Free Consent - Misrepresentation

Misrepresentation – Sec.18  - false statement – made honestly – believing it to be true or not knowing it to be false – includes non-disclosure of material fact without intent to deceive the other party.

Example :

1.      A offers to sell his horse to B telling him that the horse is sound.  A genuinely believes the horse to be sound though he has no sufficient ground for the belief.  Later, B finds the horse to be unsound.  The statement made by A is misrepresentation.

2.      Derry Vs. Peek – Directors of a company issued a prospectus – made a statement that company had been authorised by a special Act of Parliament to run tramways by steam or mechanical power – actually authority to use steam was subject to consent of Board of Trade – however, no mention was made of this– directors honestly believed that permission would be granted  - permission was refused – consequently company later wound up – plaintiff who had bought some shares, sued the directors for fraud - Held, directors guilty of misrepresentation not fraud as they honestly believed that one the Parliament had authorised the use of steam, the consent of the Board was practically concluded.

Requirements of misrepresentation –

1. Must relate to material fact – mere expression of opinion is not misrepresentation.
2. Must be wrong – but honestly believed to be true by the person making it.
3. Must be made before conclusion of contract – made to induce other party to enter into the contract.
4. Made with intention that it is acted upon by other party.
5. Must be actually acted upon by other party – must have induced him to enter into the contract.
6. Need not be made directly to the plaintiff – made to third party with the intention of communicating it to the other party to the contract is also misrepresentation.

Babul Vs. R.A. Singh – A tells his wife that bridegroom proposed for their daughter was young man - within hearing of the daughter – daughter gave consent to marry believing the statement of her father - actually bridegroom over 60 years – Held, consent was vitiated/ obtained by misrepresentation and fraud. 

Consequences of misrepresentation – The aggrieved party can –

1. avoid or rescind the contract; or
2. accept the contract but insist that he shall be placed in the position in which he would have been if the representation had been true.

However, the aggrieved party loses the right to rescind the contract for misrepresentation if –

• he takes a benefit under the contract or affirms it in some other way - even after becoming aware of misrepresentation or fraud;

Long Vs. Lloyd – A induced B to buy lorry – false representation that lorry was in excellent condition – when B used it and discovered it to be in bad shape – B wanted to return it – A agreed to bear half the cost of repairs and B agreed to it – Later lorry broke down completely – B wanted to rescind the contract – Held, acceptance of A’s offer to bear half the cost of repairs, implies B’s final acceptance of the sale – contact cannot be rescinded.

• where restitution to the original position is not possible – e.g. subject matter either consumed or destroyed.
• if contract cannot be rescinded in toto (in whole), it cannot be rescinded at all.

If a third party has acquired rights in the subject matter of the contract in good faith and for value.