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Fraud or misrepresentation in the real estate contract.

Case study under The Contract Act, 1872.

1. PROBLEM STATEMENT

The Contract Law Act 1872, law section 17 and section 18 concerning real estate
contracts depends on honesty and fairness. One of the worst problems for any agreement
is fraud and misrepresentation. Where one party frauded or misrepresented by another
through providing false information making the contract void. This is a violation of trust
between the parties. This is disappointing for the party who was tricked and could
possibly make the entire contract unused. Fraud business of real estate can have
disastrous effects on victim finances as well as legal consequences.

Financial Challenges Fraud and misrepresentation in a real estate business contract can be
a significant financial disaster. Due to this fraudulent and misrepresentation, a buyer may
face financial problems in various aspects. For this the buyer may lose all his capital
thereby facing a huge financial problem. Due to such unethical practices, the investor
loses his confidence in the market and many doubts prevent him from investing anywhere
in the future. And taking these civil cases to court costs a good family of money to hire a
lawyer and it puts a burden on our judicial system, and so many of these types of
incidents put together have a huge impact on our economy.

Insolvency and uncertainty has become a very important problem in the real estate
business. Due to this lack of clarity buyers face various problems while buying property.
This lack of information is sometimes purposefully used by a seller to hide many details
about his property from the buyer. To effectively handle fraud and misrepresentation in
the real estate business, there are two sections under The Contract Act 1872 that section
17 and 18 which tells about fraud and misrepresentation. The implementation of law must
be important to bring transparency in real estate business. The implementation of law
must be important to bring transparency in real estate business.

2. RESEARCH QUESTION
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Here are some questions we were trying to find out in our research.

- How effective are the existing laws preventing fraud and misrepresentation?

- What are the legal consequences of fraud and misrepresentation?

- What are the legal requirements for sellers to buyers to prevent fraud or
misrepresentation?

- How have technological advancements impacted the potential for fraud or

misrepresentation in real estate transactions?

3. RESEARCH OBJECTIVE

The main objective of our research is bringing the focus onto all parties in honest,
transparent real estate business. The entire site of a real-estate market is well qualified to
keep notice and balances over buyers and sellers while protecting The Contract Act
1872 , Sections 17 and section 18. Developing strong legal structures that can identify
and reduce fraud and misrepresentation on real estate contracts is the objective of this
problem research. Appropriately handles fraud and misrepresentation in the application
of such laws, processes, or actions According to Sections 17–18 of the Contract Act of
1872, an accurate assessment is required. The implementation of law enforcement must
be important to bring transparency to real estate fraud and misrepresentation.

The research objective examines sections relevant to The Contract Act 1872 that define
patterns of fraud as well as misrepresentation in real estate contracts. Studying case law
to determine how the courts have used this rule as a deciding element in Previous
situations from fraud or misrepresentation. The critical monitoring of suitability and
usefulness of The Contract Act 1872 in view to address, and prevent fraud and
misrepresentation in real estate development contracts. We can identify the gaps and
limitations in current legal or frameworks for laws that enable such unethical practices.
The actual cases of fraud and misrepresentation in real estate would be helpful in
identifying patterns and difficulties, as potential case areas of development. Recommend
amendments to The Contract Act 1872 or associated regulation that would better prevent
fraud and misrepresentation.
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4. METHODOLOGY:

For leading this research under section 17 and 18 of the contract act 1872, we adopted
both qualitative and quantitative approaches. It was a mixed approach and a combination
of various methods.
Firstly, we conducted some interviews with consumers, developers, and landowners.
Secondly, we did some case studies, articles, books and documents analysis. We
collected some real life cases and analyzed legal documents including the contract act
1872 under section 17 and 18 .Thirdly ,we entered the field and did some fieldwork. We
selected those people who are falling for fraud in the real estate business. We
communicated with them orally, including face-to face and phone calls and we asked
some open-ended questions to clarify information to understand what type of problem
they had been faced with or struggled with. If needed, we asked for help from one of our
relatives who are involved in the real estate business and one of the legal experts to
clarify things so that we can understand the whole thing. It was very difficult to collect
real life case related information. Finally, we asked questions and observed their response
and kept notes of their replies. Lastly, we sort out some common ways and patterns to do
the work which will help us to complete our task.

5. LITERATURE REVIEW:
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Here are some articles regarding our topic

From an article by Elena Kushnareva, we get some idea about fraud or misrepresentation
in real estate business under section 17 contract act 1872. This following article describes
when any person enters into a contract to buy or sell his property, what type of problem is
being created when fraud or misrepresentation occurs in real estate business and why
fraud occurs in real estate business.[1] Fraud or misrepresentation a violation of contract
act 1872, fraud refers whenever any unlawful act or illegal activity conducted in
connection with the buying, selling ,or renting property which can include
misrepresentation of property value ,falsifying documents, deceptive practices of the
other which is under section 17 and 18 in contract act 1872. In our constitution, according
to this contract act 1872, more than 12000 fraud cases against a number of real estate and
housing companies sued for plot and flat related deceptions are pending in Dhaka Court
in Bangladesh. Another article which is written by Md. Mahmudul Hasan Razib,the test
method of land in Bangladesh, here he explains that many land disputes are being created
due to improper title testing methods as well as the importance of verifying documents
before entering any agreement of property dealing to ensure rightful ownership.[2] If we
see most recent cases of fraud in real estate business that are suited in the court because
of properties being sold without owners knowledge or consent. If we see the rapid
growing crime in Australia of fraud in real estate business which costs the economy in
excess of one billion dollar every year .In Australia 2010 and 2011 ,two cases are
involved in regarding this problem property was being sold out without the knowledge or
consent of owner ,three agent will be dealing beyond sitting of the other country of the
world . In case of selling or buying any property a person must have to test the title or
other documents because one property can be sold at a time to more than one person and
this kind of fraud is usually executed by fraudsters' contract agents. It is very necessary to
know about fraud or misrepresentation in real estate business in our daily life. In the real
estate business ,investors have to pay a large amount of money. By knowing fraud ,it
helps investors to save their money from schemes which result in financial losses,it
maintains trust between parties which involve buyers, sellers, or agents of the property in
the real estate business. Fraud in real estate business causes damage to a person's
reputation or companies' reputation ,awareness of fraudulent activities helps a person to
protect his reputation. We find a case study before the established contract act 1872 ,
wood v carpenter, us supreme court. In the first suit against the plaintiff in 1812, the
plaintiff showed the falsifying value of the property to sell his property to the
defendant. After buying this property the defendant discovered that the proper value was
completely lower than the value shown by the plaintiff .So he sued against the plaintiff.
In 1879, The court appealed that against the plaintiff he was liable to misrepresent the
actual value of the property under contract act 1872. And he has to pay the compensation
of the damages.[3]
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Another article by Carol R Goforth, explains about void contracts of fraud or

misrepresentation in real estate business. A couple bought a house from a developer who
is hiding some problems with the house which is affecting the value of the house. If they
want to sell the house including certain problems it creates big financial losses.[5] If the
parties can breach of the contract, the contract would be void because of
misrepresentation or hiding of the certain problem of the house and the developer would
be liable for the compensation of the damage under section 19(A). A case study is
another example of following this article, there is a famous case Stambovsky v Ackley in
1991 in Supreme Court, the defendant want to brought a house from the plaintiff without
knowing about the haunted image of the property enter into a contract, but after that he
known to all haunted image of the property and want to breach the contract because it
could be affect the value of the house.[4] The court appealed that it is very important to
provide all information or data of the property that could affect the customer’s decision
making process. The court decided that the buyer should be made aware of the haunted
image, it could impact on the property’s market value that why it is a void contract, the
defendant could breach the contract and the plaintiff would have been liable for the
damages .
In the USA , fraud in real estate business prosecuted by state law and federal law such
law the federal housing administration (FHA)and the truth in lending act (TLA), false
claim act, Real estate settlement procedure act (RESPA).In Bangladesh ,fraud in real
estate business prosecuted by contract act 1872 under section 17 and 18 and remedy of
that crime is described in under section 19.
In comparison in USA and Bangladesh acts of fraud or misrepresentation in real estate
business, there are several acts mentioned for fraud in real estate in civil law in the USA
and there is one act mentioned for fraud in real estate business in civil law in Bangladesh.
After reviewing several articles we find that in all articles they explain about fraud in real
estate, how it occurs, affect the contract but they do not mention any prevention of fraud
in real estate business .

6. ANALYSIS:
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Our topic is research analysis of the Bangladesh contract law on fraud or

misrepresentation in real estate business. section 17 and 18 of the contract act states that
the amount of fraud and misrepresentation while one party enter to a contract with intent
to deceive another party and induce him to enter into a contract which is fraud and any
false document or statement made by one party to another party to make a contract is
known as representation. There is no valid contract which is led by fraud or
misrepresentation. We tried to discuss the validity of it and the problems we face.

In comparison, in USA and Bangladesh acts of fraud or misrepresentation in real estate

business, there are several acts mentioned for fraud in real estate in civil law in the USA
and there is one act mentioned for fraud in real estate business in civil law in Bangladesh.
After reviewing several articles we find that in all articles they explain about fraud in real
estate, how it occurs, affect and breach the contract but they do not mention any
prevention of fraud in real estate business . fraud or misrepresentation in the real estate
business is increasing day by day all over the world. The government should have
established strict rules or methods to prevent fraud in real estate business.

We analyzed some cases related to fraud and misrepresentation in contract law according
to The Contract Act, 1872.

First case we analyze is Bisset v Wilkinson - 1927, this is a contract law case from New
Zealand, In this case the claimant informed the defendant that the land being purchased
was capable of sustaining 2000 sheep. However, after the purchase the defendant
discovered that this was only possible if very careful land management was carried out,
and that the land as it stood could not sustain this number of sheep. The defendant
therefore sought to rescind the contract on the basis that the claimant's statement was a
misrepresentation.[6]

There is another case named Prudential insurance V Jefferson and Goldman, In this case
the defendant Goldman bought the Jefferson Building, a four-story office building in
Austin, the Plaintiff Prudential Insurance Company America in 1980.Over two years the
defendant discovered that the building contained asbestos fireproofing. The plaintiff sell
his property to the defendant without telling the condition of the building that’s why the
defendant sued against the plaintiff because of his misrepresentation of the condition of
the building The court appeal that it is a violation of contract under section 18,
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Misrepresentation of the conditions of the building and it affects the value of the building
he would be liable to pay of that damage under section 19A.[7]

There are many such cases in Bangladesh and we have found out some of them and we
have done our research on them and below we are mentioning the names of some cases.
Such as:
1. Md. Nurul Islam vs. Syeda Hasina Begum (62 DLR (AD) 2010)
2. Abdul Mannan vs. Md. Abdur Rashid (59 DLR (AD) 2007)
3. Md. Nurul Islam vs. Jahanara Begum (63 DLR (AD) 2011)
4. Shahidul Islam vs. Md. Shamsul Alam (62 DLR (AD) 2010)

7. SURVEY RESULT:
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From our survey, we collected some opinions about our research topic. First of all, the
victim of fraud can be a seller or buyer. About 70% of people think that our government
should establish some strict rules and penalties to prevent fraud in real estate business
under section 17 and 18 of the contract act 1872. In our survey we find that, majority of
the victims who are falling in fraud in real estate business, face a number of problems.
The victim loses their money which is a common issue, including down payment, closing
costs and even money wired in advance for bogus fees or deposits. The dangerous issue
regarding this problem is property ownership. In some cases, victims might not actually
own the property and the most difficult issue they face when fraudulent agreement is not
written, which is difficult to sue or recover damage. In fraudulent transactions, it leads to
a victim's anger, frustration and a sense of violation. 99% victims of fraud in real estate
experience a range of negative emotions because when any person is buying or selling a
home, significant financial and emotional investment is involved. Some victims blame
themselves because they were not careful when they were falling into fraud in the real
estate business and they complained about the legal process to recover their losses. It is a
lengthy process that feels like the process is stacked against them. Nowadays, most
people lose their trust from real estate business which creates a bad impact on real estate
business. They want to trust someone who is involved in a transaction but that trust was
violated . That’s why they can not maintain the trust in the real estate business now.
They feel insecure about this financial situation. They lost a large sum of money and they
also worry about their ability to find safe housing in future . Regarding this survey , we
find out that the Federal Trade Commission (FTC) works to prevent fraudulent ,
deceptive, and unfair business practices in Bangladesh .

8. RECOMMENDATIONS:
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After extensive research on this topic we can make some decisions or suggestions for
people which if they follow or adhere to it will make their future transactions of buying
or selling any property easier for them. There are many case examples in contract law
which if we follow in our real life we can avoid this problem. Here are some examples
that both a seller and a buyer should follow before buying or selling a property:

1. Before a seller sells his property, he should inform the buyer about all the details
about his property
2. The government should impose strict penalties on sellers to ensure that they do not
conceal any information about the property before selling it and that they do not
make misrepresentations.
3. Before buying a property, the buyer should check all the details and legal
documents of the property and then proceed to purchase the property.
4. Before purchasing a property, if the buyer has any doubts in his mind that
something is not going away, he can call a third party organization to inspect the
property.
5. We need to have a clear contract agreement that spells out everything, even what a
buyer and a seller must do and what penalties they can face if they don't.
6. Both parties should be warned in advance and explained in detail what each party
has to do and what they are responsible for and what problems they may face in
the contract.
7. The government should introduce regulations to cancel or suspend the license of
professionals who engage in these fraudulent activities in real estate
8. We should encourage professional develop ethical codes of conduct
9. The government should make the process easier for the victims so that they can
approach the court and file a case and get redressal easily.

9. CONCLUSION
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In conclusion, the comparative study of fraud or misrepresentation in real estate business

in Bangladesh reveals both similarities and different in their legal frameworks of fraud in
real estate business affect the economy system in real estate business because it can have
significant on people which can result in financial losses , person’s reputation ,emotional
distress and maintain trust.
Victims who fall in fraud in real estate business may lose their investments as well as
affecting their financial stability , maintain trust and well-being .Additionally, it can
erode trust in the real estate market and undermine confidence in property transactions,
impacting both individuals and the broader economy . Fraud or Misrepresentation in real
estate business occurs whenever any unlawful or illegal activity conducted in connection
with the buying, selling, or renting of property which can include misrepresentation of
property value, falsifying documents , deceptive practices aimed at obtaining financial
gain at expense to others.
Fraudulent activities can have devastating effects on buyers and sellers involved in
residential real estate transactions. Preventing and understanding the basics of fraud
claims is important for both parties to protect their interest and minimize the risk of
falling victim to fraud .when any person enter into a contract to buying or selling any
property they must have ensure the property’s title is clear and free from encumbrances
and verifying all identities and document of all parties who is involve to buying or selling
the property . a person must have visited the place before buying to see the condition and
existence and involve a legal expert to review the contract and agreement and check all
parties background including buyers, sellers, and agent and train employees or clients to
recognize and avoid common fraud schemes and utilize technology like blockchain for
transparent transactions and secure databases.

Reference:
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1. Konopelski, Victor, and Elena Kushnareva. "Real estate property as a subject of

fraud: features of legal identification." Legea și Viața 359.11-12 (2021): 35-Raziv,
Md Mahmudul Hasan. "Test Methods of Land in Bangladesh: An Overview."
BiLD Law Journal 3.2(2018): 82-99.

2. 35-Raziv, Md Mahmudul Hasan. "Test Methods of Land in Bangladesh: An

Overview." BiLD Law Journal 3.2 (2018): 82-99.

3. Wood v. Carpenter, 101 U.S. 135 (1879)

4. Stambovsky v. Ackley, 169 A.D.2d 254 (N.Y. App. Div. 1991)

5. Goforth v. Smith, 991 SW 2d 579 - Ark: Supreme Court 1999 - Google Scholar.
(n.d.). https://scholar.google.com/scholar_case?
case=2747792619428413076&q=Goforth,+Carol+R.&hl=en&as_sdt=2006
6. Wikipedia contributors. (2024, February 18). Bisset v Wilkinson. Wikipedia.

https://en.wikipedia.org/wiki/Bisset_v_Wilkinson

7. Prudential Insurance Company of America v. Jefferson Associates, Ltd. & F. B.

Goldman--Appeal from 126th District Court of Travis County. (n.d.). Justia Law.
https://law.justia.com/cases/texas/third-court-of-appeals/1992/5068.html

8. Prudential Insurance Co. of America v. Jefferson Associates, 896 SW 2d 156

(Tex. 1995).

9. “The Contract Act, 1872 | 17. “Fraud” Defined.”,“The Contract Act, 1872 | 18.
‘Misrepresentation’ Defined.”)
10. Gregory, Peter J. “Understanding Fraud Claims by Real Estate Buyers and
Sellers.” McConville Considine Cooman & Morin, P.C., 14 Aug. 2023