◇ Fraud and Misrepresentation under the Indian Contract Act, 1872 – Sections 17, 18, 19 & 19A Explained with Case Laws
● INTRODUCTION
Free consent is the foundation of every valid contract under the Indian Contract Act, 1872.According to Section 14, consent is said to be free when it is not caused by coercion, undueinfluence, fraud, misrepresentation or mistake. Among these factors, fraud andmisrepresentation frequently arise in contractual disputes because they involve falserepresentations influencing the decision of one party. Sections 17 and 18 define fraud andmisrepresentation respectively, while Sections 19 and 19A deal with their legal efects andremedies. This article provides a comprehensive explanation of these concepts with illustrationsand case laws, especially useful for judiciary and law entrance examinations.
SECTION 17 – FRAUD UNDER THE INDIANCONTRACT ACT
Meaning of Fraud Section 17 defines fraud as any act committed by a party to a contract, or with his connivance,or by his agent, with intent to deceive another party or to induce him to enter into the contract.Fraud always involves intentional deception.Acts Constituting FraudFraud includes knowingly making a false statement, actively concealing a material fact, makinga promise without any intention of performing it, committing any act fitted to deceive, or any actdeclared fraudulent by law. These acts must be done with the intention to mislead the otherparty.Explanation – Mere Silence Mere silence as to facts likely to afect the willingness of a person to enter into a contract doesnot amount to fraud. However, silence becomes fraud when there is a duty to speak or whensilence itself is equivalent to speech.
Illustrations
If a seller auctions a horse knowing it to be unsound but does not disclose the defect, it is notfraud because the buyer can inspect the horse. This follows the principle of caveat emptor.However, if the seller stands in a fiduciary relationship, such as a father selling property to hisdaughter, silence regarding defects amounts to fraud. Silence also becomes fraud when a partyintentionally remains silent knowing that it will mislead the other party.
Case Law:
Derry v. Peek(1889)The House of Lords held that fraud is proved only when a false statement is made knowingly,without belief in its truth, or recklessly. An honest but mistaken belief does not constitute fraud.
WHEN DOES SILENCE AMOUNT TO FRAUD?
Silence becomes fraud in certain exceptional circumstances. These include situations wherethere is a duty to disclose material facts due to fiduciary relationships, where silence isequivalent to speech, where there is a change in circumstances making an earlier statementfalse, or where only half-truths are disclosed. In With v. O’Flanagan (1936), silence regardingchanged circumstances was held to amount to fraud.🔹
SECTION 18 – MISREPRESENTATION
Meaning of Misrepresentation Misrepresentation refers to a false statement made innocently, without any intention to deceive,and believed by the person making it to be true. Though innocent, such statements may stillmislead the other party.Types of MisrepresentationMisrepresentation includes unwarranted assertions made without reasonable grounds, breachof duty without intent to deceive that results in advantage, and causing an innocent mistakeregarding the subject matter of the agreement.
Important Case Laws
In Oceanic Steam Navigation Co. v. S. Dharamsey (1890), a statement made confidentlywithout proper information was held to be misrepresentation.In Oriental Banking Corporation v. John Fleming (1879), misleading conduct without intent todeceive was treated as misrepresentation.
In Benjamin Doming Cardoza v. Gladys Cardoza (1997), suppression of material facts afectingconsent was held to vitiate the agreement.
DISTINCTION BETWEEN FRAUD ANDMISREPRESENTATION
Although both fraud and misrepresentation involve false statements afecting consent, fraudinvolves intentional deception, while misrepresentation is an innocent misstatement. In fraud,the aggrieved party may rescind the contract and also claim damages, whereas inmisrepresentation, the remedy is limited to rescission alone. Moreover, in cases ofmisrepresentation, if the truth could have been discovered by ordinary diligence, the contractcannot be avoided, while this defence is generally not available in fraud.
SECTION 19 – EFFECT OF FRAUD ANDMISREPRESENTATION
Under Section 19, when consent is caused by fraud or misrepresentation, the contract becomes voidable at the option of the aggrieved party. However, if the fraud or misrepresentation did notactually cause the consent, the contract remains valid.Exception – Ordinary DiligenceIf consent is caused by misrepresentation or fraudulent silence and the truth could have beendiscovered by ordinary diligence, the contract is not voidable. This exception does not applywhere defects are hidden or undiscoverable.
REMEDIES AND RESTITUTION
The aggrieved party may rescind the contract, insist upon its performance as if therepresentation were true, and claim damages in case of fraud. Rescission must be done withina reasonable time. Under Sections 64 and 65, benefits received must be restored.
SECTION 19A – UNDUE INFLUENCE
When consent is obtained by undue influence, the contract is voidable. The court may set asidethe contract either wholly or partially on equitable terms, unlike Section 19 where only fullrescission is allowed.
CONCLUSION
Fraud and misrepresentation strike at the very root of free consent. While fraud involvesdeliberate deception, misrepresentation consists of innocent but misleading statements. The Indian Contract Act provides balanced remedies to protect the aggrieved party while preventingabuse through principles like ordinary diligence and causation of consent. Mastery of theseprovisions is essential for judiciary aspirants and legal practitioners.
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