Law Embracing ‘Misrepresentation’ In Contracts

Introduction

The importance of the term ‘misrepresentation’ can be inferred from the fact that “free consent” which is inevitable for an agreement to be enforceable under Section 14 of Indian Contract Act, 1872 is rendered negative if misrepresentation is proved. In other words, misrepresentation to any party in a contract so as to induce them for consent renders the contract void.

Section 18 of the Indian Contract Act, 1872 (the “Contract Act”) defines misrepresentation. This section is quoted below:

“Misrepresentation” means 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;

(2) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one 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.”

With regard to contract, the general principal is that if one party has induced the other to enter into a contract by misrepresentation, though innocently of any material fact specially within his own knowledge, the party misled can avoid the contract. The party who was induced by misrepresentation to enter into a contract, has two remedies open to him; (i) to elect to rescind the contract, or (ii) to seek enforcement of representation and insist upon being placed in the same position as if the contract was performed by claiming damages.”

Under Section 19 of the Contract Act, the right of rescission is available where consent is caused by misrepresentation.

Section 19 of the Contract Act provides for voidability of agreements without free consent. This section is quoted below:

“When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true.

Exception: If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.

Explanation: A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practiced, or to whom such misrepresentation was made, does not render a contract voidable.”

Illustration:

A, by a misrepresentation, leads B erroneously to believe that five hundred mounds of indigo are made annually at A’s factory. B examines the accounts of the factory, which show that only four hundred …