BUSINESS LAW
Assignment
Submitted By: Amber Khalil, Hamza Tahir, Tehreem Shahid,
Faizan ul haq, Hussnain Maqsood, Raja Arslan
Submitted to: Madam Maryam
Free Consent
Relevant Provision
• Section 10 of Contract Act 1872 lay the basis of valid agreement.
• Section 13, 14 , 19 and 20 of Contract Act 1872.
Meaning
• Agreement , approval or permission as to some actor purpose, especially
given voluntarily by a competent person
• An agreement is said to be free when it is caused by coercion, undue
influence, fraud, misrepresentation or mistake. Consent is said to be so
caused when it wouldn’t have been given but for existence of such
coercion, undue influence , fraud , misrepresentation or mistake.
Definition
• Two or more persons are said to consent when they agree upon the same
thing in the same sense.
Legal Effects (voidable Contract)
• Section 19 of Contract Act 1872
When consent to a contract is caused by coercion, fraud or misrepresentation, the
agreement us voidable at the option of the party whose consent was so caused.
• Section 19(a) of the Contract Act 1872
When sunset 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
• Section 20 of the Contract Act 1872
Where both the parties to an agreement are under a mistake essential to the
agreement, rhe agreement is void,and it is not enforceable at the option of either party,
so when there is no consent there is no contract.
Unfree Consent
Caused by;
• Coercion
• Undue influence
• Fraud
• Misrepresentation
• Mistake
Conclusion
Consent is the back-bone of a contract. For a valid contract there must be
free consent. Where there is no consent, there is no contract and where
there is consent, but not free consent, there is generally a contract void-
able at the option of the party whose consent is not free.
Fraud
Relevant Provision
• Section 17 and 19 of contract act 1872
Meaning
• A misinterpretation made recklessly by without belief in its truth o induce
another person to act
Definition
• Intentional perversion of truth in order to induce another to part with
something of value or to surrender a legal right
According to Section 17
• The suggestion that a fact is true when it is not true by one who does not
believe it to be true
• The active concealment of fact by one having knowledge or belief of the
fact
• A promise made without any intent to perform it
• Any other act fitted to deceive
• Any such other act or omission as the law specifically declares to be
fraudulent.
Elements of Fraud
• Act committed with intent to deceive
When a party mislead the other party to sign a contract, he will be held liable for fraud.
A company issued a prospectus containing a statement that company paid dividend
between 2001 and 2007. In fact, the company suffered losses in those years and paid
dividend out of secret reserves.
• To induce somebody to enter a contract
By fraud a party makes the other party do something that he would not have done
A forces B to sell his house even though B has no intention of doing so.
• Suggestion of fact
To deceive someone to enter a contract with false Statement
A knows that his watch is made in Pakistan but tells B that it has been made in Japan. B
buys the watch. A is guilty of Fraud.
• Active concealment
When a party to a contract is under an obligation to disclose material facts but does not
disclose those when there is duty to disclose, he is guilty of fraud.
A sells his house to B. the house has cracked walls. A fills it up to conceal the defect. A is
guilty of fraud.
• Mere Silence is no fraud
Because there is no duty cast by law on a party to a contract to make a disclosure to the
other party, of material fact within his knowledge.
A and B, being traders enter upon a contract. A has a private information of change in
the prices which would affect B’s willingness to proceed with the contract. A is not
bound to inform B
• Cases where silence amounts to fraud
• Duty to speak
• Where Silence is deceptive
• Change of circumstances
• Half Truths
• Promise made without intention to perform
• Other Acts of deception
• Fraud by Act or omission
Effects of Fraud
Under Section 19, when the consent of an agreement is caused by coercion fraud or
misinterpretation, the agreement is voidable at the option of the aggrieved party
• Aggrieved party may insist on Performance
The aggrieved party thinks fit and ask for performance on the contract
• Exception
The contract is not voidable at the option of the aggrieved part if he had the means to
discover the truth for himself with ordinary diligence
Burden of Proof
It lies in the party who alleges that fraud had been committed against him.
Fraud cannot be directly proved it has to be inferred from the surrounding
circumstances and conduct of the parties.
Misinterpretation
Relevant Provision
• Section 18 and 19 of contract act 1872
Definition
• False representation of a fact made innocently or non-disclosure of
material fact without any intention to deceive the other party
According to Sec 18
• The position assertion
• Any breach of duty
• Causing, however, innocently
Essential of Misinterpretation
• It must be made innocently and person making it honestly believes it to be
true.
• It must relate to the fact essential to the contract. Mere expression of
opinion is not misrepresentation.
• The statement must be true.
• It must induce the other party to enter into the contract.
• It must be made without any desire.
• the other party cannot discover the truth by ordinary diligence.
Effects of Misinterpretation
Under Section 19, when the consent of an agreement is caused by coercion
fraud or misinterpretation, the agreement is voidable at the option of the
aggrieved party
• Aggrieved party may insist on Performance
The aggrieved party thinks fit and ask for performance on the contract
• Exception
The contract is not voidable at the option of the aggrieved part if he had
the means to discover the truth for himself with ordinary diligence
Burden of Proof
• It lies on the party who alleges that misinterpretation had been committed
against him.
Mistake
Relevant Provision
• Section 45,46,47,49,50,51,52 and 53 of Contract Act 1872
Meaning
• Some intentional act or omission or error arsing from ignorance, surprise,
imposition or misplaced confidence is called mistake
Kinds
• Mistake of Fact
Mistake of fact means an unconscious ignorance or forgetfulness of a fact, past or
present, material to the contract.
• Mistake of fact are as follows
Bilateral Mistake
Unilateral Mistake
• Mistake of Law
Mistake of law happens when a party, having full knowledge of facts,
comes to an enormous conclusion as to its legal effects
• Mistake of laws are as follows
• Mistake of Pakistani Law
• Mistake of Foreign Law
• Mistake of Private Rights
Kinds of Mistake of Fact
• Bilateral Mistake
• Under section 20 of Contract Act 1872
‘When both the parties to an agreement are under the mistake as
to matter of fact essential to the agreement, the agreement is
void.’
• Conditions to hold agreement void on ground
• Both the parties must be under mistake.
• Mistake must relate to some facts and not law
• Facts must be essential to the agreement.
• Instances
• Existence of subject matter.
• Identity of the subject matter.
• Ownership of subject matter.
• Quality of subject matter.
• Mistake of fact essential to agreement.
• Unilateral Mistake
A contract is not voidable merely because it was caused by one of the
parties to it being under a mistake as to a matter of fact
• Effects
• Valid contract
• Voidable contract
• Void agreement
• Identity of contracting party
• Mistake regarding the nature of contract
Kinds of Mistake of Law
• Mistakes of Pakistani Law
• When mistake is made according to the country the party belongs to.
• In this, the contract is binding because everyone is supposed to know the laws of their
country.
• There is a maxim in this regard that ‘ignorance of law is no excuse.’
• According to Section 21 of Contract Act 1872, a contract is not voidable merely because
it was caused by a mistake as to any law in force in Pakistan.
• Mistakes of foreign Law
• According to Section 21 Of Contract Act 1872, as mistake to a law not in force in
Pakistan As the same effect as the mistake of fact.
• The foreign country laws required to be proven in Pakistani courts As ordinary facts,
such mistakes make contract void.
• Mistakes of Private rights
• Its considered as a mistake of facts and is excusable.
• If a contract is made in ignorance of these then the contract is void.
Conclusion
• A contract is void in case of fraud , mistake or misrepresentation.
• There is no contract if any one party believes that the facts essential to
contract are different from what actually exists.
