Free consent is one of the most critical facets of a contract. It is critical to the contract that the parties agree to the same thing in the same sense, and the thing must be interpreted broadly to encompass the entire content of the agreement, whether it relates to the material, objects, money, or any other act or promise. If the parties are not ad idem on the subject matter they are negotiating, there is no actual agreement between them. There is no agreement when their minds are devoted to distinct objects or when they attach different meanings to the language they use. Generally implying, a misrepresentation is an untrue statement of a substantial fact made by one party that has an impact on the choice of the other party to enter into a contract. Misrepresentation refers to making a false statement about a fact that is relevant to the contract. A contract whose assent is obtained through deception is voidable at the discretion of the deceived party.
What is Misrepresentation
Misrepresentation is the fourth condition that prevents permission from being freely given. Consent obtained by the misrepresenting of facts cannot be considered free consent.
Section 18 of the Indian Contract Act, 1872 states Misrepresentation as and includes;
1. 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.
Section 18(1) requires that belief be not just reasonable, but also based on the best available facts.
B will be a director of a company that is about to be created, A learns from X. “B is going to be a director of the Company,” A tells M in order to persuade him to purchase shares. M behaves in this manner. This is misrepresentation on A’s part, even if he believed the statement was true and there was no attempt to deceive because the information came from X, not B, and was merely hearsay.
2. Any breach of duty which, without intent to deceive, gains an advantage to the person committing it, by misleading another to his prejudice or to the prejudice of anyone claiming under him.
3. 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.
In the Oceanic Steam Navigation Co. vs. Sunderdas Dhurumsey, (1890) 14 Bom. 241the defendants in Bombay rented a ship from the plaintiffs that they were completely unfamiliar with, which was characterized in the charter document and conveyed to them as having a tonnage register of no more than 2,800 tonnes. The registered tonnage turned out to be 3,045 tonnes. The defendants refused to accept the ship as a fulfillment of the charter party, and it was determined that they had the right to do so due to the erroneous tonnage statement.
1. Unwarranted Statements
Misrepresentation occurs when a person claims something is true despite the fact that his information does not support it, even if he thinks it to be true. When a person obtains information from a reliable source, his comment is said to be warranted by that person’s information. It should not be based solely on hearsay information. When a representation becomes a contract term and turns out to be false, the disadvantaged party may not only avoid the contract but also claim for breach of contract damages.
In J Evans & Son (Portsmouth) Ltd. vs Andrea Merzario Ltd, (1976) 1 WLR 1078, The plaintiff was told orally that his containers would be carried beneath the deck, but they were put on deck by mistake and lost. The defendant could not rely on a contract provision that limited his culpability to intentional wrongdoing to defend him. The written terms had been overshadowed by the oral assurance.
2. Breach Of Duty
A misrepresentation is any breach of duty that benefits the one who does it by deceiving the other to his detriment. This provision is most likely meant to cover all situations of constructive fraud, in which there is no intent to deceive but the circumstances are such that the party who benefits from the transaction is held equally accountable.
In Oriental Bank Corporation vs. John Fleming, ILR (1879) 3 Bom 242, Because the plaintiff did not have time to study the contents of a deed, he signed it under the belief that it only included formal topics already decided between them. The deed, on the other hand, included a release in the defendants’ favor. As a result, the plaintiff was granted permission to set aside the deed. According to the Court, the defendant had no legal or moral responsibility to reveal the terms of the deed.
3. Inducing Mistake About Subject Matter
Misrepresentation also includes inducing a party to an agreement to make a mistake about the content of the object that is the subject of the agreement. Every agreement’s subject matter is assumed to have a specific worth or quality by the parties. Misrepresentation occurs when one of the parties, however inadvertently, encourages the other to make a mistake about the nature or quality of the subject matter.
In DambarudharBeher vs. State of Orissa, AIR 1980 Ori 188, Certain forest coupes were auctioned off by the government. The renters inhabited a portion of the property. The Forest Service was aware of this but did not inform the buyer. The contract was deemed void due to misrepresentation. Damages for loss were permitted to be recovered by the buyer.
4. Suppression Of Vital Facts
Misrepresentation can also occur when important details about the contract and its subject matter are withheld. When it amounts to a violation of duty or causes the other party to make a mistake regarding the subject matter of the agreement, it is considered concealment or suppression.
In R. vs. Kylsant, (1932) 1 KB 442, The business’s prospectus indicated that dividends had been paid on a regular basis, giving the appearance that the company was profitable, whereas the fact was that the company had been losing money for several years and dividends could only be paid out of wartime earnings. The omission of this information was deemed a misrepresentation.
5. Material Facts
Misrepresentation of information relevant to the contract should be prohibited. Simple commendatory remarks, such as those made by businessmen regarding their goods, are insufficient to avert the contract. The fact is said to be material if it would affect the judgment of a reasonable person is deciding whether to enter into the contract and if so on what terms.
6. Expression Of Opinion
Even if the view turns out to be incorrect, a simple expression of opinion cannot be considered a misrepresentation of facts. However, in other situations, a declaration of view is deemed misrepresentation rather than an opinion. However, if both sides have equal access to the information, a statement of opinion by the one who knows the facts best often entails a declaration of material fact, because he implies that the known facts justify his position.
In Hotel de L’Europe Ltd. vs. Currie-Freyer, (1956) 3 MC 89 (Singapore CA), The court ruled that a claim made in an advertisement that the defendants were Europe’s finest cabaret performers was only a statement of opinion. The hotel that hired them based on the allegation was unable to terminate the contract due to deception.
7. Representation Of State Of Mind
A representation of the state of mind is also a misrepresentation of the fact. The parties’ purpose is crucial in contracting since it determines the formation and structure of all contracts. If the parties so agree, the sale can be unconditional with a guarantee attached, or it can be conditional and null and void as held in Bannerman vs. White, (1861) 10 CBNS 844.
Right Of The Party To A Contract Whose Consent Was Caused By Misrepresentation
A person whose assent is obtained via fraud or misrepresentation may insist that the contract be performed and that he be placed in the position that he would have been in if the representation made had been genuine, according to Section 19 of the Indian Contract Act, 1872.
Even if the consent was obtained through misrepresentation or silence that was fraudulent within the meaning of Section 17, the contract is not voidable if the party whose consent was obtained had the means to discover the truth with ordinary diligence.
A contract is not voidable because of deception that does not mislead. As a result, it is established that a fraud or misrepresentation that did not result in the assent of the person on whom the fraud or misrepresentation was perpetrated or to whom the deception was made does not constitute a contract voidable.
This rule’s fundamental concept is self-evident. If a false representation has not induced the person to whom it is made to act on it by entering into a contract, the falsity of the representation becomes immaterial. Such a person cannot claim to have been misled by a statement that did not lead him in the first place.
Section 19 of the Indian Contract Act, 1872 allows for remuneration in lieu of performance that would put the representee in the same situation as if the contract had been completed. Section 30 of the Special Relief Act of 1963 gives the court granting rescission the ability to compel compensation. The person who cancels the contract is likewise entitled to compensation to the degree that section 65 allows.
Contracts Uberrimae Fidei
Although some form of representation is required to avoid a contract becoming void due to deception or fraud, there are situations when a contract is defective due to the nondisclosure of important information. Contracts of utmost good faith are known as contracts uberrimae fidei.
One of the contracting parties is standing on the vantage point. He is legally obligated to reveal any information that is likely to affect the thinking of an ordinary reasonable man who is about to enter into a contract because he knows more about the contract’s subject matter than the other party.
When one of the parties has the responsibility to reveal all information within his knowledge to the other, the contract is said to be uberrimae fidei, and silence is regarded to be equivalent to speech. In such contracts, one of the parties is assumed to have access to means or knowledge that the other does not. Such contracts are distinguished by the fact that they are entered into between people in a specific connection and demand full transparency and the highest level of good faith.
difference between Misrepresentation And Fraud
The connection between fraud and misrepresentation has been studied as follows: Fraud as a cause of contract rescission refers to fraudulent misrepresentation, which is always a reason to rescind a contract induced by it unless it is a cause of recession only under specified circumstances when innocent misrepresentation occurs.
Fraud is the deliberate misrepresentation or concealing of facts with the goal of deceiving the other party. Fraud requires the purpose to deceive or convince the other party to engage in a contract.
Innocent misrepresentation is one made without the purpose to deceive the other party.
2. Belief Of The Fact
There are no intentions to mislead the other party under misrepresentation. The person making the false statement does not realize the assertion is false.
In fraud, there is a deliberate attempt to mislead the party. The person making the false assertion is well aware that the facts are false.
3. Suit For Damages
Misrepresentation is only a vitiating element in a contract. It simply renders the contract voidable at the request of the damaged party. Though the contract is voidable at the party’s discretion, there are no other remedies available, like the aggrieved party’s ability to sue for damages.
Fraud, in addition to being an avoiding factor in a contract, also gives rise to a separate tort action. Fraud that results in the contract being avoided gives rise to a case of action ex delito for damages.
4. Defense In Court
In the case of misrepresentation, the party who made the representation might argue that the aggrieved party lacked the resources to find out the truth.
The party who made the false statement cannot claim that the aggrieved party lacked the resources to uncover the truth.
A contract can contain a provision that restricts the remedies available to a party who has the right to bring a misrepresentation claim. For example, such a clause may limit the remedies available to those available for breach of contract, obviating the innocent party’s ability to terminate the contract. A contract may be deemed invalid and hence canceled if there has been a mistake. If there has been coercion or undue influence, the contract may be declared voidable and therefore canceled. When one party deceives the other through misrepresentation, the contract is voidable at the deceived party’s discretion.
J Evans and Son v Andrea, 2021. Lawteacher.net [online],
R V Kylsant (1932) 1 KB 442 – Advocatespedia, 2021. Advocatespedia.com [online].
This article has been written by Aathira Pillai, 4th year BLS LL.B student at Dr. D. Y. Patil College of Law.