Handout 5 Contract Act 1872

Quaid-e-Azam Law College Session 10/11

Free Consent
Section 13 "Consent" defined. Two or more persons are said to consent when they agree upon the same thing in the same sense. Section 14 "Free consent defined." 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.

Meaning
It is another essential of a valid contract. Consent means that the
parties must have agreed upon the same sense. For a valid contract it

is necessary that the consent of parties to the contract must be free. According to section 14, consent is free when it is not obtained by coercion, under influence, fraud, misappropriation or mistake. If the consent of either of the parties is not free the agreement cannot become a contract. Section 15 "Coercion" defined. "Coercion" is the committing, or threatening to commit, any act forbidden by the Pakistan Penal Code, 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.

Meaning
the use of express or implied threats of violence or reprisal or other intimidating behavior that puts a person in immediate fear of the

Handout 5 Contract Act 1872

Quaid-e-Azam Law College Session 10/11

consequences in order to compel that person to act against his or her will. Physical abuse Torture / Severe Corporal punishment Psychological abuse Humiliation / abduction of family member /property are examples of Coercion.

Effects of Coercion
If the party claiming that the contract was signed under coercion can prove it in the Court of Law, the contract shall become voidable and he has the right to cancel the same. 16. "Undue influence" defined. (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 ether. (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:-(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. (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 has a position to dominate the will of the other.

Meaning

Handout 5 Contract Act 1872

Quaid-e-Azam Law College Session 10/11

Undue influence means the amount of pressure which one uses to force someone to execute to sign a contract. The key element is that the influence was so great that the party to the contract had lost the ability to exercise his/her judgment and could not refuse to give in to the pressure.

Elements to prove undue influence

Four elements must be shown to establish undue influence. First, it must be demonstrated that the victim was susceptible to overreaching. Such conditions as mental, psychological, or physical disability or dependency may be used to show susceptibility. Second, there must be an opportunity for exercising undue influence. Courts have found opportunity for undue influence in relationships between Husband and Wife, fianc and fiance, Parent and Child, trustee and beneficiary, administrator and legatee, Guardian and Ward, attorney and client, doctor and patient, and Pastor and parishioner. Third, there must be evidence that the defendant was inclined to exercise undue influence over the victim. Defendants who aggressively initiate a transaction, insulate a relationship from outside supervision, or discourage a weaker party from seeking independent advice may be attempting to exercise undue influence.

Handout 5 Contract Act 1872

Quaid-e-Azam Law College Session 10/11

Fourth, the record must reveal an unnatural or suspicious transaction. Courts are wary, for example, of testators who make abrupt changes in their last will and testament after being diagnosed with a terminal illness or being declared incompetent, especially if the changes are made at the behest of a beneficiary who stands to benefit from the new or revised testamentary disposition.

Effects of Undue Influence

Evidence of such dominance of another's mind may result in invalidation of the contract by a court if the contract is challenged on this ground. Section 17. "Fraud" defined. "Fruad" 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 or his agent, or to induce him to enter into the contract :--(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.

Meaning
Fraud is a false representation of a matter of factwhether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosedthat deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury.

Elements to Prove fraud

Handout 5 Contract Act 1872

Quaid-e-Azam Law College Session 10/11

Fraud must be proved by showing that the defendant's actions involved five separate elements: (1) A false statement of a material fact, (2) Knowledge on the part of the defendant that the statement is untrue, (3) Intent on the part of the defendant to deceive the alleged victim, (4) Justifiable reliance by the alleged victim on the statement, and (5) Injury to the alleged victim as a result.

Effects of Fraud
Where the fraud is contractual, a plaintiff may choose to cancel, or rescind, the contract. A court order of Rescission returns all property and restores the parties to their pre-contract status. Section 18. "Misrepresentation" defined. "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 and 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 substances of the thing which is the subject of the agreement.

Introduction
A misrepresentation is a false statement of fact made by one party to another, which, whilst not being a term of the contract, induces the

Handout 5 Contract Act 1872

Quaid-e-Azam Law College Session 10/11

other party to enter the contract. Misrepresentation as defined in Section 18 of Contract Act 1872 is a civil wrong. The effect of misrepresentation is to make the contract voidable, giving the innocent party the right to rescind the contract and/or claim damages. This means that a misrepresentation can create civil liability if it results in a pecuniary loss.

Elements of Misrepresentation
The elements of misrepresentation include: " (1) That the representations were made by the guilty party to the aggrieved party (before the contract); (2) That these representations were false in fact; (3) that the guilty party, when he made them, made them recklessly without knowing whether they were false or true; and (4) That the victim is damaged thereby. Silence and omissions can be construed as misrepresentation in certain circumstances, such as when the omission reasonably results in a misunderstanding or the omission is of a fact that a reasonable person would want to know before entering into the contract.

General Statement is not Misrepresentation

Misrepresentation must be distinguished from puffing or sales language or the glowing opinions of a seller in the course of a sales pitch (such statements as "you'll love this car," or "it's a great deal").

How to create Liability

To create liability for the maker of the statement, a misrepresentation must be relied on by the aggrieved party. Also, the guilty party must know that the listener is relying on the factual correctness of the statement. Finally, the listener's reliance on the statement must have

Handout 5 Contract Act 1872

Quaid-e-Azam Law College Session 10/11

been reasonable and justified, and the misrepresentation must have resulted in a pecuniary loss to the listener. A misrepresentation need not be intentionally false to create liability. A statement made with conscious ignorance or a reckless disregard for the truth can create liability. Nondisclosure of material or important facts by a fiduciary or an expert, such as a doctor, lawyer, or accountant, can result in liability.. In such a case, the statement must be one of fact. Effects if Misrepresentation proved A misrepresentation can make a contract voidable at the option of aggrieved party he can accept and continue or rescind the contract. A Rescission of a contract returns the parties to the positions they held before the contract was made. A party can rescind a contract for misrepresentation only if the statement was material, or critical, to the agreement.

Mistake
Introduction In contract law a mistake is an erroneous belief, at contracting, that certain facts are true. A contract is also liable to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not at fault himself. Kinds of Mistake Unilateral Mistake Mutual/bilateral Mistake Unilateral Mistake A unilateral mistake is where only one party to a contract is mistaken as to the terms or subject-matter contained in a contract. Mutual/bilateral Mistake

Handout 5 Contract Act 1872

Quaid-e-Azam Law College Session 10/11

A mutual mistake occurs when the parties to a contract are both mistaken but about the same material fact within their contract. They are at cross-purposes. As such, there is no consensus ad idem, and this overlaps with the objective theory of contract, and there is no offer and acceptance. Hence the contract is void. Categories of Mistakes The first category - mistake as to the existence of the subjectmatter - is self-explanatory. It can easily happen if, say, goods are somewhere else, such as on the high seas, and unknown to both parties, they have perished. Incidentally, you can see that that would be a common mistake - both parties make the same mistake. The second category - mistake as to the quality of the subjectmatter - is one of the most difficult areas. If one person says: "I thought I was getting a left-handed double acting widget and you have delivered a right-handed single acting widget" and what was actually negotiated was "a widget", then you can see that one response might be (again) "Too bad". This would be a unilateral mistake - only one party is mistaken. The third category - mistake as to the terms - is also a difficult area but the High Court has brought some order to the area in the case of Taylor v Johnson. The fourth category - mistake as to title - is a rather special area and is concerned with the case where one person sells something to another and both think that the first person has good title to sell. The fifth category - mistake as to the identity of the other person - is also a rather special area and has given rise to great

Handout 5 Contract Act 1872

Quaid-e-Azam Law College Session 10/11

difficulties and differences of views. If A contracts with B thinking that he is contracting with C, what result? The sixth category - mistake in signing a document - where the person signing says "I thought it was a letter not a contract" or something along those lines - may allow that person to get out of the usual effect of signature. The final category - mistake about the contents of the document - that is, the document incorrectly records the transaction because of a slip of the pen, attracts a special equitable remedy called rectification under which a court may order that the document be rectified to accord with what the parties had agreed to. Effects of Mistake The effect of a mistake on the validity of a contract depends on the type and nature of the mistake made. The general rule is that where a mistake has been made by the parties, at common law the contract may be deemed void, as if the contract had never existed. But in some cases Law takes more flexible approach in that contracts containing certain mistakes may be treated as voidable, where either party can terminate the contract.