Page 37 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes (ii) The representation or assertion alleged to be false must be of a fact. A mere expression of
opinion, puffery or flourishing description does not constitute fraud.
(iii) The representation or statement must have been made (a) knowingly or (b) without belief
in its truth or (c) recklessly, carelessly whether it be true or false. In (a) and (b) there seems
to be no difficulty since fraud is proved when it is shown that a false representation has
been made knowingly or without belief in its truth. However, with regard to reckless
misstatement it may appear difficult to say whether it amounts to fraud because the
person making such statement does not himself definitely know that the statement is
false. But if we carefully look into it we find that it does amount to fraud. Though the
person making it is not sure of the truth of the statement yet he represents to the other
party as if he is absolutely certain about its truth.

(iv) The representation, statement, or assertion must have been made with the intention of
inducing the other party to act upon it. For fraud to exist the intention of misstating the
facts must be to cause the other party to enter into an agreement.
(v) The representation must in fact deceive. It has been said that a deceit which does not
deceive is not a fraud. A fraud or misrepresentation, which does not cause the consent to
a contract of the party on whom such fraud is practiced or to whom such misrepresentation
was made, does not render a contract voidable.

(vi) The party subjected to fraud must have suffered some loss. It is a common rule of law that
there is no fraud without damages. As such a fraud without damage does not give rise to
an action of deceit.

Example: A informs B fraudulently that A’s estate is free from encumbrance. B therefore
buys the estate. The estate in fact is subject to a mortgage. B may either avoid the contract or may
insist on its being carried out and the mortgage deed redeemed.
Self Assessment

Fill in the blanks:
7. For a fraud to exist there must be a representation or assertion and it must be…………….
8. It is a common rule of law that there is no fraud without………………..

2.5 Meaning of Misrepresentation (Ss.18-19)

Misrepresentation is also known as simple misrepresentation whereas fraud is known as
fraudulent misrepresentation. Like fraud, misrepresentation is an incorrect or false statement
but the falsity or inaccuracy is not due to any desire to deceive or defraud the other party. Such
a statement is made innocently. The party making it believes it to be true. In this way, fraud is
different from misrepresentation. The case of misrepresentation may be classified into the
following three groups: (i) the positive assertion in a manner not warranted by the information
of the person making it, of that which is not true though he believes it to be true. (ii) Any breach
of duty which without an intent to deceive gives an advantage to the person committing it (or
anyone claiming under him) by misleading another to his prejudice or to the prejudice of
anyone claiming under him. (iii) Causing however innocently a party to an agreement to make
a mistake as to the substance of a thing which is the subject of the agreement.

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