Free Consent

Introduction: An agreement is valid only when it is made with the free consent of the parties. Consent is achieved when two or more persons agree on the same thing in the same sense. Consent is said to be free if it is not caused by A) B) C) D) E) Coercion Undue influence Fraud Misrepresentation Mistake.

Coercion: (section:15) is the committing or threatening to commit any act (i)

forbidden by Pakistan Penal Code.(PPC) (ii) unlawfully detaining or threatening to detain any property to the prejudice of any person; with the intention of causing any person to enter into a contract. Examples: (1) A threatens to shoot B if he does not gives his house on rent. B agrees to rent the house. (2) An agent refuses to hand over the account books to the new agent unless the principle releases him from all liabilities. The principle gives a release deed. (3) M forced B to enter into an agreement on a ship near Dubai. M later sued B for breach of contract at Karachi. M has applied coercion although PPC was not enforced at the time of contract. Case Law: (a) Threat to commit suicide was given if son & mother do not write a release deed. Attempt at committing suicide is an offence u/s: 309 PPC but a threat to committing suicide is not an offence. It was held that a threat is forbidden hence coercion was committed. Second opinion: The meaning of
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the section should be constructed strictly. An act not punishable under the code should not be regarded as forbidden by the code.(1914 Mad. 33) (b) A mere threat of criminal proceedings is not sufficient to avoid a contract on grounds of coercion. Creditor threatens debtor to involve him in a criminal case. It will not be coercion if there is basis for such prosecution. (PLD 1959 Kar. 466)

Undue Influence: Section: 16(1)

A contract in which the relations subsisting between the parties are such one of the party is in a position to dominate the will of the other & uses that position to obtain an unfair advantage over the other. Section: 16(2) a person is to dominate the will of the other in following circumstances: a. Where he holds a real & apparent authority over the other. Example: A, a police officer buys property worth Rs: one million for Rs: one lac from B an accused under his custody. Later B sued to cancel the sale contract as A was in a position to dominate the will of B b. Where he stands in a fiduciary relation to the other: It is a mutual relationship of trust & confidence. It exits in case of father & son, lawyer & client, guardian & minor, doctor & patient, Banker & client. c. Where he makes a contract with a person suffering from mental distress. The mental capacity of the person is temporarily or permanently affected. This may be due to old age, mental or physical illness The burden of Proof: is on the party which is in a position to dominate the other. He can disprove the presumption of undue influence by a. The facts were fully disclosed. b. The price was sufficient c. The dominated party was in a position to received independent advice.

Example: Illiterate pardanashin lady Case Law: (1) Where no such relationship exists (as described above) the burden of proving the exercise of undue influence rests on the party who seeks to avoid the contract. Whereas, in the case of existence of such relationship it is for the party who is in a position to influence the other to show that the transaction was fair. (PLD 1958 Lah. 614) (2) Banker and Bank customer: The bank may have a practice of obtaining signature of their customers on blank forms. If the purpose is to facilitate the making & completion of documents there nothing wrong in obtaining signatures on blank form & documents. It is essential for the bank to that in such blank signed documents, it must inform/notify the customer as to what has been filled thereafter & no objection has been made by the customer. If the objective of the bank is to entrap the customer with the signed blank documents/forms or the bank did not inform/notify the customer as to what has been filled into the documents; then such document could be tainted with illegality on grounds of unconscionable, inequality of bargaining power as well as economic duress. (Abdul Rahim Vs United Bank of Pakistan)PLD 1997 Kar. 62 Section: 19-A
When consent in an agreement is caused by undue influence, the contract is voidable at the option of the party whose consent was so caused. Such contract will be set aside. If the party who was entitled to avoid the contract has received any benefit then the court will decide as to the terms & conditions which are just. Illustration: A, a money lender had advanced Rs: 100 to B a poor agriculturalist. Through undue influence induces B to execute a bond of Rs: 200 with an interest of 6% per month. The court may set aside the bond ordering B to repay Rs: 100 & interest as may seem just.

Fraud:
Section:17 The term fraud includes all acts committed by a party to induce the other party to enter into a contract with an intention to deceive. 1. False Statement: When a party to a contract make a false statement intentionally. He would be liable for fraud. 2. Active Concealment: when party to a contract conceals material facts, essential to a contract; which he is under an obligation to disclose to the other party. Example: A, sells the house to B The house has cracked walls. A fills it up to conceal the defect. B cannot find the defect. A is guilty of fraud. 3. Intentional Non-performance: when a person while making a contract has no intention to perform his part of the performance. It is considered as an act of fraud. Example: X purchases goods from Z on credit without any intention of paying back. 4. Intention to Deceive: Any other act fitted to deceive means any act which is done with the intention to commit fraud. A person can adopt any method to cheat the other party. 5. Any act or omission which a law has declared to be fraudulent.

Explanation: (I) By maintaining silence as to facts which are likely to effect

the willingness of a person to enter into a contract is not fraud. Unless the circumstances of the case are such that it becomes the duty of the person to speak out or unless his silence itself is equivalent to speech. Principle of Caveat Emptor (Let the buyer be aware). In sale/purchase contracts it is the duty of the buyer to remain vigilant & ensure that his/her purchase is according to the requirement. Example: A and B being traders enter into a contract. A has private information of a change in the prices which will effect Bs willingness to enter into the contract. A is not bound to inform B.

(II) Contract of uberrimate fidei (of utmost good faith): In such contracts it is the duty of the parties to disclose all material fact. (see page 8 & 9) (III) Islamic Law: (Wafaq-i-Pakistan VS Awamunnas) [Shariat Appellate Bench] Under Islamic Law the seller is bound to disclose all defects or any information which will affect the buyers decision on accepting the contract. If defective or unwanted item is sold & buyer comes to know about it after the sale; he can exercise the option of defect & has the right to return the item.

Case Law: 1) Agent selling goods getting secret commission from the party. When a
bribe or secret commission is given to agent of an employer by a person who has entered into a contract of sale/purchase to induce the agent to act otherwise than with royalty & fidelity to his employer; such a contract is void & not enforceable in law. [PLD 1960 (WP) Kar. 291]

2) Sale of land: Seller hiding facts about title to property: A (defendant)

suppressed this material fact pertaining to the title of the property from B (plaintiff) B is justified in cancelling the sale contract on this ground. (PLD 1960Kar. 297)

Voidable contracts: [section: 19] When consent is caused by fraud, coercion or misrepresentation such contract is voidable at the option of the party whose consent was such caused. A party to a contract whose consent was caused by misrepresentation or fraud may insist that the contract may be performed in a way or he be put in a position in which he would have been if the representations made were true. When a contract is not voidable: Exception: Exercise of ordinary diligence: If consent is caused by misrepresentation, silence amount to fraud, the contract will not become

voidable if the party had the means of discovering the truth through ordinary diligence. Explanation: A fraud or misrepresentation which did cause consent to a contract of the party on whom such fraud/misrepresentation was practiced will not render the contract voidable.

Illustration: (i) A intending to deceive B falsely claim that 500 maunds of indigo are made
annually at As factory & thereby induces B to buy the factory. The contract is voidable at the option of B. (ii) A by misrepresentation, lead B to erroneously believe that 500 tons of indigo are produced annually As factory. B examines the accounts of the factory which show that only 400 ton are being produced.B then buys the factory. The contract is not voidable on account of As misrepresentation.

Assignment Questions: 1) Define & explain briefly Coercion Undue influence, Fraud and Misrepresentation. 2) Define fraud. When is the suggestion of a fact not fraud but misrepresentation? Explain by giving examples. 3) Define Free Consent & discuss the legal effects flowing from agreements made without free consent. 4) A nephew, managed the affairs of his aged aunt, persuaded her to give him all her property. What may be the presumption in a contract like this? Discuss 5) S sold his localized business to C (who had branches all over Punjab) and promised not to open a competing business anywhere within 10km radius of any of Cs branches. What may be the presumption in a contract like this? Discuss