What Is Free Consent In Business Law?

Free consent is a cornerstone of contract law, ensuring that all agreements are made voluntarily and without external pressure. In the context of business law, the concept of free consent in business law plays a critical role in safeguarding fairness, promoting equity, and protecting parties from exploitation. Governed by Sections 13 to 22 of the Indian Contract Act, 1872, free consent ensures that contracts are legally valid and enforceable. This article delves into the importance of free consent, its key elements like coercion, undue influence, and fraud, and the remedies available when free consent is compromised.

What Is Free Consent?

Free consent is a fundamental principle of commercial law, as it means that the parties agree to a contract voluntarily and without coercion, undue influence, or the threat of violence. 

A contract may be void in full or voidable, depending on circumstances where no free consent is given to either party. The belief is that free consent is essential to keep space in commercial dealings fair and square for all parties who enter the agreement knowingly and willingly.

Section 14 of the Indian Contract Act defines free consent as consent that is not obtained through:

• Coercion (Section 15)
• Undue Influence (Section 16)
• Fraud (Section 17)
• Section 18 Misrepresentation
• In Mistake (Section 20, 21 and 22);

Any consent influenced by one of these factors does not meet the test of freedom. When parties to a contract are unable to fulfill their agreement, the affected party may be induced to void the contract.

Importance Of Free Consent In The Business Law

Free consent is a cornerstone of contract law for several reasons:

Ensures Voluntary Agreements: 

Disputes from contracts that are made without free consent to carry out a legal transaction.

Promotes Fairness: 

It provides a level playing field on which all parties enter into agreements.

Protects Parties from Exploitation: 

It protects people from being pressed or fooled into entering into contracts.

Legal Validity: 

The law sometimes declares either a contract void or voidable without free consent.

Elements That Affect Free Consent

Here are some elements of free consent that can affect a contract.

Coercion

Definition: Section 15 of the Indian Contract Act defines coercion as the global use of force or threat to induce a person to enter into a contract.

Example: If someone doesn’t sign a contract, threatening them with harming their family.

Effect on Consent: A coercive party may void a contract entered into under coercion

Also Read : Difference Between Coercion And Undue Influence

Undue Influence

Definition: Section 16 defines undue influence as taking advantage of a position of power to obtain control over another party’s will.

Conditions for Undue Influence:

• One party is in a dominant position to dictate the will of the other.
• That position is being misused by the dominant party.

Example: A lawyer has his client sign an agreement in favor of the lawyer.

Effect on Consent: If undue influence is proven, the contract is voidable.

Fraud

Definition: Section 17 defines fraud as an act of deceiving a second party into entering into a contract.

Examples of Fraud:

• Making false statements.
• Concealing material facts.

Effect on Consent: Fraud-induced contracts are voidable contracts, and in the event of fraud, the deceived party has a right to damages as well.

Misrepresentation

Definition: Misrepresentation under Section 18 occurs when there is the provision of false or untrue information that is untrue and unintentional or without intent to mislead anyone.

Example: Selling a car and pretending you have new tires when you don’t.

Effect on Consent: Misrepresentation-based contracts are voidable; however, damages cannot be claimed except where misrepresentation is fraudulent.

Mistake

Mistakes can be of two types:

Mistake of Fact (Section 20): A fundamental fact of the contract from both parties is wrong.

Example: A sells a piece of land to B, both thinking it is fertile when it is not.

Mistake of Law (Section 21): Consent is not invalidated by ignorance of the law.

Effect on Consent: A mistake of fact will render a contract void, and a mistake of law will not render a contract voidable.

Case Laws And Legal Provisions

These case laws and legal provisions will help you to understand the elements of consent.

Legal Provisions

Sections 13 to 22 of the Indian Contract Act, 1872, deal in detail with free consent. These factors affect free consent, and it gives such factors a detailed definition and explanation.

Case Laws

Ranganayakamma v. Alwar Setti (1889)

Here a widow was forced to adopt a child. The contract was held voidable because her consent was procured by coercion.

Undue Influence Case: Mannu Singh v. Umadat Pande

In this case, a religious guru convinced his devotee to pass on the property. The court found undue influence was used in entering the contract, and it was voidable.

Fraud Case: Derry v. Peek (1889)

In the landmark case, this established that a fraudulent statement must be made with knowledge or without belief that it is true.

Practical Implications In Business

Here is how free consent implements in business law:

Employee Contracts: Employment agreements must contain no coercion or undue influence.

Vendor Agreements: Fraudulent terms can cause legal disputes and financial loss of your company.

Consumer Protection: Sales contracts can be misrepresented, damaging a company’s reputation and subjecting it to penalties.

Remedies For Lack Of Free Consent

If the contract is affected by any elements of free consent, then the aggrieved party may use the following methods:

Rescission of Contract: The only thing that can be done is that the affected party can void the contract.

Damages: Depending on the grounds of fraud or misrepresentation, damages may be sought.

Restitution: Return in benefit to enjoyment under the contract.

Reformation: Change of the contract when the claim is different from what the parties intended.

Conclusion

Free consent in business law is a vital element that upholds the integrity of commercial transactions and ensures that agreements are made fairly and voluntarily. By addressing factors like coercion, undue influence, fraud, misrepresentation, and mistakes, the Indian Contract Act, 1872, safeguards the rights of parties in a contract. Understanding the importance of free consent not only helps businesses avoid disputes but also ensures compliance with legal standards. Upholding the principles of free consent fosters trust, fairness, and transparency in business dealings, which are essential for long-term success and legal harmony.

 FAQs On Free Consent In Business Law

Here are some frequently asked questions (FAQs) to help you better understand the concept of free consent in contract law and its implications.

Q1: What is free consent in contract law?

Free consent in contract law refers to the voluntary agreement of both parties to enter into a contract without any form of coercion, undue influence, fraud, or misrepresentation. It ensures that all parties are making an informed and willing decision.

Q2: What factors affect free consent in a contract?

Factors such as coercion, undue influence, fraud, misrepresentation, and mistakes can affect the free consent of the parties involved in a contract. If consent is obtained through any of these means, the contract may be voidable.

Q3: How does coercion affect free consent in contracts?

Coercion involves using threats or force to compel someone to enter into a contract. If a party enters a contract under coercion, their consent is not considered free, and the contract may be voided.

Q4: Can a contract be voidable due to undue influence?

Yes, if one party uses their dominant position to unfairly influence the other party’s decision-making, such as in the case of a lawyer influencing their client, the contract may be voidable due to undue influence.

Q5: What are the remedies available if free consent is lacking?

If free consent is absent, the affected party can seek remedies such as rescission (voiding the contract), claiming damages (in cases of fraud or misrepresentation), or requesting restitution (returning benefits received under the contract).

Reference Links: 

https://www.indiacode.nic.in/show-data?actid=AC_CEN_3_20_00035_187209_1523268996428&sectionId=38617&sectionno=14&orderno=14

 https://unacademy.com/content/ca-foundation/study-material/business-laws/meaning-of-free-consent/

https://www.vedantu.com/commerce/free-of-consent

https://blog.ipleaders.in/free-consent-3/

https://testbook.com/ugc-net-commerce/free-consent