Law of contract Fraud and misrepresentation in detail

1. FRAUD AND
MISREPRESENTATIO
N VITIATING FREE
CONSENT
BY MARIA
SHIYON K B

2. WHAT IS
CONSENT ?
SECTION 13:
Two or more persons are said to
consent when they agree upon the
same thing in the same sense.
There should be a meeting of
minds between the two parties. If
there is no consensus ad idem
(meeting of minds) on the
material terms of the contract
,then such contract will be void.

3. FREE CONSENT
According to section 14, "Consent is said to be free when it is not caused
by-
(1) Coercion, as defined in section 15, or
(2) Undue influence, as defined in section 16, or
(3) Fraud, as defined in section 17, or
(4) Misrepresentation as defined in section 18, or
(5) Mistake, Subject to the provisions of sections 20, 21 and 22.”

4. FRAUD
Section 17: Fraud.-Fraud means and includes any of the
following acts committed by a party to a contract, or with his
connivance, or by his agent with intent to deceive another
party thereto or his agent, or to induce him to enter into the
contract.
(1) the suggestion, as a fact, of that which is not true, by one
who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge
or belief of the fact;

5. (3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be
fraudulent.
Explanation.-Mere silence as to facts likely to affect the
willingness of a person to enter into a contract is not fraud,
unless the circumstances of the case are such that, regard being
had to them, it is the duty of the person keeping silence to
speak, or unless his silence, is, in itself, equivalent to speech.

6. ESSENTIAL ELEMENTS OF
FRAUD
 There must be a false representation.
 The fraud must have been committed by a party to the
contract or with his connivance or by his agent. Fraud by a
stranger to contract does not affect the validity of the contract.
 The representation must be made with the intention to deceive
the other party.
 The representation must be made with the knowledge that it is
false.
 The party to the contract must have been deceived and
should have suffered damage or loss.

7. EFFECTS OF
FRAUD
When consent to an agreement is caused by fraud, the
agreement is a contract voidable at the option of the party
whose consent was so caused. Some one who has suffered a
fraud has the following remedies;
a.He may rescind the contract ,or
b.He may insist that the contract shall be performed and that
he shall be put in a position in which he would have been,
if the representation made have been true, or
c.He can sue for damages.

8. Derry v. Peek, (1889) 14 AC 337: A company's
prospectus contained a representation that the company
had been authorized to run trams by steam or mechanical
power. The authority to use steam was subject to the
approval of the Board of Trade but no mention was made
of this. The Board refused consent and consequently the
company was wound-up. The plaintiff having bought
some shares, sued the directors for fraud.
CASE

9. MISREPRESENTAT
ION
Section 18:"Misrepresentation" means and includes:
(1) the positive assertion, in a manner not warranted by the information of the
person making it, of that which is not true, though he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains an advantage
of the person committing it, or anyone claiming under him, by misleading
another to his prejudice, or to the prejudice of any one claiming under him;
(3) causing, however innocently, a party to an agreement, to make a mistake as
to the substance of the thing which is the subject of the agreement.

10. ESSENTIALS OF
MISREPRESENTATION
There must be a representation of a material fact.
There must be an intention to deceive the other party.
It must be wrong but the person who made it honestly
believed it to be true.
The representation must be made before the conclusion
of the contract with a view to induce the other party to
enter into contract.
It must have actually been acted upon and must have
induced the contract.

11. LOSS OF RIGHT OF
RESCISSION
The innocent party in a case of misrepresentation generally has
a right to cancel the contract. This right may be lost in the
following exceptions:
1.If after becoming aware of the misrepresentation , he takes a
benefit under that contract ,or in some other way affirms that
contract.
2.If the parties cannot be restored to their original position ; or
3.If third parties have acquired rights in the subject matter of the
contract in good faith and for value.