An honest attempt by Group A13:

Ambuj Rai [006] Roma Juneja [052]

Bhupreet Dutta [018] Shubham Jain [058]
Mainak Sengupta [031]
When a person making a false statement
believes the statement to be not true so as
to mislead the other party to the contract, it
is known as-

 Fraud
 Mistake
 Misrepresentation
 Free Consent
When a person makes a false statement,
but believes the statement to be true, so as
to induce the other party to the contract, it
is known as-

 Fraud
 Mistake
 Misrepresentation
 Free Consent
A consent is said to be free when
it is not caused by
 Coercion
 Undue influence
 Fraud
 Misrepresentation
 Mistake
Misrepresentation
A misrepresentation of fact made by one party to the
other, which, while not being a term of contract, induces
the other party to enter the contract

Fraud: Wilful

Misrepresentation: Unintentional, Negligent, innocent

 Essentials of Misrepresentation
Representation must:

 Be made without an intent to deceive the other party.

 Be of facts material to the agreement
 Be untrue or turns to be untrue but was made with
an honest belief.
 Have induced the other party to enter the contract.

*A party cannot complain of misrepresentation if it

had the means of discovering the truth with ordinary
diligence.
Classification of misrepresentation
Per Section 18, Misrepresentation means and includes:

 Unwarranted Assertion of material facts. [Clause 18(1)]

 Breach of duty by a person which brings an advantage

to the person committing it. [Clause 18(2)]

 Inducing mistake as to the subject matter of the

agreements. [Clause 18(3)]
 Unwarranted Assertion of
Material Facts
 “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”

 Example: X got insider information from Y that Mr. ABC is

going to become the new CEO of the company. X believed
the information to be true and innocently informs his
brother about the same. The brother invests in the
company after receiving this information. However, the fact
stated proves untrue later. The statement by X amounts to
misrepresentation as he had no grounds to positively assert
about the same to his brother.
 Breach of duty

“Any breach of duty which, without an intent to deceive,

gains an advantage to the person committing it, or any one
under him, by misleading another to his prejudice, or to the
prejudice of any one claiming under him”

In ORIENTAL BANK CORPORATION vs. JOHN

FLEMING, Sargent J. observed:
The second clause is intended to meet all those cases which
are called in the courts of equity cases of ‘constructed fraud’,
in which there is no intention to deceive, but where the
circumstances are such as to make the party who derives a
benefit from the transaction equally answerable in effect as if
he had been actuated by motives of fraud or deceit.
Breach of duty is also there where a party is legally
bound to disclose some information, but he does not do
so. In this case the misrepresentation is due to breach of
duty by concealment of such information.

Example: A while entering into a contract to sell his car

to B correctly stated that the car gives a mileage of 18
kmpl. The negotiations went on for a month. During this
while, the mileage of the car dropped to 12 kmpl. A
“unintentionally” failed to disclose this information to
B. This amounts to misrepresentation.
 Mistake as to the Subject Matter

“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: In the negotiations for a marriage contract,

the relatives of the girl failed to disclose that she was
suffering from epilepsy. This amounted to
misrepresentation by them and the contract was
voidable as a very material fact was concealed here.
[Haji Ahmad Yar Khan vs Abdul Gani Khan]
 Effects of Misrepresentation
The aggrieved party has an option to:

 Rescind the contract

 Continue the contract

When the party rescinds the contract

Exceptions:
 When the aggrieved party had the means to discover the truth with
ordinary diligence.
 When the aggrieved party is not misled by the misrepresentation.

Continue the contract

The aggrieved party has the option to continue the contract and insist
that it be put in the same position in which it would have been, had the
representation been true.
 Damages for misrepresentation
Misrepresentation generally does not entitle the aggrieved
party to claim damages.
Exceptions:
 Where the prospectus of a company inviting the public to
subscribe for shares in the company contains a
misstatement about a material fact.
 Where an agent commits a breach of warranty of authority,
he/she exposes himself/herself to pay damages to injured
party.
 Where the relationship between the parties is of that of a
confidential nature (e.g. relationship between a doctor and
patient).
 Case under Indian Contract Act-1872
Smt. Madhuri Devi Vs Bihar State Housing Board
 The board advertised to sell plot of land to middle income
group against payment and fulfilment of certain terms and
conditions
 Petitioners applied for the plot of land, by accepting to pay
all the instalments and abide by the terms and conditions.
Subsequently Contract was signed
 Despite the payment of instalments the possession was not
made available to the petitioners on the ground that the plot
of land is encroached and could not be freed
Case continued……..

 The board offered a different plot of land but for

higher price and augmented terms and conditions
 Consequently it was proved that the board actually
failed to acquired the promised plot of land
 The judge Barin Ghosh J. concluded that the contract
was vitiated by reason of misrepresentation made by
board
 The contract was deemed voidable and petitioners
demanded the refund of entire money paid as part of
the first contract