Voidable Agreement

Voidable Agreement | Overview

• Introduction
• Free consent
• Section 15 of the act
• Section 16 of the ACT
• Section 17 of the act
• Section 18 of the act
• Section 20 of the act
• Conclusion

I. Introduction

This article shall be explaining in a detailed manner the provisions relating to the voidable contracts. When contracts are entered but two parties it’s entered into keeping in mind that its fulfilment would mean the attainment of their respective objective for which they have entered into the contract. The whole point of entering into a contract is to ensure both the parties can have their demand met with mutual consent and can have a satisfying bargain.

Now the problem arises where there is no free consent of one of the parties and other party using either physical force or some influences induces the other party to accept the contract which may have clauses which would be detrimental to the coerced party and he may be forced to accept the terms of the contract.

Like if A and B enter on a contract to supply 10 kgs of wheat @ 500/kg, then it’s a valid contract as it’s a contract which has been accepted on the basis of mutual consent of both the parties. Now, in the same scenario, if A puts a gun on the head of B and forces him to sale 10 kgs of wheat @ 10/kg, or A being the landlord of B and using that position unduly influences B to sell the wheat @ 10/kg, then in both the circumstances A have resorted to either physical threat or exploited his position to make B agree on the selling price of the wheat which was detrimental to his interest.

So contracts like these which are entered into without the free consent of the other parties are termed as voidable agreements, now, it has been stated in the Act that voidable contract is enforceable at the option of the party whose consent has been taken in an unfair manner.

What it essentially means is that voidable contracts can be termed as a valid contract if the party whose consent has been unduly taken agree to the terms of that contract. Like in the above example, the contract is voidable at the option of B, which means that if B wants then he can agree to the terms of the contract or else it will be considered as a void agreement.

In the Indian Contract Act, section 13 deals with the free consent and it specifies 5 occasions where the contract shall be treated as a voidable contract and it has been explained in a detailed manner from section 15-20.

II. Free consent

Section 14 of the Act states that “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 of sections 20, 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 influence, fraud, misrepresentation or mistake.”

Section 14 of the Act states consent in a negative manner, in sense it states that what shall not be considered as a free consent. It states that if consent has been taken through the means of coercion, undue influence, fraud, misrepresentation, mistake then that shall be not be regarded as free consent. The section has the following components: –

a. Consent to be free

The agreement shall be contracted when two conditions are fulfilled- when the parties to the contract have given their real consent to the terms thereof & such consent is a free consent. When there is no consent, no contract, but when consent is there, but not free consent then it’s voidable.

If a clause in a contract is not understood in the same sense by the other party that would under section 20 of Indian Contract Act invalidates the agreement from its inception even if the discovery of this fact is made at a later stage^[1].

Calcutta HC in its judgement held that consent is free when the activity of man by which it’s affected works without obstacle to impede its existence & section 14 enumerates those obstacles^[2].

b. Free CONSENT, the burden of proof

1. In case of consent, the burden of proof is on the person who asserts it, but whenever there is consent it’s presumed to be free until the contrary is proved.
2. Law protects persons whose disability makes them dependent upon or subject them to the influence of others even though nothing in the nature of deception or coercion may have occurred^[3].

III. Section 15 of the act

Section 15 of the Act states that “Coercion” is the committing, or threatening to commit, any act is forbidden by the Indian Penal Code (45 of 1860) or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.

Explanation.—it is immaterial whether the Indian Penal Code (45 of 1860) is or is not in force in the place where the coercion is employed.”

Section 15 of the act states that if a person gives any kind of threat to commit any such act which has been strictly prohibited by the Indian Penal Code, so to force someone to enter into a contract then that agreement shall be considered as voidable agreement.

It should also be taken into account that threatening to commit suicide to execute the contract also comes under the coercion. Madras HC in a case held that where to obtain a lease deed from his wife and son, the husband had threatened to commit suicide if it’s not given to him such transaction has been declared void on the grounds of coercion as suicide is forbidden under IPC^[4].

Feature of Coercion^[5]:-

1. Committing any acts prohibited by the IPC
2. Threatening to commit any Act prohibited by the IPC.

A. Unlawful detaining of the property

In a Allahabad HC case, it was decided that when the government in order to realise fine due from the son attaches the property jointly belonging to father & son & father pays the amount of fine to save the property from being sold and since the payment was not being made voluntarily so it can be considered as a contract falling under coercion^[6].

It’s not necessary that the unlawful detention or threatening to detain any property would have to injure the other party. It’s only necessary to prove that it operates to the prejudice of any person whatever, but there can be no coercion if the act is done or threatened is lawful.

B. Duress

Duress is the threats given to another person to produce fear of loss of life or bodily harm. Like, The Threat of unlawful imprisonment, if enforced, would constitute duress. Under the definition of ‘coercion’, it’s not only unlawful detention of the persons is coercion, but also the unlawful detention of goods amounts to coercion.

IV. Section 16 of the ACT

Section 16 of the Act states that “ (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.

(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 another

1. where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or
2. 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.

(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 in a position to dominate the will of the other.”

This section states that when the relationship between the parties to contract are such that one party can influence the decision of other parties since the former party dominates the will of the latter party. Now, the person is said to be dominating the will of another party if that person holds some kind of authority/ or may have a fiduciary relationship with the other party.

Feature of undue influence are as follows:-

1. A relationship exists where one of them can dominate the will of another.
2. The dominant party has obtained an undue advantage over others by using his superior position.

Insufficiency of consideration alone is not sufficient to prove undue influence even where consideration is low, but where no relation whatsoever subsists between the parties inducing one to repose confidence & putting the other under the obligation of duty, the transaction.

Various relationships which indicate that any contract between those might indicate the hint of undue influence:-

• PARENT & CHILD

Parents have a fiduciary relationship with their children. Now, if parents enter any agreement with their children where parents have undue gain or any third party have any undue gain at the expense of the child then it shall be on the parents to prove that there was no undue influence on the him and that he received independent advice from a person who was acting on his benefit.[7]

When a gift was made to a parent shortly after the child reaches the age of majority, the parent will have to prove that the child was acting independently of his influence.[8]

• Guardian & ward

Only because the guardianship has legally terminated wouldn’t necessarily mean that the influence ceases provided, however, there is still some control over the ward’s property.

• Lawyer& Client

Any transaction by a client to his solicitor or even to his wife will be regarded with considerable suspicion by the court. In case there is a pre-existing relationship between the parties such as that of solicitor & client, then if the parties can contract at all they can only contract after the amplest disclosure of everything by the solicitor to the client[9].

It was held by Orissa HC in a case that the plaintiff was the lawyer for the defendant in previous litigation & the defendant approached him for money. It must be held that the plaintiff was in a position to dominate the will of the defendant client. Therefore, the agreement executed by the client in favour of the plaintiff lawyer has been set aside by the Orissa HC as if it was vitiated by undue influence[10].

V. Section 17 of the act

Section 17 of the Act states that “Fraud” means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto of his agent, or to induce him to enter into the contract:—

(1) The suggestion, as 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.

Explanation.—Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.”

This section states that if the consent of one of the parties has been taken in a manner which falls under the category mentioned in the section, it shall be deemed as a voidable contract. This section has certain aspects:-

A. False representation

Wilful misrepresentation arises when fraudulent representation is made. Now, it has been held in many cases[11] that actual misrepresentation is not needed but even the act of remaining silent under certain circumstances gives rises to fraudulent representations^[12].

If a minor who would become a major only on attaining 21, but claiming to be a major borrowed money even though he was aged 20, it was held that he was guilty of fraud having made suppression of truth & suggestion of falsehood. For constituting fraud the party must assert something untrue which he knows to be true or suppression of true facts which he an obligation to disclose.^[13]

B. Active concealment

When at the time of taking insurance from the insurance company, Just mere concealment of cats won’t be enough to file a suit against the accused, if it proves that he would have ever entered into the contract had the actual facts known to him. But bring suit under this head, the person must have undertaken certain acts to deceive him and make him fraudulently enter into a deal by keeping abreast of the true facts.^[14]

C. Mere silence

As per the section, mere silence to certain facts doesn’t amount to fraud until & unless the person who is keeping silence has the obligation to speak the actual facts. As per the law, the person shall be held liable if he actively conceals the facts by maintaining silence. But it doesn’t mean that he has the obligation to disclose every material fact to the contracting party.

He has no duty to point out all the defects regarding the subject matter of the contract. The principle which is followed in this case is caveat emptor, i.e. the buyer has to be beware what kinds and in what conditions he is buying the goods. Certain exceptions to this principle are as follows:-

a. Silence doesn’t amount to fraud unless it falls under the following categories:-

1. When the person has the obligation to speak then keeping silence amounts to fraud
2. When in situations silence itself amounts to speech.

b. Another category is when the person has the obligation to speak but he remains silent then he shall be liable. Following acts comes under it:-

1. First are those contracts which are based on utmost faith, i.e. uberrimae fedei. In contracts like these, the party is supposed to disclose ever-relevant details and failure to disclose such information cant same him under the guise of “silence doesn’t amount to fraud”
2. When a person doesn’t have the obligation to disclose but anyhow decides to disclose certain information then he has the obligation to speak the whole truth, meaning he can’t disclose some part of the information & withhold the remaining portion of the pieces of information. Speaking half-truths is same as misrepresentation of the facts.
3. Lastly, when there is a fiduciary contract between the person then parties to the contract shall be the obligation to disclose each & every relevant fact to each other and in case of non-disclose can’t take the defence of “silence doesn’t amount to fraud”.

c. Under, “When silence itself is equivalent to speech” following conditions comes:-

1. A person who keeps silence knowing fully well his silence is going to be deceptive – is no less guilty of fraud. Sometimes, keeping silence as to a certain fact may create an impression as to the existence of such facts. In such a case silence amounts to fraud.

VI. Section 18 of the act

Section 18 of the Act states that “Misrepresentation” means and includes—

(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;

(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.”

This section states that an assertion of something by a person which is not true, though he believes it to be true. Misrepresentation could arise because of the innocence of the person making it or because he lacks sufficient or reasonable ground to make it. A contract which is hit by misrepresentation can be avoided by the person who has been misled.

There are different types of Misrepresentation:-

A. Fraudulent Representation

Is proved when it is shown that a false misrepresentation has been made

1. Knowingly
2. Without believing in its truth
3. Recklessly/ carelessly whether it be true or false

B. Innocent Representation

Under the English common law, general rule is that no action for damage lies for a mere innocent representation in this sense, but u/s 18, the innocent misrepresentation in view of sub-section (3) amounts to misrepresentation when the person cause misrepresentation to the party to the contract regarding the subject matter to the agreement, then he shall be liable, as it won’t matter how innocent the misrepresentation was… Thus under Indian law, a contract is liable to be avoided if induced by innocent misrepresentation[15].

VII. Section 20 of the act

Section 20 of the Act states that “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.”

The effect of a mistake renders the contract void ab initio. When a contract has been entered on the mistaken fact then the person who has paid the consideration shall have the right to recover back his money and use in other places.

If a person remains silent and doesn’t disclose material facts to the contact, then it won’t amount to fraud because of the principle of caveat emptor is of general application in the English law of contract^[16].

Mistake are of two types:-

1. Mistake of law: – Mistake of law happens when either party to a contract doesn’t have the knowledge regarding the law of the land. Now it’s the settled principle that law assumes that whenever a person enters into contract he has the knowledge regarding all the relevant laws. So whenever the mistake of law happens in a contract, the contract is taken as a valid one as the mistake of law is of no excuse, based on the principle of Ignorantia Juris Non-Excosat.
2. Mistake of fact:- It can be further divided into two categories:-

• Bilateral mistake
• Unilateral mistake

1. Bilateral mistake as described u/s 20 of the Act states deal with the mistake relating to the essential subject matter of the agreement. It states that when both the parties to the contract are under the wrong impression regarding the subject matter of the agreement, then the agreement shall be deemed as void one. Furthermore, the bilateral contract can be divided into two parts:-

Common mistake: – In this case both the parties to the contract make the same mistake relating to the subject matter to the agreement. Both the parties know the intention of each other but commit the same mistake which essential to the performance of the contract. They are under the same mistaken belief of facts essential to contract.

Mutual mistake: – In this case both the parties to contract are mistaken regarding the same mistaken facts which are relevant subject matter to the contract. The conditions which will make the agreement void are:-

1. Both parties are mistaken regarding the same facts.
2. The mistake should concern a matter of fact

VIII. Conclusion

After thoroughly analysing all the sections it can be said that Indian Contract Act has sufficient provisions which extensively governs the various types and forms of the voidable agreement which in prima facie looks a valid agreement.

The concept of ‘free consent’ has been expanded so that any slight act of coercion or misrepresentation or undue influence can be regarded as the act of forceful consent and the contract can be held voidable at the option of that party.

These provisions are important or else any contract obtained in any manner shall have the force of law and the person whose consent has been unduly obtained shall suffer at the hands of the law.

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[1] Tarsem Singh v. Sukhminder Singh, (1988) 3 SCC 471.

[2] London & Lancashire Insurance Co. Ltd v. Vinoy Krishna, AIR 1945 Cal 218: 78 CLJ 129.

[3] T.P. Thatayya v. Bhagwandas Amasingh, (1970)2 Andh WR 75.

[4] Amiraju v. Seshamma, (1974) 41 mad 33.

[5] Tanya Saraf, Free Consent’ < https://tanaysaraf.wordpress.com/2009/07/28/free-consent/> accessed 5 August 2019.

[6] Bansraj v. Secretary of state, AIR 1939 All 373.

[7] Laxmi v Roop, ILR 30 Mad 169

[8] Bullocks v Lloyds Banks Ltd, (1935) CH 317

[9] Davis v. London & provincial Marine Insurance co, 8 Ch D 479.

[10] Gouri Shankar v. Fakir Mohan, AIR 1989 Ori 201.

[11] Brownly v. Cambel, (1880) 5 AC 925.

[12] Jogendra v. Chandra, (1915) 42 Cal 28.

[13] Bernand v. Seaton, (1900) AC 135.

[14] Peek v. Gurney, LR 6 HL 377.

[15] Governor of Orissa v. Shiv Prasad, AIR 1963 Ori 217.

[16] Bell v. Lever Brothers Ltd., (1932) AC 161.

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