CONTRACTS MODULE 6

COERCION

1. Amiraju v Seshamma (Threat to Suicide amounting to Coercion)

The plaintiffs, in this case, are mother and son, whereas the defendants are younger brothers of
plaintiff’s husband. The plaintiff’s husband threatened to commit suicide if the mother and son
do not execute a release deed in respect of reversionary rights in certain lands, which the
plaintiff’s mother had sold. The plaintiff has filed a suit in lower courts alleging coercion on part
of the husband. The lower courts held that the consent was not free and it was because of
threats working in their minds that they executed the deed. The defendants aggrieved by this
approached to the high court. The threat by the husband amounted to coercion and the appeal by
the younger brothers of the husband was, thus dismissed.

2. Kishan Lal Kalra v NDMC (Threat to Detain/Arrest illegally amounts to Coercion)

The plaintiff in this case claims himself to be a victim of Emergency era. He was given license
by the NDMC to run an open air restaurant in Connaught Circus, New Delhi. The lease was to
expire on 31st May, 1978. However, the plaintiff was allegedly thrown out of the premises
after taking forcible possession thereof without due process of law by the defendant under
threats of arrest and detention under the Maintenance of Internal Security Act. The
plaintiff then filed a suit claiming damages to the tune of Rs. 10 lakhs suffered allegedly by the
plaintiff on this account.

The Court ruled that as the plaintiff had been dispossessed of the premises where he had been
running an open air restaurant in a central place in Delhi by threats of arrest and detention under
MISA, the act of the NDMC amounted to coercion.

4. Workmen, Appin Tea Estate v Industrial Tribunal, Guwahati

The demand of the workers for bonus was accepted after a threat of strike. The question which
had arisen was, whether such a decision between the Union of the workers and the Indian Tea
Association could be declared void on the ground that there was coercion. It was held that
because of the doctrine of collective bargaining under the Industrial Dispute Act the
demand of the workers could be backed by a threat of strike. Such a threat was neither a
threat to commit an offence under the Indian Penal Code, nor was it unlawful detaining or
threatening to detain any property and hence it did not amount to coercion, and as such the
agreement was valid.

9. Ladli Parshad Jaiswal v Karnal Distillery

The plaintiff filed a suit in the Court of the Subordinate judge for a declaration that certain
resolutions of the directors and the shareholders in a private limited company, and at the
meetings of the Directors held thereafter were illegal and void and for a declaration that the
resolutions of October 16, 1945, were operative and in force.
The defendants resisted the suit contesting that defendants 2 to 5 were coerced by the plaintiff
who took advantage of his dominating position, into passing the resolutions on October 16, 1945,
and those resolutions were not binding on the company. The plaintiff was in a position to
dominate and had obtained unconscionable advantage and it was for him to prove that the
resolutions of October 16, 1945, were not vitiated by coercion and fraud which burden he had
failed to discharge.

They further held that later resolutions of the company were not binding on the plaintiff because
no notice was issued to him of the meeting of the company; but no decree could be granted to
him since 'equity declines to lend its aid to a person whose conduct has been inequitable'.
UNDUE INFLUENCE

3. Pau On v Lau Yiu

The two parties had an agreement for the swapping of shares. The plaintiff had threatened not to
complete the main contract for the purchase of shares unless subsidiary agreements were met
including a guarantee and an indemnity. The defendant was anxious to complete the main
contract as there had been a public announcement of the acquisition of shares and did not want to
undermine public confidence in the company and the consequent effect on share prices.

The defendant could have sued for specific performance of the agreement but this would have
delayed matters and damaged the company's reputation. The defendant had taken legal advice on
all these matters before agreeing to the guarantee and indemnity. The plaintiff then sought to
enforce the guarantee and the defendant sought to have the agreement set aside for economic
duress.

It was held that there was no economic duress. This was commercial pressure and no more,
since the company really just wanted to avoid adverse publicity. For a general doctrine of
economic duress, it must be shown ‘the victim’s consent to the contract was not a voluntary act
on his part, to that extent which vitiates consent.’

5. Atlas Express Ltd v Kafco (Importers and Distributors) Ltd

Kafco Ltd had a contract to supply Woolworths with baskets. Atlas Express realised it had
underestimated the size of cartons to be carried. So it was costing more to deliver. Kafco would
not vary the price. Atlas sent an empty truck to Kafco, with a letter saying if a higher charge was
not agreed to, the truck would leave empty. Kafco would go broke without the contract, so they
signed. Later, Kafco refused to pay, and argued there were economic duress, and also no new
consideration.

It was held that there was economic duress in this situation, which meant the contract was
voidable. When Kafco’s Mr Armiger signed, he did so ‘unwillingly and under compulsion’. He
had no bargaining power. He did not regard it as a genuine arm’s length re-negotiation in which
he had a free and equal say.

6. Dai-ichi Karkaria Pvt Ltd v Oil and Natural Gas Comission

ONGC promised to pay cost of goods and customs duty for the raw material, thereby inducing
him to make a huge investment. ONGC then coerced DIK to renegotiate the contract, along with
a bank guarantee and a refund of the customs duty, under the threat that the original contract will
be retracted.

It was held that it was a case of economic duress, and that when allegations of economic duress
and fraud are made, all the facts and circumstances of the case will have to be
considered together in perspective and the necessary inference will have to be drawn by
considering the cumulative effect of all the facts and circumstances.
7. Allcard v Skinner

Miss Allcard was introduced by the Revd Mr Nihill to Miss Skinner, a lady superior of a
religious order named "Protestant Sisters of the Poor". She had to observe vows of poverty and
obedience. Three days after becoming a member, Miss Allcard made a will bequeathing all
property to Miss Skinner, and passed on railway stock that she came into possession of in 1872
and 1874. She then claimed the money back after she left the sisterhood.

It was held that there would be no recovery. Although there was undue influence as the
transaction was unusually large as to be accounted for, the lapse of time barred the claim from
succeeding. It was also held that she was unduly influenced but barred by laches from getting
restitution. And in any case she would only have been able to recover as much of the gift as
remained in the defendant’s hands after some of it had been spent in accordance with her wishes.

8. Subhash Chandra v. Ganga Prasad

Aged father, weak state of mind, executed deeds to his son. These transactions were brought
about at the instance of his son, and would deprive the rest of the family of their rightful
inheritance. Father says that there is undue influence, and as it is proved that his son used his
dominating position to his own advantage, the gift deeds were cancelled.

10. Lloyds Bank Ltd v Bundy

Bundy owned a house, which was the extent of his estate. His son operated a business that did
not do very well, and he asked his father to give him collateral for taking out loans from Lloyds.
The father signed the original collateral for a smaller amount of money after considering it
overnight and talking to his lawyer. Later on, the son needed more collateral, and the only way
that Bundy could provide it was by using the house as collateral. When the lawyers from the
bank came over with his son they explained that this was the only thing that he could do to help
his son and Bundy signed the document. Five months later the bank foreclosed on the son's
assets, and as he was bankrupt they seized the house. Bundy refused to leave the house, and the
bank sued to have him evicted.

It was held that the contract was voidable owing to the unequal bargaining position in which Mr
Bundy had found himself vis a vis the bank. He held that undue influence was a category of a
wider class where the balance of power between the parties was such as to merit the interference
of the court. It was apparent that Mr Bundy had, without independent advice entered the contract
and it was very unfair and pressures were brought to bear by the bank.

In this case, there is a presumption of undue influence, as the terms of the contract are dictated
by the party with the higher bargaining power.
FRAUD

13. RC Thakkar v Gujarat Housing Board

False estimates of costs of construction given in a tender – contractor agreed to some reduction
on the belief that the estimate was correct. Defendants took a stand that if the plaintiff had tried
to know about the estimate of costs by reasonable efforts then the plaintiff would have known
about the truth “Ordinary diligence” and “Going the extra mile to find out about the fallacy”.

It was held that representations contained in tender were fraudulent. There was no defence that
plaintiff could have discovered the true costs by reasonable efforts.

14. Mithoolal Nayak v Life Insurance Corporation of India

In 1942, M sent a proposal for the insurance of his life. He was examined by Dr. D who
submitted two reports, one with the proposal form and one confidential. The confidential report
showed that the M was anaemic, had a dilated heart and his right lung showed indications of an
old attack of pneumonia or pleurisy and that he was a total physical wreck. Nothing came out of
this proposal and it lapsed.

In 1943, M consulted and was treated by a Dr. L for anaemia oedema of the feet, diarrhoea and
panting on exertion. In 1944, M made a second proposal for insurance of his life. Against the
question in the proposal form whether he had consulted any medical man for any ailment within
the last five years, he gave the answer, ‘No’. He also did not disclose any of his ailments. After
medical examination by a Dr. K the proposal was accepted and a policy for Rs. 25,000/- was
issued on March 13, 1945.

In November, 1946, M died. His assignee, the plaintiff, made a demand for Rs. 26,000/-but the
Company on October 10, 1947, repudiated it on the ground that the policy had been obtained
by deliberate mis-statement and fraudulent suppression of material facts.

Thereupon, the plaintiff filed a suit to recover the amount of the policy contending that s.45
Insurance Act, barred the company from calling in question the policy after two years on the
ground that any statement made in the proposal was inaccurate or false.

It was held, that the policy-holder was guilty of fraudulent suppression of material facts relating
to his health and the Company was entitled to avoid the contract.

15. Ganapati Salt Works v State of Gujarat

12. Derry v Peek

Plaintiff received a prospectus regarding the incorporation of Defendant’s company, which

It was held that the statement was not fraudulent but made in the honest belief that approval was
forthcoming.
MISTAKE

16. Smith v Hughes (No Mistake)

Mr. Hughes was a racehorse trainer. Mr. Smith, who was a farmer, brought him (Mr. Hughes) a
sample of oats, and Hughes ordered forty to fifty quarters of oats at 34 shillings a quarter.
Sixteen quarters were sent to start with. But when they arrived, Hughes said they were not the
oats he thought they were. He had apparently wanted old oats (which are the only ones
racehorses can eat), and he was getting new, green oats. In fact, Smith's sample was of green
oats. Hughes refused to pay and Smith sued for breach of contract, for the amount delivered and
for damages for the amount for oats that were still to be delivered.

It was held that both actions had failed. The action based on misrepresentation failed as we
cannot have silence as a misrepresentation. The defendant had not misled the plaintiff to believe
they were old oats. The action based on mistake failed as the mistake was not as to the
fundamental terms of the contract but only a mistake as to quality.

17. Saunders v Anglia Building Society (No Mistake)

Mrs. Gallie, who had broken her spectacles, signed a document without first informing herself of
its contents. She was lied to by her nephew's business partner, Mr. Lee that the documents were
merely to confirm a gift of her house to her nephew. In fact, she signed papers allowing the
nephew's business partner to grant a mortgage over the property in favor of Anglia Building
Society. When the business partner defaulted on the mortgage, Anglia Building Society claimed
to foreclose and repossess the House. Mrs. Gallie died before the litigation reached the House of
Lords, and was represented by Saunders.

It was found that Mrs. Gallie was out of luck. Grown literate people cannot simply get away
with signing things, and not being bound. The document was not radically different to that
which she believed it to be in that she believed that she was relinquishing her rights to the
property in any event. Furthermore the House of Lords stated that the plea of non est factum (it’s
not my deed) should not be too widely applied and reserved for those who through no fault of
their own are unable to read the document e.g. blind, illiterate or incapacitated through age.

18. Cundy v Lindsay (There was Mistake)

Lindsay & Co were manufacturers of linen handkerchiefs, amongst other things. They received
correspondence from a man named Blenkarn. He had rented a room at 37 Wood Street,
Cheapside, but purported to be 'Blenkiron & Co'. Lindsay & Co knew of a reputable business of
this name which resided at 123 Wood Street. Believing the correspondence to be from this
company, Lindsay & Co delivered to Blenkarn a large order of handkerchiefs. Blenkarn then sold
the goods – 250 dozen linen handkerchiefs – to an innocent third party, Cundy. When Blenkarn
failed to pay, Lindsay & Co sued Cundy for the goods.
The contract was void for unilateral mistake as the plaintiff was able to demonstrate an
identifiable existing business with whom they intended to contract with.
OVER RULED BY Louis v. Avery

19. Lake v Simmons (No Misake)

This case involved a claim by a jeweler on a policy of insurance. A fraudulent woman named
Ellison had induced him, in face-to-face dealings, to part with possession of two necklaces by
pretending she was the wife of a local gentleman called Van der Borgh, with whom she was
living, and that he wanted a necklace on approval as he was contemplating giving it to her. She
further pretended that a Commander Digby, who was engaged to her sister, wanted the other
necklace on approval. There was no such man. Miss Ellison disposed of the necklaces. The issue
was whether the underwriters were exempted from liability under exclusion in respect of ‘loss by
theft or dishonesty committed by any customer in respect of goods entrusted to’ the customer.
It was held they were not. When considering whether the goods were ‘entrusted’ to Miss Ellison,
the test was whether the face-to-face dealings between her and the jeweler were capable of
giving rise to a contract. They were not because of the mistake as to her identity.

20. Ingram v Little (There was Mistake)

Two sisters Hilda and Elsie Ingram sold their car to a rogue calling himself Mr. Hutchinson.
They agreed a price for cash, but when the rogue offered a cheque Elsie said the deal was off.
She wanted cash or no sale. The rogue then gave them his full name and address and Hilda went
to the post office, which was two minutes down the road, to check the details out. When she
returned she informed Elsie that the details checked out and the sisters agreed to let Mr.
Hutchinson take the car. The cheque was dishonoured and the car was sold on to Mr. Little. The
sisters brought an action to recover the car.
The contract was void for mistake. The Court of Appeal held that the sisters only intended to
deal with Mr. Hutchinson at the address given because they were not willing to offer a sale for
payment by cheque from anyone else.

21. Lewis v Avery (No Mistake)

The plaintiff sold his mini cooper to a rogue claiming to be the actor Richard Greene (who
played Robin Hood in a series at the time). The rogue showed the plaintiff a Pinewood studio
pass which had Richard Greene's name and an address on it. The plaintiff then let him take the
car with the log book in exchange for a cheque for £430 which was later dishonoured. The rogue
sold the car on to Mr Avery for £200 claiming to be the plaintiff. The plaintiff sought return of
the car on the grounds that the contract was void for mistake.

The contract was not void for mistake. The presumption that the parties intend to deal with the
person in front of them was not displaced.