What is the difference between fraud and misrepresentation, and how can you distinguish between the

Fraud is the misrepresentation of some material fact. The representation is made willfully by a party to contract in order to mislead the other party and thereby induce him to enter into the contract. 

The party that makes the false representation, does so either with the intention / knowledge or negligently in order to deceive the other party. The aggrieved party when relies upon the false statements or representations, believing them to be true and acts upon it - it becomes a cause of action for loss caused by fraud due to the other party. 

Example: Mr. Kapoor purchased goods worth Rs. 10,000 from a shopkeeper with the intent of not paying money, but he misrepresented that he will, this kind of act amounts to Fraud. 

Section 17 of the Indian Contract Act, 1872 states that “FRAUD” means and includes any of the following acts committed by a party to a contract, or by his agent, with the intent to deceive another party thereto or his agent, or to induce him to enter into the contract:

• The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;

• The active concealment of a fact by one having knowledge or belief of the fact;

• A promise made without any intention of performing it;

• Any other act fitted to deceive;

• Any such act or omission as the law specially declares to be fraudulent.
   

What is Misrepresentation?

When a party makes a false representation of a material fact to another party, believes this statement to be true and enters into a contract and acts upon it is called misrepresentation. Misrepresentation is made without any intention to harm, but, the fact stated turns out to be false or incorrect and becomes a reason for loss caused to the other party. 

Such a contract is voidable at the option of the injured party who has the right to avoid his/her performance. However, if the truth of this important fact can be discovered by the aggrieved party in the normal course, then the contract is not voidable. 

For example: An individual asks another individual to buy a car stating that it is in good condition. The other individual buys this car in good faith, however after a few days the car does not function properly and the buyer now bears a loss and has to repair the car. This amounts to misrepresentation as the previous owner believed the car to be fine and work properly but it is not so in reality. 

Section 18 of the Indian Contract Act, 1872 defines misrepresentation. The same has been stated below.

Misrepresentation means and includes-

• The positive assertion, in a manner not warranted by the information of a person making it, of that which is not true, though he believes it to be true.

• Any breach of duty which, without any intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice or to do the prejudice of another claiming under him.

• 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.
   

Positive assertion, i.e. an explicit statement of fact by a person of that which is not true, though he believes it to be true amounts to misrepresentation.
 

Differences between Fraud and Misrepresentation

1. Fraud is a deliberate misstatement of a material fact, however misrepresentation is a bonafide representation of misstatement believing it to be true which turns out to be untrue later on. 

2. Fraud is done to deceive the other party, but Misrepresentation is not done to deceive the other party but in good faith. 

3. Fraud is defined in Section 17 and misrepresentation is defined in Section 18 of the Indian Contract Act, 1872.

4. In fraud, the party making representation knows the truth however in misrepresentation, the party making representation does not know the truth and believes his/her mis-statement to be true. 

5. In fraud, the aggrieved party can claim damages for any loss sustained. On the other hand, in misrepresentation, the aggrieved party cannot claim damages for any loss sustained, but the contract is voidable at the option of the aggrieved party.