CONTRACT LAW – I
UNIT - II
Tanmay J. Patil
Assistant Professor of Law
KLE Society’s Law College, Bengaluru
© Contract Law – I, Unit – II, Tanmay J. Patil, Assistant Professor of Law, KLESLCB
• Capacity to Contract:
• Minor ’s agreements and its ef fects
• Agreement of Persons of unsound mind
• Agreements of Persons disqualif ied by Law
• Consent:
Syllabus • Free Consent
• Coercion
• Undue Inf luence
• Misrepresentation
• Fraud
• Mistake
Capacity to Contract
• S. 10 requires that the parties shall be competent to
contract.
• S. 11. Who are competent to contract?
• Every person is competent to contract who is of
• the age of majority according to the law to which he is subject
• who is of sound mind
• is not disqualif ied from contracting by any law to which he is subject
• According to Indian Majority Act,
1875 -
Age of • a person attains majority on completion of
18 years of his age
Majority • when a guardian of a minor person or
property has been appointed by the court,
he attains majority on completion of 21
years of age
• S. 10 mandates that the agreement
shall be between parties competent
to contract
Nature of • S. 11 indicates that the minor is
Minor’s incapable of entering into contract.
• But neither section provides as to
Agreement the effect of agreement entered
into by a minor.
• This led to a controversy
Mohoribibi v. Dharmadas Ghose
• d t . a m i n o r m o r t g a g e d h is p r o p e r t i e s i n f avo u r o f p t ., a m o n e y l e n d e r t o se cu r e
t h e l o a n o f R s. 2 0 , 00 0 / - , a f t e r s o m e m o n e y wa s a d va n c e d p t . c a m e t o kn o w
a b o u t i n f a n cy o f t h e d t . He f i l e d a su i t t o r e p u d i a t e t h e co n t ra c t a n d r e cove r t h e
m o n e y a d va n c ed
• H E L D : M i n o r n o t l i a b l e b e c a u se M i n o r ’s a g r e e m en t i s vo i d a b i n i t i o
• Re a s o n s -
• t he q ue sti on w he t he r a c o n tra c t i s voi d o r voi da bl e p re sup p o se s t he e xi ste n c e of a
c o n t ra ct wi t hin the me a ni n g o f t he A ct, a nd ca n n ot a ri se i n the ca se o f a n i n fa nt
( m i n o r) .
• G e n e ra l p r e s u m p ti o n tha t e ve r y m a n i s th e be st j udg e of hi s ow n i nte re st s i s s u s p e n d e d
i n t h e c a s e o f m i n o r.
• Ru l i n g i s g e n e ra l l y fo l l o w e d i n In d i a a n d a p p l i e d b o t h t o t h e a d va n t a g e a n d
d i s a d va n t a g e o f m i n o r.
• Mir Sarwanjan v. Fakhruddin Mohd. Choudhury -
• A co ntra ct t o p u r ch a se ce r tain imm ova ble p r ope r ty by a
g u ar dian on b eh alf of min o r – mi no r s u ed f or s pe cif ic
p e r f o rm an ce .
• H e l d : Sp e ci f ic p e r f o r man ce Re j e cte d
• I t wa s not wi thi n the co mp ete n ce of the mino r or his
m an ag er t o bi nd the mino r in co ntra ct f or pu r ch a se of
imm ova ble p r ope r ty ; a s th e min or wa s n ot b oun d by
Case Laws co ntra ct the re wa s no
co u l d n o t o b ta i n SP”
m utuality a nd con s eq ue ntly min or
• Subramanyam v. Subbarao
• C o n tra ct b y m o th e r o f m i n o r o n h i s b e h a l f f o r the
p u r p o s e o f d i s ch a r g e o f f a th e r ’s d e b ts .
• H ELD : Ove rruli ng ea rlier d e ci sion s a nd r ule d th at it i s
wi thi n th e p ow e r of t he min o r t o co ntract fo r de bts of his
f a th e r.
• C o ur ts s ta r te d n oti cin g the ne ce s sity t o rel a x the
a p p l ication o f r u l e i n t h e b e s t i n te r es t o f m i n o r o n l y.
Effects of Minors Agreement
1. No estoppel against minor
2. No liability for tort based in contract
3. Doctrine of equitable restitution
4. Liability to restore benefits
5. Beneficial contracts are enforceable by minor
6. No Ratif ication
7. Liability for Necessaries
1. No estoppel against minor
• When a minor by misrepresenting his age induces another to
contract with him no estoppel is available against him.
• Policy of law is to protect minor from contractual liability.
• Doctrine of estoppel cannot be applied to defeat the policy.
• An infant is not estopped from setting up the defense of minority.
2. No liability for tort based in contract
• Minor ’s agreement is devoid of all consequences in law
• A contract cannot be converted into a tort to sue an infant.
• Minor is not liable for tort connected with contract
• But he is not absolved from liability for independent tort.
3. Doctrine of equitable restitution
• When an infant obtained property or goods by misrepresenting his age, he can be compelled
t o r e s t o r e i t , b u t o n l y s o l o n g a s t h e s a m e i s t ra c e a b l e i n h i s p o s s e s s i o n .
• If the minor has resold those goods he cannot be made to repay the value of goods and it is
not applicable when the minor has received money instead of goods.
• L e s l i e v. S h e i l l - d t . A m i n o r m i s r e p r e s e n t i n g h i s a g e o b t a i n e d l o a n f r o m t h e p t ., w h o s u e d t o
r e c ov e r o n t h e grounds-
• Minor is liable for damages for fraud
• Minor shall be compelled in equity to restore the money.
• HELD: Lord Sumner – “When an infant obtained an advantage by falsely stating his age, equity requires him to
restore ill-gotten gains but scrupulously short of enforcing a contractual obligation entered in to while he was an
infant even by means of fraud. The money was paid over in order to be used as dt’s own and he has so used it.
There is no question of tracing it, no possibility of restoring the very same thing got by fraud. Compulsion to
repay an equivalent sum out of his present and future resources would amount to enforcing a void contract.”
4. Liability to restore benefits
• W h e r e a m i no r se e k s t h e h e l p o f c o ur t f o r t h e c a n c e l l a t i o n o f h i s c o n t ra c t , t h e
c o u r t m a y g ra n t t h e r e l ie f su b j e c t t o t h e c o n d i t i o n t h a t h e s h a l l r e st o r e a l l
b e n e f i t s o b t a i n e d b y h i m u n d e r t h e c o n t ra ct o r m a ke su i t a b l e co m p e n sa t i o n t o t h e
o t h e r p a r t y.
• K h a n g u l v. L a k h a s i ng h –
• dt. fraudulently concealing his age agreed to sell a plot of land, received Rs. 17,500/-, refused to
perform his promise – pt sued for possession or refund of consideration
• HELD: agreement was void - no possession – payment of consideration ordered
• R E A S O N S : S h a d i l a l C J ., “ T h e r e i s n o r e a l d i f f e r e n c e b e t w e e n r e s t o r i n g t h e p r o p e r t y a n d r e f u n d i n g
money except that property can be identified but cash cannot be traced. It must be remembered
that while in India all contracts made by infants are void, there is no such general rule in England.
Therefore, there should be a greater scope in India than in England for the application of the
d o c t r i n e o f e q u i t a b l e r e s t i t u t i o n .”
• Later courts deviated from the rule and preferred L o r d S u m n e r ’s o p i n i o n .
5. Beneficial contracts are enforceable by minor
• Law l a i d d ow n i n Mo har i b i b i h as been genera l ly fo l l owe d a n d gr ow in g l y
l i m i ted to ca ses w here m i n or is ch ar ge d w it h o b l i ga t i o ns a n d t he o ther
co n tra cti n g p a r t y s e ek s t o e n fo r ce t h o s e o bl i ga ti o n s a ga i n s t th e mi n o r.
• T he pr in ci p l e “ m i n or ’s ag reemen t is vo i d” mea ns law w i l l n o t en for ce a ny
co n t ra ct u a l o b l i g a t i on of a m i n or, i .e ., a m i no r is a l l owed t o e nfor ce a n
a greeme nt wh i ch i s o f s ome be ne f i t to h i m a n d un de r w h i ch he i s requ ired to
bear no obligation.
• E g . Mor tg a ge executed i n f avo ur o f m i n or, m i no r ’s s u it fo r re cover y of
p o ssess i o n of pr o per ty on s a le , en fo r ceme nt of pro m ise by t he o t her af ter
m i n o r p e r fo rm s h i s p r o m i s e .
6. No Ratification
• A person cannot on attaining majority ratify an agreement made
by him during his minority. Ratification relates back to the date of
making the contract and therefore a contract which was then void
cannot be made valid by subsequent ratif ication .
• Eg. Executing promissory note on attaining majority. – fresh
consideration may make it valid – no recovery of amount paid
under such agreement.
7. Liability for Necessaries
• S 6 8 . Cl a i m f o r n e ce s s a r i e s su p p l i e d t o p e r so n i n c a p a b l e o f c o n t ra c t i n g , o r o n h i s
a c c o u nt .
• If a person, incapable of entering into a contract, or
• any one whom he is legally bound to support,
• i s s u p p l i e d b y a n o t h e r, p e r s o n
• with necessaries suited to his condition in life,
• the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable
person.
• I l l u s t ra t i o n s -
• A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from
B ' s p r o p e r t y.
• A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life. A is
e n t i t l e d t o b e r e i m b u r s e d f r o m B ' s p r o p e r t y.
• English Law
• A person of unsound mind is competent to
contract but he can avoid it by satisfying the
court that –
• h e wa s i n ca p a ble o f u n d e r s ta ndin g th e co n tra ct a n d
Persons of • th e o th e r p a r ty k n e w i t
• Contract is voidable at his option and
Unsound becomes binding if he aff irms it.
• Position of the drunken person is the same.
Mind • Campbell v. Hooper –
• M or tg ag ee s ou g ht a d e cr ee fo r re paym en t of d ebt –
e vide n ce showe d mo r t ga go r wa s l unati c w hen
co n tra cted – m o r tg a gee wa s u n a wa r e o f i t
• H ELD : “m er e f a ct of l u nacy ca nn ot ma ke a co ntract
invalid . If the othe r pa r ty ha d kn owle dg e of it, it
b e co m e s vo i d a ble a t th e o p ti o n o f th e l u n a tic .”
• Indian Law
• Agreement of a person of unsound mind, like
that of a minor, is absolutely void
• S. 12 What is a sound mind for the purposes of
contracting .-
Persons of • A person is said to be of sound mind for the
purpose of making a contract if, at the time
Unsound when he makes it, he can understand it and of
forming a rational judgment as to its effect
upon his interests.
Mind • A person who is usually of unsound mind, but
occasionally of sound mind, may make a
contract when he is of sound mind.
• A person who is usually of sound mind, but
occasionally of unsound mind, may not make a
contract when he is of unsound mind.
ILLUSTRATIONS
• A patient in a lunatic asylum, who is at
intervals of sound mind, may contract
Persons of during those intervals.
• A sane man, who is delirious from
Unsound fever or who is so drunk that he cannot
understand the terms of a contract or
Mind form a rational judgment as to its
effect on his interests, cannot contract
whilst such delirium or drunkenness
lasts.
1 . Al i e n e ne my : A p e r so n wh o i s n o t a n In d i a n c i t i ze n i s
called an alien. An alien e n e my is a p e r so n w ho se
c o u n t r y i s a t wa r w i t h In d i a . In In d i a , a c o n t ra c t w i t h a n
a l i e n e ne my i s vo i d b u t a c o n t ra c t w i t h a n a l i e n f r i e nd i s
Persons va l i d u n d e r t h e In d i a n Co n t ra c t Ac t . N o c o n t ra c t c a n b e
m a d e w i t h a n a l i e n en e my d u r i n g t h e sub s i st e n ce o f wa r,
Disqualified
e xc e p t with the prior a p p r ova l of the In d i a n
G o ve r n m e nt .
by Law 2 . C o nvi c t s : A co nvi c t i s a p e r s o n , wh o i s se n te n ce d b y a
c o m p e t e n t c o u r t t o t h e d ea t h se n t en c e o r i m p r i so n m e n t .
A c o nvi c t e d p e r so n c a n n o t e n t e r in t o a c o n t ra c t wh i l e
u n d e r g o i n g se n te n c e . W h en t h e p e r i o d o f h i s se n te nc e i s
o ve r o r h e i s p a r d o n e d , t h e n h i s i n c o m p e t en c y i s a l s o
o ve r.
3. Insolvent: There is no prohibition against a contract by an
insolvent after the insolvency proceedings have commenced but
before adjudication. In simple words, the insolvent is
disqualified from entering into a contract until he is discharged
b y t h e c o u r t o f l a w.
3. For example, A executed a sale-deed, but before he could get it registered of the
Persons
deed took place during the pendency of the insolvency proceedings. Under these
circumstances, the sale-deed valid and binding on the parties.
4. Foreign sovereigns and diplomats: Foreign sovereigns have
Disqualified s o m e s p e c i a l p r i v i l e g e s . G e n e r a l l y, t h e y c a n n o t b e s u e d u n l e s s
t h e y, t h e m s e l v e s s u r r e n d e r u n d e r t h e j u r i s d i c t i o n o f t h e I n d i a n
by Law c o u r t o f l a w. T h e y c a n n o t e n t e r i n t o a c o n t r a c t u n l e s s a n I n d i a n
citizen obtained a prior sanction of the Government of India, in
o r d e r t o s u e t h e m i n t h e I n d i a n c o u r t o f l a w.
5. Corporations : The power of a corporation to make a contract
vary according to the character of the corporation. A company is
an artificial person created by law and is competent to contract.
But its power of contract is subject to the limitation which may
be either necessary or express.
CONSENT Sec. 13 - 22
• Sec 13: "Consent" def ined.-Two or more
persons are said to consent when they agree
upon the same thing in the same sense
(Consensus ad idem)
• Sec. 14: "Free consent" def ined .-Consent is
said to be free when it is not caused by-
Free • co e r ci o n, a s d e f i n ed in s e cti o n 1 5 , o r
• u n d u e i n f lue nce , a s d e f i ned i n s e cti o n 1 6 , o r
Consent •
•
f ra u d , a s d e f in ed i n s e cti o n 1 7 , o r
m i s r e p res e ntatio n, a s d e f in ed i n s e cti o n 1 8 , o r
• mi stake , s ubje ct t o th e p rovi sion s of s e ctio n s 2 0, 21
and 22.
• Consent is said to be so caused when it would
not have been given but for the existence of
such coercion, undue inf luence, fraud,
misrepresentation
Effect of without free consent
• S e c . 1 9 : Vo i d a b i l i t y o f a g r e e m e n t s w i t h o u t f r e e c o n s e n t . -
• When consent to an agreement is caused by coercion, fraud or misrepresentation, the
agreement is a contract voidable at the option of the party whose consent was so caused.
• A party to a contract whose consent was caused by f r a u d o r m i s r e p r e s e n t a t i o n , m a y, i f h e
thinks fit, insist that
• the contract shall be performed, and that
• he shall be put in the position in which he would have been if the representations made had been true.
• Exception.-If such consent was caused by misrepresentation or by silence, fraudulent within
the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose
consent was so caused had the means of discovering the truth with ordinary diligence.
• Explanation.-A fraud or misrepresentation which did not cause the consent to a contract of the
party on whom such fraud was practised, or to whom such misrepresentation was made, does
not render a contract voidable.
• A, intending to deceive B, falsely represents that five hundred
maunds of indigo are made annually a t A ' s f a c t o r y, a n d t h e r e b y
induces B to buy the f a c t o r y. T h e c o n t r a c t i s v o i d a b l e a t t h e
option of B.
• A, by a misrepresentation, leads B erroneously to believe that,
five hundred maunds of indigo are m a d e a n n u a l l y a t A ' s f a c t o r y.
B examines the a c c o u n t s o f t h e f a c t o r y, w h i c h s h o w t h a t o n l y
four hundred maunds of indigo have been made. After this B
b u y s t h e f a c t o r y. T h e c o n t r a c t i s n o t v o i d a b l e o n a c c o u n t o f A ' s
misrepresentation.
Illustrations
• A fraudulently informs B that A's estate is free from
encumbrance. B thereupon buys the estate. The estate is
subject to a mortgage. B may either avoid the contract, or may
insist on its being carried out and the mortgage debt
redeemed.
• B, having discovered a vein of ore on the estate of A, adopts
means to conceal, and does conceal, the existence of the ore
from A. Through A's ignorance B is enabled to buy the estate at
an under-value. The contract is voidable at the option of A.
• A is entitled to succeed to an estate at the death of B; B dies:
C, having received intelligence of B's death, prevents the
intelligence reaching A and thus induces A to sell him his
interest in the estate. The sale is voidable at the option of A.
• Sec 15: "Coercion" def ined.-"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
•
proper ty, to the prejudice of any person whatever,
with the in t ention of causing any person to enter into an
Coercion
agreement .
• Explanation.-It is immaterial whether the IPC is
or is not in force in the place where the coercion
is employed.
Illustration and Case Laws
• I l l u s t ra ti o n :
• A, o n bo ar d an E n glis h s hip o n the hi gh s e a s , c a u s e s B t o e n te r i nto an a g ree me nt b y an
a ct amo u nting t o crimin al i ntimid atio n u n de r t he IPC . A a f ter wa rd s s u e s B fo r b r ea ch of
co ntra ct at Cal cutta . A ha s e mpl oye d co er ci on, althou g h hi s a ct is n o t a n of fen ce b y the
law of E n gland , a nd alth oug h se ctio n 50 6 of the IPC wa s not i n for ce a t the ti me w he n o r
p l a ce w h e r e th e a ct wa s d o n e .
• C h i k h a m Am i raju v. C h i k h a m S e sh a m ma :
• A Hin du i nd uce s hi s so n s a n d wife to exe cute a d eed of rele a se in fa vo ur of hi s b ro ther
u n d e r th e th r e a t o f s u i ci d e . H eld : vo i d a ble
• A st l e y v. Re y nol ds :
• Pt. pled ge d p r ope r ty with d t. f or $ 20 . o n r ed eemi ng the s am e d t. claime d a dditi on al
i n te r es t o f $ 1 0 . Pt . p a i d & r e d e e m ed . B u t l a te r s u e d f o r $ 1 0 . H e l d : Pt . w i l l s u cce e d .
• 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
• He uses that position to obtain an unfair advantage over the other.
In particular and without prejudice to the generality of the foregoing
Undue-
•
principle, a person is deemed to be in a position to dominate the will
of another-
where he holds a real or apparent authority over the other or where he stands in
Influence
•
a fiduciary relation to the other; or
• where he makes a contract with a person whose mental capacity is temporarily
or permanently affected by reason of age, illness, or mental or bodily
• Where a person who is in a position to d o m i n a t e t h e w i l l o f a n o t h e r, Sec. 16
• enters into a contract with him, and
• the transaction appears, on the face of it or on the evidence adduced,
• to be unconscionable,
• the burden of proving that such contract was not induced by undue influence shall lie
upon the person in a position to dominate the will of the other
Illustrations
• A h av i n g a dva n ced m oney t o h i s s on , B, d uri ng h is m i n or it y, u po n B' s com i n g of
a ge o bt a i ns, b y m is u se o f pare nt a l in f l ue n ce , a b o n d fro m B for a greater am o u n t
t h a n t h e s u m d u e i n r e s pect o f t h e a d va n ce . A e m p l oy s u n d u e i n f l u e n ce .
• A , a m a n en feeb led by d ise a se or a ge, is i n d u ced, by B's i nf lue n ce over hi m as h is
me d i ca l a tten d a n t , t o ag re e to p ay B a n u nrea s o na b le s um for h is pr ofes s io n a l
s e r v i ces . B e m p l oy s u n d u e i n f l u e n ce .
• A , be i n g i n de b t t o B, the m o ney -len der o f h is v i l la ge , co nt ra cts a fresh l o an o n
terms w h i ch a ppe ar t o be u n co n s cio n a b le . It l ies o n B t o pr ove t ha t the co ntra ct
wa s n o t i n du ce d b y u n d u e i n f l u e n ce .
• A a p p l ie s to a ba n ker for a lo a n at a t i me w hen there is s tr i n gen cy i n t he m one y
m ar ket . T he b a nker de cli n es t o m ake t he l oa n exce pt a t a n u n u s u a l ly h i g h rate of
i n terest . A acce p ts t he lo a n o n t hese terms . T h is is a tra n sact i o n in t he o rd i n ar y
co u r s e o f b u s i n e s s, a n d t h e co n t ra ct i s n o t i n d u c e d b y u n d u e i n f l u e n ce .
Relations involving domination – Presumption
• Ever y case where there is a trust and conf id ence between p ar ti es or the
par ties are not on eq ual footi ng – i nf l uence acq ui red and ab used –
conf idence reposed and betrayed .
• Presumption is rebuttable (without prejudice to the foregoing provisions)
• “Real or ap parent authori ty ” - A p erson i n authori ty m ay exer t i nf l uence
on other over whom he has au thori ty. Eg . I T O ff i cer, Police of f i cer,
Magistrate, etc.
• “f id uci ar y r el ati on” - Rel ati on i nvolvi ng trust and conf iden ce, i nnum erabl e
instances, doctor-p ati ent, solicitor-cl ient, guru- devotee, etc.,
Nature of Presumption
• In s o me cases o n s h ow in g t ha t o ne was i n a p osi t i o n t o d om i n ate t he w i l l of
t he o t her h is use of t he s a me t o t he d i sa dva n ta ge of the o t her is presu med .
Bu t d t . m ay s h o w t h a t t h e p t . co n s e n t ed f r eel y.
• E g . Marr ied w ome n of f ul l a ge g uaran teei n g t he re payme n t o f l o a n o bt ai n e d
by her mother
• H e l d : t h o u g h s h e w a s u n d e r t h e i n f l u e n c e o f h e r m o t h e r, f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e
shall g u i d e a n d n o t g e n e ra l p r e s u m p t i o n .
• A p ard a l a dy of 70 years w i t h 3 d a ug h ters g i f ted t he pro per ty t o h is ten a nt
w h o wa s i n p o s s e ssi o n o f i t .
• Held: by the possession of the land he may have d o m i n a t e d t h e w i l l o f t h e l a d y, i t i s f o r h i m
to show her free consent.
Instances of Presumption
• 1 . U n co n s ci o n a b l e b a r g a i n s
• Where o ne of t he p ar t ies to t he co n tra ct is i n a po s i t io n t o do m i n ate t he w i l l
o f t he ot he r a n d t he con t ra ct ap pe ars t o be u n co n s ci o n ab le i . e ., u nf a ir, law
presu mes t ha t co n sen t mu st h ave been o bta i ned by u n due i n f l ue n ce . Bu rden
t he n s h i f ts on t he dt . t o p r ove t ha t no u n fa ir a dva n t a ge wa s o b t a i ned ove r the
pt.
• Wa j i d k h a n v. Ra j a E wa z Al i k h a n
• A n o l d i l l i t e ra t e w o m a n i n c a p a b l e o f a n y b u s i n e s s confers on her managing agent with out any
c o n s i d e ra t i o n a va l u a b l e p e c u n i a r y b e n e f i t . H e l d : v o i d a b l e
• Eg. Mo ney l e nd i n g , s u it s in co ur ts , p over ty and d is tress , you t h an d
s p e n d t h ri f t,
• Be t w een e q u a l l y p l a ce d n o u n co n s ci o n a b l e .
Instances of Presumption
• 2. Unconscionable gifts
• E g ., a p e r s o n s u f f e r i n g f r o m n u m b e r o f a i l m e n t s c o n f i n e d t o n u r s i n g h o m e f o r l o n g e x e c u t e s
gift deed of whole of his property in favor of one son to the exclusion of other sons
• An old, illiterate lady gifted all her rent-producing property to her nephew who assisted her
always. Held: unconscionable
• 3. Inequality of bargaining power
• Presumption may also arise on the fact of inequality of bargaining power between parties
c a u s i n g d u r e s s o n t h e o t h e r.
• Ly o d s B a n k v. B u n d y
• A contractor obtained loan from bank. Not paid in time – bank presses for payment/security – contractor
said his father might mortgage his only residential house – which was done by father by banker taking
signature on the readymade papers. Contractor defaulted. Bank moved against father
• Held: bank exploited the vulnerability of his father caused by his desire to help his son.
Instances of Presumption
• 4. Exploitation of the needy
• W h e n t h e c o n se n t o f t h e p a r t y i s o b t a i n e d a s a r e su l t o f e x p l o i t a t i o n u nd u e
i n f l u e nc e i s p r e s u m e d
• A S M u s i c Pu b l i s h i n g C o . v. M a c a u l a y
• Yo u n g s o n g w r i t e r c o n t r a c t e d t o w r i t e s o n g s f o r 5 y r s and to renew the same for another 5 yrs at
the option of the music co. co. can terminate at anytime by a word of mouth. Boy wanted liberation
• Held: voidable
• 5 . C o n t ra c t s w i t h p a ra d a n a s h i n w o m a n
• A c o n t ra c t w it h p a r d a n a sh i n w o m a n h as b ee n p r e su m e d t o h ave b ee n i n d u ced b y
u n d u e i n f l uen c e . S h e c a n a vo i d c o n t ra c t u n l e s s o t h er p a r t y sh o ws t h a t i t wa s h e r
i n t e l l i g e nt a n d vo l u n t a r y a c t .
• Pa r d a n a s h i n w o m a n i s w h o i s t o t a l l y s e c l u d e d f r o m s o c i a l i n t e r c o u r s e .
• “Fra u d” mea n s a n d i n cl u de s a ny of t he fo l l owi n g a cts
co m m i tted b y a p ar ty t o a co nt ra ct , or w i t h h is
co n n i va n ce , or b y h is a ge nt , w i th i n ten t t o de ceive
a n o t her par ty t hereto or h i s a gen t , o r t o i n d u ce h i m , to
e n t er i n t o t h e co n t ra ct -
• the suggestion, as a fact, of that which is not true by one who does not believe it to be
true
•
the active concealment of a fact by one having knowledge or belief of the fact
a promise made without any intention of performing it
Fraud
Sec. 17
• any other act fitted to deceive
• any such act or omission as the law specially declares to be fraudulent.
• Ex p l a n at i o n :-- Mere s i len ce a s t o f act s l i kel y t o a f fe ct the
w i l l i n g ness o f a pers on t o e nter in t o a co ntra ct is n ot
f ra u d , u n less t he c ir c u ms t an ce s of the ca se are s u ch t h at ,
regar d be i ng h a d to the m, i t i s the d ut y o f the person
kee p in g s i len ce t o s pea k, or u n less hi s s i len ce is, i n i tse lf,
e q u i va l en t t o s p eech .
Illustrations
• A sells, by auction, to B, a horse which A knows to be unsound . A
says nothing to B about the horse's unsoundness. This is not fraud in
A.
• B is A's daughter and has just come of age. Here, the relation
between the par ties would make it A's duty to tell B if the horse is
unsound .
• B says to A-"If you do not deny it, I shall assume that the horse is
sound." A says nothing . Here, A's silence is equivalent to speech .
• A and B, being traders, enter upon a contract. A has private
information of a change in prices which would affect B's willingness
to proceed with the contract. A is not bound to inform B.
Essentials
• I . A s s e r t i o n o f f a c t w i t h o u t b e l i e f i n i t s t r u t h f u l n es s
• D e r r y v. P e e k
• Prospectus of a co. represented that it had been authorized by a special Act of parliament to run
trams by steam or mechanical power – it was in fact subject to approval of board of trade, no
mention was made of this – board refused consent and co. wound up – pt. purchaser of shares sued
the directors for fraud.
• HELD: No fraud, Directors honestly believed that once parliament had authorized the use of steam,
the consent of the board was practically concluded. It therefore follows that the person making
false representation is not guilty of fraud if he honestly believes in its truthfulness.
• Fa l s e r e p r e s e n t a t i o n –
• Made knowingly or
• Without belief in truth or
• Recklessly careless about its truthfulness amounts to fraud
Essentials
• II. Active Concealment
• Active concealment and silence
• Active concealment of material fact is fraud
• Eg. A husband persuades his wife to sign f ew docum e nts tel ling her that he
would mor tgage her two lands while it was mor tgage of 4 lands in reality.
• Non-disclosure of sudden change in price by a trader.
Silence as Fraud
• 1. Duty to speak: Silence amounts to fraud when person keeping silence is under a duty to
speak When one of the party does not have means of discovering truth and depends on other
party
• 2. Deceptive Silence: A person keeping silent knowing that his silence will be deceptive, is no
l e s s g u i l t y o f f ra u d
• Eg., Buyer knowing value of the property, when keeps information without disclosing to the seller. He may avoid
contract
• 3 . C h a n g e o f C i r c u m s t a n c e s : Tr u e r e p r e s e n t a t i o n m a d e a t t h e t i m e o f n e g o t i a t i o n i f a f f e c t e d b y
c h a n g e o f c i r c u m s t a n c e s b e fo r e c o n c l u s i o n o f c o n t r a c t – n o n - d i s c l o s u r e a m o u n t s f ra u d
• Eg. Sale in medical practice
• 4 . H a l f Tr u t h : E v e n a p e r s o n w i t h o u t d u t y t o s p e a k m a y c o m m i t f r a u d , i f v o l u n t a r i l y d i s c l o s e s
s o m e t h i n g a n d t h e n h e s t o p s h a l f - t h e - w ay. O n e w h o c a n k e e p s i l e n t , i f s p e a k s s h a l l s p e a k
whole truth.
• Eg. Pt. purchased a plot of land. It was stated that the land was subject to a right of the Borough to open to 2
streets. In fact, it was subject to open to 3 streets. Held: fraud
Essentials
• III. Promise without intention to perform
• Situation to be assessed from the facts of the case.
• Eg. Purchase of goods without intending to pay for it
• IV. Any other act fitted to deceive – intentional cheating –
abundant caution
• V. Any act or omission specifically declared fraudulent
• Eg. TP Act – Fraudulent transfer of property, Insolvency law –
fraudulent preference, etc
• "Misrepresentation" means and includes-
• 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
• any breach, of duty which, without an intent to
Misrepresentation
deceive, gains an advantage to the person
committing it, or any one claiming under him, by Sec. 18
misleading another to his prejudice or to the
prejudice of any one claiming under him;
• causing, however innocently, a party to an
agreement to make a mistake as to the substance
of the thing which is the subject of the agreement.
1. Positive assertion of unwarranted statement of fact
• When a person positively asserts that a fact is true when his information
does not warrant it to be so, though he believes it to be true, he makes
misrepresentation .
• E g. C a pa city o f th e s hip – s ta te d t o b e n ot mo re t ha n 2 8 00 ton na ge – w itho ut
inf o rma tion b ut h on e st belief – a c tu a l re gis te re d 3 0 00 ton na ge – ch ar ter p a r ty was
a l l ow ed t o avo i d th e co n tra ct
• E .g . Pur cha s e o f lan d fo r th e co n str u ctio n o f a co mple x – selle r r ep re s en ts t he re i s no
dif f i culty i n su ch u se of the la nd – m unic ip a l au th ority ref u se s permi s sio n fo r su c h u se of
l a n d u n l e s s s e wa g e co s t o f $ 3 0 0 0 i s p a i d - b u ye r wa s a l l ow ed t o avo i d th e s a l e .
• When misrepresentation relates to a term of the contract buyer not only
avoids the contract he may even claim damages for each.
2. Breach of duty
• Any breach of duty which brings an advantage to the person committing it
by misleading the other to his prejudice is a misrepresentation .
• E g. Omitting t o re ad r eleva nt ter m s f rom the d ee d – though d t. is n o t und er dut y to d o
s o, w h e n h e d o e s s o h e s h o u l d d o i t w i th o ut co n ce a lin g – p t . ca n avo i d th e co n tra ct
• E g. A fem ale p ati en t wa s told he r sterili za tion w ould be i rr ever si ble – n ot told that
the re ’s mi nu te ris k of failu r e an d p re gn a n cy – s he co n ceived , g ave bir th – cl ai med
d a m a g e s f o r b r e a c h.
• H ELD : Rep res e ntatio n that the o pe ratio n wa s i rr eve r sible di d no t am ou nt to e xp re s s
s tateme nt tha t the o pe ra tio n wa s b ou n d to a chieve its a ck no wle dg ed o bje ct. The
r e p r e s e ntatio n m er ely m e a n t th a t t h e o p e ra tive s y s te m ca n n o t b e r e ve r s ed .
3. Inducing mistake about subject matter
• Causing, however innocently a party to an agreement, to make a
mistake as to the substance of the thing which is the subject of the
agreement
• Suppression of vital facts
• Suppression or concealment of vital facts amounts either to breach of duty or leading
other par ty to make mistake .
• R v. Kylsant - Prospectus of a co. sta t ed the dividends are paid regularly creating an
im pression t hat i t is m aking prof its - in f act, co. was under loss f or last several
years – dividends were paid out of war-time accumulated prof its
• suppression of this fact was misrepresentat ion .
Material Facts
• Mi sre presenta t i o n s h a l l be of m ateria l f a cts – mere com men d a tor y ex press i o n o f
b u s i ness men a bo u t t he ir g o o ds or mere ex press i on of o p i n io n is n ot
mi s r epresen ta ti o n
• E . g . S a l e o f l a n d – g e n e ra l s t a t e m e n t t h a t l a n d i s f e r t i l e a n d i m p r o va b l e – i n f a c t , p a r t s o f w h i c h w a s
a b a n d o n e d a s u s e l e s s - s u b s t a n t i a l p o r t i o n w a s f e r t i l e – c a n n o t a v o i d t h e c o n t ra c t .
• B i s s e t v. W i l k i n s o n – c e r t a i n l a n d s w e r e s o l d – s e l l e r w a s a w a r e t h a t t h e l a n d w a s r e q u i r e d f o r s h e e p
farming. Therefore, expressed an opinion that the land had a carr ying capacity of 2000 sheep – land
t u r n e d o u t t o b e u n s u i t a b l e f o r s h e e p f a r m i n g – b u y e r o p t e d t o a v o i d t h e c o n t ra c t . H e l d : a g r e e m e n t
w a s n o t vo i d a b l e
• There should be representation of specific fact, which may be inherent in a statement of opinion. It
depends on material facts and knowledge of the parties
• B o t h p a r t i e s k n e w t h a t ve n d o r h a d n o t n o r a n y other person had carried sheep farming on the land
• In the circumstances, the buyer was justif ied in regarding anything said by the vendor as to the
carrying capacity as being anything more than an expression of opinion on the subject.
Change of circumstances
• After the negotiation and before conclusion of contract, if
any change occurs relating to stated facts, it shall be
informed to the other party, otherwise amounts to
misrepresentation.
• Eg. Sale of medical practice – dt said his practice had brought him $ 2000
per annum in the last 3 yrs. – he had a specified no. of patients on his
panel – negotiations resulted in a contract – in 5 month – in the mean
time he became ill and could not practice as a result lost business – pt
learnt about it only after the sale – pt. could avoid the contract.
Inducement - Sec. 19
• Misrepresentati on must be the cause of consent.
• But for the misrepresent ati on consent would not have been given
• Expl anati on - A fraud o r m isrep resentati on w hi ch did not cause the consent to
a contract of the p ar ty on whom such fraud was p rac ti sed, or to w hom such
misrepresentati on was made, does not render a contract voidable.
• No mi srep resentati on i f the other par ty has the m ea ns of discoveri ng truth
with ordinar y diligence.
• Excep ti on - I f such consent was caused by misrep resentati on or b y si lence,
fraud ul ent Sec . 17, the contract, never thel ess, i s not void abl e, i f t he p ar ty
whose consent was so caused had the m eans of di scoveri ng the truth with
ordinar y diligence.
• When the consent of the par ties is caused by
mistake, it is not free consent.
• One, or both par ties may be under some
misunderstanding or misapprehension of some fact
relating to the agreement. Such contracts are said to
have been caused by mistake.
• Mistake may operate upon a contract in two ways:
Mistake
• Mistake in the mind of the parties is such that there Sec. 20 - 22
is no genuine agreement at all - no consensus ad
idem. i.e. the meeting of two minds.
• There may be a genuine agreement, but there may
be mistake as to a matter of fact relating to that
agreement.
In Raffles Vs. Wichelhaus
• Buyer and seller entered into an agreement - seller was to
supply a cargo of cotton to arrive by “ex peerless from Bombay”.
- Two ships of the same name. i.e., Peerless - both were to sail
from Bombay, one in October and the other in December. - buyer
had in mind Peerless sailing in October, seller thought of the ship
sailing in December - seller dispatched cotton by December ship
but the buyer refused to accept the same - offer and acceptance
did not coincide and there was no contract.
• It was HELD that the buyer was entitled to refuse to take
delivery.
Mistake of Fact – Sec. 20
• Agreement void where both parties are under mistake as to
matter of fact-
• Where both the parties to an agreement are under a mistake as
to a matter of fact essential to the agreement, the agreement is
void.
• Essentials
• Both the parties to the contract should be under a mistake and
• Mistake should be regarding a matter of fact.
• The fact regarding which the mistake is made.
Illustrations
• A agrees to sell to B a specific cargo of goods supposed to be on its
way from England to Bombay. It turns out that, before the day of
the bargain, the ship conveying the cargo had been cast away, and
the goods lost. Neither party was aware of these facts. The
agreement is void.
• A agrees to buy from B a certain horse. It turns out that the horse
was dead at the time of the bargain, though neither party was
aware of the fact. Agreement is void
• A being entitled to an estate for the life of B, agrees to sell it to C .
B was dead at the time of the agreement, but both the parties were
ignorant of the fact. The agreement is void.
Mistake of Law – Sec. 21
• A contract is not voidable because it was caused by a mistake as to
any law in force in India: but a mistake as to law not in force in
India has the same effect as a mistake of fact.
• Illustrations:
• A and B make a contract grounded on the erroneous belief that a particular debt
is barred by the Indian Law of Limitation : the contract is not voidable.
• Ever y one is supposed to know the law of the land. Ignorance of law is no
excuse. If a person wants to avoid the contract on the ground that there was a
mistaken impression in his mind as to the existence of some law while he
entered into the contract, he will get no relief.
Contract caused by mistake of one party as to
matter of fact – Sec. 22
• A contract is not voidable merely because it was caused by one
of the parties to it being under a mistake as to matter of fact
• In Ayekam Angahal Singh v. The Union of India -
• auction for the sale of fishery rights – pt. was highest bidder for Rs. 40,000
- fishery right had been auctioned for 3 years and rental in fact was Rs.
40,000 per year – pt. sought to avoid contract on the ground that he was
working under a mistake and he thought that he had made a bid of Rs.
40000 being rent for all the three years.
• HELD: since the mistake was unilateral, contract was not affected thereby
and it could not be avoided.
• Id e n t i t y o f Pa r t i e s
• Caused by B u s i n e s s Ta k e o v e r
• Caused by Fraud
• Fraud leading to mistake of Identity
• Fraud not leading to mistake of Identity
Mistake
• Identity of party as vital importance
• Id e n t i t y o f S u b j e c t - Ma t t e r
• Non-Existent Subject-Matter
• Mistake as to title /rights Classification
• Different Subject-Matters in Mind
• Mistake as to substance of Subject-Matter
• Mistake as to quality of Subject-Matter
• Mistake as to Common Misapprehension
• N a t u r e o f P r o m i se
I. MISTAKE AS TO INDENTITY OF PARTIES
• Assumption of false identity – when one represents himself
falsely than what he really is.
• Jaggannath v. Secty. of State -
• ‘S’ the brother of ‘P’ introduces himself to be ‘P’ and induced a govt. agent
to contract with him.
• HELD: there was no valid agreement and no contract. Govt. intended to
contract only with ‘P’ and not with ‘S’, who knew this and deceived the govt.
There is no real consent because an acceptance meant for one cannot be
accepted by another.
Mistake caused by business takeover
• Boulton v. Jones –
• Pt. too k ove r the bu si ne s s o f M r. “ B ” D t. w h o wa s d ealin g with ‘B ’ i n the pa s t s e nt him
a n o rde r fo r c e r tain go od s. The o rd er wa s r e ceive d b y the p t. w ho s e nt the g oo d s to ‘B ’.
D t. C a me t o k n o w of this o nl y w he n he r e ceived invoi ce f or the g ood s and by tha t time
h e h a d co n s u m e d th e g o o d s . D t . h a d a s e t - o f f a g a i n s t M r. ‘B ’, th e r e f or e r e f u s e d t o p ay.
• H ELD : Pollo ck J – “ no w, the r ule of la w i s clea r, that if you p ro po s e t o ma ke a co ntra ct
wi th ‘A’ , th en ‘B ’ ca nn ot s u b stitute him s elf fo r ‘ A ’ witho ut yo ur con s en t and to your
d i sa d va ntag e, s e cu r i n g t o h i m s e lf a l l t h e b e ne f its o f t h e contra ct ”
• B ram well J. – “ W he n any on e m ake s a co ntra ct i n whi ch the p er so nality, so to s p e ak, of
the th e p ar ti cul ar pa r t y co ntra cte d with i s im po r tant, fo r a ny rea s on , w he th er i t is to
w rite a b oo k, o r p aint a pi ctur e o r to do a ny wo rk of per s o nal skill or wh ether be cau se
the re i s a set- of f d ue f rom th at par ty, n o o ne el se i s a t liber ty to s te p in, and mai ntai n
tha t h e i s a p a r ty co n tra cte d w i th “
Mistake of identity caused by fraud
• Hardman v. Booth –
• p t inten din g t o d eal wit h “ Tho ma s Gan dell & Son s ” w en t to their of f i ce a nd to ok o rd er s
f rom a p e r s on w h o r ep re se nt ed hi m self t o b e a p ar tn e r – he told th e p t that the g oo d s
should be sen t i n th e na me o f “ Ed wa rd G a nd ell & sons . ” he r e ceived the g oods a nd s old
th e m t o th e d t ., a b o n a f id e b u ye r. Pt . s u e d d t . t o r e cove r g o o d s .
• H ELD : PO LLOC K J. – “ th ere a re s o me ca s e s i n w hich it i s ver y cl ea r th at th e re i s n o
co ntra ct at all; a nd t he p re s en t ca se s e em s to b e on e of tho se c a s e s. It wa s a r gue d th a t
the contra ct wa s ma de pe r so nally wi th the pa r ti cul ar indivi dual who m ade the
co mm uni ca tion : it i s ver y cle ar tha t th e w o rd s w e re u tter ed b y a nd t o him , bu t w h at they
im por te d wa s a co ntra ct wi th “G an dell & c o ”. The facts b eing that h e we re n ot a m emb er
o f th e f i r m a n d h a d n o a u th o r ity t o a ct a s t h e i r a g en t. G a n d s ell & C o. wa s th er efo re n ot
the bu ye r and con s eq ue ntly at no tim e w er e the re tw o co n se nti ng min d s d raw n tog ether
t o sa m e a g r e e m en t .
Fraud leading to mistake of identity
• Ingram v. Little –
• 3 la die s j oint o w ne r s o f a ca r, a dver ti s ed f or s ale – pe r so n called at the h ou s e of fe re d to
p ay a n a cce pt able p ri ce – h e p ulled o ut a che q ue the y reje cte d it – h e then p e r s uad ed
the m t o b elieve tha t h e i s o ne M r. Ha chin s on , a le adin g bu si ne s sma n, q uoted an a dd re s s
a n d telep h one n o. – o n ve rif icatio n of it fr om the dir e ctor y the y g ave the ca r f o r che qu e
– he re s old a n d ab s con ded – Ch eq ue p r ove d w or thle s s – 3 ladie s s ue d dt. a bo naf id e
b u ye r, f o r r e cove r y o f th e ca r.
• H ELD : They ca n re cover the ca r “3 l adies di d not intend to contra ct with a m an p r e se nte d
a t th eir ho u se b ut with M r. Ha chin s on – th e of fe r was m a de s olely t o a nd wa s ca pa ble of
b ein g a cce pted o nly by the g e n ui ne M r. H a chin s on – s o f ar a s s t he r o g ue wa s co n ce r ne d
the re wa s no of fe r ma de to hi m a nd ther e wa s no con tra ct with him . His rig ht to th e ca r
wa s no mo re tha n tha t o f a thief o r a f in de r he n ce he co uld no t co nvey go od title t o the
d t. b uye r.
Fraud not leading to mistake of identity
• Lewis v. Avery -
• Pt had a car to sell – a rogue introduced himself as Mr. Richard Green, a famous
f ilm actor. – liked the car and offered a cheque – pt rejected and demanded
proof of identity – the rogue produced a special pass of admission to the Film
Studio, which showed his photograph and off icial stamp – convinced of this pt
allowed the car to be taken away for a cheque – rogue sold it to innocent buyer
immediately – cheque came back wor thless – pt sued the dt, an innocent buyer
to recover his car
• HELD: the car was delivered under a contract voidable by reason of the fraud
and the contract having not been avoided before the car was passed into the
hands of innocent buyer, he acquired a good title.
Identity of party as vital importance
• Said v. Butt -
• Pt knew that on a /c of his adverse criticism of some members of a theatre, he
would not be allowed to be present at the f irst performance of a play at the
theatre – he bought ticket through another and sought admission in the theater
which was rejected – pt sued him for breach of contract
• HELD: No contract
• “There was no contract between pt and the theatre. Non-disclosure of the fact
that the ticket was bought for the pt prevented the sale of the ticket from
constituting a contract, identity of the pt being in the circumstances a material
fact in the formation of the contract.”
II. Mistake as to Sub-matter
• Non-existent Sub-matter
• Mistake as to sub-matter makes the agreement void
• Eg. Sale horse which was dead on the dt of bargain
• Sale of goods on voyage which are destroyed in a ship wreck (Couturier v.
Hastile)
• Different sub-matters in mind
• Where parties due to reasonable mistake of fact, have different sub-matters
in mind, agreement is void for lack of true consent.
• Eg. Raffles v. Wichellaus – case of two ships named “peerrless”
Mistake as to substance of sub-matter
• Mistake as to the existence of some fact /s forming an essential and
integral par t of the sub-matter leads to void agreement.
• Seikh Bros. ltd., v. Ochener -
• p t. a le s s or of f or e st in Kenya g ran te d a li cens e t o the d t. t o cu t, p r o ce s s a nd
m an ufa ctu re all si sal g ro win g i n the f ore s t. Dt i n turn a gr ee d t o m an ufa ctu re a n d d elive r
t o the Pt 50 ton s of si s al f ib er pe r mo nth . B ut it tun ed o ut th at the l eaf p ote ntial of the
s i sal a rea was n o t s uf f i cien t to p e r mit th e ma n ufa ctu re of the s tip ula t ed q ua ntity a nd d t
wa s s u e d f o r th e b r e a ch
• H ELD : a gr eem en t voi d – b a sis of the con tra ct wa s si sal a re a s h ould be ca pa ble of
p r o d u cin g p m & m i s ta ke wa s a s t o a m a tter o f f a ct e s s e n ti al t o th e a g r e e me nt
• E g . A g r e em en t t o co m p r o m is e a s u i t a l r e ad y d e cr e e d .
Mistake as to Quality of Sub-matter
• A mistake as to quality of sub-matter as distinguished from
substance of the sub-matter may not render the agreement void
• Smith v. Hughes -
• Dt wanted old Oats for his horse – pt showed sample
• dt kept sample for 24 hrs and placed order for Oats
• af ter they are delivered he found them new and therefore rejected – on the
ground that he was mistaken about their quality
• HELD: Valid contract – two minds were not at ad idem as to the quality of
Oats but they certainly were at ad idem as to the purchase of them.
Mistake as to Common misapprehension
• Magee v. Pennine Insurance Co. -
• Pt bought a car for his 18 yr old son, proposal form was filled by manager of
firm where car was bought, who happened to state that pt had a provisional
DL in fact he had none – accident took place – dt claimed $ 600 –
compromised for $ 385 – co. came to know of misstatement and declined to
pay
• HELD: agreement of compromise was entered into under the common and
fundamental mistake that the original policy was valid & binding, when in
fact it was voidable for the misstatement.
III. Mistake as to nature of Promise
• Mistake as to the character of the deed – void
• Eg. Gif t deed – Power of attorney
• Distinction between “fraudulent misrepresentation as to the character of
the document and its contents.” - former is void later is voidable
• Eg. Manager of a old man to look af ter lands – gif t deed in the place of
deed of lease
• Eg. Old lady seeking help of her brother to avoid trespass to her lands –
application to collector - thumb impression on blank papers – later regd as
sale deed
• Documents mistakenly signed are non est factum – to protect the illiterate
or blind – mind and hand should go together to make a deed valid