5. Fraud, Misrepresentation and Mistake
The last post covered coercion and undue influence — consent obtained through pressure or a dominated will. This post covers the remaining three ways Section 14 lets consent fail: fraud, misrepresentation, and mistake. All three are about false or absent understanding rather than pressure, but the law treats them very differently from each other.
Fraud — Section 17
Section 17 defines fraud as any of five specific acts, committed by a party (or their agent, or with their connivance) with intent to deceive: asserting something as fact that the person doesn't believe to be true; actively concealing a fact one has knowledge of; making a promise without any intention of performing it; any other act fitted to deceive; or any act the law specially declares fraudulent. Mere silence about facts that might affect the other party's willingness to contract is not fraud — unless the person has a duty to speak (for example, in a fiduciary relationship), or unless staying silent is itself equivalent to actively speaking.
Derry v. Peek, (1889) 14 App Cas 337 (HL) — Directors of a company honestly, but mistakenly, believed they had authority to run trams by steam power and stated so in a prospectus; they turned out to be wrong. The House of Lords held there was no fraud — fraud requires knowing the statement is false, or making it without belief in its truth, or being reckless as to whether it's true. Honest belief, even if careless, is not fraud. The case is the classic line drawn between fraud and merely careless misrepresentation.
Misrepresentation — Section 18
Misrepresentation covers the same territory as fraud minus the dishonest intent: a positive assertion of something untrue, made without proper grounds but honestly believed true; a breach of duty that gives an advantage without meaning to deceive; or innocently causing the other party to be mistaken about the subject matter of the agreement. The dividing line from Derry v. Peek is exactly this — an honest but mistaken statement is misrepresentation, not fraud.
- Both fraud and misrepresentation make the contract voidable at the option of the deceived party (Section 19)
- Proviso to Section 19: if the deceived party had the means to discover the truth with ordinary diligence, misrepresentation (and silent, non-active fraud) will not make the contract voidable — but this proviso does not protect a party guilty of active fraud
- Fraud needs dishonest intent (knowledge of falsity, or recklessness); misrepresentation is an honest, if mistaken, statement
Mistake — Sections 20, 21 and 22
Mistake is treated differently again, and the key line is between mistake shared by both parties and mistake held by only one.
Bilateral mistake of fact (Section 20): where both parties are mistaken about a matter of fact essential to the agreement, the agreement is void — there was never a real meeting of minds in the first place.
Raffles v. Wichelhaus, (1864) 2 H & C 906 — A contract was made for cotton to arrive on a ship called Peerless sailing from Bombay. There were, in fact, two different ships both named Peerless sailing from Bombay at different times, and each party had a different ship in mind. The court held there was no real agreement — the parties were never actually thinking of the same subject matter, so the contract was void.
Unilateral mistake of fact (Section 22): a contract is not voidable merely because one party was mistaken about a fact — the law generally leaves each party to take reasonable care of their own interests, unless the other party's fraud or misrepresentation actually caused that mistake.
Mistake of law (Section 21): a mistake about the law in force in India generally has no effect on a contract — "ignorance of the law is no excuse" applies here just as it does in criminal law. A mistake about a foreign law, however, is treated the same as a mistake of fact, since a person cannot reasonably be expected to know every other country's law.
Fraud vs. Misrepresentation vs. Mistake — At a Glance
| Aspect | Fraud (Sec. 17) | Misrepresentation (Sec. 18) | Mistake (Sec. 20–22) |
|---|---|---|---|
| Intent | Dishonest — knows or is reckless as to falsity | Honest, but mistaken | No representation by either party at all |
| Effect (bilateral) | Voidable (Sec. 19) | Voidable (Sec. 19) | Void (Sec. 20) |
| "Ordinary diligence" defence | Not available if fraud is active | Available (proviso to Sec. 19) | Not applicable |
| Leading case | Derry v. Peek | Derry v. Peek (contrast) | Raffles v. Wichelhaus |
A Practical Example
C offers to sell D a painting which C knows is a good copy of a well-known master's work. D, thinking the painting is an original — and assuming C must be unaware of this — immediately accepts. Does a valid contract result? Applying Section 22: this is a unilateral mistake by D alone, and C made no false statement and did nothing to induce D's mistaken belief — C simply stayed silent about a fact he wasn't under a duty to disclose (there was no fiduciary relationship, and this isn't a case where silence equals speech). The contract is not voidable merely because D happened to be mistaken; D bore the risk of forming his own incorrect assumption.
Quick Revision Points
- Fraud (Sec. 17): five specific dishonest acts, done with intent to deceive; mere silence is not fraud unless there's a duty to speak
- Misrepresentation (Sec. 18): an honest but false statement, breach of duty without intent to deceive, or innocently causing a mistake about the subject matter
- Derry v. Peek draws the line: fraud needs knowledge of falsity or recklessness; an honest mistaken belief is misrepresentation, not fraud
- Both fraud and misrepresentation make a contract voidable (Sec. 19); the "ordinary diligence" defence protects a misrepresenting party but not an actively fraudulent one
- Bilateral mistake of fact essential to the agreement makes it void (Sec. 20) — Raffles v. Wichelhaus. Unilateral mistake generally does not (Sec. 22). Mistake of Indian law has no effect (Sec. 21); mistake of foreign law is treated as mistake of fact
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