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Circumstances where a contract is not voidable on grounds of misrepresentation

  • If the party could discover the truth with ordinary diligence then the contract is not avoidable at the option of the aggrieved party:

    Example: Y believed that the glue sold by him is fit for industrial use. X contracted to purchase glue from Y and X was allowed the opportunity to open the drums and examine the glue. X opted not to do the same. Later on after the delivery of goods to X’s warehouse he discovered that the glue did not fit his purpose and thus he wanted to rescind the contract. Here X cannot rescind the contract as the truth was discoverable by ordinary diligence.

  • The party has entered into a contract in ignorance of misrepresentation:

    Example: A bought shares in a Company on the faith of a prospectus that contained an untrue statement as to the directorship of B. A had never heard of B and hence such a statement was immaterial from his view point. A claimed damages on the ground that fraud was committed. His claim for damage was dismissed on the ground that there was no fraud.

  • By lapse of time: After the misrepresentation is discovered by the aggrieved party, the contract must be rescinded within a reasonable time. But if the contract is not rescinded within the reasonable time, then the right to rescind is lost. The ‘reasonable time’ is an important factor which depends upon the facts and circumstances of each case.
  • By affirmation: Sometimes, after becoming aware of the right to rescind, the aggrieved party affirms the contract. In such cases, he loses the right to rescind the contract. The affirmation may be expressed or implied.
  • When a third party acquires right in the subject matter: Sometimes, a third party may acquire the right in the subject matter of the contract, in good faith, without any knowledge of misrepresentation between the other two parties and the third party pays the due consideration for acquiring the rights. If such third party sells or pawns the article, in such cases, the aggrieved party loses the right to rescind the contract.
  • No restoration: Where the parties cannot be restored to their original position.

Note: Where the subject matter of the contract has been destroyed or consumed, the contract must be rescinded in total. A part of the contract cannot be rescinded.

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