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Essay On Misrepresentation In Contract Law

The aspects of Misrepresentation in contract law Misrepresentation is a false statement of fact and law, which induces the represented to enter a contract. When a statement has been made during the course of negotiations it is then classes as a representation rather than a term an action for misrepresentation may be available where the statement turns out to be untrue. In misrepresentation has there different of types. • Innocent misrepresentation • Negligent misrepresentation • Fraudulent misrepresentation To find a misrepresentation is to find if the contract is voidable. The contract exists but may be set aside by the representee. Misrepresentation generally consist of rescission and or damages. Innocent misrepresentation Innocent …show more content…

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More about Essay On Misrepresentation In Contract Law

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• Contract law
• Contractual term
• Breach of contract

Misrepresentation in Contract Law

• Contract Act Blogs Subject-wise Law Notes
• Aishwarya Agrawal
• June 3, 2023

One party in a contract may make an untrue statement of a material fact that influences the other party’s decision. This is known as misrepresentation. If the misrepresentation is discovered, the contract can be invalidated, and the negatively affected party can seek damages. In a contract dispute involving misrepresentation, the party who made the false statement becomes the defendant, while the aggrieved party is the plaintiff.

Misrepresentation holds significant importance in contract law, particularly in business transactions that involve large sums of money and occur frequently. False statements about the value or risk associated with an agreement can result in substantial financial losses for both businesses and individuals and heighten the risks of collaborative business ventures. Therefore, ensuring fairness and reducing the risks associated with agreements between individuals and businesses makes misrepresentation contract law indispensable.

What is Misrepresentation in Contract Law

A representation refers to a statement that influences the formation of a contract but is not considered a contractual term.

Misrepresentation in Contract Law occurs when one party provides false or inaccurate information to the other party with no bad intention leading them to enter the contract. Suppose an individual enters into a contract based on misrepresentation in Indian Contract Act and suffers losses. As a result, they have the right to either rescind the contract or seek compensation for damages.

Definition of Misrepresentation in Indian Contract Act

Section 18 of the Indian Contract Act of 1872 addresses the concept of misrepresentation. It defines misrepresentation as a statement made before the completion of a contract. Section 19 of the Act states that misrepresentation can render a contract voidable.

Statements made before the formation of a contract can fall into two categories:

• Statements that become a part of the contract.
• Statements that are not part of the contract are considered representations.

However, the presence of misrepresentation does not automatically make a contract voidable. There are certain conditions:

• The contract is still valid if ordinary diligence could have discovered the statement.
• If the statement does not influence the consent of the party to whom it was made, the contract remains unaffected.

An example of a misrepresentation case is Derry v. Peek . In this case, the defendant, who owned a tramways company, issued a notice claiming they had received permission for steam trams when the permission was still pending. The defendant genuinely believed that the approval was a mere formality. The plaintiff purchased shares in the company based on this statement, but the permission was ultimately not granted, leading to financial harm. The court ruled that the defendant company was not liable as they genuinely believed in the accuracy of the statement.

It is important to note that the burden of proof for establishing misrepresentation under Contract Law lies with the party alleging it.

Essentials of Misrepresentation

For a misrepresentation to occur, the following elements must be present:

• The false representation of a fact: There must be a statement or assertion that is untrue or misleading.
• Causal link to consent: The false representation must be a material factor that influences the party’s consent.
• Intention to induce: The statement should be made to deceive or induce the other party into entering the contract.
• Timing: The statement must be made before the contract is finalised or concluded.
• Absence of deception: The statement should not be made to deceive the other party intentionally.

In the case of Rickview Construction Co. v. Raspa , it was determined that when a contract is formed based on misrepresentation, the disadvantaged party not only has the right to void the contract but can also seek damages through legal action.

Types of Misrepresentation in Contract Law

Three types of misrepresentation can occur in a contract:

Fraudulent misrepresentation

This misrepresentation happens when a false statement is made, and the party (let’s say X) knows it is false or is reckless about its accuracy. A genuine belief in its truth is necessary to make it fraudulent. If party A honestly believes the statement to be true, it cannot be considered fraudulent misrepresentation. Negligence in making a false statement does not constitute fraud. However, if it can be shown that party A suspected the statement might be false but made no effort to verify its accuracy, that is sufficient. It is not necessary to prove a dishonest motive.

Negligent misrepresentation 

Negligent misrepresentation occurs when a declaration is made by one party to another negligently or without reasonable grounds to believe it is true. There is no requirement to establish fraud. If the innocent party can prove that the statement was false, it is up to the party who made the statement to demonstrate that they had a reasonable belief in its truthfulness. Innocent misrepresentation

Innocent misrepresentation refers to a misrepresentation made without any fault. If party X cannot show they had objective grounds to believe the statement was true, the misrepresentation is categorised as fraudulent or negligent.

In the case of Raymond Woollen Mills Limited v. Income Tax Officer, Centre Circle Xi, Range Bombay and Others, the appellant argued that the Department had made a serious mistake in concluding. The court did not decide whether there was a suppression of evidence, as it was not a matter to be considered at that stage. The court held that it could not strike down the reopening of the case in the given circumstances. The assessee (taxpayer) had the opportunity to contest the understatement of profits. The Revenue obtained the relevant information in a subsequent year’s assessment proceeding. The sufficiency or correctness of the information was not to be considered at that stage.

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 .

Effects of Misrepresentation

Section 19 of the Indian Contract Act states that when consent to an agreement is obtained through misrepresentation, the aggrieved party can insist on the contract’s performance and avoid or rescind the contract.

In the case of Long v. Lloyd (1958), the defendant sold their lorry to the plaintiff by falsely convincing them that it was in excellent condition. However, they discovered serious defects on the plaintiff’s first journey with the lorry. Despite this, the plaintiff accepted the defendant’s offer to share half the cost of repairs. Unfortunately, the lorry broke down completely on the next journey, and the plaintiff sought to cancel the contract.

However, the court held that the plaintiff had become aware of the misrepresentation under Contract Law during their first drive and had the opportunity to withdraw from the contract. Since the plaintiff chose not to do so, they could not claim damages based on the misrepresentation.

Remedies of Misrepresentation in the Indian Contract Act

The remedies available for misrepresentation in Indian Contract Act, considering that it is a voidable contract entered into unintentionally by a party, are as follows:

Rescission refers to the cancellation or termination of the contract. The aggrieved party can seek rescission of the contract and/or claim damages. Rescission aims to restore the parties to their pre-contractual position as much as possible (the status quo ante ).

Performance

The aggrieved party can insist that the party who made the misrepresentation under Contract Law fulfils their obligations under the contract in the manner that was originally agreed upon.

It is important to note that the remedies for misrepresentation aim to provide relief to the party negatively impacted by the misrepresentation, allowing them to either cancel the contract or enforce the original terms.

Limitations Available to Remedies

It is possible to include a clause in a contract that limits the available remedies in case of a misrepresentation claim. This clause can specify that the remedies for misrepresentation under Contract Law will be restricted to those available for a breach of contract, thereby excluding the right of the innocent party to rescind or revoke the contract.

By including such a clause, the parties to the contract agree in advance to limit the potential consequences of misrepresentation in Indian Contract Act. This can serve as a form of protection for the party making the representation, as it restricts the remedies the other party can seek in case of misrepresentation. However, it is important to note that the enforceability and validity of such clauses may vary depending on the jurisdiction and the case’s specific circumstances.

Misrepresentation and Fraud under Contract Law

In the case of fraud , the false statement is deliberately made to deceive the other party. The person making the statement knows it is false and intends to mislead the other party. This is a clear act of deception and carries higher culpability.

On the other hand, misrepresentation occurs when a false statement is made, but the person making the statement genuinely believes it to be true. There is no intention to deceive or mislead the other party. The misrepresentation is made in good faith, but it still leads the other party into the contract based on inaccurate information.

To illustrate the difference, consider the examples you provided:

In the case of fraud, X knowingly sells a car with an engine problem and falsely represents it as being in excellent condition. X intends to deceive Y and induce them to purchase the car. This is a clear case of fraud.

In the case of misrepresentation, X genuinely believes that the car is in good condition and makes a statement to that effect. However, unbeknownst to X, the car has an engine problem. X’s statement is made in good faith but needs to be more accurate, leading Y to purchase the car based on false information.

It is essential to differentiate between fraud and misrepresentation because the remedies and legal consequences of each may vary. Fraud typically carries more severe consequences due to the deliberate intent to deceive. At the same time, misrepresentation may still give rise to legal remedies but may be treated differently due to the lack of fraudulent intent.

Here is a table differentiating between mistake and fraud:

Misrepresentation refers to making a false statement of fact that induces the parties consent to enter into a contract. When consent is obtained through misrepresentation, it is not considered freely given. As a result, the contract is considered voidable, meaning that the innocent party can either affirm the contract or rescind it based on the misrepresentation in Indian Contract Act.

Misrepresentation can take the form of positive assertions or statements, but the key requirement is that there must be a false representation of a fact. The statement of misrepresentation is made to deceive or induce the other party into entering the contract. The misrepresentation must be made before the contract is concluded or finalised.

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Misrepresentation in contract law: A brief on negligent, innocent and fraudulent statements

Contracts govern most of the transactions that a business carries out. When the representations that have induced someone to enter into a contract turn out not to be true or are misleading, this is misrepresentation.

If the person who has entered into the contract on the strength of a misrepresentation suffers loss, then they may be able to bring a legal claim for recission of the contract and/or damages.

What constitutes a misrepresentation?

A misrepresentation in contract law is a statement of fact that is not true and that persuades someone to enter into a contract. The contract does not have to be in writing, it can be a verbal agreement. The untrue statement can be made by an agent or employee on the part of their principal or employer.

A statement of opinion is not enough to constitute a misrepresentation, nor is a sales puff.

There are three types of misrepresentation, namely negligent misrepresentation, innocent misrepresentation and fraudulent misrepresentation.

Negligent misrepresentation

Where misrepresentation is made carelessly or without reasonable grounds for believing it to be true, this can constitute negligent misrepresentation. The claimant will need to show that the statement was not true and in defending a claim, the party making the statement will have to prove that they believed the statement and demonstrate that this belief was reasonable.

If the court grants the claim, then it can order rescission of the contract or damages instead, as well as damages for losses caused, even if they were not foreseeable.

Innocent misrepresentation

When someone unknowingly gives false information and this is not done fraudulently or negligently but the information induces someone to enter into a contract, this is innocent misrepresentation.

Where it can be proved that the information was not true, then a court can intervene to remedy the situation. This is usually done by rescinding the contract, with the aim of putting the parties back into the position they would have been in, but for the contract.

If rescission is not possible, then damages may be considered.

Fraudulent misrepresentation

Fraudulent misrepresentation, being founded on deliberate deceit, is the most serious type of misrepresentation. To bring a successful claim, the claimant will need to show that the untrue statement was made knowingly or recklessly, that they relied upon it and that it induced them to enter into the contract.

Because of the seriousness of the allegation, the standard of proof is high. The fraudulent allegation will need to have been clearly stated and it will need to be shown that the person making the statement knew it was false or had no belief in its truth or was reckless as to whether it was true or false.

It also needs to be demonstrated that the defendant intended the claimant to rely on the representation. The court will generally presume that, had it not been for the fraud, the claimant would not have entered into the contract.

The claimant must also show that, as a result of their reliance on the claim, they suffered loss and damage.

Proving a case of fraudulent misrepresentation is not simple and could require a substantial amount of evidence from the period leading up to the making of the contract, such as what each party knew, what was discussed or disclosed by way of marketing materials, emails, meetings and correspondence and what promises were made.

If the court finds fraudulent misrepresentation, then it can order rescission of the contract and damages for any losses caused. The losses do not have to be reasonably foreseeable.

Statements made in cases of misrepresentation

In cases of misrepresentation, the false statement or representation does not need to be made in writing, although the claimant must be able to prove to the court what was said.

It can be stated expressly or implied by conduct. Where the statement is implied, the context in which the inference is made can be important.

The court will ask what a reasonable person would assume were the facts in the circumstances.

While silence does not of itself constitute misrepresentation, when a statement is true in part but silent as to another aspect, then misrepresentation can be inferred from the fact that something was left out.

Bringing a claim for misrepresentation

If you believe that you have experienced loss because of misrepresentation in a contract you have entered into, then you are advised to seek legal advice as soon as possible. There are strict deadlines

for starting a claim. It may also be more likely that you are able to resolve issues without the need for litigation if you ask a legal expert to intervene on your behalf.

At Lincoln & Rowe, our dispute resolution team have in-depth experience of solving difficult problems across a range of sectors. We will give you our honest opinion of your case and discuss your options with you so that you have a good idea of the best course of action.

We can negotiate with the other party on your behalf to try and reach an agreed settlement. Where this is not possible, we can assist you through alternative dispute resolution, such as mediation or adjudication, to seek agreement.

In the event that your case goes to court, we will ensure that you have a strong case and expert representation. For more information in respect of our services, see Misrepresentation .

We are pleased to announce that we have won the Global Awards by ACQ5 award for Best Firm for Commercial Disputes London 2023. We were named as the ‘Commercial Disputes Specialists of the Year’ in the Corporate Livewire Innovation & Excellent Awards 2020 as well as ‘Boutique Litigation Law Firm of the Year’ in both the 2019 and 2020 Global Awards by ACQ5 . Partner, Dipesh Dosani, was named Commercial Litigation Lawyer of the Year in 2019 and 2020 in the ACQ5 Law Awards .

If you would like to talk to one of our expert legal team about a contract dispute, call us on 020 3968 6030 , email us at [email protected] or fill in our contact form and we’ll be happy to help.

The above information is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact a legal advisor .

Dipesh Dosani Partner

Dipesh advises clients on a wide range of commercial disputes including breach of contract, directors’ disputes, shareholder remedies, partnership issues, professional negligence and intellectual property. he is also able to provide clients with advice on all aspects of insolvency as well as investigations including misfeasance, undervalue transactions, preferences, transactions to defraud creditors and wrongful trading..

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Contract law Misrepresentation act 1967  Requires contract everything that comes under misrepresentation act  Mis representee has to show....  S2(1) – entered misrepresentation not fraudulently, (for the purposes of the act as if they have made it fraudulently  Entered misrepresentation and they suffered loss  But if liable to damages had. The misrepresentation been made – friction of fraud  Under the misrepresentation act S2(1) reverses the burden of proof  The defendant has to proof the reasonableness of his belief, or he will be liable in damages  The advantages demonstrated by howard marine v ogden  Lloyd’s register was incorrect  Wasn’t 1600 was only 1000  Was liable because howard could not show reasonable ground to support what they had said so they were liable under s2(1) Damages  Damages calculated under s2(1)= limited cause of the foreseeability but the act doesn’t say how the act should be awarded. = based on the tort of deceit so based on fraudulent damages that. The claimant can be awarded  This is controversial cause under the act the defendant is completely innocent  Naughton v o’callaghan is an example how the court award damages under the act  Horse value falls to 1500... the pedigree had been properly described would not have been worth 26,000 but only 23,000. So either claim breach of contract or BRING AN ACTION UNDER MISREPRESNTATION (COVER ALL THE DAMAGES and losses so not limited for foreseeability e. keeping horse, training etc)  His claim was successful. His loses were direct consequences of the mis representation so liable as if they had been fraudulent.  Royscott v Rogerson 1991  They recognized that damages r calculated the same way as damages for fraudulent misrepresentation? deceit?  Misrepresentation made negligently as fraudulently Summary  Burden of proof is reversed  Damages are calculated on the basis of tort of deceit Innocent misrepresentation  Represntor believed - ....  No damages remedy  So remedy is discission alone however s2(2) allows the court to prevent recission for non frauent misrepresentation and award damages instead of recission – STATUTORY BAR TO RECISSION  RESCISSION – available for all types of misrepresentation  A misrepresentation renders the contract voidable

 It is to restore the party in the position they were in before the misrepresentation took place  Party must take steps to avoid contract  So u have to notice to the party so when u can’t physically notice the law is on misrepresentation?  Car and universal finance co ltd v Caldwell – taking reasonable steps to make recission ... Bars to recission  Certain things to rescission (restore...  cOMM0N LAW AND STAUTORY BAR?  restitutio in integrum is impossible  degree of flexibility in certain circumstances  Erlanger v new sombrero – as long as u had restored substantiality that property and .... The court would allow rescission, any payment will allow rescission  Spence v Crawford – punishing frauds  If the misrepresentation is fraudulent curt will more likely to allow rescission Third party rights  The court will not allow recission where before a contract has been avoided- some innocent third party has acquired rights in the property  Person gives a fake tom hardy- Give someone card – third party right (their right to have the card ) – the court will protect the innocent third party Affirmation  Choose to affirm the contract if u do so, u will lose the right to rescind  Can physically say to the party, otherwise thru ur conduct  Long v Lloyd – sale concerning the van, the condition was misrepresented to the buyer and it wasn’t, so it broke down, so the buyer contacted the seller explained what had happened, the seller offered ro pay half the price, the van repaired and broke down again and buyer sort to rescind The court said cant rescind as affirmed the contra ct so allowing the seller to pay for repair the buyer affirmed the contract Lapse of time  The maxim delayed the equity applied here  ‘delay defeats equity’  The time will run only from when the fraud is discovered  Leaf v international galleries  5 years were too long, on the facts they were innocent Statutory Bar; Mis... 

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Misrepresentation

These law notes look at an actionable Misrepresentation in Contract Law. A Misrepresentation is a unambiguous, false, statement of fact (or law), addressed to the party misled, which is material and induces the contract, and causes loss.   Each case is presented as concise summary giving the student the working ability to quickly understand the facts that are important. Followed by the ratio of the case and the reason why decision was arrived at and how the case creates the general principle. There is also commentary on how the case should be applied when giving advice.

Ambiguous statement

McInerny v Lloyds Bank Ltd [1974] 1 Lloyd's  Rep 246(CA)

Statement of Fact

Esso Petroleum Co Ltd v Mardon[1976] 2 All ER 5

Statement of Law

Pankhania v Hackney LBC [2002] NPC 123

Chapelton v Barry UDC [1940] 1 All ER 356, CA

Dimmock v Hallett [1866] LR 2 Ch App 21

Ongoing Silence

With v O’Flanagan[1936] Ch 575

Contracts of Utmost Good Faith

Tate v Williamson (1866) LR 2 Ch App 55

Horsefall v Thomas [1862] 1 H & C 90

Fraudulent Misrepresentation

Derry v Peek [1889] 14 App Cas 337

Negligent Misrepresentation

Hedley Byrne v Heller & Partners (1964) AC 465

Innocent Misrepresentation

Redgrave v Hurd (1881) 20 Ch D 1

Long v Lloyd [1958] 1 WLR 753

s.2(1) Misrepresentation Act 1967

East v Maurer [1991] 2 All ER 733

Remoteness of Damages

Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd.[1996] 4 All ER 769