Misrepresentation

Introduction

Misrepresentation occurs when a party makes a false statement of fact without intending to deceive, which induces another party to enter into a contract. Unlike fraud, misrepresentation is innocent and does not involve a willful intention to mislead. Contracts entered into by misrepresentation are voidable at the option of the aggrieved party.

Meaning / Definition

A representation is a statement of fact made by one party to another, before or at the time of the contract, to induce the other party to enter into the contract.

When a representation is wrongly made without intent to deceive, it is termed misrepresentation.

• Fraud vs Misrepresentation: If the false statement is made willfully to deceive, it is fraud; if made innocently, it is misrepresentation.

Modes or Types

Positive Assertion

• A person makes a positive statement of material facts, honestly believing it to be true, but it turns out to be false.
• Example: A sells a car claiming it runs 18 km/l, believing it to be true, but it actually runs 15 km/l.

Breach of Duty

• Under Section 18(2), misrepresentation arises from breach of duty, even without intent to deceive.
• Non-disclosure of material facts by a party bound to disclose can amount to misrepresentation.
• Example: Non-disclosure of prior serious ailments in a life insurance policy.
• Applicable in contracts of utmost good faith, e.g., banker-customer, landlord-tenant, insurance.

Inducing Mistake About Subject-Matter

• Misrepresentation occurs if a party, even innocently, leads the other to a mistake regarding the nature or quality of the subject-matter.

Essentials of Misrepresentation

1. Representation must be made innocently and honestly believing it to be true.
2. Must relate to material facts of the contract; opinions are not misrepresentation.
3. Representation must be untrue, but believed to be true by the maker.
4. Made to induce the other party to contract, and the other party acts upon it.
5. Must be addressed to the party misled; otherwise, it is not misrepresentation.

Effect of Misrepresentation

• Under Section 19, contracts induced by misrepresentation are voidable at the option of the aggrieved party.

Rights of the aggrieved party:

1. Rescind the contract if unable to discover the truth with ordinary diligence.
2. Accept the contract and insist on performance or claim damages.

Limitations: The right to rescind is lost if:

• The truth could have been discovered with ordinary diligence.
• Consent was not induced by misrepresentation.
• The party affirms the contract after learning the truth.
• A third party acquires rights in good faith for consideration.
• Restoration to original position is not possible.

Practical Example

• A sells a used car claiming it runs 18 km/l, believing it to be true. Buyer finds it runs 15 km/l.
• The buyer can rescind the contract or claim damages since the misrepresentation was innocent and induced consent.

Summary

• Misrepresentation is an innocent false statement of fact that induces another party to contract.
• Main types: positive assertion, breach of duty, inducing mistake about subject-matter.
• Essential elements: innocently made, material fact, untrue but believed true, induces other party, addressed to misled party.
• Contracts induced by misrepresentation are voidable under Section 19.
• Aggrieved party can rescind or accept the contract and claim damages.
• Right to rescind is lost if the truth could be discovered, consent not induced, contract affirmed, third party rights acquired, or restoration impossible.