Business Law

What Is Free Consent Of Parties Under Business Law

Free Consent – An essential element of a valid contract is that the agreement is arrived at with the consent of the parties thereto. It is essential that the parties agree upon the same thing in the same sense at the same time and that such agreement is free and voluntary.

According to Section 13 of the Act, “Two or more persons are said to consent when they agree upon the same thing in the same sense.”

Free Consent If it is not caused by

  1. Coercion as defined in Section 15.
  2. Undue influence as defined in Section 16.
  3. Fraud as defined in Section 17.
  4. Misrepresentation as defined in Section 18.
  5. Mistake, subject to the provision of Sections 20, 21 and 22

1. Coercion

Coercion means using force to compel a person to enter into a contract. So force or threats are used to obtain the consent of the party under coercion, i.e it is not free consent. Section 15 of the Act describes coercion as

  • committing or threatening to commit any act forbidden by the law in the IPC
  • unlawfully detaining or threatening to detain any property with the intention of causing any person to enter into a contract

For example, A threatens to hurt B if he does not sell his house to A for 5 lakh rupees. Here even if B sells the house to A, it will not be a valid contract since B’s consent was obtained by coercion.

Now the effect of coercion is that it makes the contract voidable. This means the contract is voidable at the option of the party whose consent was not free. So the aggravated party will decide whether to perform the contract or to void the contract. So in the above example, if B still wishes, the contract can go ahead.

Also, if any monies have been paid or goods delivered under coercion must be repaid or returned once the contract is void. And the burden of proof proving coercion will be on the party who wants to avoid the contract. So the aggravated party will have to prove the coercion, i.e. prove that his consent was not freely given.

2. Undue Influence

Section 16 of the Act contains the definition of undue influence. It states that when the relations between the two parties are such that one party is in a position to dominate the other party, and uses such influence to obtain an unfair advantage of the other party it will be undue influence.

The section also further describes how the person can abuse his authority in the following two ways,

  • When a person holds real or even apparent authority over the other person. Or if he is in a fiduciary relationship with the other person
  • He makes a contract with a person whose mental capacity is affected by age, illness or distress. The unsoundness of mind can be temporary or permanent

Say for example A sold his gold watch for only Rs 500/- to his teacher B after his teacher promised him good grades. Here the consent of A (adult) is not freely given, he was under the influence of his teacher.

Now undue influence to be evident the dominant party must have the objective to take advantage of the other party. If influence is wielded to benefit the other party it will not be undue influence. But if consent is not free due to undue influence, the contract becomes voidable at the option of the aggravated party. And the burden of proof will be on the dominant party to prove the absence of influence.

3. Fraud

Fraud means deceit by one of the parties, i.e. when one of the parties deliberately makes false statements. So the misrepresentation is done with full knowledge that it is not true, or recklessly without checking for the trueness, this is said to be fraudulent. It absolutely impairs free consent.

So according to Section 17,  a fraud is when a party convinces another to enter into an agreement by making statements that are

  • suggesting a fact that is not true, and he does not believe it to be true
  • active concealment of facts
  • a promise made without any intention of performing it
  • any other such act fitted to deceive

Let us take a look at an example. A bought a horse from B. B claims the horse can be used on the farm. Turns out the horse is lame and A cannot use him on his farm. Here B knowingly deceived A and this will amount to fraud.

One factor to consider is that the aggravated party should suffer from some actual loss due to the fraud. There is no fraud without damages. Also, the false statement must be a fact, not an opinion. In the above example if B had said his horse is better than C’s this would be an opinion, not a fact. And it would not amount to fraud.

4. Misrepresentation

Misrepresentation is also when a party makes a representation which is false, inaccurate, incorrect etc. The difference here is the misrepresentation is innocent, i.e. not intentional. The party making the statement believes it to be true. Misrepresentation can be of three types

  • A person makes a positive assertion believing it to be true
  • Any breach of duty gives the person committing it an advantage by misleading another. But the breach of duty is without any intent to deceive
  • when one party causes the other party to make a mistake as to the subject matter of the contract. But this is done innocently and not intentionally.

5. Mistake

The Indian Contract Act does not define a mistake, but it may be defined as an erroneous belief about something. It may be a mistake of law or a mistake of fact.

A contract is valid only when the parties to it are agreed about something in the same spirit. If the concept of the parties about an issue is not the same, or their views are divergent, the parties are not deemed to be in agreement. Such a situation is what is called a mistake.

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