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CMA Foundation · Fundamentals of Business Laws and Business Communication · Capacity of Parties, Free Consent

Meera, in Pune, is told by Dinesh that a flat is free from encumbrance. Dinesh knows it is mortgaged and says this to deceive her. Meera buys the flat and later learns of the mortgage. Which course is open to Meera under Section 19?

Meera may either avoid the contract or insist that it be performed and be put in the position she would have been in had the representation been true, for example by having the mortgage redeemed. Section 19 gives the defrauded party this choice.

  1. AShe may only rescind the contract; she cannot insist on performance
  2. BShe may either avoid the contract or insist on its performance and be put in the position as if the representation had been trueCorrect
  3. CShe must perform the contract because fraud makes it void only for Dinesh
  4. DThe contract is automatically void and neither party may act on it

Explanation

Section 19 makes a contract caused by fraud voidable at the option of the deceived party. That party may instead insist on performance and be put in the position as if the representation had been true, as in the illustration of the unencumbered estate. So Meera may avoid the contract or insist that the mortgage be redeemed.

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