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Unit 5: Free Consent

(iv) A sold to B by auction a horse which A knew to be unsound. A said nothing to B about the Notes
horse’s unsoundness. This was held not to be a fraud.
Silence may in itself be equivalent to speech. Silence may in itself amount to fraud where the
circumstances are such that “silence is in itself equivalent to speech”.

Example: (i) Where B says to A, “if you do not deny it I shall assume that the car does not
overheat” A says nothing. Here A’s silence is equivalent to speech.

(ii) A prospectus issued by a company did not refer to the existence of a document disclosing
liabilities. The impression thereby created was that the company was a prosperous one which
actually was not the case. Held, the suppression of truth amounted to fraud [Peek v. Gurney
(1873) 6 H.L.377].
However, a mere expression of opinion, puffery or flourishing description does not amount to

a fraud.

Example: (i) A, a seller of a vintage car says that the car is a ‘beauty’. It is merely A’s
opinion. But in case he says that the car is worth ` 5 lakhs whereas he paid only ` 2 lakhs for it,
then he has misstated a fact which may amount to fraud or simple misrepresentation.
(ii) A company issued a prospectus giving false information about the unbounded wealth of
Nevada. A person buys shares on the faith of such an information. Later he wants to avoid the
contract. He can avoid the contract since the false representation in the prospectus amounts to
fraud (Reese River Silver Minning Co. vs. Smith (1869) L.R. 4 H. [664]).
Consequences of fraud and misrepresentation [s.19]. The party aggrieved or wronged has two
remedies viz, (i) he can avoid the performance of the contract (ii) he can insist that the contract
shall be performed and that he shall be put in the position in which he would have been if the
representation made had been true. In case of fraud, he has an additional remedy, i.e., he can sue
for damages.
Exceptions to the principle that the party aggrieved or wronged by misrepresentation cannot
claim damages. The directors of a company are liable in damages under s.62 of the Companies
Act, 1956, even for misstatements, i.e., misrepresentation in the prospectus issued by the company

inviting public for subscription. Also where there exists a confidential relationship between the
parties (such as solicitor and client), and negligent representation is made by one to the other
then the aggrieved party may claim damages.
Fraud and misrepresentation. The following are the points of difference between the two:

1. In case of fraud, the party making false or untrue representation makes it with the intention
to induce the other party to enter into a contract. Misrepresentation, on the other hand, is
innocent i.e., without any intention to deceive or to gain an advantage.
2. Both fraud and misrepresentation make a contract voidable at the option of the party
wronged. But in case of fraud, the party defrauded gets the additional remedy of suing for
damages caused by such fraud. In case of misrepresentation, generally, the only remedies
are rescission and restitution.
3. In case of fraud, the defendant cannot take the plea that the plaintiff had the means
of discovering the truth or could have done so with ordinary diligence. In case of
misrepresentation, it could be a good defense.

Cases of fraud or misrepresentation in which the contract is not voidable. There are two
exceptions to the principle that the party aggrieved or wronged can avoid the contract. Firstly,
where the party whose consent was caused by fraud or misrepresentation had the means of
discovering the truth with ordinary diligence. Secondly, where the party after becoming aware of
the fraud or misrepresentation takes a benefit under the contract or in some way affi rms it.

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