What is misrepresentation in law? What is its scope as well as its effects?

Misrepresentation

Misrepresentation is when one contracting party makes a statement which is untrue and it encourages the other party to enter into the contract by way of which they suffer some loss.

For instance, A wants to enter into a contract with B to sell a horse and B asks for a healthy 12 year old horse. A makes a statement that the horse is healthy and meets all of B’s requirements but in reality the horse is 15 years old and has been sick for a while. Because of A’s statement about the horse, B was induced to enter into the contract and B wouldn’t have entered into the contract had he known the truth. Therefore, B has a remedy for misrepresentation against A.

There are certain statements in the form of representations that pave the way for the contract without actually constituting the terms of the contract. If these representations are untrue it is referred to as misrepresentations. If a person enters into a contract by relying upon these misrepresentations and suffers loss as a result, they can be held liable.[i]

A misstatement amounts to misrepresentation only if it is a statement of fact or law and not of an opinion. A statement of opinion could also include sale techniques, if a salesman who sells soft toys tells a customer that one toy in particular is the cutest among the lot, the salesman can’t be held liable for misrepresentation.

To sum up, a misrepresentation is a statement of fact or law which is false and it induces a party to enter into a contract who would not have otherwise entered into it.

Establishing a Misrepresentation:

Statements of opinion

As already established, a statement of opinion doesn’t constitute misrepresentation. In the case of Bisset vs. Wilkinson[ii], Bisset sold a holding in New Zealand to Wilkinson. He made a statement prior to the sale that if the land worked properly, it could hold 2000 sheep. The land had never been used for sheep farming before and Wilkinson was aware of this. After the sale, Wilkinson found out that the land couldn’t hold 2000 sheep and sued Bisset for misrepresentation and sought for rescission of contract. The court held that the buyer knew that the land had never been used for sheep farming and that the seller’s statement could not have been anythingother than a matter of opinion.

Statements of intention

A false statement of a person’s intention may result in misrepresentation. In Edgington vs. Fitzmaurice[iii], the directors of a company invited loans from the public stating that the money would be used to expand the company and to improve its buildings. However, the real intention of the Directors was to use the money to pay off the company’s existing debts. The Court considered that in this case, the statement of intention was also a statement of fact and held the Directors responsible for Misrepresentation.

Silence as misrepresentation

The general rule states that silence doesn’t amount to misrepresentation, however there are certain circumstances where failure to speak might result in misrepresentation. In Fletcher vs. Krell[iv] a woman who applied for the post of a governess did not reveal that she was a divorcee. This was during a time when such things were relevant. However, the Court held that in this situation, silence did not amount to misrepresentation.

Half-truths as misrepresentation

It is not enough to say something that is superficially true if there is also an underlying representation which is false.[v] In Dimmock vs. Hallett[vi], a seller of a land of two adjoining farms said to the buyer that both were fully let. This was true, however, the seller failed to disclose that both tenants had already given notice to quit. The Court considered this to be misrepresentation.

Contracts of ‘uberrimae fidei’

Uberrimae fidei contracts refer to ‘utmost good faith’ contracts. This is a class of agreements where one party is under a fundamental duty to disclose all material facts and associated circumstances that could influence the decision of the other party to enter into an agreement. All insurance contracts are examples of contracts of uberrimae fidei. A consumer seeking an insurance policy is bound to disclose all material facts to the insurer which is likely to influence his decision while ascertaining the premium or even determining if the insurer wants to take up the risk. For instance, John, a consumer seeks to purchase a life insurance from X Insurance Co. Ltd. He is a smoker and doesn’t disclose this fact to the insurer at the time of drawing the policy. John is liable for misrepresentation.

Rescission of the contract:

Misrepresentation makes a contract voidable and the party that suffered some loss due to this misrepresentation must take measures to rescind it. Upon discovery of the misrepresentation, the victim of the misrepresentation (representee) might seek the right to rescind the contract as the contract becomes voidable.

  • The right to rescind

‘Restitutio in integrum’ is a Latin term which refers to restoring the injured party to position they were in before the contract was made. The whole transaction is set aside and the parties are restored to their original position.

Sections 27-30 of the Specific Relief Act, deal with rescission of contracts. Section 27 gives the power to the Courts to adjudge rescission in the following cases:

  • Where the contract is voidable or terminable by the plaintiff
  • Where the contract is unlawful for causes not apparent on its face and the defendant is more to blame than the plaintiff.
  • Indemnity

In general, Indemnity refers to a contractual obligation of one party to compensate for the loss suffered by another party as a result of their actions. If a contract is rescinded, it means that the entire contract is wiped out and becomes non-existent. Therefore, it is not possible to recover damages for breach of the contract or to recover all expenses that were incurred by the claimant. However, a representee may be able to rescind the contract and also recover all expenses by way of Indemnity. This principle ensures that the representor (person making the misrepresentation) doesn’t unjustly profit off of the representee’s expenditure. 

Edited by Pushpamrita Roy

Approved & Published – Sakshi Raje 

Reference:

[i] Robert Upex, Geoffrey Bennett, ‘Davies on Contract’, Tenth Edition 111.

[ii] [1927] AC 177, PC.

[iii] (1885) L R 29 Ch. D. 459, CA.

[iv] (1873) 42 LJ (QB) 55

[v] Paul S Davies, ‘JC Smith’s The law of Contract’, Second edition 230. 

[vi] (1866-67) LR 2 Ch App 21.

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I am Sindhu, a student of Christ (Deemed to be) University. I am pursuing BA LLB, which means that most of my sentences start with "it depends". I am 11 inches taller than an average Indian woman. I am a strong believer of the fact that there's something new to learn everyday. My fixation is primarily on Intellectual property law. Topics surrounding Criminal law, Environmental law and Indian Government and politics pique my interest as well. I present an enthusiastic aptitude for research and writing. During my free time I like to read books that will leave an impression on me forever and I enjoy baking. In my opinion, "Take each day as it comes" are words to live by.