Meaning of Free Consent

For an agreement to be legally binding as a contract, it is essential that the parties enter into it with their free consent. Section 10 of the Indian Contract Act, 1872 lists "free consent of parties competent to contract" as one of the essential elements of a valid contract.

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Definition of Consent (Section 13)

Before defining 'free consent', the Act first defines 'consent'. Section 13 states:

"Two or more persons are said to consent when they agree upon the same thing in the same sense."

This is known as "consensus ad idem" (meeting of minds). It means that the parties must agree on the same subject matter in the same understanding. If there is no consensus ad idem, there is no agreement at all (it might be a case of mistake). For example, if A intends to sell his Maruti car but B thinks he is buying A's Honda car, there is no consent, and therefore no agreement.

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Definition of Free Consent (Section 14)

Even if there is consent (agreement on the same thing in the same sense), that consent must be 'free'. Section 14 of the Indian Contract Act defines "Free Consent":

"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."

Thus, consent is considered 'free' only if it is not caused by any of these five vitiating factors.

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Consent otherwise than by free consent makes the contract voidable

The consequence of consent being caused by coercion, undue influence, fraud, or misrepresentation is that the agreement becomes a voidable contract at the option of the party whose consent was so caused.

Section 19 deals with the effect of agreements induced by coercion, fraud, or misrepresentation: "When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused."

Section 19A deals with the effect of agreements induced by undue influence: "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."

This means the aggrieved party has the choice to either uphold the contract or set it aside (avoid it). If the aggrieved party chooses to avoid the contract, it becomes void. Until the aggrieved party exercises this option, the contract remains valid and binding on both parties.

However, if consent is caused by Mistake, the effect on the contract may be different. As per Section 14(5), mistakes are subject to Sections 20, 21, and 22. Depending on the nature of the mistake (e.g., bilateral mistake of fact, unilateral mistake of fact, mistake of law), the agreement may be rendered void (Section 20 - bilateral mistake of fact essential to agreement) or remain valid (Section 22 - unilateral mistake of fact, Section 21 - mistake of Indian law).

In summary, the absence of free consent (due to the first four factors) typically makes a contract voidable, whereas mistake can make it void or have no effect, depending on the type of mistake.

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Factors vitiating Free Consent

Section 14 identifies five elements that, if they cause the consent, prevent it from being free. Let's examine each of these factors in detail.

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Coercion (Section 15)

Section 15 defines "Coercion" as:

"Coercion' is the committing, or threatening to commit, any act 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 is or is not in force in the place where the coercion is employed.

Essentials of Coercion:

• Act Forbidden by IPC: Committing or threatening to commit an act which is a crime under the IPC (e.g., threatening to cause physical harm, threatening to kill).
• Unlawful Detention of Property: Unlawfully keeping someone's property or threatening to do so.
• To the Prejudice of Any Person: The act/threat must cause prejudice not necessarily to the party contracting, but potentially to any person (e.g., threatening a relative of the contracting party).
• Intention to Cause Agreement: The coercion must be employed with the specific aim of forcing the other person to enter into an agreement.
• Place of Coercion: The place where coercion is applied is irrelevant; the IPC reference is only to define the nature of the forbidden act.

Effect: A contract induced by coercion is voidable at the option of the party whose consent was caused by coercion (Section 19).

Burden of Proof: The burden of proving that consent was caused by coercion lies on the party who alleges it.

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Undue Influence (Section 16)

Section 16 defines "Undue Influence":

(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—

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

Essentials of Undue Influence:

• Relation between Parties: One party must be in a position to dominate the will of the other.
• Dominating Position Used: The dominant party must use that position.
• Unfair Advantage: The dominant party must obtain an unfair advantage over the other.

Presumption of Undue Influence (Section 16(2)): Certain relationships automatically create a presumption of dominant position:

• Real or apparent authority (e.g., employer over employee, police officer over accused).
• Fiduciary relation (relation of trust and confidence, e.g., doctor and patient, lawyer and client, guru and disciple, trustee and beneficiary, parent and child).
• Contract with a person mentally distressed or incapacitated by age, illness, etc.

Unconscionable Transaction (Section 16(3)): If the transaction itself appears unfair or one-sided, and it's between parties where one is in a dominant position, the law presumes undue influence. The burden shifts to the dominant party to prove that the contract was fair and the other party's consent was free.

Effect: A contract induced by undue influence is voidable at the option of the party whose consent was so caused (Section 19A). The Court may set aside the contract absolutely or upon such terms and conditions as it deems just.

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Fraud (Section 17)

Section 17 defines "Fraud":

"'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 or 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.

Essentials of Fraud:

• Representation/Assertion: There must be a false statement or an act of concealment.
• Relates to Fact: The representation must be of a fact, not merely an opinion or a statement of future intention.
• Knowledge/Belief of Falsity: The person making the representation must know it is false, or believe it not to be true, or make it recklessly without caring whether it is true or false.
• Intention to Deceive/Induce: The representation must be made with the intent to deceive the other party or to induce them to enter into the contract.
• Action by Party/Agent: The act must be committed by a party to the contract or with their involvement or by their agent.
• Reliance: The other party must have acted upon the representation and been deceived by it.
• Sustained Loss: The other party must have suffered actual loss or injury as a result of acting on the fraudulent representation. (Though mere avoidance is possible even without proved loss if induced by fraud).

Mere silence is not fraud unless there is a duty to speak (e.g., contracts *uberrimae fidei* like insurance contracts where utmost good faith is required) or silence is equivalent to speech (e.g., a seller remaining silent when a buyer asks a direct question whose answer would reveal a defect).

Effect: A contract induced by fraud is voidable at the option of the party whose consent was so caused (Section 19). The aggrieved party can either affirm the contract or repudiate it. In addition, the aggrieved party may also claim damages for fraud.

Exception (Proviso to Section 19): If the party whose consent was caused by fraud could have discovered the truth with ordinary diligence, they cannot avoid the contract on the ground of fraud (except in cases of fraudulent silence). This exception does not apply when consent is caused by misrepresentation.

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Misrepresentation (Section 18)

Section 18 defines "Misrepresentation":

"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."

Essentials of Misrepresentation:

• False Statement: A false statement or assertion is made.
• Belief in Truth: The person making the statement honestly believes it to be true. This distinguishes it from fraud, where there is knowledge or belief of falsity.
• No Intention to Deceive: The statement is made innocently, without any intent to deceive the other party.
• Inducement: The statement must be one that induces the other party to enter into the contract.
• Results in Prejudice/Mistake: The statement causes the other party to act to their prejudice or make a mistake as to the substance of the agreement.

Misrepresentation can be categorized into three types as per Section 18:

• Innocent false statement based on inadequate information.
• Breach of duty causing prejudice without deceitful intent.
• Causing innocent mistake about the subject matter's substance.

Effect: A contract induced by misrepresentation is voidable at the option of the party whose consent was so caused (Section 19). The aggrieved party can either affirm the contract or repudiate it.

Proviso to Section 19 (applies to Misrepresentation): If the party whose consent was caused by misrepresentation could have discovered the truth with ordinary diligence, they cannot avoid the contract on that ground. This proviso applies to misrepresentation as well as fraud (except fraudulent silence). However, unlike fraud, damages cannot usually be claimed for innocent misrepresentation under contract law, although other laws might provide remedies.

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Mistake (Sections 20, 21, 22)

Mistake refers to an erroneous belief about something. Unlike the other four factors, mistake does not vitiate consent (cause consent which wasn't free); it negates consent altogether if it is a fundamental mistake about facts essential to the agreement (no consensus ad idem). The effect of mistake depends on its type:

(a) Bilateral Mistake of Fact (Section 20):

"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."

Essentials:

• Mistake must be by both parties.
• Mistake must be regarding a matter of fact (not law).
• The fact must be essential to the agreement (e.g., existence of subject matter, identity of subject matter, quality of subject matter, possibility of performance).

Effect: The agreement is void from the beginning. No contract is formed.

(b) Unilateral Mistake of Fact (Section 22):

"A contract is not voidable merely because it was caused by one of the parties being under a mistake as to a matter of fact."

Effect: A contract is generally valid even if only one party is under a mistake of fact, unless the mistake is caused by the fraud or misrepresentation of the other party (in which case it would be voidable under Section 19). Exceptions exist where a unilateral mistake might make a contract void, such as mistake regarding the identity of the person contracted with (if identity is crucial) or mistake regarding the nature of the document signed (non est factum).

(c) Mistake of Law (Section 21):

"A contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not in force in India has the same effect as a mistake of fact."

Explanation: Mistake as to a matter of fact being essential to the agreement is voidable.

Effect:

• Mistake of Indian Law: An agreement is generally valid even if the parties are mistaken about a law in force in India. The principle is that 'ignorance of law is no excuse'.
• Mistake of Foreign Law: A mistake regarding a law not in force in India (foreign law) is treated as a mistake of fact. If such a mistake is bilateral and essential to the agreement, the agreement will be void under Section 20.

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Comparison Table: Factors Vitiating Free Consent

Factor	Section	Meaning	Key Element	Presumption?	Effect on Contract	Remedies for Aggrieved Party
Coercion	15	Threatening/committing forbidden act (IPC) or unlawful detention of property to induce agreement.	Physical or property threat. Compulsion.	No	Voidable at option of aggrieved party.	Rescind contract.
Undue Influence	16	Using a position of dominance to obtain unfair advantage.	Mental/moral pressure within a relationship. Abuse of position.	Yes, in specific relationships (Sec 16(2)) & unconscionable transactions (Sec 16(3)).	Voidable at option of aggrieved party.	Rescind contract (Court may impose terms).
Fraud	17	Intentional false representation or active concealment of fact to deceive/induce.	False statement/concealment made knowingly or recklessly, with intent to deceive.	No	Voidable at option of aggrieved party.	Rescind contract AND claim damages.
Misrepresentation	18	Innocent false statement believed to be true, causing mistake/prejudice.	False statement made innocently, without intent to deceive.	No	Voidable at option of aggrieved party (subject to diligence proviso).	Rescind contract (Damages generally not available under Contract Act).
Mistake	20, 21, 22	Erroneous belief.	Lack of consensus ad idem on essential fact (Bilateral Fact) or erroneous belief (Unilateral Fact/Law).	No	Bilateral Mistake of Fact (Essential): Void (Sec 20). Unilateral Mistake of Fact: Valid (Sec 22). Mistake of Indian Law: Valid (Sec 21). Mistake of Foreign Law: Treated as Mistake of Fact (Sec 21).	If Void: Agreement is unenforceable. If Voidable: Rescind contract. If Valid: No remedy on ground of mistake.

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Definition of Coercion

As discussed earlier, free consent is an essential element for a valid contract. Consent is not considered 'free' if it is caused by coercion. Section 15 of the Indian Contract Act, 1872 provides the legal definition of "Coercion".

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Definition under Section 15

"Coercion' is the committing, or threatening to commit, any act 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 is or is not in force in the place where the coercion is employed.

This definition outlines two main ways in which coercion can be exercised:

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Committing or threatening to commit any act forbidden by Indian Penal Code

The first part of the definition deals with actions that are illegal under the Indian Penal Code (IPC). This includes both committing an act that is a crime under the IPC or merely threatening to commit such an act. The intention must be to use this threat or act to force someone to enter into an agreement against their free will.

• Act forbidden by IPC: This refers to any action that is punishable as an offence under the IPC. Examples include assault, battery, criminal intimidation, kidnapping, murder, grievous hurt, etc.
• Committing or Threatening: Coercion can be the actual commission of such an act or merely threatening to commit it. Both are sufficient to constitute coercion if done with the requisite intention.
• Intention to cause Agreement: The act or threat must be specifically aimed at compelling a person to enter into a contract. If the illegal act/threat is for some other purpose, it might not amount to coercion under contract law.

The Explanation to Section 15 is important: The reference to the IPC is merely to define the nature of the forbidden act. The fact that the IPC might not be in force in the geographical location where the coercion takes place is irrelevant. What matters is whether the act committed or threatened would be an offence if committed in India where the IPC applies.

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Unlawfully detaining or threatening to detain property

The second part of the definition relates to property. Coercion can also be exercised by unlawfully seizing or keeping someone's property, or threatening to do so, with the intention of compelling them to enter into an agreement.

• Unlawful Detention: Keeping possession of property without legal justification.
• Threatening to Detain: Warning someone that their property will be unlawfully kept from them.
• To the Prejudice of any Person Whatever: The property does not necessarily have to belong to the party who is being coerced into the agreement. Unlawful detention or threat against anyone's property that prejudices the person entering the agreement (e.g., property of a family member) can constitute coercion.
• Intention to Cause Agreement: As with the first part, the purpose must be to force someone into a contract.

Key Elements Summarized:

1. Act/Threat forbidden by IPC, OR Unlawful detention/threat of detention of property.
2. The act/threat must be to the prejudice of any person (not necessarily the contracting party).
3. The act/threat must be done with the intention of causing the other party to enter into a specific agreement.

Mere commercial pressure or threat to breach a contract is generally not considered coercion under Section 15. Coercion involves a threat that is illegal or relates to unlawful detention of property as specified in the definition.

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Effect of Coercion

When consent to an agreement is caused by coercion, the agreement is not void from the beginning. Instead, it is treated as a voidable contract.

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Contract becomes voidable at the option of the party coerced

Section 19 of the Indian Contract Act, 1872, specifies the effect on the contract:

"When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused."

This means that the agreement is binding on the party who exercised the coercion, but not on the party whose consent was obtained through coercion. The aggrieved party (the party whose consent was coerced) has the option to either:

• Affirm the contract: They can choose to treat the contract as valid and proceed with its performance.
• Avoid or Rescind the contract: They can choose to set aside or cancel the contract. Upon rescission, the contract becomes void.

The aggrieved party must exercise this option within a reasonable time. If they fail to repudiate the contract within a reasonable time after the coercion has ceased, or if they do something to affirm the contract (e.g., accept benefits under it), they may lose the right to avoid it.

Consequences of Rescission due to Coercion (Section 64):

When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is the promisor. If the party rescinding the voidable contract has received any benefit under the contract from another party, he must restore such benefit, so far as may be, to the person from whom it was received.

Example: If Mr. Tarun (from Example 1) successfully gets the contract to sell his house set aside due to coercion, he is entitled to recover possession of his house. If he received any payment, he would likely have to return it (subject to the court's discretion and the specific facts).

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Answer:

Burden of Proof

In a legal dispute where one party alleges that their consent to a contract was obtained through coercion, the burden of proving this fact lies with that party.

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On the Party Alleging Coercion

According to general principles of evidence, the party who asserts a fact must prove it. Therefore, if a party claims that their consent was caused by coercion, they must provide sufficient evidence to satisfy the Court that the requirements of Section 15 have been met. They need to show that:

• An act forbidden by the IPC (or threat thereof) occurred, OR unlawful detention of property (or threat thereof) occurred.
• This was done to their prejudice or the prejudice of someone else.
• The intention was to cause them to enter into the specific agreement.
• Their consent was in fact caused by this coercion.

The Court will examine the evidence to determine if the alleged act/threat falls within the definition of coercion and if it actually influenced the party's decision to enter into the contract. Mere allegation of pressure is not enough; it must meet the specific legal standard defined in Section 15.

Unlike undue influence in certain relationships, there is no legal presumption of coercion. The party alleging coercion must affirmatively prove it.

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Definition of Undue Influence

Undue Influence is another factor that vitiates free consent under Section 14 of the Indian Contract Act, 1872. It deals with situations where one party uses their position of power or influence over another to obtain consent to an agreement that is unfair. Section 16 provides the definition.

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Definition under Section 16

Section 16(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."

This main clause sets out the core requirements for undue influence. It's not about physical force or threat (like coercion), but about moral or mental pressure arising from a relationship between the parties.

Essentials of Undue Influence:

• Relationship between the parties: There must be a relationship between the parties that allows one to influence the other.
• Position to dominate will: One party must be in a position to dominate the will of the other.
• Use of dominant position: The dominant party must have *used* that position.
• Obtaining unfair advantage: The dominant party must have obtained an unfair advantage over the other party as a result of using that position.

The other subsections of Section 16 elaborate on when a person is deemed to be in a position to dominate the will of another and shift the burden of proof in certain circumstances.

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One party is in a position to dominate the will of the other

This is a critical element. A person is in a position to dominate the will of another if they have some authority or influence over the other person, or if the other person is dependent on them. Section 16(2) provides specific instances where a person is deemed to be in such a position:

Section 16(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."

• Real or Apparent Authority: This includes relationships like employer and employee, police officer and accused, income tax authority and assessee, etc., where one party has actual or perceived power over the other.
• Fiduciary Relation: This refers to a relationship of trust and confidence. One party reposes trust in the other, and the other party is expected to act for the benefit of the first. Examples include doctor and patient, lawyer and client, trustee and beneficiary, spiritual advisor/guru and disciple, parent and child, guardian and ward.
• Mental or Bodily Distress: When a person enters into a contract with someone whose mental capacity is affected by age, illness, or distress. Such a person is more susceptible to influence.

These categories are not exhaustive; a dominant position can be shown to exist in other relationships based on the facts of the case.

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And uses that position to obtain an unfair advantage

Simply being in a dominant position is not enough. The dominant party must *use* that position to obtain an unfair advantage in the transaction. An "unfair advantage" means a gain or benefit that is not justified by the circumstances and is detrimental to the other party. The transaction must be such that it would not have been entered into but for the undue influence. The terms of the contract often provide evidence of unfair advantage; if the terms are highly unfavourable to the weaker party and unduly beneficial to the stronger party, it suggests unfair advantage.

Example: A doctor sells a property to his patient at a price significantly below the market value, while the patient is seriously ill and relying on the doctor for medical advice. The doctor is in a dominant position, and buying the property at a throwaway price is an unfair advantage.

The element of unfair advantage is closely linked to the concept of an 'unconscionable transaction' which is discussed in Section 16(3) regarding the burden of proof.

Presumption of Undue Influence

Section 16 introduces a significant principle regarding the burden of proof in certain cases, creating a presumption of undue influence.

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Real and apparent consent

This seems to be a misinterpretation of the heading within the context of Section 16. Section 16 does not use the term "real and apparent consent". It deals with situations where consent is *not* free, despite appearing to be so, because it is caused by undue influence. The core idea is that the relationship between the parties raises a suspicion that the weaker party's consent might not have been truly free and independent, but rather influenced by the dominant party. Let's focus on the legal presumption as stated in Section 16(3).

When the Presumption Arises (Section 16(3)):

Section 16(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 subsection creates a rebuttable presumption of undue influence when two conditions are met:

1. One party is in a position to dominate the will of the other (as defined in Section 16(2)).

2. The contract entered into appears to be unconscionable (unfair or unreasonable) either on the face of it (e.g., a sale at a grossly inadequate price) or based on the evidence presented.

When these two conditions are satisfied, the law presumes that the contract was induced by undue influence. The burden of proof then shifts from the party alleging undue influence to the dominant party to prove that the weaker party's consent was truly free and independent, and that the transaction was fair and equitable. The dominant party must show that the weaker party had independent advice, fully understood the terms, and was not acting under the pressure of the dominant position.

Example: An elderly, illiterate villager mortgages his entire land holding worth Rs. 50 Lakhs to a local moneylender (who holds apparent authority) for a loan of only Rs. 5 Lakhs at an exorbitant interest rate. The transaction appears unconscionable. The moneylender is in a position to dominate. The law will presume undue influence, and the moneylender will have to prove otherwise.

Effect of Undue Influence

When a contract is found to have been induced by undue influence, it is not automatically void. Its effect is similar to contracts induced by coercion, fraud, or misrepresentation.

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Contract is voidable at the option of the party whose consent was so caused

Section 19A of the Indian Contract Act, 1872 specifically deals with the effect of undue influence:

"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."

Key points regarding the effect:

• Voidable: The contract is not void ab initio; it is valid until the aggrieved party (the party whose consent was obtained by undue influence) chooses to avoid it.
• Option of the Aggrieved Party: Only the party whose will was dominated has the option to either affirm the contract or set it aside (rescind it).
• Court's Discretion: When setting aside the contract, the Court has the discretion to do so either absolutely or, if the aggrieved party has received any benefit, upon such terms and conditions (e.g., requiring restitution of the benefit) as the Court considers just and equitable.

Example: A spiritual guru unduly influences a disciple to transfer property. The disciple can choose to affirm the transfer or sue to set it aside. If the disciple received anything in return, the Court may order the disciple to return it while setting aside the transfer of property.

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Burden of Proof

In cases where undue influence is alleged, the burden of proof can lie on either party depending on whether a presumption of undue influence arises.

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General Rule

Ordinarily, the burden of proving that consent was caused by undue influence lies on the party who alleges it. The party claiming undue influence must prove:

• That the other party was in a position to dominate their will.
• That the other party actually used that position.
• That the other party obtained an unfair advantage.

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Shift in Burden of Proof (Section 16(3))

As discussed earlier, Section 16(3) creates an exception to the general rule regarding the burden of proof. When the two conditions are met (dominant position AND unconscionable transaction), the burden shifts:

"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."

In such cases, the dominant party must prove that the contract was fair and that the consent of the weaker party was truly free. They may do this by showing:

• That the weaker party had independent legal advice and fully understood the transaction.
• That the price or terms were fair market value.
• That the weaker party entered into the transaction voluntarily after due deliberation.

The presumption created by Section 16(3) is a powerful tool for protecting weaker parties in relationships where undue influence is likely to occur.

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Definition of Fraud

Fraud is one of the factors that prevent consent from being free under Section 14 of the Indian Contract Act, 1872. It involves a deliberate misrepresentation or concealment of facts made with the intention to deceive and induce another party into a contract. Section 17 provides a comprehensive definition of "Fraud".

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Definition under Section 17

"'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 or 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."

Key elements of Fraud:

• Act by Party/Agent: The act must be committed by a party to the contract, or with their involvement, or by their agent.
• Intention to Deceive/Induce: The act must be done with the intention to deceive the other party or to induce them to enter into the contract.
• False Representation or Concealment: One of the specific acts listed in (1) to (5) must have occurred.

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Includes acts to deceive another to enter into an agreement

The introductory part of Section 17 establishes the overall intent: the enumerated acts constitute fraud if committed with the purpose of deceiving another party to the contract and thereby inducing them to enter into it. This highlights the deceptive nature and the causal link required between the fraudulent act and the victim's entry into the agreement.

Section 17(1): Suggestion of a false fact: This is the most common form of fraud - making a positive statement of fact which is false, with the knowledge or belief that it is false. The person making the statement does not believe it to be true.

Example: Selling a horse and stating it is sound, knowing that it has a chronic illness.

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Active concealment of fact

Section 17(2): This covers hiding or suppressing a material fact with the knowledge that the fact exists. Unlike mere silence, active concealment involves deliberate steps to prevent the other party from discovering the truth. This implies more than just not speaking; it involves positive actions to conceal.

Example: Hiding defects in a property by painting over cracks, or removing a visible fault before inspection.

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Promise made without intention to perform

Section 17(3): This refers to making a promise about future performance with no genuine intention of keeping that promise. This can be hard to prove, as it involves the promisor's state of mind at the time the promise was made.

Example: Taking an advance payment for goods with the promise to deliver them by a certain date, while having no intention of ever delivering the goods or capability to do so, and then disappearing with the money.

Other acts fitted to deceive (Section 17(4))

This is a broad category covering any other act or trickery designed to mislead the other party into entering the contract. It is a residuary clause to cover forms of deception not specifically listed.

Example: Using false weights or measures to deceive a buyer during a transaction.

Acts or omissions declared fraudulent by law (Section 17(5))

Some specific statutes or laws may declare certain acts or omissions in particular transactions as fraudulent. For instance, the Insolvency and Bankruptcy Code may deem certain transfers by a debtor as fraudulent.

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Effect of Fraud

When consent to an agreement is caused by fraud, the consequences for the contract are significant, giving options to the party who was defrauded.

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Contract is voidable at the option of the party defrauded

Section 19 of the Indian Contract Act, 1872, governs the effect:

"When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused."

This means:

• Voidable: The contract is not void from the beginning. It is a valid and binding contract until the party whose consent was obtained by fraud chooses to terminate it.
• Option of the Aggrieved Party: The party who was defrauded (the victim of fraud) has the exclusive right to decide whether to uphold the contract or set it aside (rescind it). The fraudulent party cannot claim the contract is void or voidable.
• Rescission or Affirmation: The defrauded party can either:
  • Rescind (Avoid) the contract: Declare the contract void and seek to be restored to their original position. If they received any benefit, they must restore it (Section 64).
  • Affirm the contract: Choose to continue with the contract. If they affirm the contract (e.g., by accepting benefits under it after discovering the fraud, or by acting in a way that treats the contract as binding), they lose the right to later rescind it.
• Damages: In case of fraud, the aggrieved party has an additional remedy compared to misrepresentation: they can not only rescind the contract but also claim damages suffered as a result of the fraud. This is because fraud involves an intent to deceive, which is a more serious wrong than innocent misrepresentation.

Proviso to Section 19 (Exception): The party whose consent was caused by fraud cannot avoid the contract if they had the means of discovering the truth with ordinary diligence. However, this proviso does not apply if the fraud was committed by fraudulent silence where there was a duty to speak. This means if the fraud was active or a false statement, and the victim could easily have found the truth, they might lose the right to rescind. But if the fraud was by silence when speaking was necessary, the victim can still avoid the contract even if they could have discovered the truth.

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When Silence is Fraud

While the general rule is that mere silence is not fraud (caveat emptor - let the buyer beware), the Explanation to Section 17 carves out exceptions where silence can amount to fraud.

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Duty to speak

Explanation to Section 17: "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."

Silence can constitute fraud in two main scenarios:

1. Where there is a duty to speak: The law or the nature of the relationship between the parties imposes a duty on one party to disclose material facts to the other. These are contracts requiring 'utmost good faith' (*uberrimae fidei*).

Examples of contracts requiring utmost good faith include:

• Contracts of Insurance: The insured has a duty to disclose all material facts known to them that are likely to affect the insurer's decision to issue the policy or the premium charged. Failure to disclose material facts amounts to fraud (or misrepresentation, depending on knowledge).
• Contracts of Marriage (Engagement): Parties to a marriage contract have a duty to disclose material facts about their health, previous marital status, etc.
• Contracts of Family Settlement: Parties are expected to make full disclosure of relevant facts known to them.
• Fiduciary Relationships: In relationships based on trust and confidence (like parent-child, guardian-ward), the dominant party has a duty to make full disclosure when entering into a contract with the weaker party.
• Contracts for Sale of Land (sometimes): While *caveat emptor* applies generally, certain latent defects that are not discoverable with ordinary inspection and are known to the seller might create a duty to disclose.

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Silence is equivalent to speech

2. Where silence is equivalent to speech: Sometimes, remaining silent in response to a direct question or in specific circumstances creates a false impression, just as if a false statement had been made. This is where silence is deceptive.

Example: A seller is asked, "Is the house free from termites?" If the seller knows there are termites but remains silent, their silence is equivalent to saying "Yes, it is free from termites," which is a false statement. This would amount to fraud.

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Definition of Misrepresentation

Like coercion, undue influence, and fraud, Misrepresentation is a factor that prevents consent from being free under Section 14 of the Indian Contract Act, 1872. It involves a false statement made by one party to another before or at the time of contracting, which induces the other party to enter into the contract. However, unlike fraud, misrepresentation is an innocent false statement, made without any intention to deceive. Section 18 provides the definition of "Misrepresentation".

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Definition under Section 18

"'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 definition covers three distinct ways in which misrepresentation can occur, all characterized by the absence of a deliberate intent to deceive.

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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

Section 18(1): This is the most common form of misrepresentation. It occurs when a person makes a positive statement about a fact, honestly believing it to be true, but the statement turns out to be false. The person making the statement lacks sufficient reliable information to warrant making such a statement confidently as true.

• Positive Assertion: A definite statement is made.
• Not True: The statement is factually incorrect.
• Belief in Truth: The person making the statement genuinely believes it is true. This is the key difference from fraud.
• Not Warranted by Information: The belief is not supported by sufficient or reliable information. The person is making a statement based on inadequate knowledge.
• Inducement: The statement must be one that induces the other party to enter into the contract.

Example: Selling a property and stating it is connected to a municipal water supply, honestly believing it to be true based on old information, when in fact the connection was disconnected years ago.

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Breach of duty without intention to deceive

Section 18(2): This clause is broader and covers situations where a breach of a legal or moral duty, even if innocent, misleads another party to their detriment and results in an advantage for the person committing the breach. There is no intent to deceive, but the misleading happens due to a failure in fulfilling a duty.

• Breach of Duty: There is some form of duty, though not necessarily a contractual one at that point.
• Without Intent to Deceive: The act or omission is innocent in terms of intent.
• Misleading Another: The breach of duty causes the other party to be misled.
• To Prejudice: The other party suffers some harm or disadvantage.
• Gains Advantage: The party in breach gains some advantage.

Example: A company prospectus contains a statement, which, though literally true, is misleading because it omits certain material facts. If this is done innocently, it could be misrepresentation under this clause, provided it leads to prejudice and gain.

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Causing, however, innocently, a party to make a mistake as to the substance of the subject-matter

Section 18(3): This covers situations where one party causes the other party, albeit innocently and without intending to mislead, to make a mistake about a fundamental aspect (substance) of the subject matter of the agreement.

• Innocent Act/Omission: The act or omission causing the mistake is not fraudulent.
• Causes Mistake: It leads the other party to have an erroneous belief.
• Mistake as to Substance: The mistake must be regarding a matter of fact essential to the agreement, concerning the very nature or core quality of the subject matter.

Example: Selling goods described in a way that honestly but mistakenly leads the buyer to believe they are of a particular quality or type, where that quality/type is essential to the agreement.

Example: Selling a block of wood honestly believing and stating it is rosewood, whereas it turns out to be a different, less valuable type of wood. If the type of wood was essential to the buyer's decision, this could be misrepresentation under Section 18(3).

In all three clauses, the absence of intention to deceive is the unifying factor that distinguishes misrepresentation from fraud.

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Effect of Misrepresentation

The consequence of a contract being induced by misrepresentation is that it affects the freeness of consent and makes the contract voidable.

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Contract is voidable at the option of the party misled

Section 19 of the Indian Contract Act, 1872, states the effect:

"When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused."

This means that:

• Voidable: The contract is valid and binding until the party whose consent was caused by misrepresentation chooses to avoid it.
• Option of the Aggrieved Party: Only the party who was misled has the right to either uphold or rescind the contract.
• Rescission or Affirmation: The misled party can either:
  • Rescind (Avoid) the contract: Terminate the contract and seek to restore the original position. Any benefit received must be returned (Section 64).
  • Affirm the contract: Choose to continue with the contract, despite discovering the misrepresentation. Once affirmed, the right to rescind is lost.
• No Claim for Damages (Generally): Unlike fraud, the general rule under the Contract Act is that the party misled by innocent misrepresentation cannot claim damages for the loss suffered, although they can rescind the contract. However, other laws or equitable principles might provide remedies in certain situations.

Proviso to Section 19 (Applies to Misrepresentation): The party whose consent was caused by misrepresentation cannot avoid the contract if they had the means of discovering the truth with ordinary diligence.

Example: If a seller innocently misrepresents the age of a machine, but the buyer could easily determine the actual age from the machine's serial number with a quick check, the buyer might lose the right to rescind the contract on the ground of misrepresentation if they failed to exercise ordinary diligence.

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Distinction between Fraud and Misrepresentation

Both fraud and misrepresentation involve false statements that induce a party to enter into a contract, making the contract voidable. However, they differ significantly in terms of the maker's state of mind and the consequences.

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Key Differences:

Basis	Fraud (Section 17)	Misrepresentation (Section 18)
Intention	There is an intention to deceive the other party.	There is no intention to deceive. The statement is made innocently.
Belief	The person making the statement does not believe it to be true (or makes it recklessly without belief).	The person making the statement honestly believes it to be true.
Knowledge of Falsity	The maker knows the statement is false or is reckless as to its truth.	The maker does not know the statement is false.
Element of Deceit	Essential element is deceit.	Absence of deceit.
Right to Damages	Aggrieved party can rescind the contract AND claim damages.	Aggrieved party can rescind the contract. Damages are generally not available under the Contract Act.
Proviso to Section 19	Does not apply if the fraud was by fraudulent silence. Applies in other cases of fraud (victim cannot avoid if could find truth by diligence, *unless* fraudulent silence with duty to speak).	Always applies. Victim cannot avoid the contract if they could have discovered the truth with ordinary diligence.
Criminal Liability	Fraud may involve criminal liability under IPC (e.g., cheating).	Misrepresentation, being innocent, does not involve criminal liability.

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Mistake of Law vs. Mistake of Fact

Mistake, in the context of contract law, refers to an erroneous belief held by one or both parties at the time of entering into the agreement. Unlike coercion, undue influence, fraud, and misrepresentation, which vitiate consent, certain types of mistakes can negate consent altogether, meaning there is no genuine agreement (no consensus ad idem) on a fundamental matter.

Sections 20, 21, and 22 of the Indian Contract Act, 1872 deal with the effect of mistake on an agreement. A key distinction is drawn between a mistake of law and a mistake of fact.

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Mistake of Law

Section 21 deals with the effect of mistakes as to law:

"A contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not in force in India has the same effect as a mistake of fact."

Mistake of law is no excuse

The general rule regarding mistake of law in force in India is embodied in the maxim "Ignorantia juris non excusat" (ignorance of the law is no excuse). Parties are presumed to know the law of their own country. Therefore, if a party enters into a contract being mistaken about a provision of Indian law, the contract is generally not voidable or void on that ground. The agreement remains valid.

Example: A enters into a contract to sell certain goods to B, believing that a particular tax is applicable, when in reality, that tax was abolished. If the contract is otherwise valid, the mistake about the tax law will not make the contract voidable. A is still bound by the contract.

Mistake of Foreign Law:

Mistake as to a law not in force in India (foreign law) is treated as a mistake of fact. Therefore, if both parties are mistaken about a foreign law, and that foreign law is essential to the agreement, the agreement would be void under Section 20, similar to a bilateral mistake of fact.

Example: An Indian company contracts with a German company for the import of goods, being mutually mistaken about a requirement under German customs law that is essential for the import to be possible. This mistake of foreign law (a law not in force in India) would be treated as a mistake of fact. If it is bilateral and essential, the agreement might be void under Section 20.

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Mistake of Fact

Mistake of fact occurs when parties have an erroneous belief about a fact relating to the contract. The effect of a mistake of fact depends on whether it is a bilateral mistake (by both parties) or a unilateral mistake (by one party), and whether the fact is essential to the agreement.

Sections 20 and 22 govern mistakes of fact.

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When is a contract void due to Mistake? (Section 20)

Section 20 specifies the circumstances under which an agreement is rendered void due to a mistake of fact.

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Bilateral mistake as to matter of fact essential to the agreement

Section 20:

"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."

Explanation: An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not to be deemed a mistake as to a matter of fact essential to the agreement.

Essentials for Agreement to be Void under Section 20:

• Mistake must be by both parties (Bilateral): Both the offeror and the offeree must be under the same mistake. If only one party is mistaken (unilateral mistake), Section 20 does not apply (governed by Section 22).
• Mistake must be of fact: The mistake must relate to a fact, not a matter of law in force in India.
• Fact must be essential to the agreement: The mistake must relate to a fact that is fundamental or core to the agreement. It must be so important that if the parties had known the truth about that fact, they would not have entered into the agreement.

If all these conditions are met, the agreement is void ab initio. It is treated as if no agreement ever came into existence because there was no true meeting of minds (*consensus ad idem*) on the essential facts.

Examples of Essential Facts where Bilateral Mistake Renders Agreement Void:

• Mistake as to the existence of the subject matter: If both parties contract believing the subject matter exists, when in reality it had ceased to exist before the agreement (without their knowledge). E.g., contract for the sale of goods that were destroyed by fire before the sale, unknown to both parties.
• Mistake as to the identity of the subject matter: If both parties are mistaken about which specific thing is being contracted for. E.g., A offers to sell his car believing it is his Maruti, B agrees to buy it believing it is A's Honda.
• Mistake as to the quality of the subject matter (if essential): If the quality is so fundamental that it affects the very substance or nature of the thing. E.g., Contract for 'corn' which both parties believe to be 'new' corn, when in fact it is 'old' corn (which cannot be used for its intended purpose).
• Mistake as to the quantity of the subject matter (if essential): E.g., Sale of cargo which both parties believe to contain 100 bags, but it only contains 50, and quantity was essential.
• Mistake as to the possibility of performance: If the agreement is based on the mutual mistake that the act is possible, when it is physically or legally impossible to perform at the time of the agreement.

Explanation to Section 20: Mistake as to Value: An erroneous opinion as to the value of the subject matter is *not* considered a mistake of fact essential to the agreement. Parties make their own judgments about value, and a bad bargain due to misjudgment of value does not make the contract void.

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Mistake as to Identity

Mistake as to identity can relate either to the identity of the person with whom the contract is made or the identity of the subject matter of the contract.

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Mistake as to Identity of Subject Matter:

This is covered under the bilateral mistake of fact essential to the agreement (Section 20), as discussed above. If both parties are mistaken about which specific goods, property, or item is the subject of the contract, there is no consensus ad idem on an essential term, and the agreement is void.

Example: A offers to sell his property 'Greenacre'. He owns two properties named 'Greenacre', one in village X and one in village Y. B agrees to buy 'Greenacre' believing it is the one in village Y, while A intended to sell the one in village X. If both parties are referring to different properties named 'Greenacre', there is a bilateral mistake as to the identity of the subject matter, and the agreement is void under Section 20.

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Mistake as to Identity of Person:

Mistake as to the identity of the person with whom the contract is made is usually a unilateral mistake of fact. As per the general rule in Section 22, a contract is not voidable merely because one party was under a mistake of fact. Therefore, generally, a unilateral mistake as to the identity of the person does not make the contract void.

However, there are certain exceptions where a unilateral mistake as to the identity of the other party can render the contract void. This usually happens when:

• The identity of the person is of crucial importance to the contract (e.g., based on reputation, creditworthiness, or a prior relationship).
• The offer was intended for a specific person, and a different person accepts it, and the offeror is mistaken about the acceptor's identity.

Example: A intends to contract with B, a famous artist, for painting a portrait. C pretends to be B and accepts the offer. If A enters into the contract with C believing C is B, and B's identity was essential to the contract (A wanted B's specific artistic skills), the agreement might be void for unilateral mistake as to the identity of the person. Here, the offer was specifically to B, and C cannot accept it. Or, if A deals with C thinking C is B, there is no contract with C because A never intended to contract with C.

This is a narrow exception and depends heavily on whether the identity of the contracting party was truly essential to the formation of the agreement and was known to be so by the other party, or if the offer was specifically directed to someone else.

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Unilateral Mistake

Unilateral Mistake occurs when only one party to the agreement is under a mistake of fact. The general rule regarding unilateral mistake of fact is given in Section 22.

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Effect of Unilateral Mistake (Section 22)

Section 22:

"A contract is not voidable merely because it was caused by one of the parties being under a mistake as to a matter of fact."

This means that if only one party makes a mistake of fact, the agreement generally remains valid and binding on both parties. The law does not provide relief for a mistake made by only one party, unless the mistake was caused by the fraud or misrepresentation of the other party (in which case the contract would be voidable under Section 19).

Example: Mr. Jayant offers to sell his shares in 'XYZ Ltd.' to Mr. Kamal for Rs. 500 per share. Mr. Kamal accepts, believing that the market price is Rs. 600 per share, when in fact it is Rs. 450. Mr. Kamal's mistake about the market price is a unilateral mistake of fact. This mistake does not make the contract voidable or void. The contract remains valid, and Mr. Kamal is bound to buy the shares at Rs. 500.

The general principle is that each party is responsible for checking the facts relevant to their decision before entering into a contract. A party's own mistake, not induced by the other party, is usually not grounds for avoiding the contract.

Exceptions (where unilateral mistake might make agreement void):

Although Section 22 states the general rule, there are a few situations where a unilateral mistake might render the agreement void, primarily because the mistake is so fundamental that it prevents a real meeting of minds on an essential term:

• Mistake as to the identity of the person contracted with: As discussed in the previous section, if the identity of the party is crucial and the other party knows this or is responsible for the mistake in identity.
• Mistake as to the nature of the document signed (Non Est Factum): If a person signs a document fundamentally different from what they believed it to be, due to the deception of another, and they were not negligent. This principle means "it is not my deed".
• Mistake as to the essential nature of the contract: Very rarely, if one party knows that the other party is mistaken about a fundamental aspect of the very nature of the transaction and takes advantage of it, the agreement might be void.

These exceptions are limited and strictly construed. The general rule under Section 22 prevails: a unilateral mistake of fact does not make a contract voidable.

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