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Answer
Introduction
One of the essential of a valid contract mentioned in section 10 is that the parties
should enter into the contract
with their free consent.
This statement contains 2 major concepts: consent and free consent.
Meaning of consent
Section 13, Which
defines consent provides that:
"Two or more persons are said
to consented when they
agree upon the same thing in the
same sense."
This concept
is based on the principle of “consensus-ad-idem”, which basically means
agreeing upon the same thing in the same manner, or meeting of minds
Meaning of Free Consent
According to section 14, "Consent is said to be free when it is not caused by-
A. Coercion, sec 15,
B. Undue influence, sec 16,
C. Fraud, sec 17,
D. Misrepresentation, sec 18, or
E. Mistake, sec 20, 21 and 22.
Effect of contracts made without free consent
A contract without free
consent is considered as voidable contract.
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Consent caused by fraud
Fraud means deceit by one of
the parties, i.e. when one of the parties deliberately makes false statements. So,
the misrepresentation is done with full knowledge that it is not true, or
recklessly without checking for the trueness, this is said to be fraudulent. It
absolutely impairs free consent.
Section 17 of ICA defines,
and contains the provision regarding the fraud. It states as:
‘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 speak2, or unless
his silence, is, in itself, equivalent to speech. Illustrations
Illustration:
“A” agrees to sell his horse
to “B”. “A” had the knowledge that the horse is of unsound mind and did not
inform it to “B”. “B”, asked “A” if he does not deny the fact then “B” would
consider the horse to be sound and “A” kept silence to it. This will be
considered as a fraudulent act.
Fraud is of infinite variety
and is thus hard to define. The use of the phrase “includes” indicates the
intent of the drafters to enlarge the definition of the phrase to include even
those matters which would not be included within its ordinary meaning.
Important keywords used in section
Based on
the definition of fraud under section 17, the circumstances that constitute
fraud are:
1.
Suggesting
a fact that is not true, and one does not believe it to be true:
In the well-famous
case of Derry vs peek, a company had made a false representation. However, they
honestly believed in the truth of the representation conveyed. It was observed
by the court that “Fraud is proved when it is shown that a false representation
has been made – (1) knowingly, or (2) without belief in its truth, or (3)
recklessly careless whether it be true or false.” Therefore, intentional
misrepresentation is the essence of fraud and it is dealt with under the first
three clauses of section 17. However, if the plaintiff has the means to
discover the truth by ordinary diligence, no fraud is proved.
2.
The
active concealment of facts
Active
concealment is a situation where one party conceals material information
related to the contract despite having a duty to disclose such information.
Note: generally,
mere silence is not considered as fraud, except in the following cases:
I.
Where
there arises a Duty to Speak,
II.
Where
silence is deceptive,
III.
Change
of Circumstances,
IV.
Half-Truths.
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3.
A
promise made without any intention of performing it
where a
person contracts with another without the intent to perform, only to prevent
the other from contracting with some third person; contracting without the
intending to pay the agreed consideration; one party promising the other,
something which he is certain of not being able to accomplish in the given
contractual period, all above described situation falls under this category.
4.
Any
other such act fitted to deceive.
Since fraud can be of an
infinite variety, it is futile to make an attempt to define fraud precisely and
exhaustively to cater to all the contingencies because it is highly likely that
many loopholes may become available to escape liability. Thus, this clause has
been drafted as a tool to enable the judiciary in doing effective and true
justice.
5.
Any
act or omission specially declared to be fraudulent by law
For instance, concepts of
“fraudulent transfer” under the Transfer of Property Act and “fraudulent
preference” in Insolvency laws
Effects of fraud
I.
The
contract raised out of fraud is a voidable contract.
II.
The party
deceived has the right to revoke the contract.
III.
The party
is liable to recover the damages due to the fraudulent contract.
Conclusion
As per the ICA, contracts
which are made without free consent i.e. due to coercion, undue influence,
fraud, and misrepresentation is a voidable contract as the contracting parties
have an option for performance or nonperformance of the contract. It is illegal
to form any contract without the consent of both parties in the same sense.
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