Misrepresentation in Contract Law

Edited By Ritika Jonwal | Updated on Jul 02, 2025 05:44 PM IST

A misrepresentation is a false declaration of a substantial fact made by one party that influences the other party's choice under a contract law. If the misrepresentation is discovered, the contract might be deemed void, and depending on the circumstances, the adversely affected party may claim damages. In such a contract dispute, the party that committed the deception becomes the defendant, while the injured party is the plaintiff. Misrepresentation in contract law is particularly relevant in commercial operations when large transactions occur often. Misrepresentations of the value and risk associated with an agreement can result in massive financial losses for organisations and individuals, raising the risk of joint business endeavours. As a result, misrepresentation of contract law is critical for guaranteeing fairness and minimising the danger of engaging in agreements between individuals and organisations.

This Story also Contains

The Meaning of the word ‘Misrepresentation’
How Does Misrepresentation Work?
Types of Misrepresentation
Remedies for Misrepresentation
The Effects of Misrepresentation
Misrepresentation and Fraud in Contract Law
Case Laws
Conclusion

Misrepresentation in Contract Law

The Meaning of the word ‘Misrepresentation’

Section 18 of the Indian Contract Act of 1872 covers the idea of misrepresentation. It defines misrepresentation as any statement made before the fulfilment of a contract. According to Section 19 of the Act, misrepresentation can render a contract unenforceable.

Statements made before the creation of a contract can be divided into two categories:

Statements that are part of the contract.
Statements that do not form part of the contract are considered representations.

However, the presence of misrepresentation does not always render a contract voidable. There are certain conditions:

The contract remains lawful if the assertion might have been detected with ordinary diligence.
If the statement does not alter the consent of the person to whom it was made, the contract is unaffected.

How Does Misrepresentation Work?

Misrepresentation is limited to assertions of fact, not views or projections. Misrepresentation is a foundation for contract violation in all transactions, regardless of size.

A vendor of a car in a private transaction may mislead the number of miles to a prospective buyer, causing the individual to acquire the vehicle. If the customer later discovers that the automobile has significantly more wear and tear than advertised, they can sue the vendor.

In higher-risk instances, a misrepresentation might be deemed a default event by a lender, such as in a credit arrangement. Meanwhile, misrepresentations might be grounds for the termination of a mergers and acquisitions (M&A) agreement, in which case a significant break fee may apply.

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Types of Misrepresentation

The contract contains three sorts of misrepresentations:

Negligent misrepresentation

Negligent misrepresentation under the Misrepresentation Act 1967 (MA 1967) occurs when one contractual party makes a declaration to another carelessly or without reasonable grounds to believe it is true. The test is impersonal.

There is no duty to prove fraud. If the innocent person can prove that the statement is untrue, the producer of the statement must demonstrate that it rationally believed in the statement's veracity (that is, the representation).

A solution for negligent misrepresentation remains at common law, although its applicability in contractual settings has been significantly reduced as a result of Section 2(1) of the MA 1967.

Fraudulent misrepresentation

Fraudulent misrepresentation occurs when a false representation is made and the person making the representation, say, X, understood it was untrue or was irresponsible as to whether it was correct or incorrect--the absence of an exact belief in its reality renders it fraudulent. If A honestly thinks the statement is accurate, it cannot constitute a fraudulent misrepresentation; ignorance in making a false statement does not result in fraud. However, if it can be demonstrated that A suspected the statement to be incorrect but made no inquiries to verify the situation, that will suffice. It will not be necessary to establish a dishonest purpose.

Innocent misrepresentation

Innocent misrepresentation is a false statement of significant fact made by a defendant who was uninformed of the statement's falsity at the time the contract was signed. Rescission or contract cancellation is often the remedy in this circumstance. Consider the following scenario: a land seller notifies a buyer by mistake that planning approval has been granted for a new home development near the property. Based on information from a neighbour, the seller truly thought this to be the case.

Unfortunately, the vendor was not aware that the planning clearance had been refused. Because the buyer relied on this information when deciding to acquire the land, the seller may be held accountable for benign misrepresentation if they made a mistake.

Remedies for Misrepresentation

The remedies available for misrepresentation under the Indian Contract Act, given that it is a voidable contract entered into unknowingly by a party, are as follows:

Rescission: Rescission is the cancellation or termination of a contract. The injured party may pursue contract rescission and/or damages. Rescission seeks to return the parties to their pre-contractual position as much as feasible (the status quo ante).

Performance: Under Contract Law, the injured party can require the party that committed the misrepresentation to satisfy their contractual duties in the way originally agreed upon. It is vital to highlight that the remedies for misrepresentation are intended to offer relief to the party that has been negatively impacted by the deception, allowing them to either cancel the contract or enforce its original provisions.

The Effects of Misrepresentation

Section 19 of the Indian Contract Act provides that if permission to an agreement is acquired via deception, the aggrieved party has the right to insist on the contract's fulfilment and avoid or cancel it.

In Long v. Lloyd (1958), the defendant sold their vehicle to the plaintiff by fraudulently representing that it was in great condition. However, they identified severe flaws on the plaintiff's first trip with the vehicle. Despite this, the plaintiff accepted the defendant's offer to split half the repair costs. Unfortunately, the vehicle entirely broke down on the following voyage, prompting the plaintiff to cancel the contract.

However, the court determined that the plaintiff became aware of the deception under Contract Law during their first drive and had the option to withdraw from the contract. Because the plaintiff elected not to do so, they could not seek damages based on the misrepresentation.

Misrepresentation and Fraud in Contract Law

Fraud occurs when a false statement is made with the intent to deceive the other party. The individual making the assertion is aware it is untrue and aims to deceive the other party. This is an obvious act of deceit that entails more responsibility.

Misrepresentation, on the other hand, happens when someone makes a misleading statement yet truly thinks it to be true. There is no purpose for deceiving or misleading the opposing party. The deception is done in good faith, yet it nonetheless leads the other party into a contract based on incorrect information.

To demonstrate the distinction, consider the following examples:

In the example of fraud, X sells an automobile with an engine problem while fraudulently representing it as being in outstanding condition. X plans to mislead Y and get them to buy the automobile. This is an obvious example of deception.

In the event of deception, X truly feels the automobile is in good condition and makes a statement to that effect. However, unbeknownst to X, the vehicle has an engine issue. X's assertion is made in good faith but may be more accurate, prompting Y to buy the automobile based on incorrect information.

Case Laws

Noorudeen and Ors. vs. Umairathu Beevi and Ors. (1998)

This is an example or illustration of a transaction that was set aside due to fraud and misrepresentation. The defendant, the plaintiff's son, received an important execution from the plaintiff, which was described as a hypothecation deed of the plaintiff's property. Not only so, but the document executed was a sale deed for the plaintiff's property by way of deception. The plaintiff was a blind guy. As a result, it was determined that the deed executed under deception was set aside.

Smith v Land and House Property Corporation (1884)

In this case, the plaintiff advertised his hotel for sale, claiming that it was left to a highly desired renter. The defendants agreed to purchase the hotel from the renter. But the tenant was insolvent. As a result, the defendants declined to sign and were sued by the plaintiff. The court of appeals ruled that the plaintiff's declaration was not just an opinion, but a reality.

Remedies: The cures for this activity are as follows:

Rescission - Under this clause, the contract is effectively unravelled and aims to put both parties back in position, and the claimant may opt to affirm the contract rather than rescind it.

Affirmation resulted in the contract's continuance. The contract cannot be withdrawn after it has been affirmed. It can occur explicitly or implicitly.

Conclusion

In summary, based on the aforementioned elements, we can determine if a contract is invalid or voidable depending on the particular facts of the case. An invalid contract cannot be enforced by both parties; on the other hand, if it is deemed voidable, it may be terminated or revoked even while it remains valid. In essence, a voidable contract may be terminated by any party at any time, whereas a void contract cannot be carried out. If a contract contains a mistake or misrepresentation, it may be deemed void and annulled. The contract may be voidable and so subject to cancellation if there has been duress or improper influence.

Misrepresentation is defined as making a misleading statement of fact to entice the parties to engage in a contract. Consent gained by deception is not regarded as freely given. As a result, the contract is voidable, which means that the innocent party has the option of affirming or rescinding the contract based on the misrepresentation under the Indian Contract Act. Misrepresentation can take the shape of positive claims or declarations, but the main need is a misleading representation of a fact. The statement of misrepresentation is intended to deceive or encourage the other party to engage in the contract. The misrepresentation must occur before the contract's conclusion or finalisation.

Frequently Asked Questions (FAQs)

1. What does it mean to mislead in a contract, for instance?

In any transaction, regardless of magnitude, misrepresentation is a foundation for contract violation. In a private transaction, an automobile vendor may give false information to a potential buyer about the car's mileage, leading the buyer to make the purchase.

2. Which three categories of deception exist in contract law?

There are three main types of misrepresentation: Fraudulent misrepresentation, Negligent misrepresentation, and Innocent misrepresentation.

3. What does contract case law define as misrepresentation?

A misrepresentation occurs when one party makes a misleading statement about a substantial fact that influences the other party's choice on a contract. If the misrepresentation is proven, the contract may be deemed invalid, and the party that was negatively harmed may be entitled to damages.

4. What does Section 18 of Contract Law define as misrepresentation?

Justifications for voidable contracts: A contract may be voidable owing to errors, fraud, coercion, or undue influence, among other reasons. Redress in cases of voidable contracts: Depending on the details of the voidable contract, remedies may include revocation, damages, restitution, and specific performance.

5. Can silence constitute misrepresentation?

Generally, silence does not constitute misrepresentation. However, in certain circumstances, such as when there's a duty to disclose information or when silence renders a previous statement misleading, it can amount to misrepresentation.

6. How does the parol evidence rule interact with misrepresentation claims?

The parol evidence rule generally prevents parties from introducing external evidence to add to, vary, or contradict a written contract. However, evidence of misrepresentation is typically admissible as an exception to this rule, as it goes to the validity of the contract itself.

7. How does the "reasonable person" standard apply to misrepresentation cases?

The "reasonable person" standard is used to determine whether a statement would have induced a reasonable person to enter into the contract. This helps courts assess whether the misrepresentation was material enough to justify rescission or damages.

8. Can a party claim misrepresentation if they had the opportunity to verify the information but didn't?

Generally, parties have a duty to take reasonable steps to verify information. If a party had a clear opportunity to check the accuracy of a statement but chose not to, it might weaken their claim of misrepresentation. However, this doesn't absolve the misrepresenting party of responsibility.

9. How does the concept of "reliance" factor into misrepresentation claims?

Reliance is crucial in misrepresentation claims. The claimant must prove that they relied on the misrepresentation when deciding to enter into the contract. If they would have entered into the contract regardless of the false statement, their claim may fail.

10. What is the significance of "partial truth" in misrepresentation cases?

Partial truth can amount to misrepresentation if it creates a false impression. Even if a statement is technically true, if it omits crucial information that would change its meaning or impact, it can be considered a misrepresentation. This underscores the importance of full and accurate disclosure.

11. What is the difference between misrepresentation and mistake in contract law?

Misrepresentation involves a false statement made by one party to another, inducing them to enter into a contract. Mistake, on the other hand, occurs when one or both parties have an erroneous belief about a fact related to the contract, without any false statement being made.

12. How does the concept of "reasonable reliance" factor into misrepresentation cases?

Reasonable reliance is a key element in misrepresentation claims. The claimant must show that their reliance on the false statement was reasonable under the circumstances. If it was unreasonable to rely on the statement (e.g., it was obviously false or the claimant had means to easily verify it), the claim may fail.

13. What is the role of "expert opinion" in misrepresentation cases?

Expert opinions can be crucial in misrepresentation cases, particularly for technical or specialized matters. If an expert gives an opinion that turns out to be false, it may be treated as a statement of fact rather than mere opinion, potentially giving rise to a misrepresentation claim.

14. How does the concept of "causation" apply in misrepresentation cases?

Causation is vital in misrepresentation claims. The claimant must prove that the misrepresentation caused them to enter into the contract and suffer loss. If the loss would have occurred regardless of the misrepresentation, or if the claimant's decision wasn't influenced by it, the claim may fail.

15. What is misrepresentation in contract law?

Misrepresentation in contract law is a false statement of fact made by one party to another, which induces them to enter into a contract. It's important to note that misrepresentation is different from a mere opinion or sales talk, as it must be a statement of fact that is untrue or misleading.

16. How does misrepresentation differ from a breach of contract?

Misrepresentation occurs before or during the formation of a contract, inducing a party to enter into the agreement. A breach of contract, on the other hand, happens after the contract is formed when one party fails to fulfill their contractual obligations.

17. What is the difference between a representation and a term in a contract?

A representation is a statement made before or during the formation of a contract that induces a party to enter into the agreement. A term, however, is a binding promise that forms part of the contract itself. Breach of a term leads to a breach of contract, while a false representation may lead to misrepresentation.

18. What is the significance of "materiality" in misrepresentation?

Materiality refers to the importance of the misrepresentation in inducing the other party to enter into the contract. A misrepresentation must be material for it to be actionable, meaning it must have significantly influenced the decision to enter into the contract.

19. Can a statement of opinion ever be considered a misrepresentation?

Generally, statements of opinion are not considered misrepresentations. However, if the person giving the opinion has special knowledge or expertise, or if they don't actually hold that opinion, it could potentially be treated as a misrepresentation.

20. What remedies are available for misrepresentation?

The main remedies for misrepresentation are:

21. What is the difference between rescission and termination in misrepresentation cases?

Rescission is the primary remedy for misrepresentation, aiming to put the parties back in their pre-contractual positions as if the contract never existed. Termination, on the other hand, ends the contract from the point of termination forward but doesn't undo past performance.

22. What is the significance of the Misrepresentation Act 1967 in English law?

The Misrepresentation Act 1967 is a key piece of legislation in English misrepresentation law. It provides statutory remedies for misrepresentation, including damages for negligent misrepresentation, and places the burden of proof on the defendant to show they had reasonable grounds to believe their statement was true.

23. How does the "duty to mitigate" apply in misrepresentation cases?

The duty to mitigate requires the injured party to take reasonable steps to minimize their losses once they become aware of the misrepresentation. This principle applies when calculating damages for misrepresentation, potentially reducing the amount of compensation if the claimant failed to mitigate their losses.

24. Can a misrepresentation claim be made if the contract has an "entire agreement" clause?

An "entire agreement" clause (also known as an integration clause) typically states that the written contract contains all the terms agreed upon. While this can limit contractual claims, it generally doesn't prevent claims for misrepresentation, as these relate to pre-contractual statements.

25. How does the concept of "inducement" relate to misrepresentation?

Inducement is a crucial element in misrepresentation claims. The false statement must have induced the claimant to enter into the contract. If the claimant would have entered into the contract regardless of the misrepresentation, their claim may fail due to lack of inducement.

26. What is the effect of a "non-reliance" clause in a contract on misrepresentation claims?

A "non-reliance" clause states that the parties have not relied on any statements or representations not included in the contract. While these clauses can make misrepresentation claims more difficult, they are not always enforceable, especially in cases of fraud or where it would be unreasonable to exclude liability.

27. How does the concept of "materiality" interact with the "but for" test in misrepresentation cases?

The "but for" test asks whether the claimant would have entered into the contract but for the misrepresentation. Materiality relates to how significant the misrepresentation was in the decision-making process. A material misrepresentation is more likely to satisfy the "but for" test, showing that it truly induced the contract.

28. What is the role of "constructive knowledge" in misrepresentation claims?

Constructive knowledge refers to information that a party ought to have known, even if they didn't actually know it. In misrepresentation cases, if a party had constructive knowledge of the truth, it might weaken their claim, as they could be seen as not reasonably relying on the misrepresentation.

29. What is the difference between a warranty and a representation in contract law?

A warranty is a term of the contract, the breach of which gives rise to a claim for damages but not a right to terminate the contract. A representation, on the other hand, is a statement made before or during the formation of the contract that, if false, may give rise to a claim for misrepresentation.

30. What are the three types of misrepresentation?

The three types of misrepresentation are:

31. What is the role of "intention" in determining the type of misrepresentation?

Intention plays a key role in distinguishing between the types of misrepresentation. Fraudulent misrepresentation requires an intention to deceive, negligent misrepresentation involves carelessness, while innocent misrepresentation occurs despite honest intentions.

32. How does the concept of "puffery" relate to misrepresentation?

Puffery refers to exaggerated statements or claims made by sellers about their products or services, which are not meant to be taken literally. Generally, puffery is not considered misrepresentation as it's seen as mere sales talk or opinion rather than a statement of fact.

33. What is the "duty to disclose" in relation to misrepresentation?

The duty to disclose refers to situations where a party is legally obligated to reveal certain information, even if not directly asked. This can arise in fiduciary relationships, contracts of utmost good faith (like insurance), or when partial disclosure would be misleading without full disclosure.

34. What is the significance of the case Derry v Peek in misrepresentation law?

Derry v Peek (1889) is a landmark case that established the elements of fraudulent misrepresentation. It held that to prove fraud, the claimant must show that the false statement was made knowingly, or without belief in its truth, or recklessly without caring whether it was true or false.

35. What is the significance of the case Hedley Byrne v Heller in misrepresentation law?

Hedley Byrne v Heller (1964) established that a duty of care exists when giving advice or information, even in the absence of a contractual relationship. This case is crucial in the development of negligent misrepresentation, allowing claims for purely economic loss resulting from negligent statements.

36. How does the "doctrine of merger" affect misrepresentation claims?

The doctrine of merger states that once a contract is reduced to writing, all prior negotiations and agreements are merged into the written document. However, this doesn't typically prevent misrepresentation claims, as these relate to the validity of the contract itself rather than its terms.

37. How does the concept of "continuing representation" affect misrepresentation claims?

A continuing representation is one that continues to operate and induce reliance even after the initial contract formation. If a misrepresentation is continuing, the time limit for bringing a claim might be extended, as the misrepresentation is seen as ongoing rather than a one-time event.

38. What is the effect of a "subject to contract" clause on misrepresentation claims?

A "subject to contract" clause indicates that parties don't intend to be bound until a formal contract is executed. While this can protect against certain contractual claims, it generally doesn't prevent misrepresentation claims, as these relate to inducement to enter negotiations or agreements, even if not yet formalized.

39. What is the difference between rescission "in integrum" and rescission "ab initio"?

Rescission "in integrum" means restoring the parties to their exact pre-contractual positions, which is the ideal form of rescission. Rescission "ab initio" means treating the contract as void from the beginning. In practice, perfect restoration isn't always possible, so courts may order partial rescission or award damages to achieve a fair outcome.

40. How does the "de minimis" principle apply to misrepresentation cases?

The de minimis principle suggests that the law does not concern itself with trifles. In misrepresentation cases, this might mean that very minor or insignificant misrepresentations may not be actionable. The misrepresentation must be material enough to have reasonably induced the contract.

41. What is the significance of the "date of discovery" in misrepresentation claims?

The date of discovery is crucial for limitation periods in misrepresentation claims. The time limit for bringing a claim typically starts from when the misrepresentation was or should have been discovered, not necessarily from when it was made. This is particularly important for latent misrepresentations.

42. How does the concept of "contributory negligence" apply in misrepresentation cases?

Contributory negligence, where the claimant's own negligence contributed to their loss, can be relevant in cases of negligent misrepresentation. It may reduce the damages awarded, reflecting the claimant's share of responsibility for the loss suffered.

43. What is the "bar to rescission" and how does it affect misrepresentation claims?

Bars to rescission are circumstances that prevent a party from rescinding a contract for misrepresentation. These include affirmation of the contract after discovering the misrepresentation, inability to restore the parties to their pre-contractual positions, and third-party rights intervening.

44. How does the concept of "entire agreement" clauses interact with misrepresentation claims?

Entire agreement clauses state that the written contract contains all terms agreed upon. While these can limit contractual claims based on pre-contractual statements, they generally don't prevent misrepresentation claims, as these relate to the validity of the contract itself rather than additional terms.

45. How does the principle of "uberrimae fidei" (utmost good faith) relate to misrepresentation?

The principle of uberrimae fidei, most commonly associated with insurance contracts, requires parties to disclose all material facts, even if not directly asked. In these contracts, failure to disclose can amount to misrepresentation, even without an explicit false statement.

46. What is the "collateral contract" theory in relation to misrepresentation?

The collateral contract theory suggests that pre-contractual statements can sometimes be treated as separate, collateral contracts. This can provide an alternative route for claimants when a misrepresentation claim might be difficult, allowing them to sue for breach of the collateral contract instead.

47. How does the concept of "estoppel" interact with misrepresentation claims?

Estoppel can prevent a party from denying the truth of a statement they've made if another party has relied on it. In misrepresentation cases, estoppel might prevent a defendant from arguing that their statement wasn't meant to be relied upon if it would be unconscionable to do so.

48. What is the significance of "non-disclosure" in misrepresentation law?

While generally, there's no duty to disclose information in contract negotiations, non-disclosure can amount to misrepresentation in certain circumstances. These include when there's a fiduciary relationship, when partial disclosure would be misleading without full disclosure, or in contracts of utmost good faith.

49. How does the concept of "remoteness of damage" apply in misrepresentation cases?

Remoteness of damage limits the losses that can be claimed to those that are reasonably foreseeable consequences of the misrepresentation. Losses that are too remote or unforeseeable may not be recoverable, even if they can be traced back to the misrepresentation.

50. What is the role of "intention to create legal relations" in misrepresentation cases?

While intention to create legal relations is crucial for contract formation, it's less central to misrepresentation claims. Misrepresentation can occur even in social or domestic contexts where there might not be an intention to create legal relations for a full contract.

51. How does the concept of "mistake" interact with misrepresentation in contract law?

Mistake and misrepresentation can overlap. A misrepresentation often leads to a mistake by the other party. However, mistake doesn't require any false statement by the other party. In some cases, a party might have claims available under both misrepresentation and mistake doctrines.

52. What is the significance of "reliance damages" in misrepresentation cases?

Reliance damages aim to put the claimant in the position