What Is The Difference Between Fraud And Misrepresentation?

Law
25-Nov-2023
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Daily, individuals casually use the terms "fraud" and "misrepresentation" interchangeably, though, in the legal field, they have distinct ethical and legal meanings. So to understand it better, let's take a look at the definitions and elements of fraud and misinterpretation, and how they differ in terms of different aspects. The blog aims to clarify these terms and demonstrate how the distinction between these two can change the case entirely. Both of them even though seem similar are different in terms of understanding and punishments and more.

What is Fraud?

Under Indian law, fraud is commonly defined as a deliberate deceit committed for one's benefit or to harm another party. Depending on the type of fraud, several legislations, such as the Indian Penal Code, of 1860, and other specific laws, are sometimes used to handle fraudulent actions. Criminal charges under parts of the Indian Penal Code about cheating, criminal breach of trust, and other pertinent statutes may be brought against an individual involved in fraud in India. Victims may also take legal action to recoup their losses through civil remedies.

Elements of Deception include, 

  1. False representation: Either via words, deeds, or silence, there must be a false depiction of the facts.
  2. Intent to Deceive: The false representation must be made to mislead the other party.
  3. Injury or Loss: Relying on the misleading representation must cause the victim to experience some kind of injury or loss.

Causation: The harm that results from the incorrect representation must be causally related to it.

Remedy: In legal proceedings, the person defrauded may be entitled to compensation, damages, or contract revocation.

Example: 

A situation involving financial fraud might serve as a real-time illustration of fraud. Let's say someone, Sam, launches a fraudulent investment plan that promises investors large returns. By giving misleading information about the investment prospects and making exaggerated claims regarding returns, Sam defrauds investors of their money.

It soon becomes clear from the scheme's development that Sam never invested the money as promised. Rather, he creates a traditional Ponzi scheme by using the money for either personal needs or paying back previous investors. In this instance, fraud would probably be defined under Indian law as a result of Sam’s deliberate deception and dishonest actions intended to get a financial advantage.

What is Misrepresentation?

According to Indian law, misrepresentation is the act of giving false information or making false statements to trick another person into signing a contract or acting in a particular way. There are many different ways to mislead someone, including telling partial truths, making up information, or omitting important details.

Different Kinds of Deception:

  1. When a false statement is made without the intention of misleading, but the individual saying it is not aware that it is untrue, it is referred to as innocent misrepresentation.
  2. Negligent misrepresentation is the act of making false claims out of carelessness or indifference to the truth, even in the absence of a reasonable basis to believe them to be true.
  3. False comments made to mislead someone are considered fraudulent misrepresentation.

Remedial actions for deception vary depending on the type:

  1. Rescission: The impacted party may attempt to void the agreement.
  2. Damages: Paying back any money lost as a result of the deception.

Example:

An actual instance of misrepresentation under Indian law may be someone who is selling an old automobile. Assume that a vendor purposefully hides from the customer the fact that the vehicle has a history of serious accidents and extensive repairs, all the while portraying the vehicle as being in flawless condition with no previous damage. The customer buys the automobile based on this fraudulent information.

In such a scenario, the buyer could be able to legally contest the contract for misrepresentation if they subsequently find out about the car's secret history and can show that the seller purposefully misrepresented the car's condition to entice the buyer to make the purchase. The buyer may pursue remedies including damages for any losses incurred as a result of relying on the incorrect information, or withdrawal of the contract (cancellation).

Key Difference 

There are quite a lot of differences between fraud and misrepresentation, which is further explained in the following aspects:

  • Section - Defined In

Fraud: Depending on the jurisdiction, fraud is frequently defined in criminal law and may be codified under particular statutes or portions of the law. Typically, fraud entails purposeful lying or misrepresenting facts to get an unfair or illegal benefit. Fraud accusations can be found in specialized fraud-related legislation, white-collar crime statutes, or criminal codes.

Misrepresentation: This idea may be found in both civil and tort law, and it frequently comes up in tort or contract disputes. Even while there might not always be a distinct criminal code provision for it, there may still be civil court repercussions.

  • Intention/Purposes

Fraud: Fraud is the deliberate and purposeful deception of another person to injure or obtain financial advantage. With the intention of misleading, the offender deliberately makes false claims or representations.

Misrepresentation: On the other hand, misrepresentation does not always include deliberate lying. It can happen when someone intentionally or through carelessness makes a false statement or representation that leads another party to sign a contract or do something else based on misleading information.

  • Punishable

Fraud: Generally speaking, fraud is illegal and may result in prosecution. Depending on the jurisdiction and the degree of the crime, sentences for fraud may involve jail time, fines, and restitution.

Misrepresentation: Misrepresentation is frequently handled in civil court, giving rise to remedies including particular performance (requiring a party to carry out their end of the bargain), damages, or rescission (undoing a contract). Even if misrepresentation by itself might not give rise to criminal charges, some fraudulent misrepresentations might.

  • Variation In The Extent Of Truth

Fraud: When someone commits fraud, they are either irresponsible with the truth or aware that the assertion they are making is false. Fraud is the deliberate use of deceit to persuade another person to sign a contract.

Misrepresentation: Misrepresentation is the act of making a false statement, albeit it's not always done to mislead. It can be a comment that was uttered carelessly, without giving it enough thought.

  • Claim For Damage

Fraud: The person who is deceived by someone else's false representation is usually entitled to compensation for any losses they incur. Punitive damages are often awarded in fraud cases in addition to compensating for monetary losses suffered by the perpetrator.

Misrepresentation: The party that relied on the false statement may be entitled to damages for innocent misrepresentation. Now even though these damages are usually more restricted than those available in situations of fraud. There are certain circumstances involving misrepresentation, where damages are intended to return the innocent person to their pre-misrepresentation state.

  • "Voidability" Of Contract

Fraud: A contract that was induced by fraud may be canceled by the innocent party. This suggests that the person who was tricked by the misleading representation has the option of keeping the agreement in place or having it canceled. If the innocent party chooses to have the contract invalid, they may be released from their obligations under it.

Misrepresentation: Contracts that are impacted by innocent misrepresentation are also voidable, however, the ease with which the innocent party can do so may depend on the extent and gravity of the misrepresentation. The contract may only be voidable if specific misrepresentations are judged necessary to the arrangement.

It is to be kept in consideration that even though fraud and misrepresentation might look similar, there are quite a lot of differences as mentioned above, and when it comes to the legal field it is to be closely looked at for the sake of justice. Since, not just as a concept but even in terms of liabilities the remedies differ, it is important to notice the smaller aspects and correctly classify them in the respective category of misrepresentation or fraud.