Fraud, Misrepresentation and Mistake — MCQs

All questions with answers and explanations

Read the full set here, or use the practice card above to test yourself one question at a time.

1. In Derry v. Peek, the House of Lords held that fraud requires:

   • Mere negligence in making a statement
   • Knowledge of falsity, or recklessness as to truth (correct answer)
   • Any incorrect statement, regardless of belief
   • A written, signed statement only

   Explanation. Derry v. Peek established that fraud requires knowing a statement is false, making it without belief in its truth, or being reckless as to whether it is true — an honest but mistaken belief is not fraud.

2. Mere silence about a fact that might affect the other party's willingness to contract is:

   • Always fraud
   • Not fraud, unless there is a duty to speak or silence is equivalent to speech (correct answer)
   • Always misrepresentation
   • Punishable under Section 17 regardless of context

   Explanation. The explanation to Section 17 makes clear that mere silence is not fraud unless the person has a duty to speak (e.g., in a fiduciary relationship) or their silence is itself equivalent to speech.

3. In Raffles v. Wichelhaus, the contract was held void because:

   • One party committed fraud
   • Both parties had different ships named 'Peerless' in mind — there was no real meeting of minds (correct answer)
   • The price was left uncertain
   • One party was a minor

   Explanation. Since two ships named Peerless existed and each party meant a different one, there was no genuine consensus on the subject matter — a bilateral mistake of fact under Section 20, making the agreement void.

4. A contract is generally NOT voidable merely because:

   • It was caused by active fraud
   • One party alone was under a mistake of fact, uninduced by the other (Section 22) (correct answer)
   • It was caused by coercion
   • It was caused by misrepresentation

   Explanation. Section 22 provides that a contract is not voidable merely because one party was under a mistake of fact, so long as the other party did not cause or know of that mistake.

5. A mistake about a foreign country's law is treated, for contract purposes, as:

   • Mistake of Indian law — no effect
   • Mistake of fact (correct answer)
   • Always fraud
   • Irrelevant to the contract's validity in every case

   Explanation. Section 21 treats a mistake as to a law not in force in India (i.e., a foreign law) the same way as a mistake of fact, since a party cannot reasonably be expected to know every other country's laws.

6. A sells a horse by auction to B, knowing it is unsound, and says nothing. Under Section 17, Illustration (a), this is:

   • Fraud
   • Not fraud (correct answer)
   • Coercion
   • Undue influence

   Explanation. Mere silence is not fraud unless there is a duty to speak or the silence is equal to speech.

7. Under Section 19, a party whose consent was caused by fraud may:

   • Only avoid the contract
   • Avoid the contract, or insist on performance and be put in the position as if the representation were true (correct answer)
   • Only claim damages
   • Do nothing

   Explanation. Section 19 gives both options.

8. Under the Explanation to Section 20, an erroneous opinion as to the value of the subject-matter is:

   • A mistake of fact making the agreement void
   • Not deemed a mistake as to a matter of fact (correct answer)
   • A mistake of law
   • Fraud

   Explanation. The Explanation excludes wrong opinions on value from mistake of fact.

9. A agrees to buy a horse from B. Unknown to both, the horse was dead at the time. The agreement is:

   • Voidable
   • Void (correct answer)
   • Valid
   • Illegal

   Explanation. Section 20, Illustration (b): both parties under a mistake as to a matter of fact essential to the agreement, so the agreement is void.