CAF 3 – Free Consent

Contract Act, 1872 Free Consent

03
INTRODUCTION |1
Two or more persons are said to consent when they agree upon the same thing in the same
sense [13]. Consent is said to be free, when it is not caused by coercion, undue influence,
fraud, misrepresentation or mistake [14].

COERCION
Coercion is the committing or threatening to commit any act forbidden by Pakistan Penal
Code (PPC), 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
[15].
It is immaterial that PPC is or is not in force in the place where coercion is employed.
ANALYSIS OF DEFINITION:
1. Commit or threat to commit A widow was threatened to adopt a boy
If a person commits or threatens to otherwise her husband’s dead body would not
commit any act forbidden by PPC, to be allowed to be removed for cremation. The
compel the other to enter into a widow adopted the boy, later applied for
contract, it is contract made under cancellation of adoption. Held, that the adoption
coercion. agreement was not enforceable.
Important points
1. To threaten a criminal or civil prosecution does not constitute coercion. However, a
threat to file a suit on a false charge constitutes coercion;
2. Neither ‘suicide’ nor ‘threat to commit suicide’ is punishable under PPC; only ‘an
attempt to commit suicide’ is punishable under PPC. However, all of these are
coercion because the definition requires ‘forbidden by law’ and not ‘punishable by
law’.
3. The term ‘duress’ is used in English Law to denote illegal imprisonment or either
actual or threatened violence over the person (body) of another party or his wife or
children with a view to obtain the consent of that party to the agreement. Duress is
narrower term than coercion.
2. Detain or threat to detain property An agent refused to hand over the account
If a person unlawfully detains or books to the new agent unless the principal
threatens to detain any property of released him from all liabilities. The principal
another to compel him to enter into a gave a release deed. Held that the release
contract, it is a contract made under deed was given under coercion.
coercion. The government threatens to seize the property
of A to recover the fine due from B, the son of
A. A paid the fine. Held that fine was recovered
by coercion.
3. Threat to third person
The act constituting coercion may be D threatens to shoot B if he does not lend his
directed at any third person. house to C. B agrees. B’s consent is obtained
by coercion.
4. Enforcement of PPC
It is immaterial that PPC is or is not in C forced B to enter into an agreement on a ship
force in the place where coercion is near Jeddah. Afterwards, B sued C for breach
employed. If the suit is filed in of contract at Karachi High Court. C has
Pakistan, the provisions of PPC will employed coercion although PPC was not in
apply. force at Jeddah.

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EFFECTS OF COERCION:
1. A contract brought about by coercion is voidable at the option of the party whose
consent was so caused [19].
2. If the aggrieved party decides to rescind the voidable contract, both parties must return
any benefits received under the contract [64].
3. The burden of proof that coercion was employed lies on the party who want to set
2| aside the contract on the plea of coercion.

UNDUE INFLUENCE
A contract is said to be induced by undue influence where the relation subsisting between
the parties are such that one party is in a position to dominate the will of the other and
uses that position to obtain an unfair advantage over the other [16(1)].
POSITION TO DOMINATE:
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 e.g. tax officer and taxpayer /
police officer over an accused;
(b) Where he stands in a fiduciary relation to the other e.g. father and son / guardian and
minor / advocate and client / doctor and patient / religious adviser and follower; and
(c) Where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness or bodily distress e.g. old, illiterate
persons.
NO PRESUMPTIONS OF UNDUE
PRESUMPTIONS OF UNDUE INFLUENCE
INFLUENCE
(a) Father and Son (a) Husband and wife
(b) Guardian and Minor (b) Mother and daughter
(c) Doctor and Patient (c) Grandson and grandfather
(d) Advocate and Client (d) Landlord and tenant
(e) Trustee and Beneficiary (e) Creditor and debtor
(f) Spiritual/Religious advisor and (f) Principal and agent
follower
(g) Teacher and Student The burden of proof lies on the person who
(h) Master and Servant wants to set aside the contract on the basis of
(i) Contract with or by old illiterate person undue influence.
(j) Contract with or by Pardanasheen
woman

The burden of proof lies on dominating

person.
REBUTTAL OF PRESUMPTION:
The party who was able to dominate can oppose the presumption by arguing:
(i) The facts were fully disclosed;
(ii) The transaction was not unfair as the price is enough;
(iii) The dominated party was free to get independent advice; and
(iv) The dominated party gave his free consent.
EFFECTS OF UNDUE INFLUENCE: [19A]
1. When the consent is caused by undue influence, the agreement is voidable at the
option of the party whose consent was so caused.
2. 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 the
court may seem just.

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 CAF 3 – Free Consent

COERCION VERSUS UNDUE INFLUENCE

Sr.# Difference COERCION UNDUE INFLUENCE
Physical threat to property or Mental or moral threat
1. Nature
person
It involves doing or threatening to The act may not be illegal, it may
2. Legality |3
do an illegal act be only unfair.
Penal action may also be taken No penal action may be taken
3. Penal action
against guilty party against wrongdoer.
It may be by or against It must be against one of the
4. Parties contracting parties or any other contracting parties.
third party.
No specific relation is required One party must be in a position to
5. Relationship
between the parties. dominate the will of the other.
Parties must return any benefit Court may direct to refund the
Refund of
6. received from the other party. benefits received either wholly or
Benefits
in part.
The onus of proof is on the party The onus of proof is on the party
Burden of who wants to relieve himself of in a position to dominate the will
7.
proof the consequences of coercion. of the other party based on
presumptions.
MISREPRESENTATION
Misrepresentation includes:
(a) Positive assertion of unwarranted statements of material facts believing them to be
true;
(b) Breach of duty which brings an advantage to the person committing it by misleading
the other to his prejudice; and
(c) Causing mistake about subject-matter innocently [18].
ANALYSIS OF DEFINITION:
1. Unwarranted positive assertion A sold a mine to M and told certain facts
If a person makes an explicit statement of about the mine which were incorrect. A
fact not warranted by his information, under believed them to be true. Later, M
an honest belief as to its truth though it is discovered the real facts. This is a
not true, there is misrepresentation. misrepresentation.
2. Breach of duty A told B that the monthly sale of his
Breach of duty will be considered business was Rs. 50,000 before the
misrepresentation if it is done without an contract was signed. Sales was
intent to deceive. It includes all those cases decreased to Rs.35,000. A did not inform
where one party is under an obligation to B about the decrease. Held, that there
disclose all material facts to the other party. was misrepresentation.
3. Induced mistake The seller told the buyer that the bike is
Causing mistake about the subject matter free from defects but there was a built-in
innocently constitutes misrepresentation. defect in it. There is a misrepresentation.
ESSENTIALS OF MISREPRESENTATION:
1. Misstatement of facts must be innocent and without an intent to deceive.
2. Representation must relate to material facts of contract and not to mere opinion or
hearsay e.g. the land is fertile.
3. Representation must be or must have become untrue.
4. Representation must induce the other party to enter into the contract.
5. The other party cannot discover the truth with ordinary diligence.

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EFFECTS OF MISREPRESENTATION:
The aggrieved party has following remedies:
1. He can rescind the contract.
2. He can accept the contract and ask the other party for restoration.
EXCEPTIONS TO RESCIND THE CONTRACT
4| A party cannot rescind the contract
1. the aggrieved party had the means of discovering the truth with ordinary diligence
2. the party gave the consent in ignorance of misrepresentation
3. the party after becoming aware of the misrepresentation takes a benefit under the
contract
4. an innocent third party before the contract is rescinded acquires for consideration and in
good faith some interest in the property passing under the contract,
5. the parties cannot be restored to their original position e.g. subject matter is destroyed.
BURDEN OF PROOF:
The burden of proof lies on the party who wants to set aside the contract on grounds of
misrepresentation.

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 an intent to deceive another party thereto or his
agent, to enter into the contract:
(1) The suggestion that a fact is true when it is not true by one who does not believe it to
be true;
(2) The active concealment of fact by one having knowledge or belief of the fact;
(3) A promise made without any intent to perform it;
(4) Any other act fitted to deceive; and
(5) Any such other act or omission as the law specifically declares to be fraudulent.
ANALYSIS OF DEFINITION:
1. Intentional false statement A knows that his watch is made in Pakistan but
When a party to a contract makes a tells B that it has been made in Japan. B buys
false statement intentionally, he will the watch. A is guilty of Fraud.
be held liable for fraud.
2. Active concealment of facts A sells his house to B. the house has cracked
When a party to a contract is under walls. A fills it up to conceal the defect. A is guilty
an obligation to disclose material of fraud.
facts but does not disclose those
when there is duty to disclose, he is
guilty of fraud.
3. Intentional non-performance B, knowing that he has no money, takes a meal
When a person enters into a in a hotel with an intention of slipping away. B is
contract with no intention to perform guilty of fraud.
his promise, it is considered an act
of fraud.
4. Intention to deceive A company issued a prospectus containing a
Any act with an intention to deceive, statement that company paid dividend between
is considered to be fraudulent. 2001 and 2007. In fact, the company suffered
losses in those years and paid dividend out of
secret reserves.
5. Act or omission A sold his house to B for Rs. 100,000. The
Under certain situations law house was mortgaged with C for Rs. 10,000. A
declares certain acts to be did not inform B about it. Later, C claimed Rs.
fraudulent. 10,000 from B. B can avoid contract as A is
guilty of fraud.

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 CAF 3 – Free Consent

EFFECTS OF FRAUD:
The aggrieved party has following remedies:
1. He can rescind the contract.
2. He can accept the contract and ask the other party for restoration.
EXCEPTIONS TO RESCIND THE CONTRACT
A party cannot rescind the contract |5
1. silence amounts to fraud and the aggrieved party had the means of discovering the truth
with ordinary diligence
2. the party gave the consent in ignorance of fraud
3. the party after becoming aware of the fraud takes a benefit under the contract
4. an innocent third party before the contract is rescinded acquires for consideration and in
good faith some interest in the property passing under the contract,
5. the parties cannot be restored to their original position.
BURDEN OF PROOF:
The burden of proof lies on the party who wants to set aside the contract on grounds of
fraud.

SILENCE AS FRAUD / CONSTRUCTIVE FRAUD:

Mere silence as to facts likely to affect the willingness of a person to enter into a contract is
not fraud unless:
(i) 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
(ii) Silence in itself is equivalent to speech.
1. Mere silence is not fraud A and B, being traders enter upon a
Because there is no duty cast by law on a party contract. A has a private information
to a contract to make a disclosure to the other of change in the prices which would
party, of material fact within his knowledge. affect B’s willingness to proceed with
the contract. A is not bound to inform
B.
2. Silence is fraudulent under certain
circumstances
If the circumstances such that silence is in itself B says to A “if you don’t deny it, I
equivalent to speech or where ‘it is duty of the shall assume that the horse is sound.”
person keeping silence to speak. A says nothing. Hence, A’s silence is
equal to speech.
Silence is fraudulent, if the circumstances of the
case are such that it is the duty of the person to
disclose all material fact. In other words silence
is fraudulent in contracts of utmost good
faith, e.g. contract of insurance, partnership,
family settlement, etc.

MISREPRESENTATION VERSUS FRAUD

Sr.# Difference MISREPRESENTATION FRAUD
Representation is innocent
1. Intent Implies an intention to deceive.
without intent to deceive.
Aggrieved party can only avoid
It is civil wrong and aggrieved party
the contract but damages are
2. Remedies can claim damages in addition to
only payable at discretion of
Cancellation of contract.
court.

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MISTAKE
Mistake may be defined as an erroneous belief concerning something. It may be of two
kinds:
(a) mistake of law
(b) mistake of fact
6| MISTAKE OF LAW
Mistake of law may be of two types:
1. Mistake of Pakistani law A and B make a contract which is based on
Everyone is deemed to be conversant erroneous belief that a particular debt is
with the law of his country, and barred by Pakistani Law of limitation. The
therefore, mistake of law is no excuse contract is valid.
and it does not give right to the parties to
avoid the contract.
2. Mistake of foreign law Andrew, a Pakistani, agrees to sell a
Mistake of foreign law stands on the particular medicine to Bony, a foreign
same footing as the ‘mistake of fact’. national. The law of that country has banned
Here the agreement is void in case of the sale and purchase of that particular
bilateral mistake only. medicine. This is a mistake and the
agreement is void.

MISTAKE OF FACT
Mistake of fact means erroneous belief of a fact essential to contract other than value of
subject matter. It is of two types:
1. Bilateral mistake
Where the parties to an agreement misunderstood each other and are at cross purposes
(absence of consensus), there is a bilateral mistake. The following three conditions must
be fulfilled:
(a) Both the parties must be under a mistake
(b) Mistake must relate to some fact and not to judgement or opinion etc.
(c) The fact must be essential to the agreement
Existence of A agrees to buy a horse from B. It turns out the horse was
(i) subject dead at the time of bargain but neither party was aware of
matter this effect, the agreement is void.
Identity of A agrees to buy a transformer from B. A think she is buying
(ii) subject 1-phase transformer while B thinks he is selling a 3-phase
matter transformer. There is no contract.
Title A agreed to take a fishery from B on lease. Both parties
(ownership) believed that B was the owner. Later, it was discovered that
(iii)
of subject the fishery belonged to A. Held, that the agreement is void.
matter
P examined 50 riffles in shop. Later, P sent an order by
Quantity of telegraph, “send three riffles”. The telegraph was mistakenly
(iv) subject communicated as “send the riffles” to H, the shop owner. H
matter sent 50 riffles. P accepted three and returned 47 riffles. H
filed a suit for damages. Held, there was no contract.
Quality of C contract to sell B a horse which both parties believe to be
(v) subject race horse. Later, it turns out to be a cart horse. The
matter agreement is void.
A and B, believing themselves to be married, made a
separation agreement in which A agreed to pay B Rs. 5,000
Possibility of
(vi) every week. Later, it was discovered that they were not
performance
validly married. B claimed the promised payment. It was held
that the agreement is void.

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 CAF 3 – Free Consent

2. Unilateral mistake
Where only one of the contracting parties is mistaken as to a matter of fact, the mistake
is a unilateral mistake. The validity of contract in case of unilateral mistake is given
below:
(a) Contract valid The government auctioned the right of
If a person due to his own negligence or fishery. A offered the highest bid thinking
lack of reasonable care does not that the right was being sold for 3 years |7
ascertain what he is contracting about, but in fact it was for only 1 year. A
he must blame himself and cannot cannot avoid contract.
avoid contract.
(b) Agreement void ab initio
In the following two cases, where consent is given by a party under a mistake
which is so fundamental as goes to the root of the agreement and has the effect of
nullifying consent, no contract will arise even though there is unilateral mistake
only.
(i) Mistake as to the B, a director of a theatre, gave instructions that no
identity of person ticket should be sold to S who was critic of the plays.
contracted with, S got a ticket through his friend. S went to the theatre
where such identity is but was refused admission. S filed a suit for
important. damages. It was held that there was no contract
because the theatre company never wanted to
contract with S.
(ii) Mistake as to the M an old illiterate man of poor sight, was induced to
nature and character sign a bill of exchange falsely representing that it was
of a written document a guarantee. It was held that M was not liable.

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Past Exams Q&A

8| PRACTICE QUESTION PE A14 01
Under the provisions of the Contract Act, 1872 describe the following:
(a) Undue influence (06)
(b) Fraud (06)

ANSWER 01
Part (a)
Undue Influence:
(i) A contract is said to be induced by “undue influence” where the relation 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 unfair advantage over the other.
(ii) 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 distress or bodily
distress.
Part (b)
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 to enter into the contract.
(i) The suggestion, as a fact of that which is not true, by one who does not believe it to
be true;
(ii) The active concealment of a fact by one having knowledge or belief of the fact;
(iii) A promise made without any intention of performing it;
(iv) Any other act fitted to deceive;
(v) 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.

PRACTICE QUESTION PE S16 02

Shafiq bought Abad’s motorcycle factory in Faisalabad on Abad’s representation that fifty
thousand motorcycles are assembled at his factory annually. Shafiq later found that the
factory has a capacity to manufacture thirty five thousand motorcycles only per annum.
Shafiq now wants to rescind the contract on the ground that his consent was obtained by
misrepresentation.

Under the provisions of the Contract Act, 1872 list the circumstances under which Shafiq
may not be able to rescind the contract. (05)

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 CAF 3 – Free Consent

ANSWER 02
Shafiq may not be able to rescind the contract under the following circumstances:
 If Shafiq had the means of discovering the truth with ordinary diligence; or
 Abad’s misrepresentation was not the basis for Shafiq’s consent; or
 After becoming aware of the misrepresentation Shafiq may have taken benefit under the
contract; or
|9
 If an innocent third party had acquired for consideration and in good faith some interest
in the property; or
 Shafiq and Abad cannot be restored to their original positions.

PRACTICE QUESTION PE S17 03

Jamal threatened Rafia to murder her son Atif if she did not sell her house to Mujahid. Rafia
did as she was told. Under the provisions of the Contract Act, 1872 comment on the validity
of the above contract. (02)

ANSWER 03
The contract in the above situation is voidable at the option of Rafia as her consent is not
free and has been obtained by coercion.

PRACTICE QUESTION PE A17 04

Ghaffar purchased a piece of land from Sharif who is an engineer by profession. During the
discussion prior to the purchase, Sharif had told Ghaffar that in his opinion, the land would
be able to support 2,500 mango trees. However, only 2300 trees could eventually be planted
on the land.

Under the provisions of the Contract Act, 1872 discuss whether Ghaffar can claim damages
on the grounds of fraud. (03)

ANSWER 04
Fraud:
Sharif’s statement that in his opinion the land could support 2,500 mango trees clearly
indicated that he was not sure about it and was just giving an opinion. Therefore, unless
Ghaffar can show that the statement was made with the intention to deceive him, he cannot
claim damages on the grounds of fraud.

PRACTICE QUESTION PE A18 05

Mughal and Dawood are trading in rice. Dawood entered into a contract with Mughal for the
purchase of 50 tons of rice. Dawood had private information of change in prices which would
have affected Mughal’s willingness to enter into the contract. When Mughal, through his own
resources, came to know about the prices, he accused Dawood of fraud and repudiated the
contract.
Under the provisions of the Contract Act, 1872 explain whether Mughal is justified in
repudiating the contract. (04)

ANSWER 05
No, Mughal is not justified in repudiating the contract. Dawood is not bound to disclose the
information to Mughal as the relationship existing between them is not that of ‘utmost good
faith’ (i.e. fiduciary relationship). Mere silence as to facts likely to affect the willingness of a
person to enter into a contract is not fraud, unless there is a duty to disclose such fact or
where silence is equivalent to speech.

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PRACTICE QUESTION PE A19 06

Respond to the following scenario, under the provisions of the Contract Act, 1872:
Haroon was engaged to be married to Ghazala. Haroon wanted to establish his own
business and therefore he entered into a contract with Ghazala for providing him all her
jewellery and apartment by way of a gift and in return Haroon agreed to give her a small
share in business profit. After some time, Ghazala filed a suit against Haroon, requesting for
10| setting aside the gift deed as it was not made with her free will. Discuss whether Ghazala
would succeed in her contention. (04)

ANSWER 06
Ghazala may succeed to recover her jewellery and apartment from Haroon on the
presumption of undue influence. A contract is said to be induced by undue influence where
the relation subsisting between the parties is such that one of the parties is in a position to
dominate the will of the other and uses that position to obtain unfair advantage over the
other. Haroon in this case is a fiancé of Ghazala and is in a position to dominate her will.

When the consent to an agreement is caused by undue influence, the agreement is voidable
at the option of the party whose consent is so caused. Therefore, the contract is voidable at
the option of Ghazala.

The Court may set aside the contract either absolutely or, in case if Ghazala has received
any benefit under the contract, upon such terms and conditions as the Court may seem just.

The burden of prove that the above contract, which on the face of it appears to be
unconscionable, was not induced by undue influence lies on Haroon, as he is the one who is
in a position to dominate Ghazala’s will.

PRACTICE QUESTION PE A19 07

Respond to the following scenario, under the provisions of the Contract Act, 1872:
Sultan bought electronic appliances worth Rs. 700,000 from Zameer on thirty days’ credit. At
the time of purchase, Sultan knew that he was in insolvent circumstances. Discuss the
validity of the contract. (03)

ANSWER 07
A promise made without any intention of performing it tantamount to fraud. Therefore, in this
case since Sultan had no intention of performing the contract, he committed a fraud and the
contract is voidable at the option of Zameer.

Latest update: April 2020