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MISREPRESENTATION UNDER CONTRACT LAW


  1. Introduction

  2. Indian Contract Act, 1872 & Misrepresentation

Indian Contract Act, 1872 is an Indian law made by the British under their rule in India. The Act is the statute on contract laws in India. It describes contract as an agreement enforceable by law. On the enactment of the act, it had 266 Sections and had a very wide scope.

  • General Principles of Law of Contract – Sections 01 to 75

  • Contract relating to Sale of Goods – Sections 76 to 123

  • Special Contracts- Indemnity, Guarantee, Bailment & Pledge and Agency- Sections 124 to 238

  • Contracts relating to Partnership – Sections 239 to 266


At present the Indian Contract Act may be divided into two parts:

  • Part 1: deals with the General Principles of Law of Contract Sections 1 to 75

  • Part 2: deals with Special kinds of Contracts such as

  1. Contract of Indemnity and Guarantee

  2. Contract of Bailment and Pledge

  3. Contract of Agency


In the legal aspect, we use Misrepresentation commonly in the law of torts. It is also mentioned in Section 18 of the Indian Contract Act,1872. It defines Misrepresentation as a “positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true” or “any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice or to the prejudice of any one claiming under him.” or “Causing, However innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.”. Misrepresentation literally means a statement made by a party which is false but is made without an intent to deceive the other party, I.e. The promiser(first party) believes that the statement is true. These definitions mentioned in the statute clearly states that the Statement should be made with no malicious intent.


1.2. Essentials of Misrepresentation

  • There must be a false representation of the fact.

  • The cause of the consent must be such a false representation.

  • The statement should be made with the intention to induce the other party to the agreement.

  • The statement must be made before the conclusion of the contract.

  • The statement should not be made to deceive the other party.


In Rickview Construction Co. v. Raspa, it has been held that when a contract is made by misrepresentation, the disadvantaged party man, not only avoid the contract but also sue for damages


Historical Perspective

The Principle of Misrepresentation in the ICA,1872 evolved from the English Law Concept of Misrepresentation. In English Contract law, misrepresentation is divided into

Fraudulent Misrepresentation- established when a person makes a false statement which he knows is not true and has no belief in its truth or which he makes recklessly not caring whether it is true or not.

Negligent Misrepresentation- established when a false statement is made by the person which the person may honestly believe to be true but with- out reasonable grounds for believing it to be true.


The last one of the three recognised types of misrepresentation is the innocent misrepresentation in which the representer believes that the statement is factual and he can demonstrate reasonable grounds for his belief in the truth of his statement. there is a special element unique for the innocent misrepresentation. If the misrepresentation made does not benefit the person who made it, or hurts both parties to the contract, it will not be considered a case of misrepresentation by the courts.


Later when The ICA was made in 1872 the Provision of Innocent Misrepresentation were induced into our law.

Related Legal Provisions


Misrepresentation is mentioned in Section 18 of the Indian Contract Act, 1872. Misrepresentation becomes a ground to make a contract voidable as mention in Section 19 of the ICA, 1872.

But this is not an absolute ground, for making a contract voidable:

  • If such a statement could have been found with ordinary diligence, then the contract is not voidable.

  • If such a statement does not cause the consent to contract on whom the statement was made.

The following case is an example of Misrepresentation:

# Derry v. Peek

In this case, the defendant owned a tramways company and they issued a notice stating that the company had received permissions for steam trams instead of the animal powered trams. But this statement was actually false and was still pending approval. But the defendants honestly believed that it would be approved and the process is just a formality. The plaintiff bought shares in the company believing the statement but the permission was not approved and hence the Defendant company had to wind up creating injury to the plaintiff. The court held that the Defendant company is not liable as they were honestly believing in the statement.

The burden of proof for the misrepresentation is always on the party alleging the misrepresentation.

Comparative Analysis

  1. Misrepresentation and Fraud

Fraud and Misrepresentation are two terms which has just a hairline difference. Both fraud and misrepresentation uses a false statement for making the other party enter the terms of a contract, but the difference is that, in fraud, the statement is deliberately made to deceive the party whereas in the case of misrepresentation, the statement is made in good faith and truly believing the statement to be true.


We can understand the statement with the help of illustrations:

  1. X sells, by auction, to Y, a car which X knows to be having an Engine complaint. X says that the car is of excellent condition with the knowledge of the complaint and with an intent of deceiving Y who purchases the car. X have committed Fraud.

  2. X sells, by auction, to Y, a car which X truly believes to be of excellent condition. X says that the car is of good condition with the same belief and Y purchases the car. Later, Y comes to know that it already had an engine complaint. Here, X had made a statement of misrepresentation

Effects of Misrepresentation

The Section 19 of the Indian Contract Act, when the consent to an agreement is caused by misrepresentation, the aggrieved party to the contract may insist that the contract shall be performed or avoid or rescind the contract.

In Long v. Lloyd (1958), the defendant sold his lorry to the plaintive by convincing falsely that it was in very good condition. The plaintive on his very first Johnny discovered serious defects but accepted the defendants offers to bear half the cost of repairs. The Laurie completely broke down on the next journey and the plaintiff claimed for the cancellation of the contract. But, it was held that the plaintiff had got known about the representation in the very first drive and he could have had backed out of the contract, but, he did not do it. Hence the Plaintiff could not claim for the damages.



Innocent Misrepresentation

Walker v. Boyle(1982), while selling his wife's house to the plaintiff, Walker, innocently represented that there were no dispute regarding the land boundary. It has been held that Walker was entitled get refund of his deposit. Misrepresentation results not only from misstatement of facts, but also from suppression of material facts as laid down in R v. Kylsant (1932).

In Babul v. R.A. Singh (1968), the father of the bride told her that the proposed bridegroom for her was a young man. Believing this statement by her father, the bride gave her consent to marry but actually ended up that the bridegroom was 60 years old. It was observed that it was the duty of the petitioners father to disclose to the petitioner that the respondent was a man of nearly 60 years old and that she might be free to give or withhold her consent to the marriage proposal. Therefore, the elements of fraud and misrepresentation was undoubtedly present in this case.

Conclusion

Misrepresentation means a false statement of fact. The consent of parties to a contract obtained by false statement to enter into a contract. The consent obtained by misrepresentation is not a free consent. A contract is voidable and the opinion of the party who entered the contract believing such a statement. Misrepresentation may include positive assertions but there must be a false representation of the fact. Such a statement of misrepresentation should be made with an intention to induce the other party and it must be made before the contract is concluded.



References

The Indian Contract Act, 1872 (Bare Act)

The textbook on The Law of Contracts & Specific Relief by Avtar Singh 7th Edition

https://content.sciendo.com/view/journals/iclr/16/2/article-p197.xml?language=en



Submitted By: Sidhardh Krishna R.



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