BUS204 (Sec 3)

Class 8
9 th July 2025
Topics 01 Misrepresentation

02 Effects of Misrepresentation

Fraud, What does constitute

03 fraud

04 Can silence be fraudulent

05 Effects of fraud

06 Mistake, Effects of Mistake

What is Consent is said to
be free when it is (1) coercion, or
Free not caused by-

consent?
(2) undue
Section influence, or
(3) fraud, or

14
(4)
misrepresentation, (5) mistake.
or
 A representation means a statement of fact made
Misrepresentation by one party to the other, either before or at the
time of the contract relating to some matter
essential to the formation of the contract.

A representation when wrongly made, either

innocently or intentionally, is termed as
misrepresentation.

The representation made is inaccurate but the

inaccuracy is not due to any desire to defraud the
other party.
Misrepresentation
Section 18 Unwarranted Assertion

Breach of Duty

Innocent Mistake
 1.
“Misrepresentation" means and includes–
the positive assertion, in a manner not warranted by the
information of the person making it, of that which is not
Unwarranted true, though he believes it to be true;
The person making the statement believes honestly it as
Assertion true, though it is not true.
A, a seller, says to B, a buyer, that “My land produces 10
quintals of rice per acre.” A believes the statement to be
true though he did not have sufficient reasons for the
belief.
Positive Later, it was found that the land produces 8 quintals of rice
per acre. It is misrepresentation.
assertion
 Any breach of duty which, without an
2. intent to deceive, gains an advantage to the
person committing it, or any one claiming
under him, by misleading another to his
prejudice or to the prejudice of any one
Breach of duty claiming under him;

If a statement is true at the time of making

of it, but subsequently becomes false to the
knowledge of the person making it. The
person is under obligation to disclose the
change.
With vs
A before entering into a contract with B for the sale
of the business correctly states that the monthly

O’ Flanagan sales are Rs. 50000. A and B negotiates for five

months before signing the contract. During the

(1936) negotiation period the sales of the business reduced

to Rs.5000 per month. A unintentionally keeps
quite. It was held that there was misrepresentation
and B was entitled to rescind the contract.
 3. Causing mistake about subject matter innocently
is also misrepresentation.

Causing
mistake A, seller of rice, said to B, buyer, that no Sulphur was used in
the production of the rice. In fact, Sulphur had been used in
5 out of 100 acres of land. The buyer would not have
purchased if it was conveyed to him. It was
misrepresentation.
According to (1) Statement of fact, which of false, would
Section 18, there constitute misrepresentation if the maker
is believes it to be true but which is not justified
misrepresentation by the information he possesses;
(2) When there is a breach of duty by a person
without any intention to deceive which brings
an advantage to him;
(3) When a party causes, even though done
innocently, the other party to the agreement to
make a mistake as to the subject matter.
Examples
A makes a positive statement to B that C will be made the director of a company. A makes the statement on information derived , not
directly from C but from M. B applies for shares on the faith of the statement which turns out to be false. The statement amo unts to
misrepresentation, because the information received second -hand did not warrant A to make the positive statement to B.

'A' believed the engine of his motor cycle to be in an excellent condition. 'A' without getting it checked in a workshop, told to 'B' that
the motor cycle was in excellent condition. On this statement, 'B' bought the motor cycle, whose engine proved to be defective. Here,
'A's statement is misrepresentation as the statement turns out to be false.

A while selling his mare to B, tells him that the mare is thoroughly sound. A genuinely believes the mare to be sound althoug h he has
no sufficient ground for the belief. Later, B finds the mare to be unsound. The representation made by A is a misrepresentati on.

A buy an article thinking that it is worth 1000 taka when in fact it is worth only 500 Taka. There has been no misrepresentat ion on the
part of the seller. The contract is valid.
Effects of
The contract is voidable.
The aggrieved party can

Misrepresen
1) rescind the contract, or
2) affirms the contract and insist

tation
that he shall be put in the
position in which he would have
been, if the representation

Section 19 made have been true.

The aggrieved party can not claim
the damages.
For A, innocently in good faith tells B that his
mobile set is made in Finland. Believing that B
buys the mobile. Later it is found that that the

example mobile is made in China. A, is guilty of

misrepresentation.
B, may avoid the contract or may insist the
performance of the contract.
If he insists the performance, he may either
ask for replacing the set by a Finland make or
may keep the Chinese one and claim the
difference in price.
Fraud
Fraud means Section 17

1. Intentional false statement

2. Active Concealment
3. A promise without intention of performing
4. Any other acts
1.
With intent to deceive or induce other party
enter into the contract:

A false
The suggestion that a fact is true when it is not
statement true by one who does not believe it to be true.

A false statement which is made intentionally to

deceive other is fraud.
2. The active concealment of a fact by a person who
has knowledge or belief of the fact.

The active concealment

Active concealment of a material fact is fraud.

Mere non-disclosure is not fraud.

Caveat Emptor or Buyer Beware principle is

applied in case of sale of goods. So, seller is not
bound to disclose the faults in the goods to buyer.
3. A promise made without any
intention of performing it.
A promise
without
intention of
performing If a person while entering into a
contract has no intention to
perform his promise, there is a
fraud from his part.
 Any such act fitted to deceive.

Any other
act
Any such act or omission as the
law specially declares to be
fraudulent.
Can silence be fraudulent?
Or, what is meant be
constructive fraud?

Explanation to Section 17
Silence may fraudulent 1. If there is a duty of the person, who is
or constructive fraud silent, to speak.
may happen in certain Such duty may arise in case of contract
circumstances: ‘uberrimae fidei’ or ‘contract of utmost good
faith’. Contract ‘uberrimae fidei’ are such:
a. Contract between Fiduciary relationship
b. Contract of insurance
c. Contract of marriage engagement.
d. Contract of family settlement
e. Share allotment contract.
Silence 2. Silence is fraudulent where the
may circumstances are such that
fraudulent “silence is, in itself, equivalent to
speech.”
Effects of Aggrieved party may
fraud?
• rescind the contract,
Section
• insist the performance and ask that he
19 shall be put in the position in which he
would have been, if the representation
made been true.

• sue for damages as fraud is a civil wrong.

Mistake
What is
Mistake is an erroneous belief concerning
something.

Mistake? Mistake is of two types:

1. Mistake of Law
2. Mistake of Fact
Mistake of law is of two types:
1. Mistake of law of the country
2. Mistake of foreign law (or mistake of fact)
Mistake of Law of Ignorance of law is no excuse.
the country or

mistake of law Everyone is deemed to have the knowledge

Section 21 of law.

So, because of mistake of law a contract

does not become voidable, it remains valid.

Mistake of foreign law is treated as mistake

of fact.
Mistake of
Mistake of fact is of two types:
1. Bilateral mistake or

fact
2. Unilateral mistake
Section 20 mentions that “where both the

Section 20
parties to an agreement are under a
mistake as to matter of fact essential to
the agreement, the agreement is void.”

and section So, contract becomes void ab-initio, in

case of bilateral mistake.

22.
Mistake of fact Section 22 mentions that a contract is

Section 20 and not voidable merely because it was

caused by one of the parties to it being
section 22.
under a mistake as to matter of fact.

So, in case of unilateral mistake the

contract remains valid unless it is
caused by misrepresentation or fraud.
Any Question
Thank you