Tuesday, October 09, 2007

Contract Act_Practical Problems_34

C with the intention of inducing D to enter into a contract with him, makes a statement to D, which is, in fact, untrue and thereby induces D to enter into the contract. What are D's rights, if the statement is made by C :

(i) knowing that it was untrue,
(ii) recklessly, without caring to know whether it was true or false,
(iii) in good faith but negligently,
(iv) in good faith and without negligence?

In the first two situations, i.e., where untrue statement has been made either knowingly or recklessly, it amounts to fraud and the rights of the party defrauded include not only rescission of the transaction but also a claim for damages. On the other hand, since in situations (iii) and (iv) mis-statement was made in good faith, i.e., innocently—without knowing it to be untrue, it amounts to misrepresentation. The effect in these cases shall be that D shall be entitled only to rescind the transaction. He cannot claim damages.

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