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MBA-PM0051: Distinguish between fraud and misrepresentation.

Posted on: March 13, 2012

MBA-PM0051: Distinguish between fraud and misrepresentation.

Ans. Fraud -is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage. Fraud may also be made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading.

Misrepresentation – Means a false statement of fact made by one party to another party, which has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. Finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation.

Difference between fraud and misinterpretation:-

1. In misrepresentation the person making the false statement believes it to be true. In fraud the false statement is person who knows that it is false or he does not caret know whether it is true or false.

2. There is no intention to deceive the other party when there is misrepresentation of fact. The very purpose of the fraud is to deceive the other party to the contract.

3. Misrepresentation renders the contract voidable at the option of the party whose consent was obtained by misrepresentation. In the case of fraud the contract is voidable It also gives rise to an independent action in tort for damages.

4. Misrepresentation is not an offence under Indian penal code and hence not punishable. Fraud, In certain cases is a punishable offence under Indian penal code.

5. Generally, silence is not fraud except where there is a duty to speak or the relations between parties is fiduciary. Under no circumstances can silence be considered as misrepresentation.

6. The party complaining of misrepresentation can’t avoid the contract if he had the means to discover the truth with ordinary diligence. But in the case of fraud, the party making a false statement cannot say that the other party had the means to discover the truth with ordinary diligence.

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