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Monday, 23 July 2012

What is Misrepresentation

Misrepresentation

The Word 'Misrepresentation' means a statement of facts made by one party to the other party or at the time contract is made with the regard to some existing facts or some past events which materially induces the formation of the agreement. A wrong representation when made innocently is Misrepresentation.

Example : A intends to sell his horse to B and says, "My horse is perfectly sound". A genuinely believes the horse to be sound, although he does not know that the horse has fallen ill yesterday. B there upon buys the horse. There is misrepresentation on the part of A.

Thus misrepresentation means false representation made innocently with an honest belief as to its truth by a party without any intention to decieve. 

The leading case on this point is :
DERRY V. PEEK (1889)
A company's prospectus contained a representation that the company has been authorised by a special Act of Parliament  to runs trams by steam or mechanical power. The authority to use steam was, in fact, subject to the approval of the board of Trade, but no mention was made of this. The Board refused consent and consequently the company was wound up. The plaintiff having bought some shares, sued the directors for fraud. But they were held not liable.
They were not guilty of fraud as they honestly believed that once the parliament has authorised the use of steam, the consent of the board was practically concluded. It follows, therefore, that the person making a false representation is not guilty of fraud if he honestly believes in its truth.

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