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Misrepresentation under the Indian Contract Act


A misrepresentation is a false statement of a material fact completed by one party which affects the other party's decision in related to a contract. If the misrepresentation is recognized, the contract can be declared void and depending on the condition, the unfavorably impacted party may seek damages. In such a contract argument, the party who made the misrepresentation becomes the defendant and the aggrieved party is the plaintiff.

Misrepresentation in contract law is mainly important in business dealing where huge contact occurs with high frequency. Misrepresentations of the value and/or jeopardy correlated with an agreement can cause huge financial losses to businesses and individuals while growing the risk of collaborative business ventures. Therefore, misrepresentation contract law is crucial to ensuring equality and diminishing the risk of entering into agreements between individuals and businesses.

Misrepresentation is defined under section 18 of the Indian Contract Act, 1872 which says, a misrepresentation is a form of a statement made foregoing to the contract being finished. There are two sorts of statements that can be performed before a contract is created, these will either: Form part of the contract and not form a part of the contract, therefore it becomes a representation.

Types of misrepresentation

There are 3 types of misrepresentation:
  1. Fraudulent Misrepresentation

    Fraudulent misrepresentation will happen when a false representation is formed and therefore the party making the representation let say X knew it was false or was irresponsible as to whether it was correct or incorrect- the shortage of a precise belief in its truth will present it as a fraudulent one. If an honestly believes the statement to be true it cannot be a fraudulent misrepresentation, negligence in creating a false statement won't result in fraud. However, if it can be shown that A suspected that the statement could be incorrect or wrong, but made no inquiries to check the situation, that will be enough. It will not be compulsory to prove a dishonest motive.

    An example of this is somewhere one party purposefully makes a statement that is false to the other party, with the intention of getting them to sign a contract. For instance, if an auto dealer lies about the accident history of a used vehicle, and you signal a contract because you thought the car was never in a mishap (but it was), then it might be measured as fraudulent misrepresentation.

    It's essential to keep in mind that almost every legal matter, including issues with fraudulent misrepresentation, depends on the facts and situation surrounding the case. No two cases are similar, so no matter how identical an earlier case is to your situation, stay in mind that the conclusion could be very different.
  2. Negligent Misrepresentation

    Negligent misrepresentation under the Misrepresentation Act 1967 (MA 1967) happened to where a declaration is formed by one contracting party to another negligently or without a reasonable argument for believing its fact. The examination is an impersonal one.

    There is no obligation to create fraud. If the innocent party can confirm the statement was false, it will be for the creator of the statement to establish that it reasonably believed in the truth of the statement (that is, the representation). A resolution for negligent misrepresentation stays at common law, however, its use in contractual situations has been significantly lessened as a result of Section 2(1) of the MA 1967.
  3. Innocent Misrepresentation

    Misrepresentation make completely without fault can be described as an innocent misrepresentation. If X is unable to point out it had objective grounds to believe its declaration was true the misrepresentation is going to be fraudulent or negligent.

Case law

Derry v peek (1889)

In the brochure released by the defendant company, it was stated that the company was allowable to use trams that were powered by steam, rather than by horses. In actuality, the company didn't hold such a right as this had to be approved by a Board of Trade. Gaining the approval for such a claim from the Board was measured as a formality in such conditions and the claim was put onward in the prospectus with this information in mind. However, the claim of the company for this right was later refused by the Board. The individuals who had purchased a stake in the business, upon reliance on the statement, brought a claim for dishonesty against the defendant's business later than it became liquidated.

The claim of the shareholders was canceled by the House of Lords. The court held that it was not confirmed by the shareholders that the director of the company was dishonest in his belief. The court defined fraudulent misrepresentation as a statement known to be false or a statement made recklessly or carelessly as to the truth of the statement. On this basis, the plaintiff could not claim against the defendant company for dishonesty.

Howard Marine & Dredging Co Ltd v A Ogden & Sons

The defendant, A, were civil engineering contractors who entered into negotiation with Howard for the employ of 2 ships to carry clay, not into sea. Throughout the negotiation, Ogden represented that the ships might carry 1600 tones, Ogden's representation which was based upon the consultation of an erroneous record. The precise capacity was significantly lower but a continued negotiation with no checking this figure.

The parties contracted on a charter party which included a clause that stated that the hiring party had examined the ships and that they were fit for reason. Six months later, gained more information on the truthful capacity and paid �20,000 for the hire but no more. Howard restricted the use of the barges and claimed for the residual hire charge amount. Ogden brought a counter-claim for damages.

The court permitted the appeal in part. It was created that there was no collateral warranty agreed between the parties earlier to the agreement of the parties. Moreover, the misrepresentation regarding the ability of the ship was considered a minor substance. Still, the court found Howard liable for a breach of duty under the Misrepresentation Act 1967. On this basis, the court was not necessary to consider the claim in tort law under Hedley Byrne v Heller & Partners [1964] AC 465.

Concept of misrepresentation
We need to understand the meaning of representation in terms of the contract. A representation is claimed to be such a statement that generates access into a contract but isn't a part of an expression of the contract.

Misrepresentation is about giving inaccurate information by one party (or their agent) to the opposite before the contract is formed which induces them to form the contract. If a person makes a contract in reliance on misrepresentation and has got to face loss as a result, they will revoke the contract or claim damages.

Unwarranted statement
A statement made not including any reasonable basis is an unwarranted statement. When a person makes a positive statement of a fact without any truthful source of information and believes that statement to be true, the act amounts to misrepresentation. When something is unwarranted it's not involving the provided circumstances. As an example, arguing the merits of someone's talent is one thing, but addressing them stupid is unwarranted.

Breach of duty
Once the equipment has been established in relation to the defendant we must find that the defendant has breached the duty. A breach of the duty of care occurs when one fails to realize his or her duty of worry to act wisely in some aspect. Usually, if a party doesn't act during a reasonable manner to stop foreseeable injuries to others, the duty of care is breached.

Breach of duty is defined in a very interesting case named Vaughn V. Menlove which it states that the defendant is found to possess overdue of the claimant and if he acts below the reasonable standard then a breach of duty would have been dedicated.
  • They may discover out the cause of the breach and try to remedy it;
  • They may argument that a breach has occurred;
  • They may dispute that there's an omission clause or other terms in the contract limiting their liability for the breach or they might dispute that there's a cause for his or her breach, or that the contract is invalid.

Case law

Vaughn V. Menlove

The defendant was warned that his haystacks posed a considerable risk of igniting and harmful Plaintiff's cottages. He unnoticed these warnings and kept the hay in place. The hay did ignite and damage Plaintiff's cottages, and Plaintiff brought suit for carelessness. The trial court instructed the jury that the issue was whether the fire was occasioned by gross negligence, and explained that Defendant was bound to act as a sensible man would have under the conditions.

The jury found for Plaintiff, but Defendant obtained a decision on the ground that the jury should have been instructed to find negligence merely if it found Defendant had not acted to the best of his own judgment.

The issue was the trial court acceptable in instructing the jury that whether or not Defendant had been negligent was to be evaluated from an objective point of view, not taking Defendant's thinker limitations into account.

This case rejects the argument that a Defendant's meticulous sensibilities or weaknesses should be taken into account in evaluating negligence claims. Rather, one must look only to whether one has acted as would a sensibly cautious person under a parallel situation.

Inducing mistake about misrepresentation
Inducing mistake about subject matter involves around mistake of fact. This happens when both the parties misunderstood one another leaving them at a junction. Such an illegal act or a mistake can be because of a fault in understanding, or ignorance or omission, etc. But a mistake isn't deliberate, it's an innocent commanding. These mistakes can either be unilateral or bilateral.

Unilateral mistake
A unilateral mistake is when merely one person to the contract is in a mistake. In such a case the contract won't be considered void. So Section 22 of the Act states that simply because one party was under a fault of fact the contract will not be voidable or void. Thus if merely one party has made a mistake of fact the contract remains a valid contract.
Still, there are some limitations to this. In certain conditions, even a unilateral mistake of truth can occur withdrawing or voidable agreement.

Type of unilateral mistake

There are three type of unilateral mistake:
  1. Mistake of price:

    One of the largest parts of common unilateral mistake examples occurs when one party is not on a similar page as the other regarding the price of an exact product or service. This is principally common in international contracts where currency conversions can complicate the process.

  2. Mistake of fact:

    This happens when one party is mistake on the specify facts set forth in contract. A bilateral mistake also mentioned to as a mutual or common mistake, occurs when both parties are misinformed about the facts. A fault if fact can cause to a requirement of voided contract.
  3. Mistake of value:

    This is often confused with the mistake of facts is really very differently. This happens when mistakes are based on judgment of something or someone's value. The worth of a product or service isn't fixed and other repeatedly charges.
Bilateral Mistake
Section 20 defines a bilateral mistake. Where both parties of a contract are under a mistake of fact necessary to the agreement, such a mistake in named a bilateral mistake. Here both the parties haven't allowable or given their consent in the same sense as per the meaning of consent. Considering there is a nonappearance of consent altogether the agreement is void.

On the other hand, to form an agreement void the mistake of fact should be about some vital fact that is essential during a contract. So if the mistake is about the presence of the subject matter or its title, superiority, price etc then it would be a void contract. But if the mistake is of something inconsequential, then the agreement is non-void and the contract will stay in place.

For example, X agrees to sell to B his goat. But at the point of the agreement, the goat had already died. Neither X nor B was aware of this. Therefore, there is no contract at all i.e. the contract is non-enforceable due to a mistake of fact.

Type of Bilateral mistake
Bilateral mistake can comprise two different type of mistake.
Subject matter mistake: both parties are misinformed about overall issue matter of the contract. This repeatedly leads to a void of the contact. Subject matter mistake can include title, quantity, quality, price, and identity mistake.

Possibility of performance mistake: both parties are mistake as to the aptitude of presentation capability. This will usually cause to a voided contract since it is impossible for minimum of one party to finish the terms of the contract. Impossibility of performance can be due to either physics or legal reasons.

Remedies of Misrepresentation
Rescind: Rescind means to cancel. When the aggrieved party wants he can argue for cancellation of the contract and/or damages. Below contract law, rescission is defined as the unmaking of a contract among the parties. Rescission is the unwinding of a contract. This is made to bring the parties, as far as probable, back to the place in which they were before they entered into a contract (the status quo ante).

Insist upon the performance: The aggrieved party can argue to the primary party who has committed misrepresentation to obtain the object within the manner which was before to the contract those they straight.

Its principal theory is that legal certainty requires a rationally clear delineation of the losses to be remedied by rescission and those by damages. Discretionary remedialism is to be deplored as is any propensity to treat rescission as a holistic remedy for misrepresentation. A contract is rescinded for misrepresentation because it would not have been entered into but for the misrepresentation.

This justifies only the cutting away of the contract itself and the restoration of the parties to the position they were in before contract so far as the contract is concerned.
Consequential losses should be remedied by damages, but under contract law that requires an autonomous justification. That justification could also be found in the law of torts during the actions of deceit and negligent misstatement.

The Misrepresentation Act 1967 doesn't offer a sound basis for the award of damages for misrepresentation and should in the main be repealed. The authority to declare a contract subsisting under section 2(2) where rescission would be excessive should be retained but there should be no damages awarded in lieu. The treatment of misrepresentation in other common law jurisdictions, particularly within the United States, will be considered, especially within the context of remedies for losses lying beyond rescission.

A coherent system of remedies should clearly define the work each remedy is to do. So rescission should be restricted to 'cutting away' the vitiated contract and should not be fashioned into a holistic remedy for misrepresentation.

Rescission should thus be joint with damages by allowing it in cases wherever the claimant wants specific (as opposed to monetary) relief. Damages should only be awarded in a case of misrepresentation where there has been a tort, i.e. where the defendant has been lying (the tort of deceit) or is in breach of a duty of care (the tort of negligent misstatement).

This is generally the position in the United States and in Australia. The Misrepresentation Act 1967 and the Misrepresentation Act (NI) 1967 should be repealed so far as they supply for a damages remedy beyond the torts of dishonesty and negligent misstatement.

Limitations available to remedies
A circumstance can be included in a contract that limits the remedies that will be obtainable wherever a party has the right to make a misrepresentation claim. For illustration, such a clause could limit the remedies to those obtainable for breach of contract- definitely without the right of the innocent party to revoke the contract.

Case law:
Long v Lloyd
The plaintiff was a transport contractor who saw an advert for the sale of a lorry which was described as in 'exceptional condition'. The plaintiff saw the motor vehicle the following day and the defendant affirmed that the lorry could drive at 40mph. and, during a trial drive; the defendant stated that the vehicle did 11 miles to the gallon. The plaintiff noticed defects on the vehicle and purchased the vehicle for a reduced price, paying half of the cost that day. Two days afterward, the plaintiffs herd the automobile and discovered serious issues and that the petrol tank was 8 miles to the gallon, rather than 11 and told the defendant. Subsequent this, the plaintiff permitted his brother to take the lorry on a business tour where it once more had broken down. The plaintiff brought an act to rescind the contract on the basis of innocent misrepresentation.

The court discarded the claim of the plaintiff. It was held that innocent misrepresentation permitted the plaintiff to rescind after the contract had been executed, other than that the plaintiff would lose such a right after the goods had been accepted. In sending the lorry on the business tour with his brother, the plaintiff had construed last acceptance of the vehicle and had consequently lost the right to rescind the agreement.

Leaf v International Galleries
The plaintiff purchased a image from the defendants who represented that it was painted by the artist, J. Constable. Five years afterward, the plaintiff tried to sell the image at an auction house and was told it had not been painted by the artist he had been told earlier. He subsequently returned the picture to the defendant who retained it for examination. The plaintiff brought an action to rescind the contract as the defendant had responded maintaining that the artist of the picture was J. Constable, despite the information that the plaintiff had been given by the auction house. The trial judge found in favour of the defendants, in spite of explaining that they had made an innocent misrepresentation regarding the artist of the painting, on the foundation that the contract had been executed.

The plaintiff's maintain had unsuccessful as a significant amount of time had lapsed between in agreement the contract and the window to rescind. The court found that the fault that was made about the painter of the art was fundamental but it was not harsh enough to make the contract void. On this basis the plaintiff's claim unsuccessful.

Representation of state of mind
Representation initiates and induces a contract. It is the information by which a contracting party decides whether to persist with the contract. A representation is an express or indirect statement that one party to the contract forms to the other previous to or at the point of the contract. It is entered with stare to earlier period or existing fact. An illustration might be that a seller of some commodity represents that no announcement of patent infringement had been received.
A representation originally can't be a part of a contract and a claim for damages due to a misrepresentation normally would not be allowed. Instead, a claim that a misrepresentation induced a contract might be pursued in scam, either to cancel the contract or for damages. In some cases, a claim might be based on the tort of negligent misrepresentation.

Consequences of Making a Misrepresentation

The consequences of misrepresentation are explained under the case of Bskyb V. EDS in this case. Judgment approved in the year 2010, that EDS had made fraudulent misrepresentations as to its ability to transport a project within a specific schedule and in a particular way that it had carried out a suitable investigation to enable it to make this statement. The judge also found that it was a consequence of these misrepresentations that BSkyB had been induced to enter into a contract with EDS. The damages that could be payable as an outcome have been determined at 200 million or more. There was a frontier of liability in the contract to 30 million but mutually parties have accepted that such a frontier is not effective to limit liability for fraudulent misrepresentation.

On the whole, by concluding the said factors we identify that, administer a contract void or voidable based upon the precise conditions of the case. If a contract is a void after that it can't be enforced by both of the parties, whereas if a contract is interpreted as voidable then although it's a valid contract it can be cancelled or revoked. Basically, whilst a void contract cannot be performed, a voidable contract can depend on either of the parties after they make a decision to cancel it. If there has been a misrepresentation or a mistake the contract could be declared void and consequently be abolished. If duress or undue influence has occurred, then the contract could be rendered voidable and thereby capable of being cancelled.

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