Page 17 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes 1.4.4 Meaning of Misrepresentation

Misrepresentation is also known as simple misrepresentation whereas fraud is known as
fraudulent misrepresentation. Like fraud, misrepresentation is an incorrect or false statement
but the falsity or inaccuracy is not due to any desire to deceive or defraud the other party. Such
a statement is made innocently. The party making it believes it to be true. In this way, fraud is
different from misrepresentation.

Misrepresentation

Fraudulent Negligent Innocent

The case of misrepresentation may be classified into the following three groups:
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 gives 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 a thing which is the subject of the agreement.

Example: A chartered a ship to B which was described in the ‘Charter Party’ and
was represented to him as being not more than 2,800 tonnages registered. It turned out that

the registered tonnage was 3,045 tons. A refused to accept the ship in fulfillment of the charter
party. He would be entitled to avoid the charter party by reason of the erroneous statement as to
tonnage.
Consequences of Fraud and Misrepresentation

The party aggrieved or wronged has two remedies viz, (i) he can avoid the performance of the
contract (ii) he can insist that the contract shall be performed and that he shall be put in the
position in which he would have been if the representation made had been true. In case of fraud
he has an additional remedy, i.e., he can sue for damages.

Exceptions to the Principle that the Party Aggrieved or Wronged by Misrepresentation
cannot Claim Damages

The directors of a company are liable in damages under s.62 of the Companies Act, 1956, even for
misstatements, i.e., misrepresentation in the prospectus issued by the company inviting public

for subscription. Also where there exists a confidential relationship between the parties (such as
solicitor and client), and negligent representation is made by one to the other then the aggrieved
party may claim damages.

Differences between the Fraud and Misrepresentation

The following are the points of difference between the two:
1. In case of fraud, the party making false or untrue representation makes it with the intention
to induce the other party to enter into a contract. Misrepresentation, on the other hand, is
innocent i.e., without any intention to deceive or to gain an advantage.

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