A misrepresentation is an untrue statement of a material fact made by one party which affects the other party’s decision in corresponding to a contract. If the misrepresentation is identified, the contract can be declared void and depending on the situation, the unfavourably impacted party may seek damages. In such a contract dispute, the party who made the misrepresentation becomes the defendant and the aggrieved party is the plaintiff. Misrepresentation in contract law is especially important in business dealings where huge transactions occur with high frequency. Misrepresentations of the value and/or risk correlated with an agreement can cause enormous financial losses to businesses and individuals while increasing the risk of collaborative business ventures. Accordingly, misrepresentation contract law is vital to ensuring fairness and diminishing the risk of entering into agreements between individuals and businesses.

Misrepresentation is defined under section 18 of the Indian Contract Act, 1872 which says, a misrepresentation is a form of a statement made preceding to the contract being completed.

For understanding the concept of misrepresentation first, we need to know the meaning of representation in terms of the contract. A representation is said to be such statement which generates the entry into a contract but is not a part of a term of the contract. Misrepresentations is about giving of inaccurate information by one party (or their agent) to the other before the contract is made which induces them to make the contract. If a person makes a contract in reliance on misrepresentation and has to face loss as a result, they can revoke the contract or claim damage
Types of Misrepresentation
There are three types of misrepresentation present in the contract:

• Fraudulent misrepresentation
Fraudulent misrepresentation will happen when a false representation is made and the party making the representation let say X knew it was false or was reckless as to whether it was correct or incorrect- the lack of an accurate belief in its truth will present it a fraudulent one. If A honestly believes the statement to be true it cannot be a fraudulent misrepresentation, negligence in creating a false statement will not result in fraud. However, if it can be shown that A suspected that the statement might be incorrect or wrong, but made no enquiries to check the position, that will be sufficient. It will not be mandatory to prove a dishonest motive.

• Negligent misrepresentation
Negligent misrepresentation under the Misrepresentation Act 1967 (MA 1967) befalls where a declaration is made by one contracting party to another negligently or without reasonable grounds for believing its truth. The test is an impersonal one.There is no obligation to establish fraud. If the innocent party can prove the statement was false, it will be for the maker of the statement to establish that it rationally believed in the truth of the statement (that is, the representation).A solution for negligent misrepresentation remain at common law, however, its use in contractual situations has been considerably lessened as a result of Section 2(1) of the MA 1967.

• Innocent misrepresentation
Misrepresentation made completely without fault can be described as an innocent misrepresentation.If X is unable to show it had objective grounds to believe its declaration was true the misrepresentation will be fraudulent or negligent.
Raymond Woollen Mills Limited v. Income Tax Officer, Centre Circle Xi, Range Bombay And Others

In the above-cited case, the appellant has argued that the Department has made a grievous mistake. In coming to the conclusion. In this case, the court does not have to give a final decision as to whether there is a suppression of evidence. The fact is not a thing to be considered at this stage. We are of the view that the Court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to the understatement of profits. This information was obtained by the Revenue in a subsequent year’s assessment proceeding. There was prima facie of the fact on the basis of which the department could reopen the case further. The sufficiency or the correctness of the fact or material is not a thing to be considered at this stage.

Raj Kumar Soni Vs. State of U.P 2007

Here in the case again the suppression of material facts has been held to be the opposition of process of law and it has been held that the party guilty of not representing the right facts is not to be benefited with any perks as it has to be held that such a party would not have to knock the doors of the court with clean hands.

Representation of state of mind
Representation initiates and induces a contract. It is the information by which a contracting party decides whether to continue with the contract. A representation is an express or implied statement that one party to the contract forms to the other before or at the point of the contract. It is entered with regard to past or existing fact. An illustration might be that a seller of some commodity represents that no notification of patent infringement had been received.
A representation initially cannot be a part of a contract and a claim for damages due to a misrepresentation ordinarily would not be allowed. Instead, a claim that a misrepresentation induced a contract might be pursued in fraud, either to revoke the contract or for damages. In some cases, a claim might be based on the tort of negligent misrepresentation.

Aishwarya Says:

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