Misrepresentation under the Indian Contract Act, 1872

Misrepresentation under the Indian Contract Act, 1872

Misrepresentation under the Indian Contract Act, 1872

A misrepresentation is a misleading statement of a material fact made by one party which has an impact on the other party judgment concerning a contract. If the misrepresentation is established, the contract can be declared void and depending on the circumstances, the affected party may seek damages. In such a contract dispute, the aggrieved party is the plaintiff, and the party who made the misrepresentation becomes the defendant.

In contract law, misrepresentation is chiefly important in business dealings where enormous transactions take place with high frequency. Misrepresentation of risk or value is correlated with an agreement that can cause huge financial losses to individuals and businesses while growing the risk of collaborative business ventures. Therefore, misrepresentation contract law is vital in ensuring fairness and decreasing the risk of entering into agreements between businesses and individuals.

A representation is said to be such a statement that causes the entry into a contract but is not a part of a term of the contract. Misrepresentation is about providing incorrect information by one party to the other party before the contract is made which influences them to make the contract. If an individual makes a contract in reliance on misrepresentation and has to suffer loss as a result, they can claim damages or revoke the contract.

The Indian Contract Act, 1872 under Section 18 defines “misrepresentation which states, a misrepresentation is a form of a statement made preceding to the contract being completed". There are two varieties of statement that can be performed before a contract is formed, these will either:

  1. Form part of the contract.
  2. Not form part of the contract, thus it becomes a representation”

When a statement that is made without any reasonable basis is unwarranted. When anyone makes a constructive statement of a fact without any reliable source of information and believes that statement to be true, the act amounts to misrepresentation.

Types of Misrepresentation 

There are three types of misrepresentation which the following as under: 

  1. Fraudulent misrepresentation: Fraudulent misrepresentation is a wrongful statement that is made with knowledge or without belief in its truth or recklessly as to whether it be false or true. In this type of misrepresentation, the burden of proof lies on the claimant.
  2. Negligent misrepresentation: Negligent misrepresentation means where a declaration is made by one party to another party without any reasonable ground or negligently for believing its truth. There is no need to establish fraud. If the innocent party can show the statement was wrong, it will be for the maker of the statement to prove that it rationally believed in the truth of the statement i .e.the representation. The representation may be made by a third party who is not a party to the contract. In negligent misrepresentation, the burden of proof lies on the claimant.
  3. Innocent misrepresentation: Misrepresentation which is made wholly without any fault can be termed as an innocent misrepresentation. A representation that is neither negligent nor fraudulent is an innocent misrepresentation.
Remedies of Misrepresentation

These are remedies for misrepresentation which are as under:

  1. Rescind: By rescind is meant to cancel. When the party which is aggrieved wants he can claim for damages or and cancellation of the contract. In Indian contract law, rescission is described as the reversing of a contract among the parties. Rescission is the “unwinding of a transaction.” This is made to bring the parties, as much as it is feasible, back to the situation in which they were before they entered into a contract.
  2. Insist upon the performance: The party which is aggrieved can claim to the first party who has perpetrated misrepresentation to get the object in the manner which was before the contract that they directed.