Name: Muhammad Saad S/O Amanullah
Roll No: 222020
Semester: 6th
Department of Law and Sharia (UOS)
MISREPRESENTATION
Meaning and Definition
Misrepresentation means a false statement about material facts of a contract made without any
intention to deceive the other party which induces him to enter into the contract.
Section 18 states, “Misrepresentation means and includes:
1. The positive assertion, in a manner not warranted by the information of the person making it,
of that which is not true, though he believes it to be true;
2. Any breach of duty which, without an intent to deceive, gains an advantage to the person
committing it, or anyone claiming under him, by misleading another to his prejudice or to the
prejudice of anyone claiming under him
3. Causing however innocently a party to an agreement to make a mistake as to the substance of
the thing which is the subject of the agreement.
Essentials of Misrepresentation
The following are the essentials of misrepresentation:
1. Positive Assertion
A positive assertion means an absolute and clear statement of a fact. When a person makes a
positive statement of facts about a contract without any proper source of information, believing it
to be true though it is not, there is a misrepresentation.
EXAMPLES
a. A tells B that his land produces 4000 kg of wheat per acre. A believes it to be true. B buys it.
Later, B finds out that the land produces 1000 kg of wheat per acre. It is a misrepresentation.
b. U sold a mine to S and told facts about the mine that were false. U believed them to be true.
Later, S discovered the actual facts. It was a misrepresentation. (Sheffield Nickel Co. vs. Unwin)
2. Breach of Duty
When a person commits a breach of duty and, as a result, gains an advantage and the other party
is misled and suffers a loss, there is a misrepresentation. A breach of duty is considered as
misrepresentation if it is committed without any intention to deceive the other party.
EXAMPLES
a. X hires Y, a lawyer, to file a suit in court. Y files the suit in the wrong section and the suit is
dismissed. As a result, X suffers a loss. X can cancel the contract with Y.
b. A told B that sales of his business were £2000 before the contract was made. The sales
decreased to £240. A did not inform B about the decrease in sales. Held, it was a
misrepresentation. (With vs. O’Flanagan)
3. Inducing Mistake
All parties must clearly understand all facts of a contract. If one party induces the other party,
though innocently, to commit a mistake regarding the facts of a contract, there is a
misrepresentation.
EXAMPLES
a. A tells B that his motorcycle is free from defects. But the motorcycle has an inbuilt defect. B
buys the motorcycle. It is a misrepresentation.
b. Z agreed to purchase shares of a company. The company showed liabilities of 16 million by
mistake. Its actual liabilities were 32 million. Z sued to cancel the agreement held the agreement
was voidable (Zafar Ahmad vs Government Of Pakistan)
Effects of Misrepresentation
The following remedies are available to the aggrieved party:
1. He can rescind the contract.
2. He can accept the contract and ask the other party to restore him to the original position.
Burden of Proof
The burden of proof that misrepresentation was used lies on the party who wants to set aside the
contract on the grounds of misrepresentation.
Loss of Right of Cancellation
The aggrieved party loses his right to cancellation in the following cases:
1. Affirmation
After becoming aware of his right to rescind the contract, if the aggrieved party confirms the
contract by express words or an act, the right to rescission is lost.
Example:
B purchased shares of company S based on a misleading prospectus. B became aware of its
falsity but accepted the dividends paid by S. B cannot avoid the contract.
2. No Restoration
The right to rescission is lost if the aggrieved party is not in a position to restore the benefits
obtained by him under the contract, i.e., subject matter of the contract is consumed.
Example:
B buys apples from C through fraud. B eats all the apples. C cannot avoid the contract.
3. Lapse of Time
If the aggrieved party fails to rescind the contract within a reasonable time of discovering the
false representation or becoming aware of the fraud, the right to rescission is lost.
Example:
X buys a car from Y through fraud. Despite knowledge of the fraud, Y does not rescind the
contract. Y loses his right to avoid the contract after a reasonable time.
4. Rights of Third Party
The right to rescission is lost if a third party acquires rights in the subject matter of the contract
in good faith for consideration and without knowledge of the misrepresentation between the
other parties.
EXAMPLE
A buys a watch from B by misrepresentation and sells it to C. C buys the watch in good faith. B
loses the right to cancel the contract.
DIFFERENCE BETWEEN FRAUD AND MISREPRESENTATION
1. Intention
In Fraud There is an intention to deceive the other party.
In misrepresentation There is no intention to deceive the other party. |
2. Belief
In Fraud The person making the wrong statement does not believe it to be true.
In misrepresentation The person making the wrong statement believes it to be true.
3. Damages
In fraud The aggrieved party can claim damages.
In misrepresentation The aggrieved party cannot claim damages.
4. Offense
Fraud involves criminal liability. Misrepresentation does not involve criminal liability.
5. Effect
In Fraud The aggrieved party can avoid the contract even if he could have discovered the truth
with ordinary diligence.
In misrepresentation The aggrieved party cannot avoid the contract if he could have discovered
the truth with ordinary diligence. |
