Description
concept of free consent in detail. It also explains different types of misrepresentations.
CONSENT
A contract without free consent is voidable contract.
.
Flaw in consent
Coercion (sec15)
Undue influence (sec 16)
Misrepresentation (sec 17,18)
Mistake (sec 20,21)
Faudulent or wilful (sec 17)
Innocent or Unintentional (sec 18)
Mistake of fact (sec 20)
Mistake of law (sec 21)
Bala Debi vs Majumdar (1956)
?
An illiterate women executed a deed of gift in favor of her nephew under the impression that she was executing a deed authorizing her nephew to manage her lands. The evidence showed that the woman never intended to execute such a deed of gift, nor was the deed ever read or explained to her. Held the deed was void and inoperative.
MEANING OF CONSENT
?
?
According to section 13 two or more persons are said to consent when they agree upon the same thing in the same sense. This means that there should be perfect identity of mind. consensus and idea regarding the subject matter of the contract. Void and Voidable Contract.
FREE CONSENT
To make a contract valid not only consent is necessary but the consent should also be free. ? Section 13 says the consent is said to be free when it is not caused by any of the following : (a) Coercion-sec 15 (b) Undue influence –sec 16 (c) Misrepresentation –sec 17,18 (d) Mistake –sec 20,21
?
1. Coercion
?
SECTION 15 – coercion is committing or threatening to commit any act forbidden by the Indian Penal code, or the unlawful detaining or threatening to detain any property to the prejudice of any person ,whatsoever with the intention of causing any person to enter into an agreement .
An example of Coercion
Decided case of coercion Muthta vs Muthu Karuppa,(1927)
?
An agent refused to hand over the account books of a business to the new agent unless the principal released him from all liabilities. The principal had to release deed as demanded. Held the release deed was given under coercion and was voidable at the option of the principal.
Is Threat to commit suicide coercion?
?
?
?
Example: A man by giving a threat to commit suicide induces his wife and son to execute a deed in favour of him in respect of certain property and they execute. Madras high court has held by a majority judgment that even a threat to commit suicide is coercion even though it is not punishable under the Indian penal code . Held that the contract was obtained by coercion.
Effect of coercion-section 19
?
?
When the consent of a party to an agreement is obtained by coercion ,the contract becomes voidable at the option of the party ,whose consent is so obtained The burden of proving that the consent was obtained through coercion shall be upon the party who wants to set aside the contract on the plea of contract.
Example of effect of coercion
?
?
Anuj executes a transfer bond for the house under fear of assault .it will be a contract voidable at the option of Anuj since his consent was obtained by coercion.. A railway company refuses to deliver up certain goods to the consignee, except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.
2.UNDUE INFLUENCE
?
?
?
Undue influence is the improper use of any power possessed over the mind of the contracting party. According to section 16 a contract is said to be affected by undue influence when: The relations subsisting between the parties are such that one of the parties is in a position to dominate the will of other. Uses that position to obtain an unfair advantage over the other.
Example of undue influence
By operation you just execute a deed of giving your Whole property to me
Following are the parties that can be affected by undue influence
? ? ? ? ?
Doctor and patient Lawyer and client Guardian and ward Trustee and beneficiary Teacher and student
Decided case on undue influence
?
In karnal Distillery Co. ltd V. Ladli prasad .1958 Punj 190,confirmed by the supreme court in 1963 S.C 1279,the elder brother was shown to have exercised undue influence over his younger brother in respect of a compromise arrangement the transaction was held to be voidable at the instance of the younger brother.
Difference between coercion and undue influence
Coercion
The consent of the aggrieved party is taken by committing or threatening to commit an act forbidden by Indian penal code. Physical force is exercised
Undue Influence
The consent of the aggrieved party is obtained by dominating the party by taking an unfair advantage of his position. Moral force is used in undue influence Some sort of relationship must exist between the two parties to the contract
Relationship between the promisor and the promisee is not necessary
IMPORTANT POINTS ABOUT THE CASE
?
Priyamvada Birla's will, which bequeaths the Rs 5,000 crore (Rs 50 billion) assets of the Madhav Prasad Birla group to chartered accountant R S Lodha. The family members have examined the will and the consensus is that we have the moral and legal right to challenge the validity of the will.
?
?
They also refused to believe that Priyamvada could have left the will in the custody of the person who was its beneficiary.
M P Birla had a 25 per cent stake in Pilani Investments while the holding of BK Birla and GP Birla is 30 per cent and 25 per cent, respectively. The balance 20 per cent is held by the Krishna Kant and Sudershan Kumar families. The Birla clan is opposing the transfer of MP Birla's 25 per cent stake in Pilani Investments to Lodha.
?
?
IMPORTANT POINTS ABOUT THE CASE
?
Pilani Investments holds shares in Century Textiles, Kesoram Industries, Mangalam Cement, Mysore Cements, Grasim Industries, Hindalco, Indian Rayon, Jay Shree Tea, Mangalore Refinery, Orient Paper, Saurashtra Chemicals, Zuari Industries, Birla VXL, Bihar Caustic & Chemicals. Since these companies hold shares in other Birla companies, Pilani Investments has indirect holding in virtually all the companies managed by the Birla group. The will can also be challenged on another point: 'good presumption of undue influence' as R S Lodha was considered very close to Priyamvada Birla. If this is proven, the will could be declared invalid. The other basis for invalidation is if it is proven that the person was not of sound mind while signing it. The brief will -- apparently a mere four lines - can be considered unusual though not bad in law.
?
?
?
3. Misrepresentation
Misrepresentation
?
?
?
Misrepresentation is a false representation made innocently without any intention of deceiving the other party .It may include two things: (a) wrong statement of a material fact not known to be false (b) Non-disclosure of facts where there is a legal duty to disclose without intention to deceive ? SECTION 18
Types of Misrepresentation
?
There are 3 types of misrepresentation
o o o
Fraudulent misrepresentation Negligent misrepresentation Innocent misrepresentation
22
Fraudulent Misrepresentation
?
?
A person intentionally makes a false statement Fraudulent misrepresentation involves a statement by one party:
? ?
?
That they know is untrue; That they don’t believe is true; or That they recklessly disregard whether it’s true or not
23
Remedy for Fraudulent Misrepresentation
?
Rescission and damages for the tort of deceit Must bring an action within a reasonable time after discovering the misrepresentation
?
24
Negligent Misrepresentation
?
A person makes a statement they believe to be true, but they have no reasonable basis for believing it to be true
Remedies are rescission and damages
?
?
Action must be brought within a reasonable time after the misrepresentation is made
25
Innocent Misrepresentation
?
A person makes a statement believing it to be true, and has good reasons for believing that
This could be because the seller had been persuaded to make a contract by the same misrepresentation Remedies for innocent misrepresentation are simply rescission
?
?
?
BUT, under the Misrepresentation Act of 1967, courts may apply contract damages if rescission would be unfair
26
Rajshree Sugars vs Axis Bank
?
?
?
Mr. Justice V.Ramasubramanian of the Madras High Court[1] has gone on to hold that ?prima facie? the derivative transactions – option contracts – swap contracts etc., that were entered into by an exporter with a bank in order to hedge its risk against foreign exchange fluctuation were valid. The exporter in the instant case had taken a stand that the contracts were void ab initio as being hit by Section 23 (opposed to public policy), Section 30 (Wagering contract) of the Indian Contract Act, 1872 as also being opposed to provisions of the FEMA, 1999. The Learned Judge in an exhaustive judgment and in a very characteristic manner dealt with all these objections and negatived the claim of the exporter.
Rajshree Sugars vs Axis Bank
?
?
While dealing with the case on hand, the Learned Judge was confronted with a situation wherein the exporter was able to produce material to show that the Bank (counter party) had in fact represented to the exporter that US Dollar would never reach the stipulated level vis a vis the Swiss Franc to be faced with a situation where the exporter actually found itself in, prompting it to file the suit. The Learned Judge brushed aside the contention that there was no misrepresentation since both parties had no control over or knowledge as to how the currency would fluctuate. Is that the test? Was it correct on the part of the Bank to have made such a statement? What is level of diligence required of a Bank to make such a statement? This paper seeks to examine those aspects.
Contd…
?
Bank & Customer – Misrepresentation
-
Fraudulent misrepresentation Negligent misrepresentation Innocent Misrepresentation
? ?
?
Role of Reserve Bank of India Exporter getting a benefit on part of the contract Conclusion
4. Mistake
?
(a)
(b)
Mistake are of two type Mistake of law Mistake of fact
Mistake of law
?
? ? ?
Mistake of law is further divided into three categories (a) mistake of Indian law (b) mistake of foreign law (b) mistake as to private rights of the parties
Mistake of fact
?
Bilateral mistake Unilateral mistake are two types of mistake of fact
?
Bilateral mistake
?
Section 20 states that were both the parties to an agreement are under a mistake as to a matter of fact, essential to the agreement shall be void. The mistake shall be termed as bilateral mistake of fact only when both of the following conditions are satisfied
? ?
(a) it should be committed by both the parties (b) it should relate to a matter of fact essential to the agreement.
?
E.g.-A agrees to buy certain horse from B .It turns out that the horse was dead at the time of the agreement ,though neither party was aware about this fact. The agreement is void.
Case of material fact referring to previous slide
?
A and B believing themselves to be married ,made a separation agreement in which A agree to pay B Rs 10000 .It was later discovered that they were not duly married .B claimed the promised money .The agreement was held to be void as there was mistake of fact on their part which was material to the existence of the agreement.
Unilateral mistake
?
?
One party to a contract is under a mistake of fact, the contract is voidable .unilateral mistake do not affect the validity of contract unless they concern some fundamental Example: A agreed to buy certain wheat from B believing that they were old . In fact wheat offered were new. It was held that A could not avoid the contract on the ground that he had a mistaken impression as to the oldness of wheat.
5. Fraud
Section 17
Meaning & Definition under law section 17
Misrepresentation of facts may be intentional or innocent. Intentional misrepresentation has been termed as Fraud and innocent misrepresentation has been termed simply as ?misrepresentation‘
(a) A suggestion as to fact of that which is not true by one who does not believe it to be true (b) An active concealment of a fact by one having knowledge or belief of the fact. (c) Any other act fitted to deceive (d) A promise made without any intention of performing it
Silence as Fraud
?
?
Mere silence is not fraud, unless it is the duty of the person keeping silence to speak, or unless his silence is, in itself equivalent to speech. Eg:? ?
Surgeon Person applying for insurance
Illustrations on Silence
a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A. b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to tell B if the horse, is unsound. c) A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B.
Promise as a Fraud
?
?
A promise made without any intention of performing it. Eg:?
?
Obtaining property by professing lawful use but unlawfully using it. Obtaining a loan by misrepresenting the purpose for which the money is wanted.
Fraud—Transaction induced by fraud
?
Exchange deed wherein · defendants showed themselves as full owners of property were guilty of suggesting a fact which was not true—Defendants, by such representation having deceived or induced plaintiff to enter into exchange with them were guilty of fraud within meaning S. 17—Exchange deed entered into by plaintiffs was a deed voidable at their option as their consent was secured through fraud.
Illustrations on voidable contracts
?
A, intending to deceive B, falsely represents that 500 units of bags are made annually at A‘s factory, and thereby induces B to buy the factory. The contract is voidable at the option of B.
Illustration on voidable contract
?
A, by a misrepresentation, leads B erroneously to believe that 500 units of bags are manufactured annually at A‘s factory. B examines the accounts of the factory, which shows that only 400 units of bags have been made. After this, B buys the factory. The contract is not voidable on account of A‘s misrepresentation. A fraudulently informs B that A‘s estate is free from encumbrance. B thereupon buys the estate. The estate is subject to a mortgage. B may either avoid fire contract, or may insist on its being carried out, and the mortgage-debt redeemed.
?
Essential of fraud
? ? ?
? ?
There must be a representation and it must be false. The representation must relate to material fact The representation must have been made before the conclusion of the contract with the intention of inducing the other party to act upon it. The other party must have been induced to act upon the representation The other party must have relied upon the representation and must have been deceived.
Peek vs Gurney(1873)
The prospectus of a company did not refer to the existence of a document disclosing liabilities. This gave the impression that the company was prosperous. If the existence of the document had been disclosed the impression would have been quite different. Held, non disclosure amounted to fraud and anyone who purchased shares on the faith of this prospectus could avoid the contract.
Bisset vs Wilkinson (1972)
?
The vendor of a piece of land told a prospective purchaser that, in his opinion the land would carry 2000 sheep. In fact the land could carry only a number less than this. Held there was no misrepresentation as the statement was one of opinion which was honestly held
Examples of fraud
?
?
Mr. X was induced to buy shares in a company on account of a false statement made by a stranger. It was held that he could not get out of the bargains because false statement was not made by the company or its agent. Mr. X says to Ms. Y his coat is made of pure wool ,though he knows that it is untrue .Ms. Y purchases the coat believing Mr. X‘s statement to be true ,It is a fraud by Mr. X and therefore contract is voidable at Ms. Y option.
Decided case on silence is not a fraud
?
Hands vs Simpson, fawcett & co ltd (1928) H a commercial traveller, obtained an employment with S. S regarded driving as an essential part of H‘s duties but he did not specifically ask H if he is qualified to drive a car. H kept quiet about his disqualification to drive a car. S contended that H‘s silence is misrepresentation. But it was held that H was under no duty to volunteer the information and there was no misrepresentation.
Effect of Fraud
?
?
?
Section 19=The party whose consent to the contract is obtained by fraud can exercised any of the following rights: He may avoid the contract and may (i) ask for the damages suffered because of the non fulfillment of the contract He may insist for the performance of the contract .
Difference between fraud and misrepresentation
Misrepresentation There is no intention to deceive or to gain any undue advantage fraud In fraud the false statement is made deliberately with a clear intention of deceiving the other party It makes the other contract In fraud the injured party only voidable at the option besides avoiding the of the party whose consent contract may also claim the has been so caused damages.
References
?
?
? ? ?
www.wikipedia.org www.google.com www.indialawcases.com www.legalservicesindia.com www.manupatra.com
doc_560342252.ppt
concept of free consent in detail. It also explains different types of misrepresentations.
CONSENT
A contract without free consent is voidable contract.
.
Flaw in consent
Coercion (sec15)
Undue influence (sec 16)
Misrepresentation (sec 17,18)
Mistake (sec 20,21)
Faudulent or wilful (sec 17)
Innocent or Unintentional (sec 18)
Mistake of fact (sec 20)
Mistake of law (sec 21)
Bala Debi vs Majumdar (1956)
?
An illiterate women executed a deed of gift in favor of her nephew under the impression that she was executing a deed authorizing her nephew to manage her lands. The evidence showed that the woman never intended to execute such a deed of gift, nor was the deed ever read or explained to her. Held the deed was void and inoperative.
MEANING OF CONSENT
?
?
According to section 13 two or more persons are said to consent when they agree upon the same thing in the same sense. This means that there should be perfect identity of mind. consensus and idea regarding the subject matter of the contract. Void and Voidable Contract.
FREE CONSENT
To make a contract valid not only consent is necessary but the consent should also be free. ? Section 13 says the consent is said to be free when it is not caused by any of the following : (a) Coercion-sec 15 (b) Undue influence –sec 16 (c) Misrepresentation –sec 17,18 (d) Mistake –sec 20,21
?
1. Coercion
?
SECTION 15 – coercion is committing or threatening to commit any act forbidden by the Indian Penal code, or the unlawful detaining or threatening to detain any property to the prejudice of any person ,whatsoever with the intention of causing any person to enter into an agreement .
An example of Coercion
Decided case of coercion Muthta vs Muthu Karuppa,(1927)
?
An agent refused to hand over the account books of a business to the new agent unless the principal released him from all liabilities. The principal had to release deed as demanded. Held the release deed was given under coercion and was voidable at the option of the principal.
Is Threat to commit suicide coercion?
?
?
?
Example: A man by giving a threat to commit suicide induces his wife and son to execute a deed in favour of him in respect of certain property and they execute. Madras high court has held by a majority judgment that even a threat to commit suicide is coercion even though it is not punishable under the Indian penal code . Held that the contract was obtained by coercion.
Effect of coercion-section 19
?
?
When the consent of a party to an agreement is obtained by coercion ,the contract becomes voidable at the option of the party ,whose consent is so obtained The burden of proving that the consent was obtained through coercion shall be upon the party who wants to set aside the contract on the plea of contract.
Example of effect of coercion
?
?
Anuj executes a transfer bond for the house under fear of assault .it will be a contract voidable at the option of Anuj since his consent was obtained by coercion.. A railway company refuses to deliver up certain goods to the consignee, except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.
2.UNDUE INFLUENCE
?
?
?
Undue influence is the improper use of any power possessed over the mind of the contracting party. According to section 16 a contract is said to be affected by undue influence when: The relations subsisting between the parties are such that one of the parties is in a position to dominate the will of other. Uses that position to obtain an unfair advantage over the other.
Example of undue influence
By operation you just execute a deed of giving your Whole property to me
Following are the parties that can be affected by undue influence
? ? ? ? ?
Doctor and patient Lawyer and client Guardian and ward Trustee and beneficiary Teacher and student
Decided case on undue influence
?
In karnal Distillery Co. ltd V. Ladli prasad .1958 Punj 190,confirmed by the supreme court in 1963 S.C 1279,the elder brother was shown to have exercised undue influence over his younger brother in respect of a compromise arrangement the transaction was held to be voidable at the instance of the younger brother.
Difference between coercion and undue influence
Coercion
The consent of the aggrieved party is taken by committing or threatening to commit an act forbidden by Indian penal code. Physical force is exercised
Undue Influence
The consent of the aggrieved party is obtained by dominating the party by taking an unfair advantage of his position. Moral force is used in undue influence Some sort of relationship must exist between the two parties to the contract
Relationship between the promisor and the promisee is not necessary
IMPORTANT POINTS ABOUT THE CASE
?
Priyamvada Birla's will, which bequeaths the Rs 5,000 crore (Rs 50 billion) assets of the Madhav Prasad Birla group to chartered accountant R S Lodha. The family members have examined the will and the consensus is that we have the moral and legal right to challenge the validity of the will.
?
?
They also refused to believe that Priyamvada could have left the will in the custody of the person who was its beneficiary.
M P Birla had a 25 per cent stake in Pilani Investments while the holding of BK Birla and GP Birla is 30 per cent and 25 per cent, respectively. The balance 20 per cent is held by the Krishna Kant and Sudershan Kumar families. The Birla clan is opposing the transfer of MP Birla's 25 per cent stake in Pilani Investments to Lodha.
?
?
IMPORTANT POINTS ABOUT THE CASE
?
Pilani Investments holds shares in Century Textiles, Kesoram Industries, Mangalam Cement, Mysore Cements, Grasim Industries, Hindalco, Indian Rayon, Jay Shree Tea, Mangalore Refinery, Orient Paper, Saurashtra Chemicals, Zuari Industries, Birla VXL, Bihar Caustic & Chemicals. Since these companies hold shares in other Birla companies, Pilani Investments has indirect holding in virtually all the companies managed by the Birla group. The will can also be challenged on another point: 'good presumption of undue influence' as R S Lodha was considered very close to Priyamvada Birla. If this is proven, the will could be declared invalid. The other basis for invalidation is if it is proven that the person was not of sound mind while signing it. The brief will -- apparently a mere four lines - can be considered unusual though not bad in law.
?
?
?
3. Misrepresentation
Misrepresentation
?
?
?
Misrepresentation is a false representation made innocently without any intention of deceiving the other party .It may include two things: (a) wrong statement of a material fact not known to be false (b) Non-disclosure of facts where there is a legal duty to disclose without intention to deceive ? SECTION 18
Types of Misrepresentation
?
There are 3 types of misrepresentation
o o o
Fraudulent misrepresentation Negligent misrepresentation Innocent misrepresentation
22
Fraudulent Misrepresentation
?
?
A person intentionally makes a false statement Fraudulent misrepresentation involves a statement by one party:
? ?
?
That they know is untrue; That they don’t believe is true; or That they recklessly disregard whether it’s true or not
23
Remedy for Fraudulent Misrepresentation
?
Rescission and damages for the tort of deceit Must bring an action within a reasonable time after discovering the misrepresentation
?
24
Negligent Misrepresentation
?
A person makes a statement they believe to be true, but they have no reasonable basis for believing it to be true
Remedies are rescission and damages
?
?
Action must be brought within a reasonable time after the misrepresentation is made
25
Innocent Misrepresentation
?
A person makes a statement believing it to be true, and has good reasons for believing that
This could be because the seller had been persuaded to make a contract by the same misrepresentation Remedies for innocent misrepresentation are simply rescission
?
?
?
BUT, under the Misrepresentation Act of 1967, courts may apply contract damages if rescission would be unfair
26
Rajshree Sugars vs Axis Bank
?
?
?
Mr. Justice V.Ramasubramanian of the Madras High Court[1] has gone on to hold that ?prima facie? the derivative transactions – option contracts – swap contracts etc., that were entered into by an exporter with a bank in order to hedge its risk against foreign exchange fluctuation were valid. The exporter in the instant case had taken a stand that the contracts were void ab initio as being hit by Section 23 (opposed to public policy), Section 30 (Wagering contract) of the Indian Contract Act, 1872 as also being opposed to provisions of the FEMA, 1999. The Learned Judge in an exhaustive judgment and in a very characteristic manner dealt with all these objections and negatived the claim of the exporter.
Rajshree Sugars vs Axis Bank
?
?
While dealing with the case on hand, the Learned Judge was confronted with a situation wherein the exporter was able to produce material to show that the Bank (counter party) had in fact represented to the exporter that US Dollar would never reach the stipulated level vis a vis the Swiss Franc to be faced with a situation where the exporter actually found itself in, prompting it to file the suit. The Learned Judge brushed aside the contention that there was no misrepresentation since both parties had no control over or knowledge as to how the currency would fluctuate. Is that the test? Was it correct on the part of the Bank to have made such a statement? What is level of diligence required of a Bank to make such a statement? This paper seeks to examine those aspects.
Contd…
?
Bank & Customer – Misrepresentation
-
Fraudulent misrepresentation Negligent misrepresentation Innocent Misrepresentation
? ?
?
Role of Reserve Bank of India Exporter getting a benefit on part of the contract Conclusion
4. Mistake
?
(a)
(b)
Mistake are of two type Mistake of law Mistake of fact
Mistake of law
?
? ? ?
Mistake of law is further divided into three categories (a) mistake of Indian law (b) mistake of foreign law (b) mistake as to private rights of the parties
Mistake of fact
?
Bilateral mistake Unilateral mistake are two types of mistake of fact
?
Bilateral mistake
?
Section 20 states that were both the parties to an agreement are under a mistake as to a matter of fact, essential to the agreement shall be void. The mistake shall be termed as bilateral mistake of fact only when both of the following conditions are satisfied
? ?
(a) it should be committed by both the parties (b) it should relate to a matter of fact essential to the agreement.
?
E.g.-A agrees to buy certain horse from B .It turns out that the horse was dead at the time of the agreement ,though neither party was aware about this fact. The agreement is void.
Case of material fact referring to previous slide
?
A and B believing themselves to be married ,made a separation agreement in which A agree to pay B Rs 10000 .It was later discovered that they were not duly married .B claimed the promised money .The agreement was held to be void as there was mistake of fact on their part which was material to the existence of the agreement.
Unilateral mistake
?
?
One party to a contract is under a mistake of fact, the contract is voidable .unilateral mistake do not affect the validity of contract unless they concern some fundamental Example: A agreed to buy certain wheat from B believing that they were old . In fact wheat offered were new. It was held that A could not avoid the contract on the ground that he had a mistaken impression as to the oldness of wheat.
5. Fraud
Section 17
Meaning & Definition under law section 17
Misrepresentation of facts may be intentional or innocent. Intentional misrepresentation has been termed as Fraud and innocent misrepresentation has been termed simply as ?misrepresentation‘
(a) A suggestion as to fact of that which is not true by one who does not believe it to be true (b) An active concealment of a fact by one having knowledge or belief of the fact. (c) Any other act fitted to deceive (d) A promise made without any intention of performing it
Silence as Fraud
?
?
Mere silence is not fraud, unless it is the duty of the person keeping silence to speak, or unless his silence is, in itself equivalent to speech. Eg:? ?
Surgeon Person applying for insurance
Illustrations on Silence
a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A. b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to tell B if the horse, is unsound. c) A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B.
Promise as a Fraud
?
?
A promise made without any intention of performing it. Eg:?
?
Obtaining property by professing lawful use but unlawfully using it. Obtaining a loan by misrepresenting the purpose for which the money is wanted.
Fraud—Transaction induced by fraud
?
Exchange deed wherein · defendants showed themselves as full owners of property were guilty of suggesting a fact which was not true—Defendants, by such representation having deceived or induced plaintiff to enter into exchange with them were guilty of fraud within meaning S. 17—Exchange deed entered into by plaintiffs was a deed voidable at their option as their consent was secured through fraud.
Illustrations on voidable contracts
?
A, intending to deceive B, falsely represents that 500 units of bags are made annually at A‘s factory, and thereby induces B to buy the factory. The contract is voidable at the option of B.
Illustration on voidable contract
?
A, by a misrepresentation, leads B erroneously to believe that 500 units of bags are manufactured annually at A‘s factory. B examines the accounts of the factory, which shows that only 400 units of bags have been made. After this, B buys the factory. The contract is not voidable on account of A‘s misrepresentation. A fraudulently informs B that A‘s estate is free from encumbrance. B thereupon buys the estate. The estate is subject to a mortgage. B may either avoid fire contract, or may insist on its being carried out, and the mortgage-debt redeemed.
?
Essential of fraud
? ? ?
? ?
There must be a representation and it must be false. The representation must relate to material fact The representation must have been made before the conclusion of the contract with the intention of inducing the other party to act upon it. The other party must have been induced to act upon the representation The other party must have relied upon the representation and must have been deceived.
Peek vs Gurney(1873)
The prospectus of a company did not refer to the existence of a document disclosing liabilities. This gave the impression that the company was prosperous. If the existence of the document had been disclosed the impression would have been quite different. Held, non disclosure amounted to fraud and anyone who purchased shares on the faith of this prospectus could avoid the contract.
Bisset vs Wilkinson (1972)
?
The vendor of a piece of land told a prospective purchaser that, in his opinion the land would carry 2000 sheep. In fact the land could carry only a number less than this. Held there was no misrepresentation as the statement was one of opinion which was honestly held
Examples of fraud
?
?
Mr. X was induced to buy shares in a company on account of a false statement made by a stranger. It was held that he could not get out of the bargains because false statement was not made by the company or its agent. Mr. X says to Ms. Y his coat is made of pure wool ,though he knows that it is untrue .Ms. Y purchases the coat believing Mr. X‘s statement to be true ,It is a fraud by Mr. X and therefore contract is voidable at Ms. Y option.
Decided case on silence is not a fraud
?
Hands vs Simpson, fawcett & co ltd (1928) H a commercial traveller, obtained an employment with S. S regarded driving as an essential part of H‘s duties but he did not specifically ask H if he is qualified to drive a car. H kept quiet about his disqualification to drive a car. S contended that H‘s silence is misrepresentation. But it was held that H was under no duty to volunteer the information and there was no misrepresentation.
Effect of Fraud
?
?
?
Section 19=The party whose consent to the contract is obtained by fraud can exercised any of the following rights: He may avoid the contract and may (i) ask for the damages suffered because of the non fulfillment of the contract He may insist for the performance of the contract .
Difference between fraud and misrepresentation
Misrepresentation There is no intention to deceive or to gain any undue advantage fraud In fraud the false statement is made deliberately with a clear intention of deceiving the other party It makes the other contract In fraud the injured party only voidable at the option besides avoiding the of the party whose consent contract may also claim the has been so caused damages.
References
?
?
? ? ?
www.wikipedia.org www.google.com www.indialawcases.com www.legalservicesindia.com www.manupatra.com
doc_560342252.ppt