Misrepresentation in contracts refers to false statements or assertions made by one party that induce another to enter into an agreement. Under the Indian Contract Act, 1872, misrepresentation can render a contract voidable at the option of the aggrieved party. Understanding its types and legal effects is crucial for law students and legal practitioners in India.
DEFINITION AND EXPLANATION OF MISREPRESENTATION
Section 18 of the Indian Contract Act, 1872, defines misrepresentation as:
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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.
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Any breach of duty, which, without an 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 anyone claiming under him.
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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.
In essence, misrepresentation involves an untrue statement made innocently, without intent to deceive, which leads the other party to enter into a contract.
TYPES OF MISREPRESENTATION
Misrepresentation can be categorized into three types:
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Innocent Misrepresentation: A false statement made without any intention to deceive, where the person believes it to be true.
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Negligent Misrepresentation: A false statement made carelessly or without reasonable grounds for believing its truth.
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Fraudulent Misrepresentation: A false statement made knowingly, without belief in its truth, or recklessly, without caring whether it is true or false.
LEGAL EFFECTS OF MISREPRESENTATION
The legal consequences of misrepresentation under the Indian Contract Act, 1872, are as follows:
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Voidable Contract: According to Section 19, when consent to an agreement is caused by misrepresentation, the agreement is voidable at the option of the party whose consent was so caused.
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Rescission: The aggrieved party can rescind the contract, restoring both parties to their original positions before the contract.
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No Claim for Damages: In cases of innocent misrepresentation, the aggrieved party cannot claim damages but can seek rescission.
KEY CASE LAWS
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Derry v. Peek (1889): This English case established that fraudulent misrepresentation occurs when a false representation is made knowingly, without belief in its truth, or recklessly.
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Shri Krishnan v. Kurukshetra University (1976): In this case, the Supreme Court of India held that a misrepresentation, even if made innocently, renders the contract voidable at the option of the party misled.
DISTINCTION BETWEEN MISREPRESENTATION AND FRAUD
While both misrepresentation and fraud involve false statements, the key difference lies in intent:
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Misrepresentation: Involves false statements made without intent to deceive.
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Fraud: Involves false statements made with intent to deceive.
CONCLUSION
Understanding misrepresentation in contracts is vital for legal professionals, as it affects the validity and enforceability of agreements. The Indian Contract Act, 1872, provides remedies to parties misled into contracts, emphasizing the importance of truthful representations in contractual dealings.
