Introduction
Consent in the Indian Contract Act, 1872 is defined under Section 13. Consent is described as an agreement “upon the same thing in the same sense” (consensus ad idem).
Consent under Indian Contract Law is considered vitiated if it is obtained through undue influence, coercion, misrepresentation, fraud, or mistake, as provided under Section 14 of the Act.
Misrepresentation is the presentation of a statement that does not prove true, made by one party to another, without the intention to deceive, to induce them into a contract. Consent obtained through misrepresentation makes the contract voidable, meaning it is valid but can be revoked at the option of the affected party.
Misrepresentation under Indian Contract Act, 1872
Section 18 of the Indian Contract Act defines misrepresentation as:
- The positive assertion, in a manner not warranted by the information of the person making it, of something that is not true, though believed to be true.
- Any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under them, by misleading another to their prejudice.
- Causing, however innocently, a party to make a mistake regarding the substance of the subject of the agreement.
Modes of Misrepresentation
Section 18 can be invoked to vitiate consent through three main modes:
- Unwarranted Statements: Statements made without reliable backing, believed to be true, aimed at stimulating the other party to contract, without fraudulent intent.
- Breach of Duty: Failure to perform a legal obligation, which results in advantage to one party and disadvantage to the other, without intent to deceive.
- Mistake: An innocent act causing another party to make a factual mistake about the contract’s subject matter (quality, quantity, price, existence, etc.).
Misrepresentation in a Principal-Agent Relationship
Section 238 recognizes misrepresentation in a principal-agent relationship. Misrepresentations made by an agent in the course of business are deemed to be made by the principal. This is based on the principle “qui facit per alium facit per se”, meaning acts done by an authorized agent are deemed to be done by the principal.
Prerequisites of Misrepresentation
- It must concern a material fact regarding the subject matter.
- It should provoke the other party to enter the contract without intent to deceive.
- It must occur prior to contract conclusion.
- The party making it must believe it to be valid.
- The affected party must believe it and act upon it.
Material Facts as to Subject Matter
Material facts are those relevant to the contract that may affect the outcome:
- Presence of the subject matter
- Cost of the subject matter
- Amount of the subject matter
- Nature of the subject matter
- Title of the subject matter
Silence as Misrepresentation
Under Section 17, mere silence does not generally constitute misrepresentation, except in cases such as:
- Contracts of uberrimae fidei (utmost good faith)
- Fiduciary relationships based on mutual trust
- Changed circumstances affecting the contract
- When silence itself misleads the other party
Effect of Misrepresentation
Once misrepresentation is discovered, the victimized party has remedies under Section 19:
- Rescind the contract
- Accept the contract and insist on specific performance
- Claim to be placed in the position they would have been if the misrepresentation were true
Damages cannot be claimed if consent was granted under misrepresentation. Exceptions include cases where the party had sufficient means to verify facts. Section 27 of the Specific Relief Act, 1963 also allows rescission of contract.
Remedies Available
- Rescission of Contract: Cancelling the contract and restoring parties to their pre-contract position (status quo ante).
- Specific Performance: Insisting on performance of contractual obligations as intended under the contract.
Pleading for misrepresentation must comply with Order VI Rule 4 of the Civil Procedure Code, 1908, as affirmed in Placido Francisco Pinto v. Jose Francisco Pinto.
Misrepresentation under English Law (United Kingdom)
Misrepresentation in the UK is governed by the Misrepresentation Act, 1967. It involves a misleading fact that causes a party to enter into a contract.
Types of Misrepresentation
- Innocent Misrepresentation: False statement believed to be true, without negligence.
- Negligent Misrepresentation: False statement made carelessly, without reasonable verification.
- Fraudulent Misrepresentation: Statement made knowingly, recklessly, or without belief in its truth, intending to deceive.
Modes of Misrepresentation
Misrepresentation can be expressed or implied:
- Expressed: Direct oral or written statements.
- Implied: Conduct, gestures, or inclusion in contract terms that mislead.
Different Kinds of Statements and Do They Qualify for Misrepresentation?
Generally, statements of facts are the kinds of statements that qualify for misrepresentation. Such statements are made in regard to a present or past event. However, in certain cases, other statements may also amount to misrepresentation:
Statement Related to the Future
Statements relating to a future event or conduct, where the person making the representation does not have the intention as claimed, amount to misrepresentation.
Statements of Opinion
Commonly, these do not qualify for misrepresentation. It is only when the person making such a statement knows it is false, possesses extraordinary knowledge, or is in a better position to know the truth, that statements of opinion amount to misrepresentation.
Silence as Misrepresentation
It is a common-law rule that silence does not amount to fraud or misrepresentation. However, there are certain exceptions:
- Half-truths: Statements that are true but do not reveal the full truth. When a person reveals part of the information, there is an implied duty to disclose the whole truth.
- Change of State of Affairs: When conditions on which the contract was formulated change and affect prior representations, this must be communicated to the other party.
- Contracts of Utmost Good Faith (Uberrimae Fidei): Contracts based on utmost good faith, such as insurance or sale of immovable property, carry a duty to disclose all material facts. Silence here amounts to misrepresentation.
- Fiduciary Relationship: When parties stand in a relationship where one is trusted to disclose all material facts, failure to do so is deemed misrepresentation.
- Active Concealment: Actively hiding or concealing material facts amounts to misrepresentation.
Effect of Misrepresentation
Misrepresentation is largely governed by the Misrepresentation Act, 1967 in the United Kingdom. The prime remedy for the affected party is the rescission of the contract. Damages were traditionally awarded in cases of fraudulent misrepresentation. However, the 1967 Act also made damages available in cases of negligent misrepresentation.
Remedies Available
Rescission of Contract
Rescission means canceling or revoking the contract, placing parties in the position they were before it was made. Rescission may not be awarded in certain cases, called bars to rescission:
- Where the contract has been confirmed.
- Where there is a significant delay in bringing a case for rescission.
- Where a third party has acquired rights.
- Where it is impracticable to restore parties to their pre-contractual positions.
Damages
Traditionally, damages were only awarded for fraudulent misrepresentation. The Misrepresentation Act, 1967 extended damages to negligent misrepresentation. Section 2(1) allows courts to decline rescission and grant damages if deemed fit. The plaintiff must mitigate damages, proving causation and remoteness on the balance of probabilities, while the defendant bears the burden of proving no misrepresentation occurred.
Comparison Between the Indian and English Legal Systems
In India, misrepresentation is governed by the Indian Contract Act, 1872, particularly sections 18, 19, and 238. Misrepresentation can occur through unwarranted statements, breach of duty, or inducing a party to mistake. The remedies include rescission of the contract or accepting the contract and insisting on performance along with restoration of the original position.
In the United Kingdom, misrepresentation is governed by the Misrepresentation Act, 1967. Three kinds of misrepresentation are recognized: innocent, negligent, and fraudulent. Remedies vary:
- Innocent: Only rescission is available.
- Negligent and Fraudulent: Remedies include rescission and damages.
Conclusion
The main difference between the Indian and English legal systems is that damages are available for negligent misrepresentation in the United Kingdom, providing greater satisfaction to the affected party. This remedy is missing in India, highlighting the need to reform and adapt the Indian Contract Act, 1872 to modern standards and international best practices, aligning with India’s vision to become an international arbitration hub.
End-Notes:
- Isha, Misrepresentation under the Indian Contract Act, 1872: An Overview, IPLEADERS, (Feb 14, 2022 7:55 AM) https://blog.ipleaders.in/misrepresentation-under-the-indian-contract-act-1872-an-overview/#Consequences_of_Making_a_Misrepresentation
- Indian Contract Act, 1872, (Feb 14, 2022 7:56 AM) https://legislative.gov.in/sites/default/files/A1872-09.pdf
- Matthew Clarke, Have you been Misled in Contract Negotiations?, NELSONS, (Feb 14, 2022 7:58 AM) https://www.nelsonslaw.co.uk/misrepresentation-contract/
- Misrepresentation in Contract Law: Negligent, Innocent and Fraudulent Statements (and the Remedies), HALL ELLIS SOLICITORS, (Feb 14, 2022, 7:58 AM) https://hallellis.co.uk/misrepresentation-negligent-innocent-fraud/
- Rashi Jain, Fraud, Misrepresentation, Or Undue Influence Cannot Be Proved Without Specific Pleadings: SC, CURIOUS FOR LAW, (Feb 14, 2022 7:59 AM) https://curiousforlaw.com/fraud-misrepresentation-or-undue-influence-cannot-be-proved-without-specific-pleadings-sc-read-judgment/
- Indian Contract Act, 1872 § 18, No. 9, Acts of Parliament, 1872 (India), (Feb 14, 2022, 7:46 AM) https://legislative.gov.in/sites/default/files/A1872-09.pdf
- Misrepresentation in Contract Law: Negligent, Innocent and Fraudulent Statements (and the Remedies), HALL ELLIS SOLICITORS, (Feb 14, 2022, 7:47 AM) https://hallellis.co.uk/misrepresentation-negligent-innocent-fraud/
- Matthew Clarke, Have you been Misled in Contract Negotiations?, NELSONS, (Feb 14, 2022 7:50 AM) https://www.nelsonslaw.co.uk/misrepresentation-contract/
- Misrepresentation in Contract Law: Negligent, Innocent and Fraudulent Statements (and the Remedies), HALL ELLIS SOLICITORS, (Feb 14, 2022, 7:52 AM) https://hallellis.co.uk/misrepresentation-negligent-innocent-fraud/
