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CSEET Video Classes for Nov 2021 – Contract Act – Class 7

CSEET Video Classes for Nov 2021 - Legal Aptitude - Contract Act - Class 7

CSEET Video Classes for Nov 2021 – Legal Aptitude – Contract Act – Class 7

Part of Contract Act, 1872 covered in this Class

Misrepresentation (Section 18 of Indian Contract Act, 1872)
Misrepresentation may be either

  1. Innocent misrepresentation, or
  2. Wilful misrepresentation with intent to deceive and is called fraud.

The effect of innocent misrepresentation is that the party misled by it can avoid the contract, but cannot sue for damages in the normal circumstances.

But in order to avoid a contract on the ground of misrepresentation, it is necessary to prove that:

  1. there was a representation or assertion,
  2. such assertion induced the party aggrieved to enter into the contract.
  3. the assertion related to a matter of fact ( and not of law as ignorance of law is no excuse).
  4. the statement was not a mere opinion or hearsay, or commendation (i.e., reasonable praise). For example an advertisement saying, “washes whiter than the whitest”.
  5. the statement which has become or turned out to be untrue, was made with an honest belief in its truth.

Damages for Innocent Misrepresentation
Generally the injured party can only avoid the contract and cannot get damages for innocent misrepresentation.

But in the following cases, damages are obtainable:

  1. From a promoter or director who makes innocent misrepresentation in a company prospectus inviting the public to subscribe for the shares in the company;
  2. Against an agent who commits a breach of warranty of authority:
  3. From a person who (at the Courts discretion) is estopped from denying a statement he has made where he made a positive statement intending that it should be relied upon and the innocent party did rely upon it and thereby suffered damages;
  4. Negligent representation made by one person to another between whom a confidential relationship, like that of a solicitor and client exists.

Difference between Fraud and Innocent Misrepresentation

  1. Fraud implies an intent to deceive, which is lacking if it is innocent misrepresentation.
  2. In case of misrepresentation and fraudulent silence, the defendant can take a good plea that the plaintiff had the means of discovering the truth with ordinary diligence. This argument is not available if there is fraud (Section 19- exception).
  3. In misrepresentation the plaintiff can avoid or rescind the contract. In fraud, the plaintiff can claim damages as well.
  4. If there is fraud, it may lead to prosecution for an offence of cheating under the Indian Penal Code.

In general one cannot take the plea of ‘mistake’ for avoiding the obligations in a contract. But mistakes do occur. Sometime mistakes are so fundamental that there may be no contract at all.

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

Thus mistake makes the contract void if:

(a) the mistake is of fact, and not of law or opinion;
(b) the fact is essential to agreement, i.e., so fundamental as to negative the agreement; and
(c) mistake must be on the part of both the parties.

Mistake of Law and Mistake of Fact
Mistakes are of two kinds:

  1. mistake of law, and
  2. mistake of fact.

If there is a mistake of law of the land, the contract is binding because everyone is deemed to have knowledge of law of the land and ignorance of law is no excuse (ignorantia juris non-excusat).

But mistake of foreign law and mistake of private rights are treated as mistakes of fact and are execusable.

Mutual or Common or Bilateral Mistake as to Subject-matter
A contract is void when the parties to it assume that a certain state of things exist which does not actually exist or in their ignorance the contract means one thing to one and another thing to the other, and they contract subject to that assumption or under that ignorance.

(a) Mistake as to existence of the subject matter
Where both parties believe the subject matter of the contract to be in existence but in fact, it is not in existence at the time of making the contract, there is mistake and the contract is void.

(b) Mistake as to identity of the subject matter
Where the parties are not in agreement to the identity of the subject matter, i.e., one means one thing and the other means another thing, the contract is void; there is no consensus ad idem.

(c) Mistake as to quantity of the subject matter
There may be a mistake as to quantity or extent of the subject matter which will render the contract void even if the mistake was caused by the negligence of a third party.

(d) Mistake as to quality of the subject-matter or promise
Mistake as to quality raises difficult questions. If the mistake is on the part of both the parties the contract is void. But if the mistake is only on the part of one party difficulty arises.

Unilateral Mistake

  1. Unilateral Mistake as to Nature of the Contract
  2. Unilateral Mistake as to the Identity of the Person Contracted With

Unilateral Mistake as to Nature of the Contract
The general rule is that a person who signs an instrument is bound by its terms even if he has not read it. But a person who signs a document under a fundamental mistake as to its nature (not merely as to its contents) may have it avoided provided the mistake was due to either-
(a) the blindness, illiteracy, or senility of the person signing, or
(b) a trick or fraudulent misrepresentation as to the nature of the document.

Unilateral Mistake as to the Identity of the Person Contracted With
When a contract is made in which personalities of the contracting parties are or may be of importance, no other person can interpose and adopt the contract. Mistake as to the identity of the person with whom the contract is made will operate to nullify the contract only if:

  • the identity is for material importance to the contracts; and
  • the mistake is known to the other person, i.e., he knows that it is not intended that he should become a party to the contract.

You are studying this topic at CSEET Video Classes for Nov 2021 – Contract Act – Class 7

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