Misrepresentation

Definition: When a person makes a representation on the belief that the statement is true, amounts to innocent misrepresentation. It is a positive declaration made by one party, while entering into the contract which is not actually true, but the parties hold that it is true, as regards a material fact which can influence the decision of another party to the contract, is a misrepresentation.

Further, Misrepresentation is a result of:

• Positive false statement made innocently in the absence of accurate information.
• Breach of duty having no intention to deceive results in benefits accruing to the party who made the statement.
• Statement induces the other party to make mistake as to the subject under consideration.

To make a valid contract, the parties must agree with free consent, i.e. their consent must not be influenced by coercion, undue influence, fraud, and misrepresentation.

Kinds of Misrepresentation

Basically, there are three kinds of misrepresentation:

1. Negligent Misrepresentation: As the term, itself signifies, negligent misrepresentation occurs when there is the absence of any reasonable ground and negligence. It happens when a duty is assigned to the representative by the representee, to be performed attentively and liability arises when the representative fails to perform the duty appropriately.
2. Fraudulent Misrepresentation: Also known as fraud, it is when a party makes a false statement knowingly and wilfully, with an intention to make the other party believe and act upon it, and gain advantages from the contract entered into.
3. Innocent Misrepresentation: When the representation is made in good faith, believing it as true as well as neither it was an act of negligence nor made with a fraudulent intention. Such is the case of innocent misrepresentation. Further, the aggrieved party has the right to cancel the contract, but cannot claim damages for the loss suffered. Also, the contract will not be void, except if reasonable grounds are provided. And for that, the aggrieved party has to prove the fact.

Broadly speaking, the term Misrepresentation refers to an innocent misrepresentation made by one of the parties unknowingly, that comes out as false.

Examples of Misrepresentation

1. Suppose A and B enter into a contract, wherein A sells his father’s car to B saying that it was purchased from Korea, for Rs. 5 lakhs. Here, A himself has no idea that the car was purchased from Germany. In this case, the statement made by A was untrue but innocent. This will constitute misrepresentation.
2. Mr. X enters into a contract with Mr. Y in which Mr. X promised to sell 10 Quintal high-quality wheat to Mr. Y, which X believed to be in stock in his godown. Y transferred money to X, but on the day of delivery X came to know that the last stock of high-quality wheat was already sold and delivered to another party last week itself. This will also amount to misrepresentation.

Essential Elements of Misrepresentation

To avoid the contract, the aggrieved party is required to prove that:

• Representation of facts has been made by a party innocently which are false.
• Representation is made prior to the completion of the contract.
• Representation influenced the aggrieved party to join the contract.
• Representation was associated with a material fact
• Representation was made with an honest belief that it is true
• Representation was reasonable praise.

Effect of Misrepresentation

Consequently, the misinformed party has the option to avoid the contract, but he/she cannot claim damages from the other party in ordinary circumstances.

Therefore, the contract remains voidable at the option of the party whose consent was not free, i.e. the aggrieved party who acted upon the false fact thinking that it is true while it was not. So, the party can rescind the contract within a reasonable time.

Also, the party can accept the contract, provided the aggrieved party should be put in a position where he would have been in case the representation was true.

When damages are available?

The cases in which damages are available to the aggrieved party are:

• When the company’s promoter or director makes an honest representation in the prospectus and invites people to subscribe to the company’s share, in such a case damages will be available from the director or promoter.
• When there is a breach of warranty of authority by the agent, then the damages will be available to the aggrieved party.
• When a person is barred from refusing a statement made by him, where the positive declaration is made with an intention to make the other party rely and act upon it and the same happened, and then damages are suffered by the other party, then such a person will be liable for the damages but only at the discretion of the Court.
• When negligent representation made by a party to the contract, wherein the two parties share a confidential relationship (Client and Lawyer, Doctor and Patient, etc.), then also the damages will be available to the aggrieved.

A Word From Business Jargons

When a false statement of fact made by one of the parties to the contract innocently and unintentionally, it is a misrepresentation.