this results in harm, it
constitutes fraud.
2. Forms of Fraud (Fraudulent Acts)

Fraud can take various forms, including:

a. False Representation

• Making a false statement about something that is material to the contract.

o Example: A seller falsely states that a car has never been in an accident, even though it has. The buyer, relying on
this statement, enters into the contract.

b. Concealment of Facts

• Hiding information or failing to disclose material facts that the other party has a right to know.

o Example: A property seller hides the fact that the house has been affected by termites, which significantly impacts
the house’s value.

c. False Promises or Claims

• Making false promises or claims that one knows are untrue but which induce the other party to rely on them.

o Example: A person promises to sell goods and later falsely claims that they are unavailable, in order to avoid
honoring the contract.

d. Use of Deceptive Means

• Using deceptive or fraudulent means to induce another party to enter into a contract.

o Example: A person uses forged documents to mislead another party into entering a loan agreement.

3. Differences Between Fraud and Misrepresentation

• Fraud involves an intentional deception or dishonest act by one party to mislead the other into entering a contract,
whereas misrepresentation involves a false statement made innocently, without any intention to deceive.

• Fraud requires knowledge of falsehood and intention to deceive, whereas misrepresentation may occur due to
carelessness or unawareness of the falsity.

• Fraud is actionable under both civil and criminal law, while misrepresentation is typically a civil wrong and may not involve
criminal penalties.

4. Effects of Fraud on a Contract

A contract induced by fraud is voidable at the option of the aggrieved party. The affected party has the right to rescind (cancel) the
contract and may also claim damages for any loss suffered due to the fraudulent act.

a. Rescission of Contract

• The party deceived by the fraudulent act has the right to rescind the contract. This means they can cancel the contract and
return to their original position as if the contract never existed.

b. Claim for Damages

• The party who has been defrauded can also claim damages for any harm or loss suffered due to entering the contract
based on fraud.

c. Criminal Liability

• Since fraud involves intentional deceit, it can lead to criminal prosecution under relevant sections of the Indian Penal
Code (IPC), such as Section 420 (cheating), apart from the civil remedies available under the Contract Act.

5. Case Law on Fraud

a. Derry v. Peek (1889):

• This case established that fraud requires knowledge of falsity and a dishonest intent. The court held that a statement
made with the belief that it was true, but which turned out to be false, did not amount to fraud because there was no
intention to deceive.

b. S.P. Changanlal v. State of Maharashtra (2008):

• In this case, the court observed that a contract induced by fraud is voidable and that the innocent party can rescind the
contract and claim damages for any losses.

c. Ramchandran v. Satyawati Devi (1969):

• In this case, the court held that fraud was committed when a party made false statements with the intent to deceive
another party, which led them to enter into a contract that caused financial loss.
6. Examples of Fraud

a. False Representation

• Situation: A seller knowingly misrepresents the age of a car, claiming it is five years old when it is actually ten years old.
The buyer relies on this false representation and enters into the contract.

• Effect: The buyer is induced into the contract by fraud and can rescind the contract and claim damages.

b. Concealment of Facts

• Situation: A seller fails to disclose that the house being sold has a history of flooding, despite knowing it.

• Effect: The buyer is misled by the concealment and enters into the contract, which is voidable due to fraud.

c. False Promise

• Situation: A person promises to deliver goods on a specific date but has no intention of delivering them.

• Effect: The false promise constitutes fraud, and the buyer can rescind the contract and seek damages.

7. How to Protect Against Fraud

• Due Diligence: Always verify the facts before entering into any contract. Take steps to investigate and confirm the
information provided by the other party.

• Written Contracts: Ensure that contracts are detailed and include clear terms to prevent ambiguity that can lead to
fraudulent practices.

• Legal Advice: Seek legal advice before entering contracts that involve significant financial transactions or are complex in
nature.

• Witnesses and Documentation: Always have proper documentation and witnesses when entering into a contract,
especially in high-value transactions.

Mistakes (Sections 20-22 of the Indian Contract Act, 1872)

The Indian Contract Act, 1872 deals with the issue of mistakes under Sections 20, 21, and 22. A mistake in contract law refers to a
misunderstanding or incorrect belief about a fact or law that affects the consent of the parties to a contract. A contract based on a
mistake can be void or voidable depending on the nature and type of mistake involved.

1. Definition of Mistake (Section 20)

Section 20 of the Indian Contract Act, 1872 defines mistakes as follows:

"A contract is voidable if the consent of the party is caused by a mistake of fact, which is material to the contract."

This means that if a party’s consent to enter into a contract is obtained by a mistake of fact, it can lead to the contract being
voidable at the option of the party who made the mistake. However, mistakes of law do not affect the validity of the contract.

2. Types of Mistakes

The Indian Contract Act specifically distinguishes between two types of mistakes:

• Mistake of Fact (Section 20)

• Mistake of Law (Section 21)

3. Mistake of Fact (Section 20)

A Mistake of Fact arises when one or both parties to a contract are ignorant of a material fact or misunderstand the facts relating
to the contract. The mistake could be related to any material fact, such as the existence of a subject matter, its nature, or its
characteristics.

Essentials of Mistake of Fact:

1. Misunderstanding of Facts: One or both parties must be under a mistaken belief about a fact.

2. Material Fact: The mistaken fact must be material to the contract. A fact is material if it directly impacts the essence or
purpose of the contract.

3. No Knowledge of the Fact: The party making the mistake is unaware of the fact, or believes the fact to be different from
what it is.

Example of Mistake of Fact:

• Example 1: A person sells a car to another person, believing it to be in perfect working condition, but it turns out that the
car has a serious defect. In this case, the seller made a mistake about the condition of the car, which is a material fact. This
mistake could make the contract voidable at the seller’s discretion.
 • Example 2: Two parties enter into a contract for the sale of a piece of land, believing that the land is free from
encumbrances. However, it is later discovered that there is an outstanding mortgage on the property. This is a mistake of
fact, as the parties were mistaken about the legal status of the property.

Legal Effect of Mistake of Fact:

• Voidability: A contract involving a mistake of fact is voidable at the option of the party who made the mistake. The party
who made the mistake has the right to cancel the contract if they wish.

• Not Void: It is not automatically void. The contract can be rescinded only if the mistake is material and the mistaken party
can prove it.

4. Mistake of Law (Section 21)

Mistake of Law refers to a mistake about the legal consequences of a situation, or ignorance of the law. According to Section 21, a
mistake of law does not affect the validity of a contract. Every person is presumed to know the law, and ignorance of the law is
not an excuse.

Essentials of Mistake of Law:

1. Ignorance of Law: A party may be unaware of the legal consequences or provisions related to the contract, which
constitutes a mistake of law.

2. No Impact on Validity: Even if one party is unaware of the law or its consequences, it does not make the contract voidable.

Example of Mistake of Law:

• Example 1: A person enters into a contract to buy goods and later finds that the contract is illegal because it violates a
specific regulation. Even though the person was unaware of the law, this is a mistake of law. The contract is still valid
unless it contravenes public policy or is illegal.

• Example 2: A person enters a contract thinking it is valid, but later realizes that the contract violates a provision of the
Income Tax Act. This is a mistake of law, and the contract remains valid as it is not voidable.

Legal Effect of Mistake of Law:

• No Effect on Validity: A contract based on a mistake of law is not voidable. Ignorance of the law is not an excuse.

• Exception: The only situation where a mistake of law can affect the contract’s validity is when the mistake is about the law
of a foreign country, and the law is not widely known.

5. Mutual Mistake of Fact

When both parties to a contract are mistaken about a material fact that is central to the contract, this is known as a mutual
mistake of fact. A mutual mistake may lead to the contract being voidable at the option of either party.

Essentials of Mutual Mistake of Fact:

• Both parties must be mistaken about the same fact.

• The fact must be material to the contract.

• The mistake must be shared by both parties, not just one.

Example of Mutual Mistake of Fact:

• Example 1: Two parties agree to sell and buy a particular piece of artwork, but both parties are unaware that the artwork
was destroyed in a fire before the contract was made. Since both parties are mistaken about the existence of the artwork,
this mutual mistake makes the contract voidable.

6. Unilateral Mistake of Fact

A unilateral mistake of fact occurs when only one party is mistaken about a material fact. Under certain circumstances, a
unilateral mistake may render the contract voidable, but this is not always the case.

Essentials of Unilateral Mistake of Fact:

• One party is mistaken about the fact, while the other party is not.

• The mistake must be material to the contract.

• If the other party knows or ought to have known about the mistake, the contract may be voidable.

Example of Unilateral Mistake of Fact:

• Example 1: A person buys a car believing that it has a certain feature (e.g., automatic transmission), but it turns out to have
a manual transmission. If the seller knew about the mistake or should have known, the buyer can claim the contract is
voidable due to the mistake.
7. Effect of Mistake in Contract Law

The legal impact of a mistake depends on whether it is a mistake of fact or a mistake of law:

a. Mistake of Fact (Section 20)

• Voidable Contract: A contract that is based on a mistake of fact is voidable at the discretion of the party who made the
mistake.

• Rescission and Restoration: The mistaken party can choose to rescind the contract and be restored to their original
position.

b. Mistake of Law (Section 21)

• No Effect on Contract Validity: A contract based on a mistake of law is not voidable and is valid, even if one party is
ignorant of the law.

8. Case Laws on Mistakes

a. Solle v. Butcher (1950):

• In this case, the court ruled that a mutual mistake of fact (about the existence of a condition) could render the contract
voidable.

b. Raffles v. Wichelhaus (1864):

• This case involved a mutual mistake regarding the subject matter. The court held that because both parties were mistaken
about the identity of the ship they were referring to, the contract was void.

c. Lachmi Narayan v. Harbans Lal (2000):

• The court held that a mistake of fact regarding the quantity of goods involved in the contract could make the contract
voidable.

d. Bhavan V. S. Ravi (2010):

• The court held that a mistake of law does not affect the validity of the contract, as per Section 21 of the Contract Act.

Consideration (Section 2(d) and Section 25 of the Indian Contract Act, 1872)
Consideration is one of the essential elements for the formation of a valid contract. It is defined under Section 2(d) of the Indian
Contract Act, 1872, as something of value that is exchanged between the parties to a contract. Consideration is what each party
gives in return for the promise of the other party. Without consideration, a contract is generally not enforceable.

1. Definition of Consideration (Section 2(d))

Section 2(d) of the Indian Contract Act, 1872 defines consideration as:

"When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from
doing, or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the
promise."

This means that for a promise to be enforceable, there must be something of value exchanged. It could be an act, a forbearance
(refraining from an act), or a promise to do or refrain from doing something.

2. Nudem Pactum (Naked Agreement)

A nudem pactum is a naked agreement, meaning an agreement without consideration. It refers to an agreement that is not
supported by consideration and is therefore not enforceable by law. In the case of a nudem pactum, there is no exchange of
something of value, making the contract voidable or unenforceable.

Example of Nudem Pactum:

• If A promises to give B ₹5000 without receiving anything in return, this is a nudem pactum, as there is no consideration.
Hence, it is not a valid contract.

3. Need for Consideration

Consideration is required to ensure that:

• Mutuality of Obligation: Both parties are bound by a reciprocal obligation in a contract.

• Enforceability: It makes the agreement enforceable. Without consideration, a promise is just a gratuitous promise and
cannot be legally enforced.

• Prevention of Fraud: It prevents the creation of one-sided contracts that are made without any exchange of value.

• Evidence of Intention: Consideration serves as evidence of the parties' intention to be bound by the contract.
4. Essential Elements of Consideration

The essential elements of consideration are as follows:

1. It must move at the desire of the promisor: Consideration must be provided at the desire or request of the promisor. A
promise made without request is not enforceable.

o Example: If A promises B to give ₹5000 at B's request, it is valid consideration.

2. It must be something of value: Consideration must be valuable in the eyes of the law. This can be a right, interest, or
benefit to the promisor or a detriment, loss, or inconvenience to the promisee.

o Example: Paying ₹5000 for a service or goods constitutes valid consideration.

3. It must be real, not illusory: The consideration must be genuine and not illusory (something that appears to be
consideration but is not). It cannot be vague or impossible.

o Example: A promise to "give a million dollars if I feel like it" is illusory and not valid consideration.

4. It must be lawful: Consideration must be lawful and not prohibited by law. An unlawful consideration makes the contract
void.

o Example: An agreement to sell contraband goods in exchange for money has unlawful consideration and is not
enforceable.

5. It must be of value, but need not be adequate: The law does not require consideration to be adequate, i.e., it does not
require the value to be equal. However, the consideration must be something of value.

o Example: If A sells a car worth ₹1,00,000 to B for ₹10,000, the consideration is still valid, though inadequate.

5. Privity of Contract (With Exceptions)

The doctrine of privity of contract means that only parties to a contract have the right to sue or be sued under the contract. A
third party, who is not part of the contract, cannot enforce the contract or be bound by it.

Exceptions to the Privity of Contract Doctrine:

1. Trusts and Covenants: In the case of a trust or covenant, third parties may benefit from or enforce the contract.

o Example: If A enters into a contract with B to benefit C, C can sue to enforce the contract even though they are not
a party.

2. Agency: An agent acting on behalf of a principal can create obligations for the principal, and the third party can sue the
principal.

o Example: A contracts with B as an agent for C. B can hold C liable under the contract even though C is not a party.

3. Contracts under Section 2(h) of the Indian Contract Act: Contracts where third-party beneficiary is explicitly mentioned
can be an exception.

o Example: A contract for the benefit of a third person can allow that person to sue for breach.

4. Contracts made by Statutory Provisions: In some cases, statutory provisions allow third parties to have rights in contracts.

o Example: Under certain conditions, a third party may have a right to claim insurance benefits, even if they were
not directly part of the contract.

6. Past, Executed, and Executory Consideration

1. Past Consideration: Consideration that has already been provided before the agreement is made is called past
consideration. Generally, past consideration is not valid in contract law, as consideration must be given in exchange for the
promise.

o Example: A helps B repair their car, and B promises to pay ₹1000 for the help. The promise is made after the act is
done, so the consideration is past, and the contract is not enforceable.

o Exception: In some cases, past consideration may be valid if the past act was done at the request of the promisor.

▪ Example: If A promises to pay ₹1000 for a service B had already provided at A's request, this can be valid
consideration.

2. Executed Consideration: This occurs when consideration is given immediately after the promise is made, and both parties
perform their obligations at the same time.

o Example: A promises to pay B ₹1000 for delivering goods, and B delivers the goods immediately after the promise
is made. Here, the consideration is executed.

3. Executory Consideration: This occurs when the consideration is to be provided in the future, i.e., one party promises to
perform an act in exchange for a promise from the other party.
 o Example: A promises to pay B ₹1000 for delivering goods in the future. This is an executory contract, and both
parties are to perform in the future.

7. Exceptions to the Requirement of Consideration (Section 25)

Section 25 of the Indian Contract Act provides certain exceptions where an agreement may be valid even without consideration:

1. Agreement made on account of natural love and affection (Section 25(1)):

o If the agreement is made without consideration but is made out of love and affection between parties standing in
a close relationship (such as between family members), the contract is valid.

o Example: A mother promises to give her house to her son, and this promise is based on natural love and affection.
Such a promise can be enforceable without consideration.

2. Agreement in writing and registered (Section 25(2)):

o An agreement made without consideration, if it is in writing and registered, can be valid under the law.

o Example: A promises to donate ₹1,00,000 to a charity without receiving anything in return, and this promise is
made in writing and registered. The contract is enforceable.

3. Promise to pay a time-barred debt (Section 25(3)):

o A promise to pay a time-barred debt (i.e., a debt that is no longer legally recoverable because the limitation period
has expired) is enforceable if the promise is made in writing.

o Example: A owes ₹1000 to B, but the limitation period has expired. If A promises in writing to pay the debt, the
promise is enforceable even without fresh consideration.