Misrepresentation under the Indian Contract Act, 1872

Misrepresentation under the Indian Contract Act, 1872

This article on ‘Misrepresentation under the Indian Contract Act‘ was written by Rishabh Tyagi an intern at Legal Upanishad.

Introduction

This article deals with the concept of a misrepresentation given under the Indian Contract Act, 1872. It talks about what types of misrepresentation are provided under the Act and how exactly an agreement is affected if the situation in a case pertains to the presence of such an element. In simple terms, misrepresentation in the legal sense means a statement made by a person while making an agreement that is believed and acted upon by the other. One important quality of such a statement is that it is in actuality untrue but the person making it does not possess the knowledge regarding its false nature.

Provisions Under the Indian Contract Act, of 1872

On a chronological read of the Indian Contract Act, of 1872, it can be seen that the first mention of this concept is under Section 14. This Section states that if there is a misrepresentation then the consent would not be free which is one of the prerequisites (given under Section 10) of a valid contract. The meaning and types of this concept are given in Section 18. The falsity/untrueness of the material fact relevant in relation to the disputed contract calls for a case of misrepresentation.

The presence of this factor makes the contract voidable as stated under Section 19 and the party whose decision was so induced by such fact has the option to rescind the contract or continue its performance.

Types of Misrepresentation

  1. Unwarranted Statements

When a fact is averred by a person to be true but contrary to his knowledge that fact is not true, this would fall under the purview of misrepresentation.

In Oceanic Steam Navigation Co vs Soonderdas Dharamsey[1], the plaintiff claimed with conviction that the weight of the ship was less than 2800 tons. Defendant believed and charted the ship. Subsequently, it was found that the ship was more than 3000 tons. The Court held that the defendant was due to misrepresentation entitled to avoid the charter party.

Where a fact so misrepresented becomes an inherent term of the agreement, the plaintiff can also claim the damages. In Richview Construction Co vs Raspa[2], while the negotiations were going on for the sale of lambs, the seller represented lambs to be fully serviced. But this was not the case. So, the buyer was allowed to claim damages for the breach.

In Dick Bentley Production Ltd vs Harold Smith (Motors) Ltd[3], the buyer was allowed to get compensation as the seller of the car represented the odometer reading to be 20,000 miles which was untrue.

  1. Breach of Duty

The circumstances in this type of misrepresentation are such that the intention of the person making a representation is not to deceive but he/she is answerable to deceived party as if the case is of a fraud. It can be said that this falls under the cases involving constructive fraud.

In Khandu Charan Polley vs Chanchala Bhuinya[4], agents of a lady made her believe that the documents she was signing were nothing but formal matters but in reality, those documents were settlements in favour of the defendants. The Court held that the plaintiff believed the word of the agents and so it was essential for them to show the real intent of the document.

  1. Inducement of a mistake about the subject-matter

Causing a party to believe the very substance of the contract which is not true is another form of misrepresentation. The subject matter of an agreement is the focal point and it is supposed to possess value by the parties.

In Dambarudhar Behera vs the State of Orissa[5], a part of the forest land belonging to tenants was auctioned by the government. The purchaser was allowed to recover damages as the government had knowledge of the fact but didn’t disclose it. The contract was subject to misrepresentation.

In Farrand vs Lazarus[6], the dealer of pre-owned vehicles knew the mileage of the car but he didn’t disclose this fact to the purchaser. It was held by the Court that the dealer was under no obligation to state the defects of the wares he sold but, in this case, his concealment was grossly misleading.

Misrepresentation under the Indian Contract Act, 1872
Misrepresentation under the Indian Contract Act, 1872

Essentials Elements

The misrepresentation so caused shall be in relation to material facts of the agreement. In a case where the tenant was shown to be idealistic but in reality, his rent was due for a long time amounted to a material misrepresentation[7].

In Edgington vs Fitzmaurice, a company’s prospectus was muddled in regard to the use of borrowed money. It was contended on part of the directors that the usage of money could change with the circumstances and thus, the change of mind should not be considered misrepresentation. But the Court held that misrepresentation in relation to a man’s state of mind is a misstatement of fact.

Further, it is necessary that the misrepresented fact should be the factor for the formation of the consent of the party.  This has been explicitly stated in the explanation given in Section 19. If the consent does not waver then the plaintiff can’t avoid the contract based on this rationale.

Conclusion

To a layman fraud and misrepresentation might seem the same but there is a subtle difference between both. There is a presence of intention in the former but in the latter, the person making such a statement himself believes it to be true.

However, if the representation is false in respect of the law, that would not allow the plaintiff to get a remedy. Also, the plaintiff must do appropriate due diligence as it is stated under Section 19 that via ordinary means truth could have been found then the contract would not be voidable and the plaintiff would have no remedy. All these factors must be kept in mind as misrepresentation may cause in certain cases huge losses in the business transactions to the plaintiffs.

References


  • [1] Oceanic Steam Navigation Co vs Soonderdas Dharamsey, ILR (1890) 14 Bom 241.
  • [2] Richview Construction Co vs Raspa, (1975) 11 Ont CA (2d) 377.
  • [3] Dick Bentley Production Ltd vs Harold Smith (Motors) Ltd, (1965) 1 WLR 623.
  • [4] Khandu Charan Polley vs Chanchala Bhuinya, AIR 2003 Cal 213.
  • [5] Dambarudhar Behera vs the State of Orissa, AIR 1980 Ori 188.
  • [6] Farrand vs Lazarus, (2002) 2 All ER 175 (QBD).
  • [7] Smith vs Land & House Property Corpn, (1884) LR 28 Ch D 7 (CA).
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