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Legal Environment of Business BUS 7305

This document discusses key concepts related to the law of contract including free consent, coercion, undue influence, fraud, and misrepresentation. It defines these concepts under the Indian Contract Act of 1872 and provides examples to illustrate them. The key takeaways are that free consent is essential for a valid contract and factors like coercion, undue influence, fraud or misrepresentation can vitiate free consent and make a contract voidable.

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Sami Chowdhury
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51 views20 pages

Legal Environment of Business BUS 7305

This document discusses key concepts related to the law of contract including free consent, coercion, undue influence, fraud, and misrepresentation. It defines these concepts under the Indian Contract Act of 1872 and provides examples to illustrate them. The key takeaways are that free consent is essential for a valid contract and factors like coercion, undue influence, fraud or misrepresentation can vitiate free consent and make a contract voidable.

Uploaded by

Sami Chowdhury
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Legal Environment of Business

BUS 7305

Law of Contract
Law of Contract
Free Consent:
According to S: 13 of Contract Act, 1872, two or more persons
are said to consent when they agree upon the same thing in the
same sense.
S: 14 of the Contract Act, 1872, define free consent. It reads out-
Consent is said to be free when it is not caused by
1. Coercion, as defined in section 15, or
2. Undue influence, as defined in section 16, or
3. Fraud, as defined in section 17, or
4. Misrepresentation, as defined in section 18, or
5. Mistake, subject to the provisions 20, 21 and 22
To be continued…
Coercion:
To be coercion any of the following four acts must take
place—
i) Committing any act forbidden by the Penal Code, 1860
ii) Threatening to commit any act forbidden by the Penal
Code, 1860
iii) Unlawful detaining any property, to the prejudice of
any person whatever
iv) Threatening to detain, any property, to the prejudice of
any person whatever.
To be continued…
Undue Influence:
According to section 16 of the Contract Act, 1882
1) 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.
To be continued…

2) In particular and without prejudice to the generality of the


foregoing principle, a person is deemed to be in a position to
dominate the will of other:
(a) where he holds a real or apparent authority over the
other or where he stands in a fiduciary relation to the other;
or
(b) 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 distress.
To be continued…
3) Where a person who is in a position to dominate the will
of another, 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 who is a position to dominate the will of the
other.
To be continued…
Component of undue influence:
Two ingredients must be present to prove that a contract is
induced by undue influence:
1. Nature of relationship:
One of the parties is in a position to dominate the will of
other / one is the superior position and such superior
position control of the other’s power of will. It is a
psychological control over the other.
To be continued…
2. Use of relation:
The mere existence of the above relationship is not
sufficient to constitute ‘undue influence.’
However, it has to be gain an unfair advantage from the
other party.
To be continued…
What is meant by the dominant position?
i) A real authority over the other, e.g., the
contractual relationship between a police officer and
accused.
ii) Apparent authority over the other, e.g., the
contractual relationship between master and servant.
To be continued…
iii) A fiduciary relation or utmost good faith with other, e.g.,
the contractual relationship between parents and child,
doctor and patient, lawyer and client, teacher and student,
etc. and lastly
iv) A person whose mental capacity is temporarily or
permanently affected by reason of age, illness, or mental or
bodily distress.
To be continued…
The burden of proof:
The consequence of undue influence:
An agreement which is induced by undue influence becomes
a voidable contract at the option of the party whose consent
was so caused. As per section 19A of the Contract Act, 1872
To be continued…
When consent to an agreement is caused by undue
influence, the agreement is a contract voidable at the option
of the party whose consent was so caused.
Any such contract may be set aside either absolutely or, if
the party who was entitled to avoid it has received any
benefit thereunder, upon such terms and conditions as to the
court may seem just.
To be continued…
Fraud:
Fraud define under s. 17 of the Contract Act, 1872.
It means and includes any of the following acts committed
by a party to a contract, or by his agent with intent to
deceive another party thereto or his agent or induces him to
enter into the contract:
To be continued…
1) The suggestion, as to a fact, of that which is not true by
one who does not believe it to be true;
2) The active concealment of a fact by one having
knowledge or belief of the fact;
3) A promise made without any intention of performing it;
4) Any other act fitted to deceive;
5) Any such act or omission as the law specially declares to
be fraudulent.
To be continued…
Does mere silence amount to be a fraud?
Mere silence does not affect the willingness of a person to
enter into a contract, unless the circumstances of the case are
such that, it is a duty of a person keeping silence to speak, or
unless his silence is, in itself equivalent to speech.
To be continued…
Example:
‘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.
On the other hand,
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.
Notwithstanding the fact, however…
To be continued…

A and B, being traders, enter upon a contract. A has private


information about a change in prices which would affect B’s
willingness to proceed with the contract.
A is not bound to inform B and not amount to be fraud.
To be continued…
"Misrepresentation" defined under s. 18 of the Contract Act, 1872.
(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
advantage to the person committing it, or any one claiming under him,
by misleading another to his prejudice or to the prejudice of any one
claiming under him;
To be continued…
(3) 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.
Only an unambiguous, false statement of fact or law; or address to the
party misled, will not amount to be misrepresentation unless and until
it not induced to entry into the contract and possibly it must also be
material according to English Contract law.
To be continued…

A statement must be an existing fact. However, the


following three categories do not mean an existing
fact.
• Mere puff;

• Opinion / belief;

• Statement of intention / promise.

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