Chapter 4: Free consent and void agreements

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”.

[Chapter 4 LO 1]

Question 2

Define “Free Consent”.

Answer 2

Consent is said to be free when it is not caused by (a) coercion, or (b) undue influence, or (c) fraud, or (d) misrepresentation, or (e) mistake”.

[Chapter 4 LO 1]

Question 3

Define “Coercion”.

Answer 3

“Coercion” is the committing (or threatening to commit) any act forbidden by the Pakistan Penal Code or unlawful detaining (or threatening to detain) any property, with the intention of causing any person to enter into an agreement.

[Chapter 4 LO 2]

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.

[Chapter 4 LO 2]

Question 5

What are the effects of Coercion?

Answer 5

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 If contract is rescinded, parties will restitute (i.e. restore) benefits received, if any.

[Chapter 4 LO 2]

Question 6

Define “undue influence”.

Answer 6

A contract is caused by undue influence if:
 one party is in a position to dominate the will of other because of close relation between them, and
 dominant party uses that position to obtain an unfair advantage.

[Chapter 4 LO 3]

Question 7

Give some examples of Relations in which Undue Influence is assumed.

Answer 7

1. Real or Apparent Authority (e.g. Employer and Employee, Police officer and Accused, Tax officer and Tax payer).
2. Fiduciary Relationship (e.g. Parent and Child, Guardian and Minor, Advocate and Client, Trustee and Beneficiary, Fiance’ and fiance’e)
3. Mental capacity is affected (e.g. Doctor and Patient, Medical Attendant and Patient, a Family Member and an Enfeebled Old Man)

[Chapter 4 LO 3]

Question 8

Give some examples of Relations in which Undue Influence is NOT assumed.

Answer 8

 Husband and Wife
 Creditor and Debtor
 Landlord and Tenant
 Principal and Agent

[Chapter 4 LO 3]

Question 9

What is the effect on contract if Undue Influence is exercised?

Answer 9

1. The contract is voidable at the option of aggrieved party.
2. However, Court has discretion to set aside such contract either absolutely or on such terms and conditions as it thinks fit.

[Chapter 4 LO 3]

Question 10

List down the points of difference between Coercion and Undue Influence.

Answer 10

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

[Chapter 4 LO 3]

Question 11

Define “Misrepresentation”.

Answer 11

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 or quality of subject of agreement.

[Chapter 4 LO 4]

Question 12

What are the essentials of Misrepresentation?

Answer 12

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

[Chapter 4 LO 4]

Question 13

State the circumstances in which contract caused by Misrepresentation, cannot be rescinded.

Answer 13

1. Aggrieved party had the means of discovering the truth with ordinary diligence;
2. Aggrieved party did not act on the basis of misrepresentation;
3. Aggrieved party takes a benefit under the contract after becoming aware of misrepresentation,
4. An innocent third party acquires interest in the property in good faith for consideration;
5. Parties cannot be restored to their original position.

[Chapter 4 LO 4]

Question 14

Define “Fraud”.

Answer 14

“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.

[Chapter 4 LO 5]

Question 15

Does silence amount to Fraud?

Answer 15

Keeping silence is not fraud unless:
 where silence is equivalent to speech, or
 there is a duty/legal obligation to disclose such fact.

[Chapter 4 LO 5]

Question 16

What are the essentials of Fraud?

Answer 16

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

[Chapter 4 LO 5]

Question 17

State the circumstances in which contract caused by Fraud, cannot be rescinded.

Answer 17

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.

[Chapter 4 LO 5]

Question 18

List down the points of difference between Misrepresentation and Fraud.

Answer 18

1. Intention
2. Remedies

[Chapter 4 LO 5]

Question 19

What is the effect on Contract in case of Mistake of Fact?

Answer 19

1. In Unilateral Mistake, Contract remains valid.
2. In Bilateral Mistake, Contract remains valid.

[Chapter 4 LO 6]

Question 20

What is the effect on Contract in case of Mistake of Law?

Answer 20

 In Mistake of Pakistani Law, Contract remains valid.
** In Mistake of Foreign Law**, Effect is same as mistake of Fact (i.e. unilateral is valid, bilateral is void).

[Chapter 4 LO 6]

Question 21

List down some examples of agreements which are declared VOID by Contract Act.

Answer 21

1. Illegal Agreement.
2. Impossible Agreements.
3. Uncertain agreements.
4. Agreements with persons incompetent to contract.
5. Agreement made without consideration.
6. Agreements in restraint of marriage (exception of minor).
7. Agreements in restraint of trade.
8. Agreements in restraint of legal proceedings.
9. Wagering Agreements

[Chapter 4 LO 7]

Question 22

Agreements in restraint of Trade are void. What are its exceptions?

Answer 22

Sale of Goodwill/Business:
Provided, such restriction:
 relate to a similar business.
 for such period till buyer carries on same business.
 for specified local limits.
 local limits must be reasonable.

Agreements between partners:
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 for specified local limits. [Specified period and local limits must be reasonable]

[Chapter 4 LO 8]

Question 23

Agreements in restraint of Legal Proceedings are void. What are its exceptions?

Answer 23

1. Parties can agree to refer dispute between them to Arbitration.
2. Parties can make an 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 any one court **of law (between equally competent courts) to file suit.

[Chapter 4 LO 9]

Question 24

Give some examples of agreements which are Wagering Agreements, and some examples which are NOT Wagering Agreement.

Answer 24

Examples of Wagering Agreements:
1. Bet on match.
2. Bet on rain.
3. Gambling.
4. Lottery.
Examples of Agreements which are NOT Wagering Agreements.
 Prize competitions which are games of skill, e.g. picture puzzles, athletic competitions.
 Agreement to pay winner of a horse race

[Chapter 4 LO 10]

Question 25

What is the effect of Illegal/Wagering Agreements?

Answer 25

1. Illegal agreements are void (whether becoming illegal initially or subsequently).
2. Agreements collateral on void agreements, also become void (if made knowingly).

[Chapter 4 LO 10]