Chapter 4: Free Consent and Void Agreements-Theory

Question 1

Define consent.

Answer 1

Two persons are said to consent when they agree upon the same thing in the same sense.
This is called “consensus-ad-idem”.
If there is no consent, agreement is void.

Question 2

Define free consent.

Answer 2

Consent is said to be free when it is not caused by coercion, undue influence, fraud, misinterpretation or mistake.

Question 3

Define coercion. (5 Points)

Answer 3

1. Coercion is the
2. committing or (threatening to commit)
3. any act forbidden by the Pakistani Penal Court or
4. unlawful detaining (or threatening to detain) any property,
5. with the intention of causing any person enter into an agreement.
   Notes:
   Party exercising coercion may be either stranger or a relative.
   It doesn’t matter if Pakistani Penal Code is not enforceable at place where coercion is applied.

Question 4

Who has burden of proof in case of coercion?

Answer 4

Party rescinding the contract will have to prove that there was coercion at time of contract.

Question 5

What are the effects of coercion? (2 Points)

Answer 5

That contract is voidable at the option of aggrieved party.
If contract is rescinded,
parties will restitute (i.e. restore) benefits received,
if any.

Question 6

Definition of undue influence. (2 Points)

Answer 6

A contract is caused by undue influence if:
1. One party is in a position to dominate the will of other because of close relation between them &
2. Dominant party uses that position to obtain an unfair advantage.
Exam Tip: Party, exercising and influence is usually a relative (but not always).

Question 7

Write down examples of relations in which undue influence is assumed. (Only 3 headings)

Answer 7

1. Real or apparent authority.
2. Fiduciary relationship.
3. Mental capacity is affected.

Question 8

Write down examples of relations in which undue influence is assumed. (3 Points - Full detail)

Answer 8

A person is deemed to be in a position to dominate the will of other if:
1. He holds real or apparent authority (e.g. Employer and employee, Police officer and accused, Tax officer and taxpayer).
2. He has fiduciary relationship (e.g. Parent and child, Guardian and minor, Advocate and client, Trustee and beneficiary, Fiancé and fiancée).
3. Other persons medical capacity is affected due to age, illness, etc.(e.g. Doctor and patient, Medical attendant and patient, A family member and an enfeebled old man).

Question 9

Who has burden of proof in case of undue influence? (Where undue influence is presumed)

Answer 9

Party in dominating position will have to prove that there was no undue influence.

Question 10

Write down examples of relations not having undue influence.

Answer 10

Undue influence is NOT assumed in following cases:
1. Husband and Wife.
2. Creditor and Debtor.
3. Landlord and Tenant.
4. Principal and Agent.

Question 11

Who has burden of proof in case of undue influence? (where undue influence is not presumed)

Answer 11

Party rescinding he contract will have to prove that there was undue influence.

Question 12

What is the effect of undue influence? (2 Points)

Answer 12

The contract is voidable at the option of aggrieved party.
Court has discretion (authority) to set aside such contact either:
1. Absolutely or
2. On such terms and conditions as it thinks fit (if the weaker party has received any benefit under it).

Question 13

Difference between Coercion and Undue Influence, All headings. (9)

Answer 13

1. Relationship
2. Consent (Obtained by)
3. Nature of pressure
4. By whom
5. On whom
6. Burden/Onus of proof
7. Criminal liability
8. Reason
9. Restoration of benefit

Question 14

Difference between Coercion and Undue Influence.
1. Relationship

Answer 14

1. Relationship
   - Coercion:
   Parties to a contract may or may not be related to each other.
   - Undue Influence:
   Parties to a contract are related to each other under some sort of relationship.

Question 15

Difference between Coercion and Undue Influence.
2. Consent (Obtained by)

Answer 15

2. Consent (Obtained by)
   - Coercion:
   Consent is obtained by giving a threat of an offence or committing an offence.
   - Undue Influence:
   Consent is obtained by dominating the will.

Question 16

Difference between Coercion and Undue Influence.
3. Nature of Pressure

Answer 16

3. Nature of Pressure
   - Coercion:
   It involves physical pressure.
   - Undue Influence:
   It involves mental pressure.

Question 17

Difference between Coercion and Undue Influence.
4. By Whom

Answer 17

4. By Whom
   - Coercion:
   It can be exercised even by a stranger to the contract.
   - Undue Influence:
   It is exercised usually by a party to a contract and not by a stranger.

Question 18

Difference between Coercion and Undue Influence.
5. To Whom

Answer 18

5. To Whom
   - Coercion:
   It can be exercised even on a stranger to the contract.
   - Undue Influence:
   It can be exercised only on a party to a contract.

Question 19

Difference between Coercion and Undue Influence.
6. Burden/Onus of proof

Answer 19

6. Burden/Onus of proof
   - Coercion:
   Burden of proof on party rescinding the contract.
   - Undue Influence:
   It may be assumed by the law in some cases.

Question 20

Difference between Coercion and Undue Influence.
7. Criminal liability

Answer 20

7. Criminal liability
   - Coercion:
   The party committing the crime may be punishable under Penal Code.
   - Undue Influence:
   It does not involve any criminal liability.

Question 21

Difference between Coercion and Undue Influence.
8. Reason

Answer 21

8. Reason
   - Coercion:
   Objective is to compel a person to enter into a contract.
   - Undue Influence:
   Objective is to obtain an unfair advantage.

Question 22

Difference between Coercion and Undue Influence.
9. Restoration of Benefits

Answer 22

9. Restoration of Benefits
   - Coercion:
   The aggrieved party has to restore the benefit received.
   - Undue Influence:
   The party avoiding the contract may or may not restore benefit.

Question 23

Define misrepresentation. (3 cases)

Answer 23

There is a misrepresentation in following cases:
1. A person believes and gives a statement to be true, but which is false.
2. A person obtains an advantage through breach of duty, without an intent to deceive.
3. A party innocently causes other party to make a mistake as to the nature of quality of subject of agreement.

Question 24

Enlist 4 essentials of misrepresentation.

Answer 24

1. By party to the contract.
2. False representation.
3. Representation as to fact.
4. Acted upon it.

Question 25

In essentials of misrepresentation, what “By party to the contract” means?

Answer 25

The representation must be made by a party to the contract or his agent.
Representation by strangers does not affect validity of contract.

Question 26

In essentials of misrepresentation, what “false representation” means?

Answer 26

The representation/statement is false but party believes it to be true and gives without intention to deceive.

Question 27

In essentials of misrepresentation, what “representation as to fact” means?

Answer 27

Representation must be factual, not opinions or intentions.

Question 28

In essentials of misrepresentation, what “acted upon it?” means?

Answer 28

Other party must have acted on the basis of representation.

Question 29

What is the effect of misrepresentation?

Answer 29

The contract becomes voidable at the option of aggrieved party.

Question 29

Incase of misrepresentation “Contract becomes voidable at the option of aggrieved party”. What are the exceptions to this rule? (5)

Answer 29

Aggrieved party cannot rescind the contract In following cases:
1. If aggrieved party had the means of discovering the truth with ordinary diligence.
2. If aggrieved party did not act on the basis of misrepresentation.
3. If aggrieved party takes a benefit under the contract after becoming aware of misrepresentation.
4. If an innocent third party acquires interest in the property in good faith for consideration.
5. If the parties cannot be restored to their original position.

Question 30

What is the definition of fraud? (Def+ 5 points)

Answer 30

“Fraud” includes acts done to make contract with other party by deceiving him.
It includes following:
1. False representation.
2. Active concealment.
3. Empty promise.
4. Fitted act.
5. Declared act.

Question 31

What is false representation?

Answer 31

A person gives representation as true, which he knows to be false.

Question 32

What is active concealment?

Answer 32

Actively taking steps to conceal defects so that a reasonable examination does not find them.

Question 33

What is empty promise?

Answer 33

A promise without intention of performing it.

Question 34

What is fitted act?

Answer 34

Any act fitted to deceive.

Question 35

What is declared act?

Answer 35

Any other act which the law specially declares to be fraudulent.

Question 36

Does silence amount to fraud? (Two points)

Answer 36

Keeping silence on a material facts regarding subject matter of the contract is not fraud unless:
1. Where silence is equivalent to speech, or
2. There is duty/legal obligation to disclose such fact (e.g. Fiduciary relationship like parent-child, trustee,-beneficiary).

Question 37

List down essentials of fraud. (Five points)

Answer 37

1. By party to the contract.
2. False representation.
3. Representation as to fact.
4. Acted upon it.
5. Suffered loss.

Question 38

In essentials of fraud, what “By party to the contract” means?

Answer 38

The representation must be made by a party to the contract or his agent. Representation by strangers does not affect validity of contract.

Question 39

In essentials of fraud, what “False representation” means?

Answer 39

The representation/statement is false and party has knowledge that it is false, and gives it with intention to deceive.

Question 40

In essentials of fraud, what “representation as to fact” means?

Answer 40

Representation must be factual, not opinions or intentions.

Question 41

In essentials of fraud, what “acted upon it?” means?

Answer 41

Other party must have acted on the basis of representation.
A mere attempt to deceive is not a fraud.

Question 42

In essentials of fraud, what “suffered loss?” means?

Answer 42

Other party must have suffered loss. If there is no loss, there is no fraud.

Question 43

What is the effect of fraud?

Answer 43

The contract becomes voidable at the option of aggrieved party.

Question 44

Incase of fraud “Contract becomes voidable at the option of aggrieved party”. What are the exceptions to this rule?

Answer 44

Aggrieved party cannot rescind the contract In following cases:
1. If aggrieved party had the means of discovering the truth with ordinary diligence.
2. If aggrieved party did not act on the basis of fraudulent statement.
3. If aggrieved party takes a benefit under the contract after becoming aware of fraudulent representation.
4. If an innocent third party acquires interest in the property in good faith for consideration.
5. If the parties cannot be restored to their original position.

Question 45

Difference between misinterpretation and fraud. (2 points)

Answer 45

1. Intention.
2. Remedies.

Question 46

Difference between misinterpretation and fraud.
1. Intention.

Answer 46

-Misinterpretation:
There is no intention to deceive.
-Fraud
There is intention to deceive.

Question 47

Difference between misinterpretation and fraud.
2. Remedies.

Answer 47

-Misinterpretation:
Right of rescission.
-Fraud
Right of rescission and damages.

Question 48

Definition of mistake. (definition and 2 points)

Answer 48

Mistake means believing something to be true at time of contract, which is not true.
Mistake can be:
1. Mistake of fact, or
2. Mistake of law.

Question 49

Define mistake of fact. (2 points)

Answer 49

Mistakes of fact includes mistakes regarding existence, quality, quantity, identity, or title of subject matter, possibility of performance.
Erroneous opinion by regarding value of subject matter is not considered a mistake of fact and contract remains valid.

Question 50

What are two types of mistake of fact?

Answer 50

1. Unilateral mistake (One party is under mistake) -> Contract remains valid.
2. Bilateral mistake (Both parties are under mistake) -> Contract becomes void.

Question 51

What are two types of mistake of law and their effect.

Answer 51

1. Mistake of Pakistani law: Contract remains valid (Whether unilateral or bilateral).
2. Mistake of foreign law: Effect is same as mistake of fact (i.e. unilateral is valid, bilateral is void).

Question 52

Write down all expressly declared void agreements. (9)

Answer 52

The following types of agreements have expressly been declared avoid under various sections of Contract Act.
1. Uncertain agreements.
2. Illegal agreements.
3. Impossible agreements.
4. Agreements with incompetent persons.
5. Agreement made without consideration.
6. Agreements in restraint of marriage (Exception of minor).
7. Wagering agreements.
8. Agreements in restraint of trade.
9. Agreements in restraint of legal proceedings.

Question 53

What is the effect of void agreement on collateral agreements?

Answer 53

Agreements collateral/contingent on void agreements, also become void.

Question 54

What “Agreement in restraint of trade” means? What are its two exceptions?

Answer 54

An agreement to restrict someone from carrying on a legal business or profession, is void.
However, in following exceptions, parties can restrict others from trading.
1. Sale of goodwill.
2. Agreements between partners.

Question 55

Under exceptions of “Agreement in restraint of trade”, what “Sale of goodwill” means? (Def+ 4 Points)

Answer 55

If a person sells goodwill of his business, he can be stopped from carrying on business provided:
1. Such restriction must relate to a similar business.
2. Such restriction must be for such time till buyer carries on same business.
3. Such restriction must be within specified local limits.
4. Such specified local limits must be reasonable (having regard to the nature of business).

Question 56

Under exceptions of “Agreement in restraint of trade”, what “agreements between partners” means?

Answer 56

1. Existing partners may agree that they will not carry on any other business.
2. An outgoing partner may agree that he will not carry similar business for specified period and specified local limits.
   Specified period and local limits must be reasonable (Having regard to the nature of the business).

Question 57

Agreements in restraint of legal proceedings is void if? (2 points)

Answer 57

An agreement is void if it:
1. Restricts a party to enforce his legal right.
2. Limits the time within which he can enforce his legal right.

Question 58

Agreements in restraint of legal proceedings is void. What are exceptions to this rule? (4 points)

Answer 58

1. Parties can agree to refer dispute between them to arbitration
2. Parties can make out-of-court settlement and may submit arbitration agreement to court.
3. Parties can agree that they will not file an appeal in upper court of law.
4. Parties can choose anyone court of law (between equally competent courts) to file a suit.

Question 59

Define wagering agreement?

Answer 59

Agreement to pay money (or other valuable items) to other person on happening or non-happening of a future uncertain event (in which no party has any real interest) is called wagering agreement. e.g. bet on match, bet on rain, gambling, lottery.

Question 59

Which transactions/agreements are not considered wagering agreement? (2 Points)

Answer 59

1. Prize competitions which are games of skill, e.g. picture puzzles, athletic competitions.
2. Agreement to pay winner of a horse race (more than 500).

Question 60

What is effect of illegal/unlawful agreements? (under wagering agreements in book)

Answer 60

1. Illegal agreements are void, whether becoming illegal initially or subsequently.
2. Agreements collateral on void agreements, also become void (if made knowingly).
3. No remedies allowed in case of breach of illegal agreements (i.e. neither damages nor restitution).