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Misrepresentation (Contract Law)


Misrepresentation (Contract Law)
Misrepresentation (Contract Law)

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Misrepresentation


Misrepresentation, akin to fraud, involves incorrect or false statements. However, it differs subtly yet significantly in that the inaccuracies or falsehoods are not made with the intention to deceive or defraud the other party.



Essentially, misrepresentation occurs innocently and honestly, with the party in question genuinely believing the information to be true.



According to Section 18 of the Act, cases of misrepresentation are classified into three distinct categories:



Positive Assertion of Untrue Information


(a) 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.



For instance, Raghuvir informs Krishna that Chowksy was poised to become the Managing Director of the recently promoted ABC Company, prompting Krishna to purchase shares in the company.



However, Chowksy never joined the company, and it was revealed that Raghuvir's information was hearsay rather than direct from Chowksy. Despite Raghuvir's belief in the information's veracity and his lack of intention to deceive Krishna, this constitutes misrepresentation.

 
 

Breach of Duty without Intent to Deceive


(b) Any Breach of Duty, which, without an Intention to Deceive, gives an Advantage to the Person Committing it (or any one Claiming under Him), by Misleading another to His Prejudice, or to the Prejudice of anyone Claiming under Him.



Innocent Mistake Leading to Misunderstanding 


(c) Causing, however, Innocently, a party to an Agreement to make a Mistake as to the Substance of a thing, which is the Subject Matter of the Agreement.



For example, Johnson agrees to purchase hops from Blanchard under the condition that no sulphur was used in their growth. Blanchard assures him that no sulphur was used, although it was later revealed that sulphur had been used on five out of the 300 acres.



Blanchard had simply forgotten this detail. The stipulation regarding the absence of sulphur was fundamental to the agreement, and its breach allowed for the contract's avoidance, despite being non-fraudulent.



Remedies


Remedies Available to the Party Subjected to Misrepresentation (Section 19)



The party who has been subjected to misrepresentation has the following two options to choose from:



(i) They can choose to avoid the performance of the contract as made; or

(ii) They can insist that the contract be performed, but with necessary adjustments made so that they would be in the same position as they would have been had the representation been true.

 
 

Fraud’ and ‘Misrepresentation’

Some key distinguishing features between ‘Fraud’ and ‘Misrepresentation’ are outlined below:



(i) In both cases, the contracts obtained are voidable, but only at the option of the aggrieved party. However, there is a slight yet significant difference in the remedies available to the aggrieved party. 



In cases of contracts obtained by fraud, the aggrieved party has the additional remedy of claiming damages, in addition to other remedies discussed earlier.



Generally, this additional remedy of claiming damages is not available in cases of contracts obtained through misrepresentation, except in certain exceptional cases such as breach of warranty of authority of an agent or negligent representation.



(ii) The second distinguishing feature lies in the presence or absence of the element of ‘intention to deceive’ the other party. False and untrue representation amounts to fraud only when made with the intention to deceive the other party into entering the contract or gaining some advantage.


Conversely, if the false representation is made innocently, without the intention to deceive, it constitutes misrepresentation.



(iii) Thirdly, only in cases of misrepresentation, the contract cannot be avoided if the party whose consent was obtained had the means of finding out the truth through ordinary diligence. However, this is not the case with fraud; contracts obtained through fraud can be avoided in all such instances.

 
 

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