Misrepresentation vs Fraud: Key Legal Differences

Trust and confidence in both accurate information and truthful behaviour are fundamental when two parties contract with one another. If one side provides the other with false information, the contract may become void. These instances in contract law of India are categorised as misrepresentation and fraud. Although they sound alike, the law segregates them. Knowing these distinctions helps you better assess your claims and remedies.

 

What Does Misrepresentation Mean?

 

Misrepresentation refers to the act of providing a false statement, the consequence of which will lead the other party to enter into a contract. In these situations, one does not have to mean to deceive the other parties.

 

Under the contract law, misrepresentation means that the false statement made must be:

 

●       Material in nature, meaning that it pertains to an important fact.

●       Impact the parties to the contract.

●       Statements made prior to and/or during the formation of the contract.

 

What Types of Misrepresentation Exist?

 

1. Innocent Misrepresentation

Ignorance, and making a false statement without the knowledge that the statement is false.

2. Negligent Misrepresentation

A statement that is made without the consideration of the relevant facts.

3. Misrepresentation without intent to deceive

The speaker claims to hold the belief that the statement is true, and it actually is.

The legal effect of the above on a contract is that the contract in question is voidable, and the damaged party has the right to void the contract or in some situations, to demand compensation.

 

What Is Fraud?

In contrast to misrepresentation, fraud is a wilful act of dishonesty to gain something from the other party.

 

In fraud, the person:

●      Knows a statement to be untrue, or

●      Does so carelessly with a lack of concern for the truth, and

●      Intends the statement to be true and relies on it.

Fraud encompasses:

●      Untrue statements and misrepresentation.

●      Active lie.

●      Promises made without any intent to carry out the promise.

●      Any purposeful act to mislead.

Legal consequence:

The contract is voidable, and the injured party has the right to claim damages.

Role of Consideration in These Cases

A contract must have consideration to be valid. Many people wonder, under contract law, what is consideration?

It is the worth given in return by one party to another, whether in forms of money, goods, or services.

When there is a misrepresentation or fraud that affects consent, the presence of consideration cannot save the contract.

A contract based on deception, despite valid consideration, is void.

 

Fraud V.S Misrepresentation: 6 Key Differences

 

Basis of Comparison	Misrepresentation	Fraud
Intent	No intention to deceive	Intention to deceive
Knowledge of falsehood	May believe the statement to be true	Knows statement to be false
Nature of the act	Often careless, negligent or innocent	Deliberate and premeditated
Legal remedy	Rescission and limited damage	Rescission and full damage
Moral blame	Lesser	Greater
Proof required	Easier to prove	More difficult to prove due to intent

 

 

 

Legal Remedies Available

When a contract is affected by misrepresentation or fraud, the law provides relief.

Remedies for Misrepresentation

●      Cancellation of the contract.

●      Restoration to the original position.

●      Compensation in specific cases.

Remedies for Fraud

●      Cancellation of the contract.

●      Claim for damages.

●      Possible criminal liability in serious cases.

Why the Distinction Matters

Understanding the difference helps in:

●      Drafting safer contracts.

●      Identifying wrongful conduct.

●      Choosing the right legal remedy.

Under the contract law of India, misrepresentation is a less heinous crime than fraud. Therefore, the legal consequences of misrepresentation are less severe than fraud.

This helps the Indian law to protect honest contracts and discourages dishonest practices.

Real World Example

It is misrepresentation when a seller states an accident has never happened to the car, and genuinely believes that, even if it has been repaired.

If the seller is aware of the accident and conceals that fact, it is fraud.

The available legal options for buyers will depend on which of these has occurred.

Conclusion

While misrepresentation and fraud involve false statements, the two diverge in purpose and legal consequences. Mistakes or carelessness give rise to misrepresentation, whereas fraud is a purposeful act. Distinguishing the two within Indian contract law provides the means to defend one’s entitlements and remedy to the parties to an unfairly obtained consent.