Coercion, Undue Influence, Fraud, and Misrepresentation.
According to Section 10, free consent is an integral part of a contract. An agreement cannot become a contract unless it is done with the free consent of the parties.
Section 14 says that consent is free when it is not vitiated by coercion, undue influence, fraud, misrepresentation, or mistake subject to sections 20, 21, 22.
Section 15 defines coercion as follows –
Coercion is committing or threatening to commit an act that is prohibited by IPC, or any unlawful detaining or threatening to detain, any property, to the prejudice of any person whatever, with an intention of causing any person into entering a contract. It is immaterial whether IPC is in operation at a place where such act took place.
A threatens B at gunpoint to sell his land to A.
A while in an English ship on the high seas enter into a contract with B by intimidating B which is unlawful in India. Later on, A sues B of breach of contract in Calcutta. This is coercion.
Chikham Amiraju vs Chikham Seshamma 1912 – Husband threatened to suicide unless wife gave property to his brother. This was held coercion.
Askari Mirza vs Bibi Jai Kishori 1912 – Threatening a criminal prosecution is not coercion per se. It could be coercion if the threat is to file false charges.
Astley vs Reynolds 1731 – Plaintiff had pledged his place for $10. When he went to take it back, pledgee asked for $10 more. He paid the additional $10, but sued to get recover it back. It was held coercion.
Andhra Sugars vs State of AP 1968 – A factory was bound to take the sugar cane from the farmer under an act. This was not held to be coercion.
Section 16 defines Undue Influence as follows –
A contract is said to be induced by Undue Influence when the relationship between the parties is such that one party is able to dominate his will on the others and uses that position to gain an unfair advantage. A person is deemed to be in the position of dominating the will of the other if –
- if the person holds a real or apparent position of power
- If stands in a fiduciary relationship with the other.
- if the other person is mentally weak because of sickness, disease, or economic distress
It further says that if a contract is unconscionable the burden of proof lies of the person in whose favor the contract is to prove that it was not induced by Undue Influence, other wise the burden of proof is on the one who alleges it.
A advances some money to his minor son B. Upon majority, A makes B sign a contract to pay back more than the sum advanced.
A is sick and physically feeble and is attended by his nurse B. B influences A to enter a contract to pay him an unreasonable amount for his professional services.
A being in debt of B, the village money lender goes to B for getting a loan. B gives the loan on terms that are unconscionable. It lies on B to prove that undue influence was not used to create the contract.
A applies for loan to a banker B while there is a stringent crises in the money market. B declines to give the loan only at a very high rate. This is not coercion but simple business transaction.
Ability to dominate the will
Mannu Singh vs Umadat Pandey 1890 – Spiritual guru induced the plaintiff, his devotee, to gift all his property to the guru.
Relations of dominion over other – parties are not on equal footing.
Williams vs Baylex 1866 – father being afraid of bank manager, entered into a contract to mortgage his house. This was held voidable.
Real of Aparant authority
Income tax office, magistrate, police officer etc.
It may not be real but if a person shows off as such then also it is applicable.
Every relationship of trust and confidence is a fiduciary relationship.
Solicitor – client, doctor – patient, spiritual guru – devotee.
Ranee Annapurni vs Swaminatha 1910 – A poor widow who was in dire need of money to establish her right to maintenance, was persuaded by a money lender to take a loan at the rate of 100%. It was held to be undue influence while a person was under mental distress and the court reduced the rate to 24%.
Burden of Proof – The person must show that the other party was in a position of dominating the will and that he used that position to gain advantage.
Presumption of undue influence
In certain cases, when it is established that the defendant was in a position to dominate the will of the plaintiff, it will be presumed that he must have used his position to obtain an unfair advantage. Thus, it will be up to the defendant to prove that the plaintiff freely consented.
Lancashire Loans Ltd. vs Black 1934: It was held that a daughter may not necessarily be independent and may be under the influence of the mother.
The presumption is raised in the following cases –
1. Unconscionable bargains
Wajid Khan vs Raja Ewaz Ali Khan 1891 – An old illiterate woman conferred upon her managing agent a bug pecuniary benefit without any valuable consideration under the guise of trust. This was held to be under undue influence.
2. Inequality in bargaining power
LLoyd’s Bank vs Bundy – Farmer pledged his farmhouse to secure a loan for his son. The latter bank tried to take possession of the house. It was held that the contract might have been done under undue influence.
3. Contracts with Pardanashin women
A contract with a pardanashin woman is presumed to have been induced by undue influence. However, such a woman must be totally secluded from ordinary society. In the case of Ismail vs Amir Bibi 1902, a lady stood as witness, put tenants, collected rents in respect of her house. She was held not a pardanashin woman.
|Coercion – Section 15||Undue Influence – Section 16|
|There is a clear threat involved and the person being coerced knows it.||There is no outward sign on undue influence and the person being influenced may not realize it.|
|No relationship has to exist.||A relationship that allows a person to dominate the will of other must exist.|
|Contract induced by coercion is voidable under section 19||Contract induced by undue influence is voidable under section 19-A|
|If an act, which is unlawful under IPC, has been used to force a person into contract, it is immaterial where it has taken place, contract will still be voidable in India.|
Section 17 defines fraud as follows:
Fraud means and includes any of the following acts done by a party to a contract, or by his connivance, or by his agent, to decieve another party thereto or his agent, or to induce him to enter the contract. Such acts include-
- the suggestion, as a fact, that of which the party knows or has reason to believe to be not true.
- active concealment of a fact by the one who knows or has reason to believe to be true.
- Making a promise he does not intend to fulfill.
- any act fitted to deceive.
- any act or omission as the law specifically declares to be fraudulent.
A sells, by auction, to B a horse which A knows to be unsound but does not tell anything to B. This is not fraud.
B is A’s daughter who has just come of age. In this case, it is A’s duty to tell B that the horse is unsound.
B says to A, “If you do not deny it, I will assume that the horse is good.”. Here, A’s silence is equivalent to speech.
A and B are both traders and A has private information about change in prices, which would affect B’s willingness to proceed with contract. This is not fraud.
Intention to deceive is required to constitute fraud.
Suggestion of a fact
Derry vs Peek 1889, it was held not to be fraud because the defendants truly believe that permission would be granted by the board of trade because parliament had approved it.
Active concealment is different from passive concealment. Passive concealment merely means silence as to material facts. However, active concealment means making efforts to prevent the facts from reaching a party and this is fraud.
B R Chaudhary vs IOC 2004 – A dealer concealed his previous employment under govt. to get a dealership. SC allowed the contract to be terminated.
Concealment by mere silence is not fraud
Sri Krishan vs Univ. of Kurukshetra 1976 – the candidate knew that he was short of attendance but did not write anything on the examination form. It was held not fraud because it was the job of the university to scrutinize the forms.
Silence may become fraud in certain cases – Duty to speak, Half-truth, change of circumstances.
Making a promise without any intention to perform
DDA vs Skipper Construction Company 2000– A builder collected deposit money from more people than there were flats. SC held that since the builder knew that he cannot perform his promise and still took the money, he was doing fraud. He was held liable to pay interest even though there was no provision of interest on the deposit.
Any other act fitted to deceive
Ningawwa vs Byrappa 1968 – Husband got his illiterate wife to sign papers saying that he was mortgaging her two lands but actually he mortgaged four. This act was obviously done to deceive and was held to be fraud.
Section 18 defines misrepresentation as follows:
Misrepresentation means and includes
- making a statement in a manner that is unwarranted 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 intention to deceive, gains an advantage to the person committing it or any one claiming under him, by misleading another to his prejudice or to the prejudice of anyone claiming under him.
- causing, however innocently, another party to commit a mistake as to the substance of the thing which is the subject of the agreement.
Thus, when there is no intention to deceive but still a wrong statement has been made, or a duty has not been performed, or a mistake has been induced, it is misrepresentation.
Oceanic Steam Navigation vs Soonderdas Dharmasey 1980 – the defendants charted a ship from a company. The plaintiff had made a claim that the ship was not more than 2800 tonnage even though the plaintiff had not known about it. In reality the ship turned out to be more than 3000 tonnes. It was held to be misrepresentation and the defendants were allowed to avoid the contract.
Breach of Duty
Thake vs Maurice 1986 – Husband was not informed of the risks and failure rate of vasectomy before the operation. Later on wife became pregnant and the hospital was held guilty of misrepresentation and was ordered to pay compensation for all the pains and expenses of delivery.
Inducing mistake about subject matter
The subject matter of the contract is supposed by the parties to be of a certain value or quality. If one party, however innocently, leads another party to make a mistake as to the value of subject matter, it is misrepresentation.
Farrand vs Lazarus 2002 – A car dealer put a notice on a car that the mileage is incorrect even though he knew that the reading was grossly incorrect. This was held to be a misrepresentation.
Suppression of Material and Vital Facts
R vs Kylsant 1932– Company prospectus said that company was regularly paying dividends, which implied that is was making profit. However, it did not say that company was making losses and dividends were being paid from war time accumulated profits.
Expression of Opinion
Merely expressing an opinion is not misrepresentation.
Bisset vs Wilkinsen 1927 – The seller was aware that the land was being purchased for sheep farming and he expressed an opinion that the land could carry 200 sheep. It turned out that the land was no suitable for sheep farming. The seller was not held liable.
Section 19 says that any contract which is induced by Coercion, Fraud, or Misrepresentation is voidable at the option of the party whose consent was caused due to coercion, fraud, or misrepresentation.
However, if the consent is obtained by misrepresentation of a fact or silence amounting to fraud, the contract is not voidable if the party whose consent was so caused was able to discover it with due diligence.
Also, a fraud or misrepresentation that did not cause a party to give consent, does not render a contract voidable.
Section 19 A says that when an agreement is created due to consent induced by undue influence, such an agreement is a contract voidable at the option of the contract whose consent is so caused.
|Fraud – Section 17||Misrepresentation – Section 18|
|There is intention to deceive.||No intention to deceive.|
|A contract involving fraud is liable for action in tort for damages.||No action in tort.|
|Defence of ordinary diligence is not available for fraud except for fraud by silence.||Can be defended on the ground that the person could find out the truth by ordinary diligence.|
Similarity in Fraud and Misrepresentation
- Both contain false representations.
- Both render a contract voidable.
- In both cases, the consent must have been caused due to that fraud or misrepresentation.
- Defense of ordinary diligence is available to fraud by silence and misrepresentation.
Keywords: Agreement in India, Concept of Agreement, Definition of An agreement under the Indian Contract Act 1872
Click here to read the Indian Contract Act 1872
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