Consent given under misrepresentation of facts is no consent at all. A statement made which in fact is not true, under the belief that it is true, is misrepresentation.
According to section 18 of the Act, misrepresentation means and includes –
The positive assertion in a manner not warranted by the act of the person making it, of that which is not true, though he believes it to be true. In other words, misrepresentation means a positive assertion of what is not true, even though he might believe it to true. A statement made innocently with a reasonable ground of belief is no misrepresentation. Therefore, untrue statement made without any reasonable ground of belief that it is true with an intent that a person to whom it is made shall act upon it, is a misrepresentation, which makes the contract voidable.
A says to B that C’s horse is a very good horse and runs 20 miles at a stretch. A believes the statement to be rule. B purchases the horse from C on A’s information. It turns out that the horse is only able to run 2 miles. This is misrepresentation.
Belief must not only be reasonable but must also be definitely based on past information. As stated above, intention to deceive plays a material part. If there is no intention to deceive, it is misrepresentation. If there is intention to deceive, it is fraud.
Any breach of duty which, without an intention to deceive gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice or to the prejudice of anyone claiming under him. In other words, misrepresentation includes committing any breach of duty, by which the person committing it gains an advantage to the prejudice of another. There is no intent to deceive but the party representing commits a breach of duty which he owes to the other by making a negligent statement whereby the party represented is, misled to his prejudice. The party representing gains an advantage.
For example, there exists a duty between seller and buyer, creditor and debtor, landlord and tenant, banker and customer etc Breach of duty by one party in such a relationship by making an untrue statement would, definitely prejudice the other party, if he acts it and causes gain to the party making such representation. The contract would be voidable on the ground that the party prejudiced was misrepresented.
The best illustration is that of contracts of insurance which are contracts of good faith. The assured is cast with a duty to disclose all materials facts. In the case of his failure to disclose any material fact, or his concealing any materials fact, however innocently, would entitle the insurer to avoid the contract on the ground of misrepresentation of facts. Similarly, contracts of allotment of shares in a limited company, family arrangement, sale of immovable property etc stand on the same footing.
Causing however innocently a party to an agreement to make a mistake as to the substance of the thing which is the subject matter of the agreement. In other words, causing a party to the contract to commit a mistake as to the subject matter of the contract would constitute misrepresentation.
In a leading case, the defendants in Bombay chartered a ship wholly unknown to them as being not more than 2,800 registered tonnage. It turned out that the registered tonnage was 3,045 tonnes. It was held that the defendants were entitled to avoid the contract as the erroneous statement regarding the tonnage was mis-representation. There is a mistake as to the substance of the agreement.
It will, therefore, be observed that representation of a material fact by the person making it who believes it to be true, which, in fact, is not true and made with a view of inducing the other party to act upon it, is a misrepresentation. There is no intention to deceive. The other party must actually act upon it. Settlement made must not be based on a mere hearsay. A told B that one C would be the director of a company. A obtained this information not from C directly but from another person D. B acting on A’s information subscribed for shares in the company. C did not become the director. This was misrepresentation. However, silence or non-discloser of facts, not required by the law to be disclosed, does not amount to misrepresentations.
Where there was a misrepresentation as to the nature of the document and not merely as to its contents there was no real execution and the document was void ab initio and not merely voidable.