This document discusses the concepts of misrepresentation and fraud in contracts. It begins by defining representation and the difference between representations of fact versus promises. It then examines key elements of misrepresentation, including that a misrepresentation must be a false statement of existing fact, addressed to and relied upon by the misled party. The document outlines defenses to misrepresentation claims and notes the psychological element that distinguishes fraud (the intent to deceive). Specific types of fraudulent statements and active concealment of facts are described. The document concludes by noting that while misrepresentation involves unintentionally misleading statements, fraud requires an intent to deceive the other party.

1. Vitiating Elements in
Contract: Misrepresentation
and Fraud
Preeti Kana Sikder
Assistant Professor
Department of Law & Justice
Jahangirnagar University

2. The process of contractual
negotiation
A duty to not make any false statements of fact or
law to the other contracting party, and thereby to
induce him to enter into the contract

3. What is Representation in a contract?

4. Kleinwort Benson Ltd v Malaysia Mining
Corp Berhad (1989)
The difficulty of distinguishing between promise
and representation

5. The letter of comfort was a contractual promise according
to Judge Hirst J, whereas the Court of Appeal held that it
was a representation of fact.
Representation
A statement of fact which
induces the other party to enter
in to a contract or otherwise act
to his detriment
Promise
A statement that creates an
expectation that the promise will
be fulfilled and the promisor
accepts (or is deemed to accept)
an obligation to carry out his
promise.

6. Understanding
Misrepresentation
A misrepresentation may be defined as an
unambiguous, false statement of fact or law,
which is addressed to the party misled, which is
material and which induces the contract

7. Distinct elements of the definition
A statement
of existing
fact or law
Addressed
to the party
misled
Inducement

8. Rules relating to
Misrepresentation
Deal with the effect of special factors on account
of which the law may refuse to enforce agreements
which would, apart from such factors, be binding.

9. Misrepresentation of Law

10. Misrepresentation regarding Statement of Fact
• A statement can be made by conduct as well as by words. Such statement
must also be one of ‘existing’ fact.
• Three categories of statements have been held not to constitute
statements of existing fact and therefore can not amount to actionable
misrepresentations:
• Mere puff
• A statement of opinion or belief which proves to be unfounded
• A statement of intention

11. Vague commendatory statement
• In Dimmock v Hallett (1866), Lord Justice Turner said that a
representation that land was ‘fertile and improveable’ would not
be considered to be such a misrepresentation that entitles the
innocent party to rescind the contract.
• However, the more specific the statement, the less likely it is to be
treated as a mere puff
• Carlil v Carbolic Smoke Ball Co (1893)

12. Statement of Opinion or Belief
• In Bisset v Wilkinson (1927) a vendor of a farm, which had
not been used for sheep farming before, represented to a
prospective purchaser that, in his judgment, the land
could carry 2000 sheep.
• When the purchaser discovered that the farm could not
carry 2000 sheep, he sought to set aside the contract on
the ground of vendor’s misrepresentation but failed.

13. Esso Petroleum Ltd v Mardon (1976)
Esso represented to a prospective tenant of a
petrol filling station, that the throughput of petrol
at the station was likely to reach 200,000 gallons
per year.

14. Statement of Intention
• Edgington v Fitzmaurice (1885)
Directors of a company invited the public to subscribe for
debentures on the basis that the money so raised would be
used to expand the business. In fact, the real purpose in
raising the money was to pay off company debts.

15. Addressed to the party misled
• Direct communication to the claimant
• Addressed by the representor to a third
party with the intention that it be passed on
to the claimant

16. Commercial Banking Co. of Sydney
v RH Brown and Co. (1972)
The defendants were held to be liable to the claimants due to their
misrepresentation because they knew that the claimants’ bank did
not want the information for their own purposes. Rather, the info
was to be passed on to a customer who was proposing to deal with
a client of the defendant bank

17. Inducement
According to Black’s Law Dictionary: A
Reasonable Person is an ordinary person
who exercises care while avoiding extremes
of boldness and carefulness.

18. Inducement: The Orthodox Position
If the misrepresentation
would have induced a
reasonable person
The onus of proof is placed
on the representator to show
that the representee did not
in fact rely on the
representation

19. Inducement in Misrepresentation
Where the
misrepresentation would
NOT have induced a
reasonable person
The onus of proof is placed
on the representee to show
that the misrepresentation
did in fact induce him to
enter into the contract

20. The misrepresentation need not be the
sole inducement; it is sufficient that it
was an inducement which was actively
present to the representee’s mind
Edgington v Fitzmaurice
(1885)

21. Situation where claimant would be unable to
prove inducement
• Where claimant was unaware of the representation
• When claimant knew that the representation was
untrue
• Where claimant did not allow the representation to
affect his judgment

22. JEB Fasteners v Marks, Bloom and Co
(1983) and Atwood v Small (1838)
Home Work

23. Atwood v Small (1884)
• Atwood contracted to sell his mine to Small but exaggerated
its earning capacity.
• Small appointed agents to verify Atwood’s representations and
they reported that Atwood was telling the truth.
• After the contract was concluded, Small discovered
exaggerations.
• He sought to rescind the contract.

24. JEB Fasteners v Marks, Bloom and Co (1983)
• The defendants negligently prepared accounts of a company
which was made available to the claimants.
• The claimants, despite having reservations about those
accounts, decided to proceed with the take-over because they
wished to acquire services of the two directors of the
company.
• The court decided that the defendant’s representation did not
play a ‘real and substantial’ part in inducing the claimants.

25. S. 18: Misrepresentation defined
• Misrepresentation means and includes: -
(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, gains an advantage to the
person committing it, or any one claiming under him, by misleading another to his
prejudice or to the prejudice of any one claiming under him;
(3) 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.

26. S. 17 : Fraud defined
• Fraud means and includes any of the following acts committed by a party to
a contract, or with his connivance (willingness to be involved in a secret immoral
act), or by his agent, with intent to deceive another party thereto or his agent,
or to induce him to enter into the contract:-
(1) the suggestion, as a fact, of that which is not true, by one who does not
believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the
fact;

27. S. 17 : Fraud defined
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.
Explanation– Mere silence as to facts likely to affect the willingness of a
person to enter into a contract is not fraud, unless the circumstances of the
case are such that, regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence is, in itself, equivalent to
speech.

28. Illustrations
(a) A sells, by auction, to B, a horse which A knows to be unsound. A says
nothing to B about the horse's unsoundness. This is not fraud in A.
(b) B is A's daughter and has just come of age. Here, the relation between
the parties would make it A's duty to tell B if the horse is unsound.
(c) B says to A-"If you do not deny it, I shall assume that the horse is
sound." A says nothing. Here, A's silence is equivalent to speech.
(d) A and B, being traders, enter upon a contract. A has private information
of a change in prices which would affect B's willingness to proceed with the
contract. A is not bound to inform B.

29. Psychological Element of Fraud
The intention to deceive distinguishes Fraud from
Misrepresentation

30. Substantial Elements of Fraud
• A suggestion made, as to a fact, which is not true, by
one who does not believe it to be true.
• Active concealment of a fact by one who has the
knowledge or belief of the tact. Active concealment
must be distinguished from a passive concealment.

31. Substantial Elements of Fraud
• Whether a promise was made without any intention to perform
must be proved based on the circumstances.
• As it is never possible to mention all types of fraud, law widens its
scope to include all sorts of activities fitted to deceive
• The declaration of law can be found in legislations. For example, S.
55 of Transfer of Property Act 1882 requires the seller of an
immovable property to disclose to the buyer any material defect
relating to such property. If no such disclosure is made willingly, it
becomes a fraud.

32. What is the difference between
Misrepresentation and Fraud?

33. Thank You