What is Misrepresentation

Misrepresentation

The Word 'Misrepresentation' means a statement of facts made by one party to the other party or at the time contract is made with the regard to some existing facts or some past events which materially induces the formation of the agreement. A wrong representation when made innocently is Misrepresentation.

Example : A intends to sell his horse to B and says, "My horse is perfectly sound". A genuinely believes the horse to be sound, although he does not know that the horse has fallen ill yesterday. B there upon buys the horse. There is misrepresentation on the part of A.

Thus misrepresentation means false representation made innocently with an honest belief as to its truth by a party without any intention to decieve. 

The leading case on this point is :

DERRY V. PEEK (1889)

A company's prospectus contained a representation that the company has been authorised by a special Act of Parliament  to runs trams by steam or mechanical power. The authority to use steam was, in fact, subject to the approval of the board of Trade, but no mention was made of this. The Board refused consent and consequently the company was wound up. The plaintiff having bought some shares, sued the directors for fraud. But they were held not liable.

They were not guilty of fraud as they honestly believed that once the parliament has authorised the use of steam, the consent of the board was practically concluded. It follows, therefore, that the person making a false representation is not guilty of fraud if he honestly believes in its truth.

What Are The Effects of Fraud

What Are The Effects of Fraud

When consent to an agreement is caused by fraud, the agreement is a contract voidable at the option of the party whose consent was so caused.

A party whose consent to an agreement was caused by fraud has two remedies, namely :

• ha may rescind the contract, or
• he may insist that the contract shall be performed and that he shall be put in the position in which have been, if the representation made had been true.

Example : A fraudulently informs B that A's estate is free from encumberance. B thereupon buys the estates. The estate is subject to a mortgage. B may avoid the contract or may insist on its carried out and the mortgage debt repaid by A.

Apart from the above, the person defrauded may obtain rescission, restitution or damages. The aforesaid remedies are subject to an exception. A contract cannot be avoided on the ground of misrepresentation or silence amounting to fraud., if a party to whom an untrue or misleading statement was made had the means of discovering the truth with reasonable diligence. 

Is Mere Silence Is Not Fraud

Is Mere Silence Is Not Fraud

A silence to the contract is under no obligation to disclose the whole truth to the other party. 'CAVEAT EMPTOR' i.e., let the purchaser beware is the rule applicable to contracts.There is no duty to speak is such cases and silence does not amount to fraud. Similarly there is no duty to disclose facts which are within the knowledge of both parties.

Example : H sold to W some pings which to his knowledge suffering from fever. The pings were sold 'with all faults' and H did not disclose the facts of fever to W. Held there was no fraud. [Word v. Hobhs. (1878) 4 AC 13]

ELEMENTS OF FRAUD

Elements of Fraud

1. The fraud must have been committed by a party to the contract or with his connivance or by his agent. fraud by a stranger to contract does not affect its validity.

2. There must be anyone of the above mentioned in last post in act of fraud.

3. The act of fraud must have been committed with the intent to deceive and must actually deceive. A deceit which does not deceive is not fraud. No cause of action arises where there is fraud without damage or damage without fraud. An action lies where these two occur together.

4. The representation must have been aimed at the other party ti contract or his agent or with a view to induce the other party to enter into the contract, Such representation must have been made before the conclusion of the contract.

5. The other party must have suffered a loss.

What is Fraud

Fraud

The term ‘fraud’ includes all acts committed by a person with an intention to deceive another person.

Fraud is the willful representation made by a party to a contract with the intent to deceive the other party or to induce such party to enter into a contract. It means made knowingly or without belief in its truth or recklessly without caring whether is it true or false.

Accordingly to Section 17, fraud means and includes any of the following acts done with intent to deceive or to induce a person to enter into a contract.

1. A False Suggestion as to fact known to be false or not believed to be true. A False statement made recklessly without inquiring whether it is true or false would amount to fraud. But if a statement which turns out to be false is made in the honest beleief that it is true there is no fraud.

Case: - PEEK V. GURNEY (1873)

2. The Active concealment of fact by one having knowledge or belief of fact. If a person conceals a fact which is material to the contract and it is duty to disclose it, it will be a case of fraud. Mere non-disclosure is not a fraud, where there is no duty to disclose. ‘Caveat Emptor’ or ‘Buyer Beware’ is the rule in contracts of sale of goods, but in contracts of absolute faith mere silence about materials facts will be taken as fraud.

3. A promise made without any intention of performing it. The initial intention not to perform the promise that is being made is a necessary element to constitute fraud. Thus, where a person orders and obtains possession of goods with the intention of not paying for them, he commits fraud.

4. Any other act fitted to deceive. The intention to deceive and the fitness of the act for deceit must be present. Thus, where a party, who by false impersonation includes another to enter into a contract with him under the belief that he is somebody that he is somebody else, commits fraud.

5. Any such act or omission as the law specially declares to be fraudulent. It is fraudulent to conceive of any act that attempts to deceive law. Thus, where a contract is based against the policy of insolvency law, or a secret agreement is formed between the insolvent and the party, it is nothing short of a fraud on insolvency law.

DIFFERENCE BETWEEN COERCION AND UNDUE INFLUENCE

DIFFERENCE BETWEEN COERCION AND UNDUE INFLUENCE 

1. Obtaining the consent. In Coercion the consent to an agreement is obtained by committing or threatening to commit an offence forbidden by the India Penal Code. Whereas in Undue Influence the consent is obtained by dominating the will of the other.

2.  Type of force used. In coercion physical force is used to obtain the consent, whereas in Undue Influence mental or moral force is used to obtain the consent of the party. 

3.  Party. Coercion may be used by any other person and may also be used against a stranger to the contract, whereas ordinarily undue influence is exercised by a party to the contract, which is in the dominating position.

4. Presumption. The law does not presume coercion under any circumstances and the party must prove it that his consent was taken under coercion, whereas in undue influence the party in the dominating position shall prove that he has not undue influence otherwise court may presume undue influence.

5.  Nature of liability. Coercion attracts the provision of Indian Penal Code which is criminal liability, whereas under undue influence does not attract any criminal activity.

What is UNDUE INFLUENCE

Sometimes the parties to an agreement are so related to each other that one party is in a position to dominate the will of the other. One party is compelled to enter into an agreement against his will as a result of “Undue Influence” exerted by the other party who is in dominating position.

Undue Influence is moral coercion as opposed to physical coercion mentioned in Section 15. It is the domination of a weak mind by a strong mind to extent which cause the behavior of the weaker person to assume an unnatural character. It is an influence which compels another person to do something which he would not have done if he had been a free agent. A friendly advice or presuation would not constitute undue influence.

Section 16 of the Indian Contract Act provides that, ”a contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses the position to obtain an unfair advantage over the other.

What is Coercion

Coercion

In simple words, coercion is the threat used by one party against another for compelling him to enter an agreement. Section 15 of the Indian Contract Act defines coercion as the committing or threatening to commit any act forbidden  by Indian Penal Code or an unlawful detaining or threatening to detain, any property of any person with the intention of inducing any person to enter into an agreement. It is immaterial whether the Indian Penal Code is or not in force in the place where the corecion is employed.


Coercion is said to have been employed when a person was forced to enter into a contract by use or under the threat of use of physical force by the other person committing or threatening to commit any act forbidden by Indian Penal Code.


It is important to note the intention o the person using the coercion and against whom it is used.