Wednesday, May 29, 2024

𝗝𝘂𝗱𝗶𝗰𝗶𝗮𝗹𝗗𝗿𝗲𝗮𝗺™

𝙰𝙵𝙵𝙾𝚁𝙳𝙰𝙱𝙻𝙴 & 𝙰𝙲𝙲𝙴𝚂𝚂𝙸𝙱𝙻𝙴

CONTRACTMODEL ANSWER

MISREPRESENTATION

Define “Misrepresentation” as per the Indian Contract Act 1872. Bring out the point of difference between fraud and misrepresentation.

As per Section 13 of the Indian Contract Act, Consent means when two or more persons agree upon the same thing in the same sense.
It is based on the Latin maxim “Consensus Ad Idem” which means Meeting of minds.

For example:- ‘A’ agrees to sell his house to ‘B’. ‘A’ owns three houses and wants to sell his house in Mumbai. ‘B’ thinks he is buying his Delhi house. Here ‘A’ and ‘B’ have not agreed upon the same thing in the same sense. Therefore, there is no consent and no contract afterwards.

The term “Free Consent” is defined under Section 14 of the Act which states that the consent is said to be free when it is not caused by

  1. Coercion under Section 15
  2. Undue Influence under Section 16
  3. Fraud under Section 17
  4. Misrepresentation under Section 18
  5. Mistake under Section 20,21,22

When the consent is affected by Misrepresentation then the consent is not free consent and the contract is voidable at the option of the aggrieved party in accordance with Section 19 of the Indian Contract Act.

According to Section 18 of the Act, “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 of the person committing it, or anyone claiming under him, by misleading another to his prejudice, or to the prejudice of anyone 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.

Example- Y sells a horse to Z who is of unsound mind but Y himself does not know about this fact and tells Z that the horse is of sound mind. There is a misrepresentation.

Misrepresentation can be of the following types-

  1. Fraudulent misrepresentation– A false statement is made, and the party knows it is false or is reckless about its accuracy.
  2. Negligent misrepresentation– A declaration is made by one contracting party to another negligently or without reasonable grounds for believing its truth.
  3. Innocent misrepresentation– Misrepresentation made completely without fault.

In the leading case of Derry vs. Peek (1889), 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. The court ruled that the defendant company was not liable as they genuinely believed in the accuracy of the statement.

In the case of Long vs. Lloyd, 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 the case of Raj Kumar Soni vs. State of U.P. 2007, It was held that the suppression of material facts is against the principles of law. The party guilty of withholding the correct facts should not be entitled to any benefits, as it is considered that such a party does not approach the court with clean hands.

The difference between fraud and misrepresentation is as follows-

BASISFRAUDMISREPRESENTATION
DEFINED IN SECTION Section 2(17) of the Indian Contract Act, 1872.Section 2(18) of the Indian Contract Act, 1872
MEANINGIntentionally, when one party gives a false statement of a material fact to influence the other party to enter into a contract.Innocently, when one party gives a false representation/statement of a material fact in good faith to enter into a contract.
CONSENTThe consent of the party is obtained by deceiving the other parties.The consent is obtained through the misrepresentation of the party by other parties.
INTENTION TO DECEIVE THE PARTYYesNo
EFFECTIt is voidable even if the truth is found with normal diligence.If the truth can be learned by exercising reasonable diligence, the contract is not voidable.
REMEDYThe aggrieved party can claim damages, and cancel the contract.Rescind or demand performance.
TORTFraud by itself is a tort.Misrepresentation by itself is not a tort.

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