This document discusses the key differences between fraud and misrepresentation in contract law. It notes that fraud involves an intentional deception by one party to induce the other party to enter a contract. Misrepresentation involves an innocent misstatement of fact that persuades the other party. For fraud, the representing party knows the statement is false, while for misrepresentation they believe it is true but it turns out to be incorrect. A contract induced by fraud can be voided even if the truth could be discovered through normal diligence, while misrepresentation does not allow voiding if the truth was reasonably discoverable.

1. LAW
The set of the rules and regulations
Rules enforced by the state to control the conducts of people
“According to Salmon”
“Law is the body of principle recognized and applied by the state for providing the justice”
PURPOSE OF LAW
 To maintain the peace and order in the Society.
 Provide Liberty (freedom)
 To assist people against Common Enemy.
 Not for Punishment of sins but to Prevent from sins.
 Prevent People and their Property.

2.  FREE CONSENT
Consent (Willingness) of the parties should be free.
A consent is said to be free, if not caused by
 Coercion (To Threat)
 Fraud (To Deceive)
 Undue Influence (To Dominate the Will)
 Misrepresentation. (To Hide Reality Mistakenly)

3.  A false representation willfully made by a
party to contract in order to mislead the other
party and inducing him to enter into contract
is known as fraud.
 Example: A purchased goods of Rs. 5000
from a shopkeeper B, with the intent of not
paying the money to B, this type of act
amounts to Fraud.

4.  A representation of a material fact made by a party
to contract who believes it to be true, the other
party relied on the statement, entered into the
contract and acted upon it which later on turned
out to be incorrect is known as misrepresentation.
 Example:
 A says to B to purchase his car which is in a good
condition, B purchased it in good faith but after a
few days, the car did not function properly and B
has to suffer loss to repair the car. So the act
amounts to misrepresentation as A believes that
the car works properly but this is not so.


5.  Innocent Misrepresentation-
 A statement made by a party who didn’t know
it was untrue
Ex: a seller is unaware that a car has gotten a new odometer
and states it has 700mi when in fact it has 90,000mi.
 Fraudulent Misrepresentation-
 A statement made by one party who knew it
was untrue
 Ex: a seller is aware of the fact that the cars engine is bad
but tells consumers that it is fine.
 Both result in void contract

6. A) Untrue Statements
• The fact must be a past or existing fact, as distinguished
from:
1. an opinion or
For example, the statements “In my opinion this apple is
very tasty” and “These apples are the best in the
county” are not facts; they are not expected to be
taken as true. Reliance on opinion is generally not
considered justifiable.
2. a promise or prediction about some future happening.
•

7. The concealment of a fact through some active conduct intended to prevent
the other party from discovering the fact is considered the equivalent
of an assertion.
Forexample, if Summers is offering his house for sale and paints the ceilings to conceal
the fact that the roof leaks, his active concealment constitutes an assertion of fact.
Nondisclosure can also be the equivalent of an assertion of fact.
Nondisclosure is the failure to volunteer information.
Disclosure of a fact is required when:
1. the person has already offered some information but further information
is needed to give the other party an accurate picture or
2. there is a relationship of trust and confidence between the parties or

8.  B) Materiality
◦ A statement is material if it causes a reasonable
person to want to contract.
◦ A statement can be material if defendant a knew
the plaintiff would rely on it.
◦ A statement is material when the defendant knows
that the statement is false.
C) Reasonable Reliance
◦ Misrepresentation can only take place when the
victim is reasonably reliable.

9.  Fraud and Remedies for Fraud
 Fraud- is a crime based on misrepresentation
A) Misrepresentation- Intentional or Reckless??
◦ When a person lies and they know they are lying. It
is intentional
◦ When a person says something without knowing its
true or false. It is reckless.

10.  B) Misrepresentation or Concealment??
◦ Injury-something that is proven to establish fraud.
◦ There can still be misrepresentation but without
injury there’s no fraud.

11.  C) Remedies for Fraud
◦ Rescission
 Contracts resulting of misrepresentation or fraud can
be voidable by the injured party and can be rescinded
◦ Damages
 Are only available if fraud is proven. Then the party
defrauded may choose to ratify the agreement instead
of rescind.
◦ Punitive Damages- A form of punishment
 Are also available if fraud is proven.

12. misrepresentation Fraud
1. Untrue assertion of fact (or
equivalent)
2. Assertion relates to material
fact
3. Actual reliance
4. Justifiable reliance
1.Untrue assertion of fact (or
equivalent)
2. Assertion made with knowledge
of falsity and intent to deceive
3. Actual reliance
4. Justifiable reliance
5. Economic loss (in a tort action
for damages

13.  Actual Reliance
Reliance means that a
person pursues some course of action because of
his faith in the assertion made to him.
• There must have been a causal connection
between the assertion and the complaining
party’s decision to enter the contract.
• If the complaining party (1) knew that the
assertion was false
 (2) was not aware that an assertion had been
made, there is no reliance.

14. Justifiable Reliance
• Courts also scrutinize the reasonableness of
the behavior of the complaining party by
requiring that his reliance be justifiable.
• A person does not act justifiably if he relies
on an assertion that is:
1. obviously false
2. not to be taken seriously.

15.  . In Tort actions in which the plaintiff is seeking to
recover damages for fraud, the plaintiff would have
to establish a fifth element: injury.
 He would have to prove that he had suffered actual
economic injury because of his reliance on the
fraudulent assertion.
 In cases in which the injured person seeks only
rescission of the contract, however, proof of
economic injury usually is not required.

16. Basis for comparison Farud MISREPRESENTATION
Meaning A deceptive act done
intentionally by one party in
order to influence the other
party to enter into the
contract is known as Fraud.
The representation of a
misstatement, made
innocently, which persuades
other party to enter into the
contract, is known as
misrepresentation.
Defined in Section 2 (17) of the Indian
Contract Act, 1872
Section 2 (18) of the Indian
Contract Act, 1872
Purpose to deceive the other party Yes No
Variation in extent of truth In a fraud, the party making the
representation knows that the
statement is not true.
In misrepresentation, the party
making the representation believes
the statement made by him is true,
which subsequently turned out as
false.

17. Voidable The contract is voidable even
if the truth can be discovered
in normal diligence.
The contract is not voidable if
the truth can be discovered in
normal diligence.

18.  The acts done fraudulently are civil wrong and hence
the party doing it can be sued in court by the aggrieved
party even if the aggrieved party has a means of
discovering the truth in normal course of action.
 Misrepresentation is not a civil wrong as the party
making the wrong representation honestly have no idea
about the actual truth and so the aggrieved party
cannot sue the other party in court but it has the option
to rescind the contract.
 Hence, there is an absence of free consent in both the
conditions whether it is fraud or misrepresentation that
is why the contract is voidable at the option of the party
whose consent was so caused.