Page 18 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Unit 1: Laws of Contract

2. Both fraud and misrepresentation make a contract voidable at the option of the party Notes
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.

1.4.5 Meaning of ‘Mistake’

Mistake may be defined as an erroneous belief on the part of the parties to the contract concerning

something pertaining to the contract. For example, A agrees to buy from B a certain house. It

turns out that the house had been destroyed by fire before the time of the bargain though neither
party was aware of the fact. The agreement is void. A cannot insist for possession of the house.
The agreement is void as there is a mistake on the part of both the parties about the existence of
the subject matter.

Different Kinds of Mistake

Broadly there are two kinds of mistake:
1. Mistake of fact
2. Mistake of law.

Mistake of Fact

Further mistake of fact may be either: (a) Bilateral or (b) Unilateral. The mistake of law may
be (a) mistake of law of the land and (b) mistake of foreign law.
When both the parties to the agreement are under a mistake of fact essential to the agreement, the
mistake is called a bilateral mistake and the agreement is void.

For example, A agrees to sell to B a specific cargo of goods supposed to be on its way from
London to Mumbai. It turns out that before the day of the bargain the ship conveying the cargo
had been cast away and the goods lost. Neither party was aware of the facts. The agreement is
void. An erroneous opinion, however, as to the value of thing which forms the subject matter of
the agreement is not to be deemed a mistake as to a matter of fact.
There is a unilateral mistake where only one party to a contract is under a mistake as to a matter
of fact. Generally speaking, such a contract is not invalid. Thus, where a person due to his own
negligence or lack of reasonable care does not ascertain what he is contracting about, he must
bear the consequences.

Example: A sold rice to B by sample, and B thinking that they were old rice, purchased
them. In fact, the rice were new. B cannot avoid the contract.

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