DISTINCTION BETWEEN COERCION AND UNDUE INFLUENCE

The following are the points of distinction between the two.

COERCION UNDUE INFLUENCE
1. Nature
Coercion is a physical threat to property or person. Undue influence is a mental or moral threat.

2. Illegal & Unfair

Coercion involves doing or threatening to do an In undue influence the act may not be illegal, it
illegal act. may only be unfair.
3.Penal Action
In coercion, penal action is also taken against In undue influence, generally no penal action is
guilty party. taken against guilty party.
4.Parties
Coercion may be exercised by or against the party Undue influence must be exercised by or
to the agreement; It may also be exercised by or against the party to the agreement.
against some third party.
5.Relationship
For coercion no specific relationship between the For undue influence there must be a specific
parties is necessary relationship between the parties.
6.Refund of Benefit
In coercion the aggrieved party has to refund the In undue influence, the court has \ discretion
benefit, if he has received any, from the other to direct the aggrieved received from the other
party. party.
7. Effect.
In coercion, the contract is voidable at the at the In undue influence, the contract is voidable or
option of aggrieved Party. the court may cancel or enforce it in a modified
form.
Essentials of Fraud
The following are the essentials of fraud.
1. There must be false a representation.
2. The representation must relate to a fact.
3. The representation must be made to induce the other, party to enter into contract.
4. The representation must have been made with the knowledge of its being false.
5. The representation must have been made before the conclusion of the contract.
6. The other party must have relied upon the representation.
7. The other party must have been deceived by the fraud. .
8. The other party must have suffered a loss.
DISTINCTION BETWEEN FRAUD AND MISREPRESENTATION
Fraud Misrepresentation
1. Intention
In case of fraud, the party makes a false statement In case of misrepresentation, there is no intention
with an intention to deceive the other party to deceive the other party
2. Belief
In case of fraud, the person making the suggestion In case of misrepresentation, the person making
does not believe it to be true. the suggestion believes it to be true.
3. Damages
In fraud, the aggrieved party can claim damages In misrepresentation entitles the party to avoid
in addition to the right of avoiding the contract. contract and there can be no suit for damages
4. Offence
Fraud may amount to an offence of cheating. It is Misrepresentation does not amount to an offence
a criminal act. of cheating. It is not a criminal act.
5. Truth
In case of fraud, the aggrieved party can avoid In case of misrepresentation, the aggrieved party
contract even if it had the means to discover the cannot avoid the contract if it had means to
truth with ordinary diligence. discover the truth with ordinary diligence.
 Discharge by Agreement.
A contract can also be discharged by the fresh agreement between the same parties. A contract may be
terminated by agreement in any of the following Ways:
a).Novation
Novation of contract means replacement of an existing contract by a new contract. In novation the
parties may change. If the parties are not changed then the material terms of the contract must be
altered in the new contract because a mere variation of some of the terms of a contract is not novation
but alteration. A novation discharges the old contract.
Example
A is indebted to B and B to C. By mutual agreement B's debt to C and B's loan to A are cancelled and C
accepts A as his debtor. There is novation involving change of parties.
b). Alteration
Alteration of a contract takes place when one or more of the terms of the contract are changed. If a
material alteration in a written contract is made with the consent of all the parties the original contract
is discharged by alteration and a new contract.takes its place. An alteration may be a change in the
amount of money, the rate of interest, or the names of the parties/ Alteration results in the discharge of
the original contract.
The difference between novation and alteration is that in case of novation there may be a change of
parties but in case of alteration parties remain the same and only the terms of the contract are changed.
(Sec. 62.)
Example
A agrees to supply B. 1000 maunds of salt at Rs. 50 a maund within 3 months from date. Later on, A
and B alter the agreement and A agrees to supply 800 maunds of salt at the same rate within 2 months
instead of three. The latter agreement puts an end to the former.
c). Rescission
Rescission means cancellation of contract by mutual consent. A contract may be cancelled by
agreement between the parties at any time before it is discharged by .performance. The cancellation of
agreement releases the parties from their obligations arising out of the contract. (Sec 62)
Example
A promises to deliver certain goods to B on a certain date. Before the date of performance, A and B
mutually agree that the contract will not be performed. The parties have cancelled the contract.
d). Remission
Remission means the acceptance of lesser amount or lesser fulfillment of a promise made than what
was contracted for in full discharge of the contract. It is unilateral act of the promisee discharging at his
will the obligations of another (Sec. 63).
Examples
A owes B Rs. 5,000. B agrees to accept Rs. 2,000 in full satisfaction of his claim. The whole debt is
discharged.
4). Waiver
Waiver means the intentional abandonment of a right, which a person is entitled to under a contract. A
party may waive his rights under the contract, whereupon the other party is released from his
obligations. For a waiver neither an agreement nor consideration is necessary.
Example
A promise to make a shirt for B and B afterwards forbids him to do so. A agrees. The contract is
terminated by waiver.
DISCHARGE BY OPERATION OF LAW
A contract terminates by operation of law in the following cases:
A). Insolvency
The insolvency Act provides for discharge of contracts under particular circumstances. Where the court
declares a person as insolvent, the rights and duties of such person are transferred to the officer of
court, known as official receiver. After the order of the court such person is discharged from his
liabilities.
Example
A promise to sell his car to B for Rs. 2 lac. Before the performance of the contract A is declared
insolvent by court. The contract is discharged.
b). Merger
Merger takes place when an inferior right available to a party merges into a superior right available to
the same party under some other contract. As a result of merger the former contract stands discharged
automatically.
Example
Where a man holds property under a contract of tenancy buys the property, his rights as a tenant are
merged into the rights of ownership and the contract of tenancy stands discharged by operation of law.
c). Unauthorized Material Alteration
Where a party to the contract makes any material alteration in the contract, without the consent of the
other party, the contract can be avoided by the other Party. A material alteration is one, which changes
the legal identity or character of the contract or the rights and duties of the parties to the contract. An
alteration which is not material or which is authorized will not affect the validity of the contract. An
alteration even by a stranger will entitle the other party to avoid the contract, but where the alteration
is unintentional, contract cannot be avoided.
Example
A executes a promissory note in favour of B for Rs. 3,000. B by alteration exceeds the amount from Rs.
3,000 to 30,000. A may refuse to pay Rs. 3,000
Kinds of Damages
Ordinary Damages
When a contract has been broken, the injured party can recover from the guilty party the ordinary
damages suffered by him. Ordinary damages are those, which naturally arise as the result of breach of
contract.
In other words, the aggrieved party can claim damages for loss, which is the direct result of such
breach. He cannot claim damages for indirect loss which is too remote. In the case of sale and
purchase, the damages payable would be the difference between the contract*price and the market
price at the date of breach. The subsequent increase or decrease in the market price would not be
considered. (Sec. 73)
Examples
(a) (A contracts to sell and deliver 500 bales of cotton to B on a fixed day. A breaks the promise,
and B having no cotton, is obliged to close his mill. A is not responsible to B for the loss caused.)
b) Special Damages
According to Section 73, these damages arise under some special circumstances affecting the plaintiff.
These are not the losses which naturally arise as a result of breach of contract like ordinary damages.
These arise when a party makes a special contract through which he expects large profits and such
profits are likely to be lost through the breach of contract. These cannot be claimed as a matter of right.
These can only be claimed under the following circumstances:
a) The special circumstances must be known to the parties at the time of contract.
b) Subsequent knowledge of the special circumstances will not create such damages.
c) The damages must be such as would naturally result from the breach of contract.
d) The parties must have the knowledge about the loss, which will arise in case of breach of
contract, before making the contract.
Examples
A contracts B to supply him 20 tons iron at Rs. 10,000, a ton at a specified date. A contract with C to
buy 20 tons iron at Rs. 8,000 a ton. A informs C about the purpose of contract. C fails to perform the
contract. As a result, A cannot supply to B. C is liable for profit which A would have made by
performance of contract with B.
C) Exemplary Damages
These damages are awarded to punish the guilty party for the breach, and not to compensate the
injured party for the loss suffered. The breach of contract results in monetary loss to the aggrieved
party and causes disappointment.
a) In case of breach of a contract to marry, the amount of damages will depend upon the extent of
injury to the feelings of the party.
b) In case of dishonor of a cheque by a banker when there are sufficient funds to the credit of the
customer. The rule is, the smaller the cheque dishonored, the greater the damage.
Example
O, a banking corporation, agreed to loan W money for a trip to California by crediting in account with
such sums, as he might need after reaching his destination. W reached California, but O refused to give
him the promised credit. The court allowed damages for humiliation and mental suffering.
d) Liquidated Damages
According to section 74, if parties to a contract fix the amount of damages for the breach of contract at
the time of formation of contract, then such damages are called liquidated damages.
Liquidated damages represent only a fair and reasonable estimate of loss which a party may suffer due
to breach of the contract. Where a sum has been agreed in the contract to be paid by the defaulting
party in case of breach of contract, the court will allow the actual and reasonable damages not
exceeding the amount already agreed by the parties. In case, the actual loss is more than the agreed
amount; damages will be payable only to the extent of the agreed amount.
Example
A contracts B to pay him Rs. 1000 if he fails to pay B Rs. 500 on a given day. A fails to pay B Rs, 500 on
that day. B can recover from A such damages not exceeding Rs. 1000, as the court considers
reasonable.
e) Nominal Damages
These are neither awarded to compensate the aggrieved party nor to punish the guilty party. When the
aggrieved party suffers no loss, the court may award him nominal damages in recognition of his right.
But the court has discretion in this case. The court may refuse to award damages.
Examples
A promises to sell 20 bags of cement to B for Rs. 200 per bag. A does not supply the cement. At the
time of breach of contract, the market rate of cement is the same. B is entitled to nominal damages.

DISTINCTION BETWEEN INDEMNITY AND GUARANTEE

Indemnity Guarantee
1. Number of Parties
In a contract of Indemnity, there are two parties In a contract of guarantee, there are three parties -
the indemnifier and the indemnity holder. The creditor, principal debtor, and the surety.
2. Number of contract
In indemnity there is only one contract between In guarantee, there are three contracts one
the indemnifier and the indemnified. between creditor, and the principal debtor, the
second between the creditor and the surety, and
the third between the surety and the principal
debtor.
3. Nature of Liability
The liability of indemnifier is primary and The liability of surety is secondary. It' means that
independent. surety is liable only if the principal debtor fails to
perform his obligations
4. Request
In the contract of indemnity, the indemnifier acts In a contract of guarantee, it is necessary that the
without the request of the debtor. surety should give the guarantee at the request of
the debtor
5. Existence of Liability
In a contract of indemnity, the liability of the In a contract of guarantee, the liability already
indemnifier arises only on the happening of a exists and its performance is guaranteed by the
contingency. surety.
6. Filing of Suit
In a contract of indemnity, the indemnifier cannot In the contract of guarantee, the surety the
sue the third party for loss in his own name. He creditor can, proceed against the principal debtor
can do so only if there is an assignment of claim in in his own right.
his favour.
7. Purpose
A contract of indemnity is for the reimbursement A contract of guarantee is for the security of a
of loss. debt.