Q
"All our clients were influenced by the promises made by the ABC Company and made full cash payments to ABC after both sides of ABC and the customer signed the construction agreement. The construction agreement clearly states that within 10 months from the date of the agreement, ABC will complete the house. Unfortunately, no construction work is yet to commence. The ABC continues to give excuses for the delay. We believe that ABC has made a misrepresentation by giving a false impression of the capabilities of ABC and we also believe that ABC had no intention to complete the construction work."
Based on the above situation, state the definition and criteria of misrepresentation.
(20 marks, 2019 Q8)
A.
Wikipedia has the explanation on misrepresentation as below:
In common law jurisdictions, a misrepresentation is an untrue or misleading [1] statement of fact made during negotiations by one party to another, the statement then inducing that other party to enter into a contract.[2][3] The misled party may normally rescind the contract, and sometimes may be awarded damages as well (or instead of rescission).
For a misrepresentation to occur, especially a negligent misrepresentation, the following elements need to be satisfied.
- A positive duty that exists to ascertain and convey the truth to the other contracting party,
- and subsequently a failure to meet that duty, and
- ultimately a harm must arise from that failure.
Untrue or misleading.
Misrepresentation has 3 elements to stand as valid misrepresentation:
- Statement which is untrue or misleading.
- It is a fact.
- There is a contract.
S.18 of Contracts Act 1950 specifies:
18. "Misrepresentation".
(a) the positive assertion, in a manner not warranted by the information of the person taking it, of that which is not true, though he believes it to be true;
(b) 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; and
(c) causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.
In the above case of ABC company having to deliver and complete the construction of the house in 10 months which led to the coming together of a contract of agreement. There is indeed a contract.
But, it is also a fact that there was no construction activity and the house cannot be completed on time, as is specified in the question. The client will suffer damages when the construction is not completed in 10 months. Furthermore, the company kept giving excuses of delay for its own benefit despite having the duty to carry out its construction works.
This statement of completing the construction in 10 months is now untrue or misleading and it is statement of agreement in writing - a contract, so it is not a statement of opinion or intention. It is a statement which is recorded in agreement of a contract.
The inducement of entering into this agreement of ABC Company is seen in the 10 months completion of construction. Hence, there is the inducement part of the clients entered into this contract being induced by the misrepresentation of ABC Company completing the project in 10 months.
The clients can claim damages as per contract as it is fraudulent misrepresentation. Which means ABC Company had frustrated the contract and remedy is making up with compensation as stated in the contract. However, if there is no compensation stated in the contract, then the client can rescind the contract - which means the contract is terminated because it is voidable.
S.14 of the Contracts Act 1950 specifies free consent in a contract, and s.14 (d) misrepresentation, as defined in s.18 is against Free Consent - such that a contract without free consent due to misrepresentation is voidable - as per s.19 Voidability of agreements without free consent - of the Contracts Act 1950.
S.14 reads:
14. "Free consent"
Consent is said to be free when it is not caused by -
(a) coercion, as defined in section 15;
(b) undue influence, as defined in section 16;
(c) fraud, as defined in section 17;
(d) misrepresentation, as defined in section 18; or
(e) mistake, subject to section 21, 22, and 23.
Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation, or mistake.
Similar style of question was asked in:
2018 Q8 Sofia & Danial
Further reading on Misrepresentation here.
ADDITIONAL REMARKS
There are always confusions between the 3 terms:
- Fraud
- Misrepresentation
- Misleading
To get this clear, I provide my understanding below:
- Fraud is cheating with intention to distort facts resulting in benefits to the party who cheated.
- Misrepresentation is unintentional presentation of untrue facts resulting in a contract. It is thus, not fraud because the intention was not there.
- Misleading is untrue with intention to cheat. It may or may not result in a contract. Nonetheless, when it resulted in a benefiting party to a contract, it becomes fraud.
Ref:
Earlier post.