Page 38 - DMGT407Corporate and Business Laws

Unit 2: Consent, Indemnity and Guarantee Acts

Notes
Examples:

1. A chartered a ship to B which was described in the ‘Charter Party’ and was represented
to him as being not more than 2,800 tonnage registered. It turned out that the
registered tonnage was 3,045 tons. A refused to accept the ship in fulfillment of the
charter party. He would be entitled to avoid the charter party by reason of the
erroneous statement as to tonnage.
2. H sold W with all faults certain animals which were suffering from some fever, the
fact of which was known to him but he did not disclose to W, it was held that there
was no fraud (Ward v. Hobbs (1878) A C 13).
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: 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.
However, a mere expression of opinion, puffery or flourishing description does not amount to
a fraud.

Example: 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.

Notes 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 affirms it.

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

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