A party may avoid the contract when it has been led to conclude the contract by the other party's fraudulent representation, including language or practices, or fraudulent non-disclosure of circumstances which, according to reasonable commercial standards of fair dealing, the latter party should have disclosed.
1. Fraud and mistake
Avoidance of a contract by a party on the ground of fraud bears some resemblance to avoidance for a certain type of mistake. Fraud may be regarded as a special case of mistake caused by the other party. Fraud, like mistake, may involve either representations, whether express or implied, of false facts or non-disclosure of true facts.
2. Notion of fraud
The decisive distinction between fraud and mistake lies in the nature and purpose of the defrauding party’s representations or non-disclosure. What entitles the defrauded party to avoid the contract is the “fraudulent” representation or non-disclosure of relevant facts. Such conduct is fraudulent if it is intended to lead the other party into error and thereby to gain an advantage to the detriment of the other party. The reprehensible nature of fraud is such that it is a sufficient ground for avoidance without the need for the presence of the additional conditions laid down in Article 3.2.2 for the mistake to become relevant.
A mere “puff” in advertising or negotiations does not suffice.