Reply To: Earnest money is part of purchase price when transactions move on and is forfeited when contract is breached by failure on part of vendee

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advtanmoy
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When consent of any of the parties to a contract is caused by fraud ->

When consent of any of the parties to a contract is caused by fraud, mis-representation or mistake etc., it is not a free consent and under Section 19 of the Indian Contract Act such an agreement is a contract voidable at the option of the party whose consent was so caused or obtained. A party to a contract whose consent was so caused by fraud or mis-representation or mistake, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true. In India, statutorily, therefore, the effect of fraud, mis-representation or mistake in any contract is to render the contract voidable at the instance of the party against whom fraud, mis-representation or mistake is committed. The party entitled to set aside or avoid the contract has option to affirm it, if he thinks fit. If the party does not affirm, it has another choice of avoiding the contract. When voidable contract is said to be avoided it does not mean that the contract never existed, but it would mean that it ceased to exist from the moment of avoidance. In the case of suppression of true facts or disclosure of untrue facts or non-disclosure of material facts, it cannot be said that there is no consent at all from the other party acting on such representation, but it can be said that the other party would not have consented if he had the facts before him. Therefore, voidable transaction until it is avoided is valid, and the things done under such contract cannot afterwards be undone. In other words, when a voidable contract is voided by the party affected thereby, avoidance takes effect from the time it is avoided and not from the date of the transaction. This position of Law, which is statutorily accepted in India, is also accepted by the Supreme Court in the case of East India Commission Company v. Collector of Customs . The Supreme Court accepted the principle that mis-representation does not make a contract non-est, but it makes the contract only voidable and such right of voiding the contract must be exercised promptly and until it is so exercised, the contract is valid and things done under it cannot afterwards be undone. It, thus, becomes clear that when contract of employment is procured by the party by committing fraud or misrepresentation or by adopting fraudulent means, the transaction is voidable at the instance of other party and such a transaction can always be voided and from the date it is avoided it becomes ineffective or non-est. It follows therefrom that the other party is required to take some action to avoid the contract and transaction does not, ipso-facto become void ab-initio. The other party cannot be permitted to state that the transaction is null and void from its inception and that it is not required to be voided. A positive act of avoiding the contract is required from the other party, and therefore, in my opinion, when the contract of employment is vitiated by fraud, misrepresentation or mistake, it being a voidable transaction action is required to be taken to avoid it by the other party to the contract and so long as such action is not taken the transaction continues.