Misrepresentation

In one minute

Misrepresentation is a false statement that misleads the other party without an intent to deceive. The speaker may believe it is true. The listener still relies on it and enters the contract.

The contract is voidable at the misled party's option. The right is lost if the party could have found the truth with ordinary care. In exams, the line between misrepresentation and fraud earns the marks. In real life it covers the honest but careless seller.

Exam focus

Frequency: Rarely asked
Usually asked as: Short answer (4 to 6 marks)

Legal provision

Section 18: misrepresentation means and includes three things.
Section 18(1): a 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.
Section 18(2): any breach of duty which, without intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice.
Section 18(3): causing, however innocently, a party to make a mistake as to the substance of the thing which is the subject of the agreement.
Section 19: a contract caused by misrepresentation is voidable at the option of the misled party. That party may instead insist that the contract be performed and that he be put in the position he would have been in if the representation had been true.
Exception to section 19: the contract is not voidable if the misled party had the means of discovering the truth with ordinary diligence.

Meaning and definition

Misrepresentation is a wrong statement of fact, or a similar wrong, made with no intent to deceive. It differs from fraud, where the maker knows the truth or does not care.

The law lets the misled party cancel because his consent was not free (section 14). It does not punish the maker as a wrongdoer.

Is this misrepresentation, and can the contract be avoided?How to read this: go down the boxes in order. A "No" answer sends you to the result beside the box.

1. Was there a false assertion, a breach of duty that misleads, or an innocent cause of mistake about the subject matter? section 18
No: there is no misrepresentation.
2. Did the maker lack intent to deceive? sections 17, 18
No: it may be fraud (section 17), not misrepresentation.
3. Did the statement cause the other party to consent? explanation to section 19
No: the contract is not voidable.
4. Was the truth outside the other party's reach with ordinary diligence? exception to section 19
No: the contract is not voidable.
All answers "Yes": the contract is voidable at the misled party's option (section 19).

Detailed explanation

Step 1: the three kinds under section 18

Careless assertion (18(1)): a plain statement of what is untrue, made without proper grounds, though the speaker believes it.
Breach of duty (18(2)): a breach that gains the person an advantage by misleading the other, with no intent to deceive.
Innocent cause of mistake (18(3)): causing a party, however innocently, to be mistaken about the substance of the thing.

Example. A used-car dealer tells a buyer, "This car has run only 20,000 km." He read this from the dashboard and never checked the records. The true figure is 90,000 km. He believed his statement, but he had no proper grounds. This is section 18(1).

Step 2: the statement must be a fact, and it must have caused the consent

A mere opinion or sales talk is not a statement of fact. The statement must also have caused the consent. A misrepresentation that did not cause the consent does not make the contract voidable (explanation to section 19).

Step 3: the effect

The misled party has two choices.

Avoid the contract.
affirm it and insist on being put in the position he would have held if the statement had been true.

Step 4: the diligence exception

If the misled party had the means of discovering the truth with ordinary diligence, the contract is not voidable. The Act's illustration (b): A misleads B into believing that 500 maunds of indigo are made yearly at A's factory. B examines the accounts, which show 400 maunds. He then buys. The contract is not voidable.

Example. Anita buys a shop after the seller wrongly says the monthly rent is Rs 20,000. The seller put the rent receipts in front of her, showing Rs 12,000. She did not read them. She had the means to find the truth with ordinary care, so she cannot avoid the contract.

Don't confuse: misrepresentation and fraud

Both make the contract voidable under section 19. Fraud needs a dishonest mind. Misrepresentation does not.

Point	Misrepresentation	Fraud
Mind of the maker	Believes it is true, or has no intent to deceive	Knows it is false, or does not believe it, with intent to deceive
Section	18	17
Diligence exception	Applies	Applies only to silence that is fraudulent, not to active fraud

Inside the idea. A builder tells buyers the plot is approved because his clerk told him so. The approval was never granted. He did not know it was false. This is misrepresentation.

Just outside it. A builder knows the plot is not approved and still says it is, to sell it. This is fraud.

Common mistakes

Calling an honest false statement fraud. Fraud needs intent to deceive.
Saying the contract is void. It is voidable.
Forgetting that the statement must have caused the consent.
Forgetting the diligence exception in the proviso to section 19.

Apply it

Problem

Seller Mahesh tells Ravi that the tractor's engine was reconditioned last year. He has no records and merely assumes it. In fact it was never reconditioned. Ravi, who has no means to check, buys the tractor for Rs 4 lakh. Can Ravi avoid the contract?

Issue. Is this misrepresentation, and can Ravi avoid the contract?

Rule. A positive assertion not warranted by the maker's information, of what is untrue, is misrepresentation (section 18(1)). The contract is voidable (section 19), unless the party could have found the truth with ordinary diligence.

Application. Mahesh made an untrue assertion without grounds. There is no sign that he knew it was untrue, so this is not fraud. Ravi had no means to check, and the statement induced him to buy.

Conclusion. Ravi may avoid the contract. He may instead insist on a reconditioned engine, to be put in the position he would have held if the statement had been true.

Leading case laws

Derry v. Peek (1889)
Facts. Tramway company directors said in a prospectus that the company had the right to use steam power. The Board of Trade's consent was needed. It was later refused, except for certain portions. A shareholder sued for deceit.

Principle. The directors honestly believed their statement, so there was no fraud. In an action of deceit, the plaintiff must prove actual fraud. Honest belief defeats the claim, even without reasonable grounds.

Why it matters. It draws the line between fraud and a statement that was wrong but honestly made. An honest wrong statement is the territory of section 18.
Dick Bentley Productions Ltd v. Harold Smith (Motors) Ltd (1965)
Facts. A car dealer told a buyer that a car had done only 20,000 miles since a new engine and gearbox. The judge found the statement was not dishonest, but it was made without foundation.

Principle. A statement made to induce a contract is prima facie a warranty. The maker can rebut that only by showing he was innocent of fault and that it is not reasonable to bind him. The dealer could have found the history and did not.

Why it matters. It shows an honest but baseless statement by someone able to check. In India such a statement fits section 18(1), and section 19 lets the buyer avoid the contract. This case is English and concerns damages for breach of warranty.

How to write this answer in the exam

5-mark answer

Define misrepresentation using section 18.
Give the three kinds in one line each.
State the effect: voidable under section 19.
State the diligence exception.

10-mark answer

Free consent and section 14.
Section 18(1), (2) and (3) with examples.
Elements: fact, inducement, no intent to deceive.
Section 19 choices: avoid, or affirm and insist.
Exception for means of discovering the truth, with illustration (b).
Comparison with fraud, and Derry v. Peek.

Key points to remember

Misrepresentation is an untrue statement or similar wrong made without intent to deceive (section 18).
It makes a contract voidable at the misled party's option (section 19).
The misled party may avoid, or affirm and insist on being put in the position as if the statement were true.
No relief if the party could discover the truth with ordinary diligence.
No relief if the statement did not cause the consent.

Quick self-test

1. How does misrepresentation differ from fraud?

In misrepresentation the maker has no intent to deceive and may believe the statement. Fraud needs intent to deceive.

2. When is a contract not voidable despite a misrepresentation?

When the misled party had the means of discovering the truth with ordinary diligence, or the misrepresentation did not cause his consent (section 19).

3. What may the misled party do besides avoiding the contract?

Insist that the contract be performed and that he be put in the position he would have held if the statement had been true.