Free

Consent
1
 One of the essentials of a valid contract mentioned in Section 10
is that the parties should enter into contract with free consent.
According to Section 14, 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 section16, or
3. fraud, as defined in Section 17, or
4. misrepresentation as defined in Section 18, or
5. mistake, subject to the provisions of Section 20, 21 and 22.
Consent is said to be caused when it would not have been given
but for the existence of such coercion, undue influence, fraud,
misrepresentation or mistake.
If the consent of one of the parties is not free consent, i.e., it has
been caused by one or other of the above stated factors the
contract is not a valid one. When consent to an agreement is
caused by fraud, coercion, misrepresentation or undue influence,
the agreement is a contract voidable at the option of the party
whose consent was so caused. If, however, the consent is
caused by mistake the agreement is void.

2
1.Coercion
 According to Section 15, “Coercion” is the
committing, or threatening to commit, any act
forbidden by the Indian 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.
Coercion is said to be there when the consent of a
person has been caused either by
1. committing, or threatening to commit any act
forbidden by the Indian Penal Code, or by
2. unlawful detaining, or threatening to detain any
property, to the prejudice of any person whatever.

3
i. Act forbidden by the Indian Penal Code
It has been noted that if a person commits or threatens to commit an
act forbidden by the Indian Penal Code with a view to obtain the
consent of the other person to some agreement, the consent in such
case is deemed to have been obtained by coercion. For instance, A
threatens to shoot B if B does not agree to sell his property to A
at a stated price, B’s consent in this case has been obtained by
coercion.

For coercion to be there it is not necessary that the Indian Penal

Code should be applicable at the place where the consent has been
so caused. Explanation to section 15 makes it clear that to constitute
coercion, “it is immaterial whether the Indian Penal Code is or is not
in force in the place where the coercion is employed.” The following
illustration would explain the point :

A, on board an English ship on the high seas, causes B to enter into

an agreement by act amounting to criminal intimidation under the
Indian Penal Code. A afterwards sues B for breach of Contract at
Calcutta. A has employed coercion, although his act is not an
offence by the law of England, and although section 506 of the Indian
Penal Code was not in force at the time when, or at the place where,
the act was done.

4
 In Ranganayakamma Vs. Alwar Setti (1889) the question
before the Madras High Court was regarding the validity of the
adoption of a boy by a widow, aged 13 years. On the death of
her husband, the husband’s dead body was not allowed to be
removed from her house by the relatives of the adopted boy until
she adopted the boy. It was held that the adoption was not
binding on the widow.
 In Chikkam Ammiraju Vs. Chikkam Seshama (1918) the
question before the Madras High Court was that whether
coercion could be caused by a threat to commit suicide. In this
case a Hindu by a threat of suicide induced his wife and son to
execute a release deed in favour of his brother in respect of
certain properties claimed as their own by the wife and the son.
The question before the court was whether a threat to commit
suicide could be considered to be an act forbidden by the Indian
Penal Code. It was held by Wallis, C.J. and Seshagiri Ayyar, J.
that a threat to commit suicide amounted to coercion within the
meaning of Section 15 of the Indian Contract Act and therefore
the release deed was voidable.

5
ii. Unlawful detaining of property

According to Section 15 coercion could also be

caused by unlawful detaining, or threatening to
detain, any property, to the prejudice of any
person whatever, with the intention of causing any
per to enter into an agreement. For example, if an
outgoing agent refuses to handover the accounts
books to the new agent until the principal executes
release in his favour, it is coercion. ( Muthiah
Chettiar Vs. Karupan (1927) If the detention of
property is not unlawful there is no coercion.
Thus, if a mortgagee refuses to convey the equity
of redemption except on the terms dictated by
him, there is nothing unlawful in it and, therefore,
no coercion is caused in this case. (Bengal Stone
Co. Ltd. Vs. Joseph Hyam (1918)

6
To the prejudice of a person
Section 15 requires that there is committing or threatening to commit,
any act forbidden by the Indian Penal Code, or the unlawful detaining,
or threatening to detain, any property, to the prejudice of any person
whatever, with an intention of any person to enter into an agreement.
It means that the act causing coercion should not necessarily be
directed against the contracting party, it is enough that the act is to the
prejudice of any person whatever, and with the intention of any person
to enter into an agreement. If, for example, A unlawfully detains B’s
friend C, in order to coerce B to enter into agreement, the case would
be covered within this section.
Threat to strike is no coercion
In Workmen of Appin Tea Estate Vs. Industrial Tribunal (1966) the
demand of the workers for bonus was accepted after a threat of strike.
The question which had arisen was, whether such a decision between
the Union of the workers and the Indian Tea Association could be
declared void on the ground that there was coercion. It was held that
because of the doctrine of collective bargaining under the Industrial
Dispute Act the demand of the workers could be backed by a threat of
strike. Such a threat was neither a threat to commit an offence under
the Indian Penal Code, nor was it unlawful detaining or threatening to
detain any property and hence it did not amount to coercion, and as
such the agreement was valid.

7
 Statutory Compulsion is no coercion

 When a Statue requires a contract to be entered into

the consent in such a case is not deemed to be
caused by coercion, undue influence, fraud,
misrepresentation or mistake. In Andhra Sugars
Ltd. Vs. State of A.P. (1968) if any cane grower
offered to sell his sugarcane to a factory in a certain
zone, the factory was bound to accept the offer
under the Andhra Pradesh Sugarcane (Regulation
of Supply and Purchase) Act, 1961, and
accordingly the agreement was entered into. It was
held that in such a case even though there was a
legal compulsion for the factory to make the
agreement, the agreement could not be said to be
entered into by lack of free consent, and there was
no coercion either.

8
 “Duress” under English law
Under common law duress consists in actual violence or threat of
violence to a person. It only includes fear of loss to life or
bodily harm including imprisonment, but not a threat of damage
to goods. The threat must be to do something illegal, i.e., to
commit a tort or a crime. The duress must be directed against a
party to the contract, or his wife, child, parent or other near
relative, and also caused by the party to the contract, or within
his knowledge. It has been noted above that the common law
recognises only a threat to a man’s person, and not to his goods
to constitute duress. It may be noted that Indian law also
recognises an action for the recovery of money paid or goods
delivered under coercion, through the provision contained in
section 72,Indian Contract Act. The provision is as under :
“ A person to whom money has been paid. Or anything delivered,
by mistake or undue coercion, must repay or return it “
For example, a railway company refuses to deliver up certain
goods to the consignee, except upon the payment of an illegal
charge for carriage. The consignee pays the sum charged in
order to obtain the goods. He is entitled to recover so much of
the charge as was illegally excessive.

9
Difference between Coercion
and Duress
1. Coercion in India means committing or threatening to
commit an act forbidden by the Indian Penal Code, or
unlawful detaining or threatening to detain the property.
Thus it may be an act or threat directed against a person
or his property. In England duress is constituted only by
acts or threats against the person of a man and not
against his property.
2. In India coercion may proceed from a person who is not a
party to the contract, and it may also be directed against
a person who, again, may be a stranger to the contract. In
England duress should proceed from a party to the
contract and is also directed against the party to the
contract himself, or his wife, parent, child, or other near
relative.

10
2. Undue influence
 If the consent of a party to the contract has been obtained by
undue influence the consent is not free consent which is needed
for the validity of a contract and if the consent has been caused
by undue influence, the contract is voidable at the option of the
party whose consent had been so obtained. Section 16 defines
undue influence as under :
 “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 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.

11
 (3) Where a person who is in a position to dominate
the will of another, enters into 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.

 Nothing in this sub-section shall affect the provisions

of Section 111 of the Indian Evidence Act, 1872.”

12
 Explaining the nature of the provisions contained in section 16,
Indian Contract Act and the adoption of English law in India, our
Supreme Court has observed in the case of Ladli Parshad Vs.
Karnal Distillery Co., (1963)

 “The doctrine of undue influence under the common law was

evolved by the courts in England for granting protection against
transactions procured by exercise of insidious forms of influence
spiritual and temporal. The doctrine applies to acts of bounty as
well as to other transactions in which one party by exercising his
position of dominance obtains an unfair advantage over another.
The Indian enactment is founded substantially on the rules of
English Common law. The first Sub-section of Section 16 lays down
the principle in general terms. By sub-section (2) a presumption
arises that a person shall be deemed to be in a position to dominate
the will of another if the conditions set out therein are fulfilled. Sub-
section (3) lays down the conditions for raising a rebut table
presumption that a transaction is procured by the exercise of undue
influence. The reason for the rule in the third sub-section is that a
person who has obtained an advantage over another by dominating
his will, may also remain in a position to suppress the requisite
evidence in support of the plea of undue influence.”

13
 Effect of undue influence
 Section 19-A declares that 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. For example, A’s son has
forged B’s name to a promissory note. B, under threat of prosecuting
A’s son, obtains a bond from A, for the amount of the forged note. If B
sues on this bond, the court may set the bond aside.
 Because of undue influence one party to the contract may take an
undue advantage under the contract, or the party entitled to avoid the
contract may have already received some benefit under the contract.
The court in cases has been empowered to set aside the contract either
absolutely or upon such terms and conditions as the Court may deem
just. Second para to Section 19-A incorporates the following provision
in this regard :
 “Any such contract may be set aside either absolutely, or, if the party
who was entitled to avoid it has received any benefit there under, upon
such terms and conditions as to the Court may seem just”
 For example, a , a money-lender, advances Rs. 100 to B, an
agriculturalist, and, by undue influence, induces B to execute a bond
for Rs. 200 with interest at 6 per cent per month. The court may set the
bond aside, ordering B to repay Rs.100 with interest as may seem
just.

14
 Essentials of undue influence
In order to constitute undue influence it is necessary that :
1) 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.
2) such a person uses his dominant position to obtain an unfair
advantage over the other.
It is manifest that both the conditions have ordinarily to be
established by the person seeking to avoid the transaction : he
has to prove that the other party to the transaction was in a
position to dominate his will and that the other party had obtained
an unfair advantage by using that position.
Person in dominant position and obtaining of unfair
advantage
Sometimes one of the parties to the contract may be in such
a dominant position in relation to the other that he has peculiar
opportunity of exercising that position to the prejudice of the
other party. If the dominant party takes an undue advantage of
his position in procuring a contract to the detriment of the other
contracting party, the contract is voidable at the option of the
party whose will is so dominated.

15
 In the following cases a person is deemed to be
in a position to dominate the will of another –
(1) where he holds a real or apparent authority over
the other, or,
(2) where he stands in a fiduciary relation to the
other, or,
(3) 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.

16
(1) Real or apparent authority
If a person has an authority over the other contracting party it is
expected that he would not abuse that authority to gain an undue
advantage from the other. An employer may be deemed to be
having authority over his employee, an income-tax authority
over the assessee, a police or a judicial officer over the accused,
or a licensing authority over the licence

(2)Fiduciary relation
Fiduciary relationship means a relationship of confidence and
trust. When a person reposes confidence in the other, it is
expected that he will not be betrayed. If a person betrays the
confidence and trust reposed in him and gains an unfair
advantage over the other party in any contract, the suffering
party has an option to avoid the contract. The principle of undue
influence applies to every case, where influence is acquired and
abused, where confidence is reposed and betrayed.

17
Examples of fiduciary relationship are solicitor and client, spiritual
advisor and devotee, medical attendant and patient, parent and
child, husband and wife, master and servant, creditor and debtor,
principal and agent, land lord and tenant, lover and beloved,
guardian and ward.
For example, A,, having advanced money to his son b, during
his minority, upon B’s coming of age obtains, by misuse of
parental influence, a bond from B for a greater amount than the
sum due in respect of the advance. A employs undue influence.
In MannuSingh Vs. Umadat Pande, (1890) the plaintiff, an
aged person executed a deed of gift in respect of whole of his
property in favour of the defendant, who was plaintiff’s guru or
spiritual adviser.

The only reason for the gift was his desire to secure benefits to
his soul in the next world and also in view of the plaintiff having
heard recitation of the holy book, Bhagwat. Soon after the
execution of the said deed the plaintiff applied for the
cancellation of the same by a suit brought by him under section
39 of the specific relief Act, 1877.

18
 Section 111, Indian Evidence Act, 1872 was applied to this
situation, according to which in case of a person being in a
position of active confidence, the burden of proof lies on such a
person who enjoys such a confidence. It was held that because
of the fiduciary relationship between the parties, and the
absurdity of the reason given by the plaintiff in the gift deed for
executing the gift deed, and in view of the provision contained in
section 111, Indian Evidence Act, the defendant must prove the
absence of undue influence. And since he failed to prove the
same the plaintiff is entitled to obtain the cancellation of the
deed.

 Similarly in Diala Ram Vs Sarga (1927) where there was a

debtor-creditor relationship between the parties and the
defendant signed a bond agreeing to pay exorbitant rate of
interest on the loan taken from the plaintiff, who was a money
lender of his village, the presumption of undue influence was
raised.

19
 Person in mental or bodily

distress
A person is deemed to be in a position to dominate the will
of another also in a situation, 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. A person’s mental capacity may have
been affected on account of his old age, illness, or mental
or bodily distress, and there is every possibility that such a
person’s position may be exploited and unfair advantage
taken in such a situation. The law tries to afford protection
to such persons also. If a contract is made to the prejudice
of such a person, there is deemed to be undue influence in
such a case. For example.A, a man enfeebled by disease
or age, is induced, by B’s influence over him as his
medical attendant, to agree to pay B an unreasonable sum
for his professional services, B employs undue influence.
20
 Presumption of undue influence in Unconscionable Bargains
In cases of unconscionable bargain between the parties on an unequal
footing the law raises a presumption of undue influence. 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.

When---
1. One of the parties who has obtained the benefit of a1 transaction is in a
position to dominate the will of the other, and
2. The transaction between the parties appears to be unconscionable, the
law raises a presumption of undue influence.

It is, in such a case, for the dominant party to rebut the presumption of
undue influence. If a party has got exorbitant gain at the cost of the
other party, it is for him to prove that this advantage had not been
gained by undue influence.

21
 For example, A being in debt to B , a money lender of his
village, contracts a fresh loan on terms which appear to be
unconscionable. It lies on B to prove that the contract was not
induced by undue influence.
 In Diala Ram Vs. Sarga, (1927) the defendant, who was
already indebted to the plaintiff, a village money lender, took a
fresh loan from the plaintiff and executed a bond, wherein he
agreed to pay interest up to 371/2 %, per annum, and also to
deliver some bhoosa (wheat husk) in addition thereto. It was
held that the position in this case was similar to that in illustration
© to Section 16,the contract was unconscionable and, therefore,
the burden of proof was on the plaintiff to show that there was no
undue influence in this case.
 In Wajid Khan Vs. Raja Ewaz Ali Khan (1891) an old,
illiterate, pardanashin lady, who was herself incapable of
transacting any business, conferred a grant of her substantial
property without any valuable consideration in favour of her
confidential managing agent. The Privy Council held that it was
incumbent on the grantee to show that he had made proper use
of confidence reposed by the lady in him and there was no undue
influence.

22
 3. Fraud
When the consent of a party to the contract has been obtained
by fraud, the consent is not free consent, which is necessary for
the formation of a valid contract. In such a case the contract is
voidable at the option of the party whose consent has been so
obtained. Fraud or deceit is also9 tort, for which an action for
damages can also lie. Section 17 defines fraud as follows :
“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 :

23
(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.

24
 The essentials of fraud are :

1. There should be a false statement of fact by a person who

himself does not believe the statement to be true.

2. The statement should be made with a wrongful intention of

deceiving another party thereto and inducing him to enter into
the contract on that basis.

1. False statement of fact.

In order to constitute fraud it is necessary that there should be a

statement of fact which is not true. Mere expression of opinion
is not enough to constitute fraud. Thus, if while taking a policy of
marine insurance, the insured communicates to the insurers a
letter from the master of his vessel mentioning that in the
master’s opinion the anchorage of a place of destination of the
vessel is safe and good, there is only an expression of opinion
and not a statement of fact, which could constitute fraud.

25
If A intending to deceive B , falsely represents that five
hundred maunds of indigo are made annually at A’s factory, and
thereby induces B to buy the factory, the contract is voidable at
the option of B.

Representation as to untrue facts may be made either by

positively stating certain fats or by conduct.

In Edington Vs. Fitzmaurice (1885) a company was in great

financial difficulties and needed funds to pay some pressing
liabilities. The company raised the amount by issue of
debentures. While raising the loans the directors stated that
the amount was needed by the company for its
development, purchasing assets and completing buildings.
It was held that the directors has committed fraud.

26
 Active Concealment
When there is an active concealment of a fact by one having
knowledge or belief of the fact, that can also be considered to be
equivalent to a statement of fact and would amount to fraud.
Active concealment is different from merely keeping silent as to
certain facts. By an active concealment of certain facts, there is
an effort to see that the other party is not able to know the truth
and he is made to believe as true which is in fact not so.

Illustrations
1. B, having discovered a vein of ore on the estate of A, adopts
means to conceal, and does conce4al, the existence of the ore
from A. Through A’s ignorance, B is enabled to buy the
estate on an under value. The contract is voidable at the option
of A.
2. A is entitled to succeed to an estate at the death of B. “B” dies ;
‘C’, having received intelligence of B’s death, prevents the
intelligence reaching A and thus induces A to sell him his
interest in the estate. The sale is voidable at the option of A.

27
Mere Silence Is No
Fraud
It has been noted above that for constituting fraud there should
be representation as to certain untrue facts. Active concealment
has also been considered to be equivalent to a statement
because in that case there is a positive effort to conceal the truth
and create untrue impression on the mind of the other, Mere
silence, however, as to facts is no fraud. Explanation to Section
17, in this connection, incorporates the following provisions :

“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.”

28
A contracting party is not obliged to disclose each and everything
to the other party. If a person is to sell his goods he is under no
duty to disclose the defects in his goods. If he makes false
statement as to the quality of his goods, it would be fraud, but if
he merely keeps silence as regards the defects in them there is
no fraud. In case of sale of goods the rule is caveat emptor, i.e.,
buyer be aware, which means that it is the duty of the buyer to
be careful while purchasing the goods, and there is no implied
condition or warranty by the seller as to the quality or fitness of
the goods for any particular purpose.

If A sells, by auction, to B , a horse which A knows to be

unsound. A says nothing to B about the horse’s unsoundness.
This not fraud in A . Similarly, if A and B, being traders, enter
upon a contract A has private information of a change in prices
which would affect B’s willingness to proceed with the contract.
A is not bound to inform B.

29
 In Keates Vs. Lord Cadogan (1851), A let his house to B
which he knew was in a ruinous condition. He also knew that the
house is going to be occupied by B immediately. A did not
disclose the condition of the house to B. It was held that he had
committed nom fraud.

 In Shri Krishan Vs. Kurushetra University 1976 SC, Shri

Krishan, a candidate for the LL.B. Part I exam., who was
short in attendance, did not mention that fact himself in the
admission form for the examination. Neither the Head of the
Law Department nor the University authorities made proper
scrutiny to discover the truth. It was held by the Supreme Court
that there was no fraud by the candidate and the University had
no power to withdraw the candidature of the candidate.

30
 Exceptions

Although as a general rule mere silence or non-disclosure of

facts do not amount to fraud, but in some exceptional cases
keeping silence may de deemed to be an act of deception.
Explanation to Section 17, which mentions the rule that mere
silence is not fraud also mentions the following two exceptions :

(1) When there is a duty to speak, keeping silence is fraud.

(2) When silence is, in itself, equivalent to speech, such silence

is a fraud.

31
 (1) Duty to speak
 When the circumstances of the case are such that, regard
being had to them, it is the duty of the person keeping
silence to speak, keeping silence in such a case amounts to
fraud. When there is a duty to disclose fats, one should do so
rather than to remain silent. By remaining silent one may be
responsible for creating a false impression in the mind of the
other. Certain contracts are uberrima fides , i.e., contracts of
utmost faith. In such a case it is supposed that the party in
whom good faith is reposed would make full disclosures and not
keep silent. Suppression of truth in such cases is equivalent to
suggestion of false hood. Withholding the facts, which ought to
be disclosed, is fraud. Contracts of insurance are contracts of
utmost good faith. Since some of the facts may be in the in the
sole knowledge of the insured, he must make full disclosure to
the insurer.

32
 Speaking half—truth may also amount to
misrepresentation as regards those facts which
have not been disclosed. Withholding a part of the
information may be enough to convey a false
impression and it amounts to fraud. Thus, if the
cleaner of clothes makes a customer sign a
document orally telling him that the terms exempt
the cleaner from liability for damage to beads and
sequins, but in fact the document contains a clause
giving him exemption from any damage however
arising, this is a fraud. (Curtis Vs. Chemical
Cleaning and Dyeing Co. 1951)

33
Duty to disclose changes
 If a statement is true when made, but subsequently becomes false by
the change of circumstances, there is a duty to disclose the change,
before the other party acts upon it. If the change is notifies to the other
party it would amount to fraud (Briess Vs. Woolley, 1954)

 In with Vs. O’Flanagan (1936) a medical practitioner started

negotiations in January, 1934 for the sale of his practice. He stated that
his average practice was worth 2000 pounds per annum. The contract
for the sale of practice was signed on May1, 1934, but by that time the
position of his practice had changed as his practice had fallen
considerably owing to his illness and consequent absence from
practice. These changed circumstances were not disclosed to the
purchasers of the practice and when they took charge they found that
the practice was non-existent. They brought an action for the rescission
of the contract on the ground that the changed circumstances were not
communicated to them. It was held that the representation made in this
case to induce the other party to the contract to enter into contract was
a continuing one and it was the duty of the vendor to notify the change
of circumstances to the purchaser if the same occurred before the
contract was signed. Under these circumstances the plaintiff were
entitled to rescind the contract

34
 (2) Silence being
equivalent to speech
 Sometimes keeping silent as to certain facts may be
capable of creating an impression as to the
existence of a certain situation. In such a case
silence amounts to fraud.. For example, B says to
A -- “if you don not deny it, I shall assume that the
horse is sound.” A says nothing. Here A’s silence
is equivalent to speech. Here, the relation between
the parties would make it A’s duty to tell B if the
horse is unsound.

35
 Means of discovering the
truth
 Even if, in any case, the silence is fraudulent, but if
the other party could have discovered the truth by
ordinary diligence he cannot avoid the contract. In
this connection the provision in the Indian contract
Act is as under :
 “If such a consent was caused by misrepresentation
or by silence, fraudulent within meaning of section
17, the contract, nevertheless, is not voidable, if the
party whose consent was caused had the means of
discovering the truth with ordinary diligence.” (Case
of Shri Krishan Vs. Kurukshetra Univeersity ) In
this case it was observed

36
 “In the instant case the admission form of the appellant must have
been forwarded in December 1971 where as the examination was to
take place in April/May 1972. It is obvious that during this period of
four to five months it was the duty of the University authorities to
scrutinise the form in order to find out whether it was in order.
Equally it was the duty of the Head of the Department of Law before
submitting the form to the University to see that the form complied
with all the requirements of law. If neither the Head of the
Department nor the University authorities took care to scrutinise the
admission form, then the question of the appellant committing a
fraud did not arise. It is well settled that where a person on whom
fraud is committed is in a position to discover the truth by due
diligence, fraud is not proved. It is neither a case of suggestio falsi,
nor supressio veri. The appellant never wrote to the University
authorities that he had attended the prescribed number of lectures.
There was ample time and opportunity for the University authorities
to have out the defect. In these circumstances, therefore, for the
University authorities acquiesced in the infirmities which the
admission form contained and allowed the appellant to appear in
Part I Examination in April, 1972, then by force of the University
Statute the University had no power to withdraw the candidature of
the appellant.”

37
Promise made without any intention to perform it
When a person makes a promise there is deemed to be an
undertaking by him to perform it. If there is no such intention
when the contract is being made, it amounts to fraud. Thus if a
man takes a loan without any intention to repay, or when he is
insolvent, or purchases goods on credit without any intention to
pay for them, there is fraud. If, however, there is no such
wrongful intention at the time of making of the contract, but the
promisor does not perform the contract, it does not amount to
fraud.

Any other act fitted to deceive

We have already noted that either a false statement of fact, or
active concealment, or a promise made without any intention to
perform it have been declared to be fraudulent according to
clauses (1), (2) and (3) to section 17 respectively. Clause (4)
further provides that “any other act fitted to deceive” will also
amount to fraud. This clause is general and is intended to
include such cases of fraud which would otherwise not come
within the purview of the earlier three clauses.

38
 Any act or omission which the law declares as fraudulent
According to section 17 (5) fraud also includes any such act or
omission as the law specially declares to be fraudulent. In some
cases the law requires certain duties to be performed, failure to
do which is expressly declared as a fraud. For instance, section
55, Transfer of property Act, 1882 declares certain kinds of
omissions on the part of the seller or the buyer as fraudulent. It
provides that :
1. The seller of immovable property is bound to disclose to the
buyer any material defect in the property or in the seller’s title
thereto of which the seller is, and the buyer is not, aware, and
which the buyer could not with ordinary care discover. And
2. The buyer of immovable property is bound to disclose to the
seller any fact as to the nature or extent of the seller’s interest in
the property of which the buyer is aware, but of which he has
reason to believe that the seller is not aware and which
materially increases the value of such interest, and
An omission to make the above stated disclosures is fraudulent.

39
 In Aktar Jahan Begam Vs. Hazarilal, the
defendant sold some property to the plaintiff
stating in the sale deed that he would not be liable
to the buyer if he suffered any loss owing to the
seller’s defective title. The defendant had, earlier to
this transaction, sold this property to somebody
else, but did not inform the buyer about it. It was
held that the defendant had committed fraud and the
contract was voidable at the option of the buyer.

40
 2. Wrongful intention
 In order to constitute fraud it is necessary that a person should
intentionally make a false statement with an intent to deceive
another party thereto to induce him to enter into the contract. If that
intention to deceive the other party is absent there is no fraud. It
may, in such a case, be a mere misrepresentation as defined in
section 18 of the Act.

 In Derry Vs. Peek, the directors of a company issued a

prospectus stating that they had got the authority to run
tramways with steam or mechanical power instead of animal
power. In fact a plan had been submitted for the same and
directors honestly believed that the Board of Trade, who had to
accord its sanction for the same, would do so as a matter of
course. The board of Trade refused the sanction and the
company had to be wound up. The respondent, who had taken
shares in the company on the faith of the representation by the
directors in the prospectus, brought an action for the tort of
deceit. It was held by the House of Lords that since the
statement had not been made with an intention to deceive there
was no fraud.

41
 Contract on the basis of a
false statement
 It is necessary that the false statement must have been made
to induce the other party to enter into the contract. “If”, said Lord
Blackburn, “it is proved that the defendants with a view to induce
the plaintiff to enter into a contract made a statement to the
plaintiff of such a nature as would be likely to induce a person to
enter into a contract, it is fair inference of fact that he induced to
do so by the statement.” If a man, being induced by false
statement enters into a contract which he would not have done
otherwise, there is fraud. But if in spite of the false statement he
was not misled. or did not enter into the contract on that basis,
there is no fraud. This may be explained by the following
illustration

42
 (a) A, intending to deceive B , falsely represents
that five hundred maunds of indigo are made
annually at A’s factory, and thereby induces B to
buy the factory. The contract is voidable at the
option of A.

 (b) A, by a misrepresentation, leads B erroneously

to believe that five hundred maunds of indigo are
made annually at A’s Factory. B examines the
accounts of the factory, which shows that only four
hundred maunds of indigo have been made. After
this B buys the factory. The contract is not
voidable on account of A’s misrepresentation.

43
 In Kamal Kant Vs. PrakashDevi the Plaintiff, Kamal Kant
filed a suit against his mother, Prakash Devi and some
others seeking cancellation of a trust deed on the ground that
his signatures to it were obtained by fraud by falsely telling him
that it was attested by the plaintiff’s father and advocate. The
plaintiff was an educated man and had all the means to know the
contents of the document. Under these circumstances it was
held that there was no fraud in this case.
 In Horsfall Vs. Thomas the plaintiff contracted to manufacture
a gun for the defendant and supply the same to him. Thegun
was made for the defendant and supplied to him, but the
defendant never examined the gun and he started using it.
There was a defect in the gun, and if the defendant had carefully
examined the gun he could detect the same and then he would
have been justified in rejecting it. The defendant accepted two
bills of exchange towards the payment for the gun.

44
 After some time the gun burst flew to pieces. On e of the
bills of, was paid by him, but when the second bill was not
paid, the p-lainti9ff sued him for the same. At this stage the
defendant contended that because of a concealed defect in
the gun it was weak and consequently it had burst and
broken into pieces and thus it amounted to fraud, as such he
is not liable to pay.

 If there is a patent defect in an article supplied to a buyer

and the buyer having an opportunity to examine the same
neglects to do so, the supplier cannot be considered guilty of
fraud for not pointing out the defect.

45
 Statement should be meant
for the party misled
 It is necessary that the misleading statement should
be meant for the party who is misled. In Peek Vs.
Gurney (1873, a person purchased some shares
of a company from the market and then sued the
promoters of the company for fraud on the ground
that there were some false statements contained in
the prospectus. It was held that the prospectus is
meant for an original allot tee of the shares by the
company and not a person like the present
appellant, who buys the shares subsequently from
the original allot tee and therefore the promoters
were not liable for fraud.

46
 4. Misrepresentation
 When a false statement is made with the knowledge that it is false and
also with the intention to deceive the other party and make him to enter
into a contract on that basis, it is known as fraud. But when the person
making a false statement believes the statement to be true and does
not intend to mislead the other party to the contract it is known as
“Misrepresentation”. When the consent of a party to a contract has
been obtained by misrepresentation it is not free consent and the
contract is voidable at his option. Section 18 defines misrepresentation
as under :
 “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 intention 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.

47
 Positive assertion, i.e. an explicit statement, of fact
by a person of that which is not true, but he believes
it to be true amounts to misrepresentation. There
should be a false statement made innocently, i.e.,
without any intention to deceive.
 When there is a breach of duty whereby the person
making a false statement gains some advantage at
the cost of the other party, and the statement though
false is made without an intention to deceive, it also
amounts to misrepresentation. For example,
Section 57, Indian Easement Act, 1882, lays down
that the grantor of a licence i8s bound to disclose to
the licensee any defect, which is likely to be
dangerous to the person or property of the licensee,
of which the grantor is aware but the licensee is not.
Omission to make such a disclosure, if it is without
any intention to deceive, would amount to
misrepresentation.
48
If one party, acting innocently, causes another party to
make a mistake as to the substance of the thing which is
the subject of the agreement, there is said to be
misrepresentation.

In case of misrepresentation the person making the

statement is innocent and he makes the statement without
any intention to deceive the other party. His statement is
false although he himself believes that the same is true. It
is known as innocent misrepresentation as against fraud,
where the person making the false statement knows that
the same is false but makes the same intentionally to
deceive the other party and make him enter into an
agreement which he would not have done otherwise. For
instance, A sells his horse to B which is unsound but A
himself does not know about this fact. He tells B that the
horse is sound. There is misrepresentation.

49
Fraud and Misrepresentation
distinguished
1. Both in fraud and misrepresentation the statement is
false, but in fraud the false statement is made by a
person, who knows that it is false or does not believe
in its truth, whereas in misrepresentation the person
making the statement believes the same to be true.

2. In fraud the intention of the person making a false

statement is to deceive the other party and induce
him to enter into the contract on that basis. There is
no such wrongful intention in case of
misrepresentation. It has been noted in Derry Vs.
Peek that when the statement, although false, was
made without any intention to deceive it did not
amount to fraud.

50
3. According to section 19, when the consent of a party to the
contract has been obtained either by fraud or by
misrepresentation, the contract is voidable at the option of the
party whose consent has been so obtained. In other words
the contractual remedy for both is the same. In case of fraud,
however, there is an additional remedy available to the victim
of fraud, i.e., an action for damages under the law of torts,
because fraud is also a tort. No remedy under the law of torts
is available if it is an innocent misrepresentation. Indian
Contract Act, however, provides that “a person who rightfully
rescinds a contract is entitled to compensation for any damage
which he has sustained through the non-fulfilment of the
contract” This remedy of damages is available in every kind
of rescission, whether on ground of misrepresentation or
fraud, or on other ground and it is not similar to the remedy of
damages available to a victim of the fraud under the law of
torts.

51
4. Although when there is misrepresentation by one
party the contract is voidable at the option of the
other party, but no such remedy is available if the
party seeking to avoid the contract had the means
of discovering the truth with ordinary diligence.
But except in case of fraudulent silence, a person
obtaining the consent of the other party by fraud
cannot be allowed to say that the other party could
have discovered the truth with ordinary diligence.

52
 Effect of flaw in consent
 Section 19 deals with the effect of flaw in consent caused by
coercion, misrepresentation and fraud and section 19-A
when the consent has been obtained by undue influence.
The relevant provision contained in these sections are as
follows :
 19. Void ability of agreement without free consent --
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.
 A party to a contract, whose consent was caused by fraud or
misrepresentation, may, if he thinks fit, insist that the contract
shall be performed, and that he shall be put in the position in
which he would have been if the representation made had
been true.

53
 19-A Power to set aside
contract induced by undue
When consent to an agreement is caused by undue
influence


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 is entitled to avoid it has received any benefit
there under, upon such term and conditions as the Court
may seem just.
 When the consent of a party to the contract has been
caused by coercion, misrepresentation or fraud the contract
is voidable at the option of such party. In case of fraud,
apart from avoiding the contract, the person whose consent
has been so caused may also bring an action for damages
because fraud is a tort also.

54
 When a person at whose option the contract is
voidable rescinds it, he is bound to restore the
benefit, if any, received by him under such a
contract.
 In case of undue influence also the contract is
voidable at the option of the party whose consent
has been 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 there
under, upon such terms and conditions as to the
Court may seem just.
 Thus, in case of the flaw in consent one party or
the other may have either,
1. a right of recession of the contract, i.e., the
contract may be voidable at his option, or
2. a right to claim compensation.
 The two rights are discussed below.
55
1. Right to Rescission of
the
 contract
It has been noted above that even when the consent of a
party to a contract has been obtained by coercion,
misrepresentation, fraud or undue influence, rescission of
the contract is the common remedy available in all these
cases. The party entitled to rescind a voidable contract
may do so by a notice to the other party, or taking such
steps as may be necessary under the circumstances of the
case. A voidable contract will be avoided only if the party
having a right to do so avoids it. If instead, he affirms the
contract then the contract will be binding on both the
parties. Ordinarily, a notice to the other party of the
intention to avoid the contract would suffice. If, however,
the other party is not available then taking necessary steps
which may be possible under the circumstances of the
case would be enough

56
 In Car and Universal Finance Co. Ltd. Vs. Caldwell,
(1961) the purchaser of a car committed a fraud against
the seller by making the payment through a cheque which
was dishonoured. The seller wanted to avoid the contract
and regain the possession from the buyer, but the buyer
was not traceable. The seller immediately informed the
police and also the Automobile Association about the
same. In the meanwhile the purchaser of the car sold it
further to the plaintiffs, who had been acting in good faith.
The question was whether the plaintiffs had purchased it
after rescission of the contract by the seller, and if that was
so the plaintiffs could not have a good title to the car. It was
held that even though the seller could not communicate the
rescission to the purchaser himself, information to the
police and the Automobile Association had resulted in the
rescission of the contract and therefore, the plaintiffs did
not get a good title to the car.

57
 Limits to the rights of
rescission
The right of rescission of the contract is subject to the
following limitations. In such situations the law may not
permit the exercise of the right to rescind the contract.

(i) When the contract is

affirmed
There are two alternatives open to a party having a
right to avoid a contract, either to rescind it, or to affirm it.
If the contract is rescinded it becomes void and
unenforceable. On the other hand, if it is affirmed then it is
valid and binding contract against both the parties.
Section 19, which deals with the right of rescission of a
contract where the consent of a party has been obtained
by misrepresentation or fraud states :

58
 “A party to a contract, whose consent was caused by fraud
or misrepresentation, may, if he thinks fit, insist that the
contract shall be performed, and shall be put in the position
in which he would have been if the representation made
had been true”

 The affirmation of the contract may be made either

expressly, or impliedly or it could be inferred from a
person’s conduct. In Long Vs. Lloyd (1958) the
defendant sold his lorry to the plaintiff by making a false
representation that the lorry was in “excellent condition.”
On the lorry’s first journey the plaintiff discovered serious
defects in the lorry. He did not rescind the contract, but
instead accepted the defendant’s offer of half the cost of
repairs. The lorry completely broke in the next journey and
then the plaintiff wanted to rescind the contract. It was held
that the plaintiff, by accepting the offer of sharing the cost
of repairs by the defendant and thereafter continuing using
the car, had affirmed the contract and he had now no right
to rescind it.
59
 (ii) Lapse of time
 A person having a right to avoid the contract must do so
within a reasonable time. Failing to exercise this right in
time may mean affirmation of the contract. If a person
transfer his property to another person while under a
spiritual influence, but does not take steps to take back the
property for six years after such influence has ceased, the
right to retrieve the property comes to an end. (Allcord Vs.
Skinner . 1887) Similarly, if a person purchasing a picture
on the basis of an innocent but false representation that it
has been painted by a particular renowned artist, wants to
avoid the contract after five years of its purchase, the
rescission would not be allowed (Leaf Vs. International
Galleries, 1950)

60
(iii) Acquisition of a right by a
third
 The rightparty
of rescission may be gone if before the contract
has been rescinded some third party has acquired a right in
the subject matter of the contract. A voidable contract is
valid until avoided and it becomes void only after it has
been avoided, there is a possibility that so long as the
contract has not been avoided, there could be creation of
an instrument in favour of a third party. Section 29, Sale of
Goods Act, 1930, contains the following provision in
respect of a contract of sale of goods :

 “When the seller of goods has obtained possession thereof

under a contract voidable under section 19 or section 19A
of the Indian Contract Act, 1872, but the contract has not
been rescinded at the time of sale, the buyer acquires a
good title to the goods, provided he buys them in good faith
and without notice of the seller’s defect of title.”

61
 For example, in a contract of sale of certain goods
between A and B, A’s consent has been obtained by
misrepresentation and so he has a right to avoid the
contract, B sells those goods to C, while C is acting in
good faith and he has no notice of the defective title of
B. C has acquired a good title to the goods and A’s
right of avoiding the contract and taking back the goods
has come to an end.

 If a shareholder is induced by misrepresentation to

purchase shares, he may rescind the contract. In case
the proceedings for winding up of the company starts,
shareholder’s right of rescission cannot be exercised
because that wou8ld affect the interest of the creditors

62
 (iv) Inability to restore
the goods
When a party wants to avoid the contract he must do so, so

long as the parties to the contract can be placed in the same
situation in which they were before the contract was made. If
restitutio in integrum is not possible there can be no
rescission. For example, A purchases a suit piece from B
under a contract voidable at A’s option. A gets the piece
converted into a suit. A’s right to avoid the contract cannot
be exercised because he will not be in a position to return the
suit piece. In a contract of sale of goods if the buyer has a
right to avoid the contract because of breach of a condition,
the buyer’s right of rejecting those goods comes to an end if
the buyer has accepted those goods. In such a case buyer’s
only remedy is to claim compensation by treating the breach
of condition as a breach of warranty. Section 13 (2), of the
Sale of Goods Act, 1930 makes the following provisions :

63
 “Where a contract of sale is not severable and the buyer has
accepted the goods or part thereof, the breach of any
condition to be fulfilled by the seller can only be treated as a
breach of warranty and not as a ground for rejecting the
goods and treating the contract as repudiated, unless there
is a term of the contract, express or implied, to that effect.”

 In Wallis Vs. Pratt the buyer purchased seeds described

as “English sainfoin seeds.” The seeds supplied by the
seller were of an inferior and a different variety known as
“Gaint sainfoin seeds.” At the time of supply of seeds the
buyer could not make out the defect as the two varieties were
indistinguishable. The defect could only known after the
seeds had been sown and the crop was ready. The buyer
could claim compensation only. There was no chance of
avoiding the contract and rejecting the goods.

64
 (v) Damages in lieu of rescission
 Misrepresentation Act, 1967 has given power to the English
of contract
Courts to grant damages in lieu of rescission, if in the opinion of
the Court it would be just and equitable to do so. Section 2 (2)
of the Act which contain the above mentioned provision is as
under :
 “Where a person has entered into a contract after a
misrepresentation has been otherwise than fraudulently, and he
would be entitled, by reason of the misrepresentation, to rescind
the contract, that the contract ought to be or has been rescinded,
the court or arbitrator may declare the contract subsisting and
award damages in lieu of rescission, if of the opinion that it would
be equitable to do so, having regard to the nature of the
misrepresentation and the loss that would be caused by it if the
contract was upheld, as well as to the loss that rescission would
cause to the other party.”
 The remedy of damages in lieu of recession provided here is in
respect of innocent misrepresentation. When the
misrepresentation is fraudulent, the aggrieved party may recover
damages in addition to the of avoiding the contract, because
fraud is also a tort.

65
 2. Right to claim
Apart from compensation
the remedy of rescission of contract, the remedy
of damages or compensation may also sometimes be
available to the parties to the contract, in cases where the
consent of one of the parties has been obtained by
coercion, misrepresentation, fraud or undue influence.
(1) Damages in case of fraud : It has already been noted
that fraud is a tort. Therefore, a party whose consent has
been obtained by a fraudulent statement, may seek
rescission of the contract as a contractual remedy and may
also claim damages under the law of torts.
(2) Damages in case of non-fraudulent misrepresentation
It has already been noted that the Misrepresentation Act,
1967 empowers the court in case of other than fraudulent
misrepresentation to allow damages in lieu of rescission of
contract.

66
(3) Duty of a party rescinding
the contract to pay
compensation
 Sometimes a party entitled to rescind a voidable contract
may have already received some benefit under the
contract. Equity demands that if he avoids the contract, he
should also restore the benefit which he may have received
from the other party. (refer to section 64 of the Act)

 For example, A, a money lender, advances Rs. 100 to B,

an agriculturist, and by undue influence, induces B to
execute a bond for Rs. 200 with interest at 6 percent per
month. The Court may set the bond aside, ordering B to
repay Rs. 100 with such interest as may seem just.

67
 Section 30, Specific Relief Act, 1963 also empowers
the court to order payment of compensation when
ordering rescission of a contract. It provides as
follows :

 “On adjudging the rescission of a contract, the court

may require the party to whom such relief is granted
to restore, so far as may be, any benefi9t which he
may have received from the other party and to make
any compensation to him which justice may require.”

68
 Mistake
 When the consent of the parties is caused by mistake, it is not
the free consent which is needed for the validity of a contract.
One, or both, of the parties may be working under some
misunderstanding or misapprehension of some fact relating to
the agreement. If such a misunderstanding or misapprehension
had not been there, probably they would not have entered into
the agreement. Such contracts are said to be have been
caused by mistake.
Mistake may work in two ways :
1. Mistake in the mind of the parties is such that there is no
genuine agreement at all. They may be no consensus ad idem.
i.e. the meeting of the two minds. The offer and acceptance do
not coincide and thus no genuine agreement is constituted
between the parties.
2. There may be a genuine agreement, but there may be mistake
as to a matter of fact relating to that agreement.

69
1. Mistake may work in
twoForways :
a valid contract both the parties should
have given their consent and the consent should be
free also. According to section 13 :
“Two or more persons are said to consent when
they agree upon the same thing in the same sense.”
Sometimes even such a consent, where two or
more persons agree to the same thing in the same
sense, may not be there. In other words, there may
be absence of meeting of the minds of the parties,
or there may be no consensus ad idem. In such
case there is no contract which can be enforced

70
 In Raffles Vs. Wichelhaus (1864) the buyer and
the seller entered ito an agreement under which the
seller was to supply a cargo of cotton to arrive “ex
peerless from Bombay”. There were two ships of
the same name. i.e., Peerless, and both were to
sail from Bombay, one in October and the other in
December. The buyer in mind Peerless sailing in
October, whereas the seller thought of the ship
sailing in December. The seller dispatched cotton
by December ship but the buyer refused to accept
the same. In this case the offer and acceptance did
not coincide and there was no contract and,
therefore, it was held that the buyer was entitled to
refuse to take delivery.a

71
2. Mistake as to a matter of
fact essential to the
agreement
Section 20 deals with such mistake. It provides :
 20. Agreement void where both parties are under mistake
as to matter of fact.-- Where both the parties to an agreement
are under a mistake as to a matter of fact essential to the
agreement is not to be deemed a mistake as to a matter of fact.
Illustration
(a) A agrees to sell to B a specific cargo of goods supposed to be
on its way from England to Bombay. It turns out that, before the
day of the bargain, the ship conveying the cargo had been cast
away, and the goods lost. Neither party was aware of these
facts. The agreement is void.
(b) A agrees to buy from B a certain horse. It turns out that the
horse was dead at the time of the bargain, though neither party
was aware of the fact. The agreement is void

72
c) A being entitled to an estate for the life of B , agrees to
sell it to C . B was dead at the time of the agreement,
but both the parties were ignorant of the fact. The
agreement is void.

When the type of mistake contemplated is section 20 is

present in an agreement, the agreement is void.
Section 20 requires that :
1. Both the parties to the contract should be under a
mistake and
2. Mistake should as regards a matter of fact.
3. The fact regarding which the mistake is made should be
essential to the agreement.

73
1. Mistake of both the
parties
Section 20 makes the agreement void if there is
mistake on the part of both the parties. For
example, A and B make an agreement for the
sale and purchase of a particular horse. Unknown
to both the parties the horse was dead at the time
of the agreement. Since both the parties are under
a mistake the agreement is void. If the mistake is a
unilateral one, i.e., only one of the parties is having
some mis-impression, the validity of the agreement
is not affected thereby. This is made clear by
section 22, which reads as under :

74
 22. Contract caused by mistake of one party as to
matter of fact.--- A contract is not voidable merely
because it was caused by one of the parties to it being
under a mistake as to matter of fact

 In Ayekam Angahal Singh Vs. The Union of India,

A.I.R. 1970 there was auction for the sale of fishery
rights and the plaintiff was the highest bidder making a
bid of Rs. 40,000. The fishery right had been auctioned
for 3 years. The rental in fact was Rs. 40,000 per year.
The plaintiff sought to avoid the contract on the ground
that he was working under a mistake and he thought that
he ha made a bid of Rs. 40000 being the rent for all the
three years. It was held that since the mistake was
unilateral the contract was not affected thereby and the
same could not be avoided

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 (2) Mistake of fact
 There should be mistake of fact and not of law. The validity of
the contract is not affected by mistake of law. Regarding
mistake of law the provision contained in section 21 is as follows
21. Effect of mistake 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 law not in force in India has the same
effect as a mistake of fact.
 Illustration
 A and B make a contract grounded on the erroneous belief that
a particular debt is barred by the Indian Law of Limitation : the
contract is not voidable.
 Every one is supposed to know the law of the land. Ignorance of
law is no excuse. If a person wants to avoid the contract on the
ground that there was a mistaken impression in his mind as to
the existence of some law while he entered into the contract, he
will get no relief.

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(3) Mistake essential as
to agreement

 It is also essential that the fact regarding

which the mistake is made should be
essential to the agreement. Whether the
mistake is regarding a fact essential to the
agreement or not depends on a particular
contract.

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