Effect of flaw in consent

 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 provisions-contained in these Sections are as under:

19. Voidability 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.

When 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.

19-A. Power to set aside contract induced by undue influence-

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

Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it, has received any benefit thereunder, upon such terms and conditions as to the Court may seem just."

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 also a tort. 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 thereunder, 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 rescission of the contract, ie, the contract may be voidable at his option, or

2. A right to claim compensation.

The two rights are being discussed below.

1.      Right of Rescission of the contract:

 It has been noted above that when the consent of a party to may the 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 rescission of a voidable contract be communicated or revoked in the same manner, and subject to the same rules, as apply to the communication or revocation of a proposal. 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.

Car and Universal Finance Co. Ltd. v. Caldwell, (1961) T Q.B. 525

A person entitled to avoid a contract may sue the other party to have the contract rescinded by a court, under the Sec 27, Specific Relief Act, 1963.

Limits to the right 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 the right of rescission of contract.

(1) 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 affirmed, then it is a valid and binding contract against both be parties. Section 19, which deals with the right of rescission of a tract where the consent of a party has been obtained by presentation or fraud further states:

“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."

(2) 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.

(3) Acquisition of a right by a third party

The right 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. The position may be explained by referring to the following provision contained in Section 29. (Indian) Sale of Goods Act, 1930

"When the seller of goods has obtained possession thereof under a contract voidable under Section 19 or Section 19-A 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."

(4) 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 position in which they were before the contract was made. If restitution 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, the buyer's only remedy is to claim compensation by treating the breach of condition as a breach of warranty. Section 13(2), (Indian) Sale of Goods Act, 1930 makes the following provisions in this regard:

"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."

2.      Right to claim compensation

Apart from 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 cases 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 misrepresentations It has already been noted that the (English) Misrepresentation Act, 1967 empowers the court in case of other than a fraudulent misrepresentation to allow damages in lieu of rescission of a contract.

(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. Section 64 incorporates the following provision in this regard: "When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promisor. The party rescinding a voidable contract shall, if he has received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received."

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 per cent per month. The Court may set aside the bond, ordering B to repay Rs. 100 with such interest Section 30, Specific Relief Act, 1963 also empowers the court to as may seem just. (Illustration (b) to Section 19-A)