Misrepresentation in Contract Law

Misrepresentation in Contract Law

Misrepresentation in Contract Law: An Introduction - Misrepresentation meaning in law can be stated as '"Misrepresentation is a false statement of a m

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Misrepresentation in contract law is provided under section 18 of the Indian Contract Act, 1872. In this article, we will cover all the elements of misrepresentation based upon contract law and the law of torts. 

The general meaning of misrepresentation is an untrue statement of material fact that is made by one party to the other party which leads the other party's decision in corresponding to the contract. To understand the concept of misrepresentation, the Misrepresentation Act, 1967 will help us.

Misrepresentation Meaning

To understand the misrepresentation meaning, first, we have to know the meaning of representation in contract law. The representation is a statement that makes a path to enter into a contract that is other than the terms and conditions of the contract.

Misrepresentation meaning in law can be stated as "Misrepresentation is a false statement of a material fact by one party to the other in the contract, whereas due to such false statement the effect's the other party's decision concerning the contract."

Misrepresentation in contracts is more important in business dealings where the transactions are high. Misrepresentation contract law plays an important role to secure dealings in business law and also reduces the risk of entering into an agreement between parties to the contract.

The meaning and definition of misrepresentation can be found under section 18 of the Indian Contract Act, 1872.

Definition of Misrepresentation in Contract Law

As per section 18 of contract law, 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 believed it to be true,

2. Any breach of duty which, without ab intent to deceive, gains an advantage to the person committing it, or anyone 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.

As per the misrepresentation definition, we can say that misrepresentation is a form of a statement made preceding the contract being completed. Therefore, there are two varieties of statements that can be performed before the contract is formed, these are;

  1. Form part of a contract.
  2. Not form part of a contract.

Types of Misrepresentation

What are the 3 types of misrepresentation in contract law? So, here is the answer;

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1. Fraudulent Misrepresentation

When a false representation is made with intention of a person then the fraudulent misrepresentation will happen. 

In fraudulent misrepresentation, the person knows very well that the other party has no actual knowledge or less knowledge and with the intention, the person takes advantage of it and makes false statements to enter and form a contract. This amounts to fraudulent misrepresentation in the law of contracts.

Example: A made an offer to sell his bike to B for Rs. 50,000/- and B agrees. A stated that the bike is in good condition. But in actuality, the bike has some internal damages that could not be seen easily. But, B has less knowledge about bikes and their part and he believes upon A that the condition of the bike is good.

So, this is an example of fraudulent misrepresentation, and such contracts are voidable at the option of the victim party.

2. Negligent Misrepresentation

Negligent misrepresentation is a statement made by a party to another negligently or without any reasonable ground for believing it to be true. Negligent misrepresentation is made carelessly or without any reasonable grounds for believing it to be true. 

Here, the party has no intention to make fraud but due to carelessness or negligence, the negligent misrepresentation will happen.

Negligent misrepresentation is defined in the case of Derry v/s Peek, 1889 as a false statement that is made without knowingly or carelessly or recklessly whether having knowledge of it to be true or false.

3. Innocent Misrepresentation

The term 'Innocent Misrepresentation' can be defined as 'it is used for the misrepresentation without any negligence or fraud or misrepresentation in which the representee has good faith.

The remedy for innocent misrepresentation is the rescission of the contract.

Damages for Misrepresentation

In fraudulent misrepresentation, the damages are recoverable under Common law. Whereas it is also recoverable under negligent misrepresentation. But, no damages will be provided under the innocent misrepresentation as the remedy for innocent misrepresentation is the rescission of the contract.

Conclusion

So, here this is concluded that the contract made under the misrepresentation is a voidable contract at the option of the victim party. It may either be valid or void.