Effects of misrepresentation

The party whose consent is caused by misrepresentation can —

1) avoid the contract;
2) rescind the contract within a reasonable time under the Specific Relief Act 1963;
3) if he thinks fit; insist that the contract shall be performed, and that he shall be put in a position in which he would have been if the representations made had been true.

If default is committed, he is entitled to damages for non-performance.

When misrepresentation does not avoid the contract?

1) If the party whose consent was caused by misrepresentation had the means of discovering the truth with ordinary diligence.
2) A misrepresentation which did not cause the consent to a contract of the party to whom such misrepresentation was made.

Illustration:

A, by a misrepresentation, leads B erroneously to believe that 500 maunds of indigo are made annually at A’s factory. B examines the accounts of the factory which show that only 400 maunds of indigo have been made. After this B buys the factory. The contract is not voidable on account of A’s misrepresentation.

Distinction between misrepresentation and fraud

Misrepresentation

1) There is no intention to deceive
2) A false innocent statement without any intention to .deceive is misrepresentation
3) The person making the statement believes it to be true.
4) It makes contract voidable at the option of the party injured.
5) The contract cannot be avoided if the party whose consent was so caused, had the means of discovering the truth with ordinary diligence.

Fraud

1) There is intention to deceive
2) A false statement deliberately made to deceive is fraud.
3) The person making the statement does not believe it to be true.
4) Besides making the contract voidable at the option of the party injured, it gives right to an independent action in tort.
5) This plea cannot be raised in case of fraud, except in cases when silence amounts to fraud.

However, in both misrepresentation and fraud, there is misrepresentation of fact which is misleading and therefore a contract is voidable at the option of the person who is so misled.

Mistake:

An erroneous belief about something is called mistake. When an agreement is entered into under a mistake, consent is not free.

Mistake is of two kinds – (1) mistake of fact; and (2) mistake of law

Mistake of fact:

Where both the parties to an agreement to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.

Illustrations

1) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain the ship conveying the cargo, is damaged and the goods are lost. Neither party was aware of these facts. The agreement is avoid.
2) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain though neither party was aware of the act. The agreement is void.
3) A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead at the time of the agreement, but both parties were ignorant of the fact. The agreement is void.
4) Where purchaser agrees to receive certain amount in full satisfaction of his claim for non-delivery, but both purchaser and seller are under mistake of essential fact in calculating the amount, the agreement is void.

Essentials: (1) Both the parties must labor under the mistake of fact at the time of formation of the contract to vitiate the contract. Mistake coming into existence subsequently does not make the contract void.

(2) The mistake as to matte of fact must be essential to the agreement

(3) Mistake must be one of fact and not of law

A mistake as to existing fact renders the contract void. A contract based on a mistake as to future events arising subsequently through a binding contract can be avoided when the expected event happens or does not happen.