eee FRAUD - The term ‘fraud’ includes all acts committed b: y @ person with an intention to déceive another person’ = Met portak Definition According to Section 17, ‘fraud means and includes any of the following acts committed by a party toa contract, or with his connivance, or by his agent, with intent to deceive or to induce another party thereto or his agent, g into the cont ct ee Hive ns In order to be called fraudulent representation the false < must be made intentionally. Lord Herschell gave the definition of ment 1 or without | Stated. Mere non-dis to disclose. Caveat Emptor or ‘Buyer Beware’ is the principle in all contracts of sale of — = ee ence eee 24. (1889), 14 A.C. 337. 7——EE_ LAW oF con’ a js not bound t0 disclose to the buyer the faults |, coods. AS 4 rule the seller is no! goods He SET i a, ahaa den seils a mare to B. A KNOWS that ILLUSTRATIONS. hich he fills up ia Srna way 9510 defy detection or, vm hoatins that the mare iS ind. The defect is subsequen imi from 8.4 SETS yd" on the P me f and the agreement Can; econ on obtained BY fraud: discovered bY i has seed by Bas his conseNL i ats by auction, 10 8 ROM which he knows 10 Be unsound. A (0) Ag about the horse dress. This is not fraud” because 4 ved 7 tp isclose te ac OB rule of law being et the b unde sn (a) to Section 17) pew jon (4) ie a ee » vr fe without any intention” of performing it Taman yh form his’ promise, theré intention to pet ~on his part. H [LLUSTRATIONS. (a) Xpurchases certain goods from Yon credit without any he was in. insolvent circumstances. Tris a cleay where there Was no intention of pay ing for them as | eg from 1's side. Noigthat mere failure to Pays ¢ of fraud ide. 3 original dishonest intention, IS not fraud. i manandawoman went through a. ceremony of marriage without any it | marriage, it was held that (b) Where a intention on the part of the husband to ward it id and that the marriage was mere the consgat of the wife was obtained by frau preven Siren Mal vs John J. Taylor”). SE other act futed to deceive. “The fertility of man’s invention in remes of fraud is so great that it would be difficult, if na any exhaustive definition. All fine fraud within the limits of nfair way that is used to ches dissembling and other u1 ) is obviously intended to cover tely be covered by the othe. devising new sche “impossible, to con surprise, trick, cunning, idered fraud and sub-section (4 ~ anyone is consi id which cannot approprial Tall those cases of frau sub-secyionss \ such act or omission as the law specially declares to be fraudulent \, m ane refers to the provisions in certain Acts which make it obligaton to disclose relevant facts. Thus, for instance, under Section 55 of the Transfe f Pr of im of Property Act, the seller of immovable property is bound to disclose to ts b aE uyer all material defects in the property (e.g., the roof has a crack) or in the sion to make such § Hler’s title (e.g., the property is mortgaged). An omis: disclosure amounts to fraud. Thus, in ord e Skin the scope ft allege fraud, the act complained of must be brovs! e acts enumerated above. A m: sion of 0, inio? jie is sim? or commendatoy ex] i ae y expression is not fra taud. “The land i: is vi statement of opini a pinion or "our products are the best in the market” is m=" s (982) ALR Punj. 277 sai TR. ‘The Contract Act.’ 18th Edi Mn. eet p. 116FREE CONSENT a commendatory expression. Such statements do not ordinarily amount to fraud. Can Silence be Fraudulent? = The_Explanation to Section 17 deals with cases as to when ‘silence is | fraudulent’ or what is sometimes called ‘constructive fraud.’ The explanation declares that ,mere silence as to facts likely to affect the willingness of a person to grffer into a contract is not fraud, unless: <— x He circumstances of the case are such that, regard being had to them, , of the person keeping silence to speak, or J t therefore follows that: r 1s a rule mere silence is not fraud because there is no duty cast by law / ‘fa party to a contract to make a disclosure to the other party, of material facts / within his knowledge ILLUSTRATION. 4 and B, being traders, enter upon a contract. A has private | #7) information of a change in prices which would affect B’s willingness to proceed with the contract. 4 is not bound to inform B [Illustration (d) to Section 17]. — "ence is fraudulent, if the circumstances of the case are such that ‘it is the duty of the person keeping silenéto speak’. In other words, silence is fraudulent in contracts of ‘utmost good faith’ ie., contracts ‘uberrimae fider’. ‘These are contracts in which the law imposes a duty of abundant disclosure on one of the parties thereto, due to peculiar relationship of the parties or due to the fact that one of the parties has peculiar means of knowledge which are not %duciary relations! n the parties stand in a fiduciary relation ‘other, the person in whom confidence is re osed is uty to act with utmost good faith and to make a full Josure of all material facts concerning the transaction known to him. Examples ofa fiduciary relationship include those of principal and agent, solicitor and client, guardian and ward, and trustee and beneficiary. ILLUSTRATIONS. (i) Where a broker who was employed to buy shares for the client, sold his own shares to the client, without disclosing this fact to him and without obtaining his consent therefore, it was held that the sale can be avoided by the client (Regier VS Campbell-Stuart””) ; (ii) Where solicitor purchased certain property from his client nominally for brother, but really for himself, it was held that the sale can be avoided by the client, even if the transagyish was perfectly pro} (Macpherson vs Watt). Yontracts of insurangéMpicontracts of marine, fire and life insurance, tl the inser contracts on the b: material fy cis have been communicated 27 (1939). Ch. 766. 28, JAC. 254.\ Law oF CONTRACT to him: and itis an implied condition of the contract that full disclosure... | made, and that if there has been non-disclosure he shall be entitled to ag, by | contract. Whe assured, therefore must disclose to the insurer all material | “concerning the risk to be undertaken e.g., disease efc., in case of life insy ac | A concealmenyor misstatement ofa material fact will render the Contract (Ratan JAS Metropolitan Co.) Yo ntract of marriage engagement. Every material fact must be disclo.. _b) oth parties to a contract of marriage otherwise the other party is stiteg “breaking@if'gke engagement (Haji Ahmed vs Abdul Gani*), oe of family settlements. Contracts of family settlements and arrangefnents also require, full disclosure ofall material facts within the know! ch gis-Such a contract is not binding if either pary ‘Sled by the concealment of material facts. 7 ‘hare allotment contracts. Promoters-and directors, who issue the cpréSpectus’ of a compan} to invite the public to subscribe for shares ang debentures, possess information which is not available to general public aij as such they are required to disclose all information regarding the company __ With sttigt and scrupulous accuracy. 7 GAilence is fraudulent where the circumstances are such that “silence is, in itself equivalent to speech. ere, for example, B says to A — “If you fo not deny it, T sl Si that the horse is sound.” A says nothing. Henc: As silence is equivalent to g ech. If the horse is unsound 4's si ence is — “fraudulent [Illustration (c) to Section 17]. «W——= v aL fit of Fraud Gor: 7. # A party who has been induced to enter into a contract by fraud, has the following femedies open to hit He can rescind®! the contract i.e., he can avoid the performance of t* c seontract being voidable at his option (Sec. 19); or He can ask for restitution and insist that the contract shall be performe! nd that he shall be put in the position in which he would have been, if representation made had been true (Sec. 19). 2 ILLUSTRATION. 4, fraudulently informs B that A's estate is free from nicumbrance. B thereupon buys the estate. The estate is subject to amortgae’ may cither avoid the contract, or may insist on its being carried out and “mortgagé'debt redeemed [Illustration (c) to Section 19]. sein The agerieved party can also sue for damages, if any, Fraud is 9 « whofe hence compensation is payable. For instance, if the party suffers "9 because of unsound horse, which was not disclosed despite &™" es 29. (1959), Pat 413 : 30. (1937), Nag. 299 ne headFREE CONSENT an_be demanded. Similarly, where a man was fraudulently 2 house, he was allowed to recover the expense involved in | ouse as damages (in addition to rescission of the contract) (Jronmongers) Ltd.**} . ints. For giving rise to an action foreceit|the following points deserve special attention: = —— Mt lop, ee aud by a stranger to the contract does not affect contract. It may be ) recalled th jon’ as well as “undue influence’ by a stranger to a contract - affect the 20ntract. o a 7 fraudulent representation must have been instrumental in inducing the other partyio enter into the contract i.e, Dut for this, the aggrieved party | Ave entered into the contract. J Jaintiff must have been actually de d by fraudulent) — feceit which does not deceive gives no ground for action. : The plaintiff must_be t thereby damnified. Untess the plaintiff has {ned a damage or injury, no action Will lie. It is a common saying that “there is Of dwithout damages.” 7 Ly (yyfn cases of fraudulent, silencg. the contract is not voidable, ifthe party _whose consent was SO caused had the means of discovering the truth with “ordinary diligence (Exception to Sec. 19 given in the Act). Note that in other i ,, the contract is voidable even if the fraud | . could be discovered with ordinany S = <_Djtihetion between Fraud and Misrepresentation : The following are the points of distinction between the two: 1. Fraud implies] on to it is deliberate or wilful; whereas e misrepresentation ig innocent without any intention to deceive. 2. Fraud isa civil wrong which entitles a party to claim damages in addition i, to the right of rescinding the contract. Misrepresentation ives only the right { the + and there fan be no suit for dama: - is f wed party had the | — 4 tqavoid the cont or de 1 3. In case 0: misrepresentation, the fact that the aggrie’ means to discover the truth with ordinary diligence will prevent the party from avoiding the contract. But in case of fraud, excepting fraud by silence, the contract is voidable even though the party defrauded had the means of discovering the truth with ordinary diligence. Loss of Right of Rescission® _— , ny We have observed earlier that a contract brought about b.coesion ne rye influence, misrepresentation oF fraud is voidable at the option ad a La hose consent was so caused. He has the oP n either to recind the con is 1 the following cases: “Fito affirm it But his right of rescission is To — 32. (1969), 2 WLR. 673 ; : 33. This heading is common 10 all ‘defects of consent discussed so far 5oY 4 Law oF CONTRACT j | Affirmation: If after becoming aware of his right to rescind, the agerie,, | party affirms the transaction either by express words or by an act which shove _an intention “to affirm it, the right of rescission is lost. So, for example, jp person, who has purchased shares on the faith of a misleading Prospecty, subsequently becomes aware of its falsity, but accepts dividends paid to tin, he will not be permitted to avoid the contract. Paying for the goods purchase if not paid so far), attempting to sell the goods are some other examples o nplied affirmation. : Restitution not possible. If the party seeking rescission is not in a position) ‘estore the benefits he may have obtained under the contract, ¢.g., where the subject-matter of the contract has been consumed or destroyed, the right to rescind the contract cannot be exercised. 37Lapse of time. It may be treated as evidence f-where the pany \~ misled fails to exercise his right promptly on discovering the representation to vare of the fraud or coercion. As such the right of ~ rescission may also be lost by too long-a-delay. _A Rights of third parties. Since the contract is valid until rescinded, being a yoidable contract, if before the contract is rescinded third parties, bona fide for Value, acquire rights in the subject matter of the contract, thgse rights are valig against the party misled, and the right to rescind will no longer be available.” __Ihis where 4 person obtains goods by fraud and, before the seller rescinds the contract, disposes them off to a bona fide party, the seller cannot then _tescind (Phillips vs Brooks Ltd). —_z MISTAKE Mistake may be defined as an erroneous belief concerning something. may be of two kinds; Eiisake oflaw “Mistake of fact « Mistake of Law Mistake of law may be of two types: <éyMisiake of Taw of the countrys ' o istake of foreign law.\__— Li Mi the country or Mistake of law. Eyery one isdeeme! 0 bec ith the law of hi idem and sreFefore no binding contract” (Reffles vs Wichelaus*”). \ fistake as to the title of the subject-matter. jormally a mistake ast IE of the seller’ does not affect the validity of the contract because Sectiot title o} does not aff Validity of the contract because SFT 14 of the Sale of Goods Act, 1930, imposes an implied ‘condtion’ as to the title ofthe seller in a contract of sale, unless otherwise agreed. Accordingly, asell ‘is taken to warrant his title to the property sold and he may be made Tiable it “damages for breach of the condition, even though both the parties contrat under a mistaken belief as to the title of the seller. It is only in a very specitl circumstance, where a person agrees to purchase property of goods whict unknown to himself and the seller, is his own already, that the agreemett Void ab-initio and none of the parties can be made liable in damages “TLLUSTRATI : ~ the belief of by ION, A agreed to take a lease of fishery from B, though com h partes at the time 4 was tenant for life by inheritance ® a had no title at all, It wa of (Coppers Phibbs™) itle at all. It was held that the lease agreement W% Mi — 2 working diem eae ivan nese subject-matter. If both the pat is void. as 10 the quantity of she subject-matter, the #8" ( aK 36 (1932), AC. 161FREE CoNseNt ILLUSTRATION. P enquired aby e price many 8017 quoted the pice lerrghe seed The telegraph clerk transeribed the message as “Send the rifles” /7 mene P accepted only three and returned 47. 11 filed a suit for damuece legac acceptance of 47 rifles. IL was held that there was no contract ae ther ee ndit made no difference even if the mistake was caused by thene ligence of a third party. Of course P must pay the price of three rifles accepted by himn “(Henkel ysPope”’). = is Mistake ae the/quality of the subject-matter. f there is a mutual ie : © ku € parties as to the quality of the subject-matter i.e., if the subject-matter is something essentially different, from what the parties believed it to be, the agreement is void. - ILLUSTARTIONS. (a)A set of table-Hinen was sold atan auction by adesription ‘with the crest of Cha rles I and the authentic property of that monarch.’ In fact te linen was Georgian and there was a mutual mistake of both parties as to the {quality of subject-matter, Held, the agreement was void (Nicholson & Venn vs Smith Marriott"). r (b) A, contracts to sell B a particular horse. which is believed by both the parties) ee to be a race horse. But later on it turn out to be a cart horse. The agreement is_ —- ‘void. . Ic Strictly speaking it is the mistake as to[ substance) of the subject-matter going to the very root of the agreement and affecting the whole consideration ‘which makes icwaig-and not the mistake as‘to {quality’, For, the principle of caveat emptor (let the buyer eware) clearly states that there-is-ne-implied— warranty or condition as to the quality or fitness for any particular purpose of. k may bu: consent a +S Sods Supplied under a contract 0! ad the buyer must be held to have is sold mi ight in some way taken the risk that be different from that whic misrepresentation or guarantee by the seller, ILLUSTRATION. d sold ceriain seeds to B. Both parties honestly believed that / rs old. the seeds proved to be only one year the seeds were two years old. Act d to be only eleven months 0 "be avoided as the mistake does not affect | of the transaction. — fistaken assumption going to the root of ast ement. Thus, where man and woman entered into an agreement for separation on the oro assumption that their marriage was valid, the agreement was held voi aa parties entered into the contract under a false and fundamental assump! lloway"" ere lawfully married. (Galloway vs Galloway" eee pifateral mistake. Where only one of the contracting partie rae a ‘matter of fact, the mistake is a unilateral mi take, Regarding ae ‘a unilateral mistake on the validity ofa contac) Section pai es ‘i contract isJnot voidablelmnerely because ILwas-SS ed by on ch the parties believed it to be, in the absence of any 41, (914), 30 TER. 531. 40. (1947), 177 L-T. 189. 79 39, (1870), L.R. 6 Ex. 7.Y LAw OF CONTRACT itbeing under a mistake as to amater of fact.” Accordingly, in case of uni, mistake a contract remains valid unless the mistake is Causey: misrepresentation or fraud, in which case the contract is voidable at the o, ‘ of aggrieved party. On the bast ficial decisions, however, in cer, exceptional cases even a unilateral mistake, whether caused by fr, misrepresent: entation, eic., or otherwise, may make an agreement void ab-ini, With a view to elucidating the above mentioned various POSSiDiliti, regarding the validity of a contract under unilateral mistake, we shall no, discuss them ip-some detail. _ — “Contract valid. Ifa man due to his own negligence onlack of reasonay), _careAoes not ascertain what he is contracting about, he must blame himse| and cannot avoid the contract. Thus, as a rule, a unilateral mistake is ny 1 Jy allowed as a defence in avoiding a contract i.e., it has no effect on the contrar and the contract remains valid. - : ILLUSTARTIONS. Where the government sold by auction the right of fishery and the plaintiff offered the highest bid thinking that the right was sold for three years when in fact it was for one year only, he could not avoid the contract because it was his unilateral mistake caused by his own negligence. He ought to have ascertained the tenure o| ‘dding at the auction (4.4. nion of India**). ° (Abus rice ftom ¥. by sample under the impression that the rice is old. The ce is. however. new. cannot avoid the contract. The rule of caveat emptor (let © Abt buyer beware) of the Sale of Goods Act is generally applicable in such cases ‘of unilateral mistake as to quality of subject-matter ofa contract, and despite the misty pee saree y éntract voidable. If the unilateral mistake is caused by fraud 0 / misfepresentation. etc. on the part of the other party, the contract is voidet« ( “and can be avoided by the injured party. —= ILLUSTRATION. 4, has a horse with a hole in the hoof. 4, so fills it up that the defect cannot be discovered on a reasonable examination. B, purchases the horst >| under the impression that the horse is sound. Here 4, is guilty of fraud and as ZZ \ Such on discovery of the defect B can avoid the contract because hig unilaters! pistake has been caused by 4’s fraud. A ment void ab-initiv. In the following two cases, where the cons” is grven by a party under a mistake is so fundamental as goes to thes° reement and has the effect of nullifying consent, no contract will ar Evepihough there is a unilateral mistake only: fistake as to the identity of person contracted with, where such ident is Important, The rule of law is that a contract apparently made between A Le C is a complete nullity, if the inference trom the facts is that to the knowles i of, it was the intention of 4 to contract only with B, for, there can be noFREE CONSENT formation of an agreement by proposal and acceptance unless a proposal is ‘iccepted by the person to whom it is made, Thus, whenever the identity of the person 6 ith whom one intends to contract is important element of the contract, a mistake with regard to the person contracted with destroys his consent and consequently annuls the contract. Identity of person contracted with is her when there is a credit deal or when one party has a set-off important eit her party. It is important to note that in case o! ‘against the olf “entity of person contracted with, even if the mistake is committed because of L fraud or misrepresentation of another party, the contract is not merely voidable but Is absolutely void. tS oe [LLUSTRATIONS.a) In Boulton vs Jones*®: Boulton had taken over the business of one, Brocklehurst, with whom the defendant, Jones, had been jccustomed to deal, and against whom he had a set-off. Jones sert an order for to Brocklehurst, which Boulton supplied without informing him that the ands. Jones consumed the goods in the belief that they klehurst. When Boulton demanded the payment for goods business has changed hi had been supplied by Broc! Bot hai he had intended to contract KC < thg goods supplied, Jones refused to pay alleging t with Brocklehurst personally, since he had ‘a set-off which he wished to enforce “against him. Boulton, there “as not liable to pay for the goods. Pollock CB. observed, “it is a rule of law “that if'a person intends to contract with A, B cannot give himself any right under id vs Butt:** Butt, the managing director of a theatrical company, gave at no ticket was to be sold to Said, who was a very bad critic of all ompany. Said, knowing this. asked a friend to buy a ticket for he theatre but was refused admission. Said f contract. Held that there was no contract + intended to contract with Said. (Notice he plaintiff was a material element instructions th the plays of the ct him, With this ticket Said went to t! filed a suit for damages for breach 01 because the theatrical company neve that in the given circumstances the identity of t a the formation of the contract.) (c) In Cundy vs Lindsay: 45 4 fraudulent person nam of the similarity of his name ‘with that ofa big comps mn the same town, placed an order with Lindsey ‘& Co., for supply of certain goods sto Took like that of Blenkiron & Co. on credit and signed the order in such @ way aS 10 Lindsay & Co., mistook his order for that of Blenkiron & Co., and despatched the goods. Blenkarn took ce! very of the goods and sold them to Cundy & Co. F ‘o., for them. On bona fide purchaser for value, and did not pay Lindsay & C oming to know the true facts “& Co,, filed a suit on Cundy & Co. for Lindsay ods, The Court of Aj eal held that owing to mistake as to identity 2 party caused by Blenkarn, the rogue, there was no consensus of wi -usis Oy PERTION APS 'eamieias aq RUIN ae SRUAS TEU ST MET JO apni 9G] “yUsUMOOD WaTM e Jo Jaypeney> pur ameT Sta “/ SeIsTw & Japi i TST PION sainjosge (* perTOTe-exeu Keer sxe ISTU [eISTE|IUM UB USAD YDTYM ul aduRISMMDID puosas TY yuawita T OYi OF SB ayD) x “PHBA SI JoB-qUOD at “Ysed JO} spoo8 awios saseyound, Jesuny ssonpoxqul ‘doys e sia y FI MYT “yeNU09 & PLOAB JOU [ILM CAnuAp oO} se ayISTUT : UAYeLUULT S1 YL Paroesuod Aused ayp jo Supuap! axp a104%. 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