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CA Foundation · Business Laws · The Indian Contract Act, 1872

Deepa buys shares from Eshan after Eshan innocently tells her that the company has never missed a dividend. This is untrue, though Eshan honestly believed it. Deepa could have checked the company's published records easily. What is the position?

Deepa can avoid the contract for misrepresentation. Eshan's honest but false statement is an innocent misrepresentation, making the contract voidable. Under the Act, the fact that Deepa could have discovered the truth with ordinary diligence does not take away her right to rescind.

  1. ADeepa cannot avoid the contract as Eshan was honest
  2. BDeepa can claim damages only as Eshan acted fraudulently
  3. CDeepa can avoid the contract for misrepresentation, since ease of checking the truth does not deprive her of the remedyCorrect
  4. DThe contract is void under the Act

Explanation

An innocent false statement honestly believed true is misrepresentation, which makes the contract voidable. The Act says a party cannot be denied relief merely because they had the means of discovering the truth with ordinary diligence, except in the cases of fraud-free exceptions the Act specifies, such as a mistake of law. Thus Deepa may rescind. Eshan was not fraudulent, so option B is wrong.

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