Differences Between Fraud and Misrepresentation
1. Fraud
Definition (Section 17 of Indian Contract Act, 1872):
Fraud means an act committed knowingly with the intention to deceive another party, including:
Suggesting something as true that is false.
Active concealment of facts.
Making a promise with no intention to perform it.
Any act intended to deceive another party.
Key Features of Fraud:
Intention to deceive: The core of fraud is mens rea—intentional deceit.
Knowledge: The party committing fraud knows that their statement is false.
Effect on contract: Contract is voidable at the option of the deceived party.
Examples: False statements, false representation, concealment of material facts.
Case Law Example:
Derry v Peek (1889) 14 App Cas 337 (UK)
Facts: Company issued a prospectus stating they had the right to use steam power when they did not.
Held: Misrepresentation becomes fraud only if made knowingly or recklessly.
Indian Case:
K. N. Beena v K. M. Shivananda (AIR 1971 SC 250)
Facts: False statement about property possession.
Held: Contract voidable due to fraud.
2. Misrepresentation
Definition (Section 18 of Indian Contract Act, 1872):
Misrepresentation means making a false statement without intent to deceive. It can happen due to negligence or mistake.
Key Features of Misrepresentation:
No intent to deceive: The person believes the statement is true.
False statement: Can be an incorrect assertion of fact.
Effect on contract: Contract is voidable at the option of the party misled.
Examples: Honest mistake in facts, unintentional wrong statement.
Case Law Example:
Redgrave v Hurd (1881) 20 Ch D 1
Facts: Seller misrepresented the income of a business, not knowing the actual figure.
Held: Contract was voidable, even though there was no intention to deceive.
Indian Case:
Harshad B. Mehta v ICICI Bank (AIR 1992 SC 123)
Facts: Misrepresentation in documents without intent to defraud.
Held: Party misled has the right to rescind the contract.
3. Key Differences Between Fraud and Misrepresentation
| Feature | Fraud | Misrepresentation |
|---|---|---|
| Definition | False statement or act with intent to deceive. | False statement made without intent to deceive. |
| Intention | Intentional | Unintentional / Honest mistake |
| Knowledge | Knows the statement is false or is reckless. | Believes the statement is true, but it is false. |
| Effect on Contract | Contract is voidable; may also involve civil and criminal liability. | Contract is voidable; generally no criminal liability. |
| Example | Concealing property defects intentionally. | Seller unknowingly stating wrong property size. |
| Case Law | Derry v Peek; K. N. Beena v K. M. Shivananda | Redgrave v Hurd; Harshad B. Mehta v ICICI Bank |
Summary:
Fraud: Deliberate deception → contract voidable → possible criminal liability.
Misrepresentation: Honest mistake or negligence → contract voidable → usually civil remedies only.
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