Concept of Misrepresentation by Muskan Jain

Concept Of Misrepresentation

The word misrepresentation is originated/formed from 'representation' and thus we first need to understand the contractual meaning of representation. It is said that a representation is such a statement that generates entry into a contract but is not a part of a contract term. A representation is an explicit or implicit assertion that one contracting party makes to the other before or at the point of the contract. The illustration is that a seller of any product represented that there is no patent infringement on his product has been issued.

Misrepresentation includes the providing of inaccurate information by one party (or its agent) to the other before the contract is formed which induces them to enter into the contract. If a person makes a contract based on misrepresentation and has to face failure as a result, the contract may be cancelled or damages are sought.

It is a false statement of a material fact made by one party which affects the decision of the other party in relation to a contract. If  misrepresentation is found, the contract may be declared void and the affected party can claim damages depending on the case. It is voidable in nature and the burden of proving is on the person who alleges it. In such a dispute, the party making the misrepresentation is the defendant and the complainant becomes the aggrieved party.

Misrepresentation in contract law is particularly important in business dealings where large, high-frequency transactions occurs. Misrepresentations for the benefit and/or risk associated with an agreement can cause huge financial losses for companies and business.

Definition

Indian Contract Act, 1872 defines misrepresentation under  Section 18  which means:

• the 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;
• any breach of duty which, without an intent to deceive, gains an advantage of 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;
• 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.

Explanation 

Clause 1

Positive claim, i.e. a person's clear statement of truth that is not valid, although he considers it to be valid leads to misrepresentation. A false statement should be made innocently, with no intention to deceive. 

NOORUDEEN vs. UMAIRATHU BEEVI  is the example of where fraud and misrepresentation caused the transaction to be set aside. The defendant, who's the son of the plaintiff, had a document executed by the plaintiff which represented it as a hypothecation deed of the property of the plaintiff. In fact, the executed document was a sale deed of the plaintiff's property. The plaintiff was a blind man and the sale was for insufficient consideration. It was held that such a deed was properly set aside that was conducted through deceit and misrepresentation.

Clause 2

Normally, if a person does not act fairly to avoid possible harm to others, the duty of care is breached.

Breach of duty is defined in a very interesting case named  ORIENTAL BANK CORPORATION vs. JOHN FLEMING  where Judge observed that The second clause is probably intended to deal with all the cases referred in the courts of inquiry, and  unfortunately with cases of 'constructed fraud' where there is no intention of deceiving, but where the circumstances are such as to make the party who derives the benefit of the transaction equally accountable in effect as if it were acting on the grounds of fraud.

Clause 3

Such a mistake or wrongdoing can be due to a misunderstanding, or ignorance or omission etc. But an error is never  intentional, it is an innocent commandment. There’s an illustration to explain it - A bill of exchange in the form in which the company would not be liable was signed by two directors, a secretary, a treasurer and an agent of the business. He sold the bill to the bank. The corporation was held to have not been liable as a drawer. The decision continued on the basis that the directors, though operating within the authority's jurisdiction, had sold the bill as one for which the company was liable, but on which the company could not be held liable in respect of the manner in which it was drawn.

Types of Misrepresentation 

There are three types of misrepresentation present in the contract explained below :

> FRAUDULENT MISREPRESENTATION
Fraudulent misrepresentation will occur when a false representation is made and the party making the representation will be allowed to say that X knew it was false or reckless as to whether it was correct or incorrect — the lack of an accurate belief in its truth will be fraudulent.

> NEGLIGENT MISREPRESENTATION 

Negligent misrepresentation is one that has been made recklessly or with no reasonable grounds to    believe it is true. So unless the representative owed a obligation to the representee to be careful, this can not be accepted. The same above statement was given in the case DERRY vs. PEEK 

> INNOCENT MISREPRESENTATION 

The word innocent misrepresentation is used for misrepresentation where there is no dimension of fraud or negligence or where the representative has reasonable reason to belief.

Remedies Available for Misrepresentation 

As we know the contract made in misrepresentation is voidable and the party does not intentionally do so. So the remedies for misrepresentation are by keeping that in mind:

• Rescind: Rescind means cancelation. If the aggrieved party wishes he can cancel the contract and/or claim for damages. Rescission is defined by contract law as the unmaking of a contract between the parties. Rescission is transaction unwinding. This is done to bring the parties back to the position they were in before they entered into a contract (the status quo ante) wherever possible.
• Insist on the performance: The complainant may claim the first party that has misrepresented the object in the way it is directed before the contract.

Conclusion

Every Contract should be formed by valid agreement and the relevant proposal under section 2(e) of the Indian Contract Act, 1872 is to be made in relation to the consideration. Since the agreement is binding, however, certain contracts can still be terminated at the discretion of either party. This cancelation takes place when agreements are concluded on the basis of misrepresentation, coercion and fraud. Misrepresentation is voidable in nature and the burden of proving is the person who alleges it. The remedies for misrepresentation can be discovered in Section 19 , 65  and 66  of the Indian Contract Act, 1872.

About Author

Muskan Jain 

BBA.LLB (HONS)

FIMT, School of Law

GGSIP University, New Delhi

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