Introduction:
Misrepresentation can be understood as an untrue statement made by one party during the course of entering into a contract. The false statement made will have an influence on the decision made by the other party and may also be the sole reason to enter into a contract. Section 18 of the Indian Contract Act, 1872 defines Misrepresentation as a statement made before the contract comes into force. It can either form a part of the contract or not form part of the contract. An example of misrepresentation is, a person selling an electronic device claiming that it is in good condition and has only been used for a month whereas he is fully aware of the working condition of the device and he hid the fact that it was used for more than six months, he is misrepresenting the product which induced the other party to buy the product. Misrepresentation can be intentional or unintentional, according to which the damages are claimed. A contract is considered voidable in case of misrepresentation i.e., the aggrieved party can decide to either void the contract or continue with the existing terms. Misrepresentation is only applied when the statement of facts is untrue, it cannot be applied to suggestions or predictions. For instance, in the case of Bisset v. Wilkinson,[1] the plaintiff purchased a piece of land from the defendant for sheep farming. During the process of negotiation, the defendant made a statement that the land can occupy a total of 2000 sheep. The plaintiff bought the land believing the defendant’s words. The plaintiff and the defendant were fully aware that the defendant had not tried sheep farming on the land. The court held that in ordinary circumstances any statement made by the owner regarding the capacity of his land will be considered as a statement of fact, but this case is different. In this case, the statement made can only be regarded as an expression of his opinion and not a statement of fact.
Elements for Proving Misrepresentation
Two important elements while determining misrepresentation are a false statement of fact and the false statement inducing the contract. Misrepresentation can be proved only if these two conditions are met. In Attwood v. Small[2] case, the defendant owned a mine and the plaintiff approached to purchase it. The defendant overstated the earning capacity by vendors. The plaintiff was not completely satisfied so he hired an expert to find out about the presented facts. The expert didn’t do thorough work and reported the statement to be true. After six months, the plaintiff found out that the statements made by the defendant were false. The plaintiff sued the defendant for misrepresentation. The court held that plaintiff did not buy the land relying on the statement made by the defendant, therefore there is no misrepresentation.
Types of Misrepresentation
Remedies might differ according to the type of misrepresentation. Three types of misrepresentation are
Fraudulent Misrepresentation
When a party makes a false or exaggerated statement knowing it will make the other party enter into a contract is what a fraudulent misrepresentation can be defined as. For instance, if ‘A’ a shop owner makes a false statement regarding one of the products knowing it to be untrue or is reckless to even check if it is correct or incorrect, this will be a case of misrepresentation. In the case of Doyle v. Olby (Ironmongers) Ltd[3], the defendant intended to sell his business to the plaintiff. The defendant in order to convince the plaintiff presented a lot of false statements regarding the profitability and operations of the business. The court held that this indeed was a fraudulent misrepresentation and the plaintiff is certain to get compensation for the same.
Negligent Misrepresentation
If the person representing, does it negligently or without having enough grounds to believe it to be true then the person is said to have committed negligent misrepresentation. In Queen v. Cognos Inc.[4]case, the defendant promised a job for a new project in his company. He hired the plaintiff saying it will be a well-paid and lasting position. The plaintiff believing the words of the defendant quit his existing job and accepted the position. At this point, the final drafting and funding had been in progress. The management did not approve the funding for the project and after the scaling down, the plaintiff’s position was cancelled. The plaintiff sued the defendant for negligent misrepresentation. The court held that the defendant had the duty of care towards the plaintiff and he failed to perform it. The court approved the appeal and said it was a case of negligent misrepresentation.
Innocent Misrepresentation
In a case where a misrepresentation is made with absolutely no fault of the person representing is an innocent misrepresentation. In other words, innocent misrepresentation is a false statement made by a contracting party, who at the time of contracting was completely unaware that the facts presented are false. In Derry v. Peek[5] case, a special Act incorporating a tramway company provided that the carriages might be moved by animal power and with the consent of the Board of Trade and by steam power. The company issued a statement that with this special Act the company is permitted to use steam power. The plaintiff believing in this statement bought shares. The Board of Trade refused to consent to the use of steam and the company was strained. The plaintiff sued the company for deceit. The court held that the defendants were not fraudulent and that to prove fraud there must be something more than just establishing misrepresentation. In this case, the defendants made a careless statement while they believed it to be true.
Remedies for Misrepresentation
The remedies available in case of misrepresentation are:
Rescission
Rescind means to cancel. The aggrieved party can decide to put an end to the contract. The law of Contracts defines rescission as the process of unmaking a contract. It cancels the contract, so there are no obligations between the contracting parties. In the case of Armstrong v. Jackson[6], an agent was employed to buy shares for the client. But the agent sold his own shares to the principal. The share took an unfortunate fall in 5 years. The court held that the plaintiff had the right to rescind the contract due to a breach of duty by the broker/agent.
In addition, in the case of Leaf v. International Galleries,[7] the plaintiff bought a piece of art as a result of a misrepresentation. He was convinced that the art was by a famous artist, which he later found out to be untrue. It took him 5 years to realize. The court held that after this long he cannot rescind the contract.
Damages
Damages are the compensation awarded to the aggrieved party. These are granted by the court to compensate for the loss and injury suffered by the parties. Damages aim to put the aggrieved party in the position they were in before the contract was drafted. In Doyle v. Olby (Ironmongers) Ltd case (supra), the court decided that the plaintiff can seek damages. Plaintiff was a victim of fraudulent misrepresentation and had every right to seek damages. The court held that the damages will be awarded according to the losses suffered by the aggrieved party. Similarly, in the East v. Maurer[8] case, the defendant owned two salons and was an experienced hairdresser. The plaintiff bought one of the salons. The defendant while representing implied that he had no intention to work for long and would like to settle abroad. But the defendant continued to work there which induced losses on the plaintiff. The plaintiff sued the defendant for misrepresentation. The court held that the plaintiff was entitled to damages and on top of that he was entitled to seek anticipated profit which he would have gained if the defendant did not misrepresent.
Conclusion
It is evident that the remedies are granted according to the type and extent of misrepresentation. In order to seek remedies, one has to prove misrepresentation. Damages and rescission are the two types of remedies available to the aggrieved party. The remedies can help the aggrieved party to go back to the original position it was in before entering into the contract.
References:
[1][1927] AC 177
[2](1838) 6 CI&F 232
[3][1962] 2 QB 158
[4] [1993] 1 SCR 87
[5] (1889) 14 App Cas 337
[6][1917] 2 KB 822
[7][1950] 2 KB 86
[8] [1991] 1 WLR 461
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