Misrepresentation, a critical concept in contract law, refers to a false statement of fact made by one party to another, which induces the other party to enter into a contract. The significance of misrepresentation lies in its ability to vitiate the free consent of parties, a cornerstone of valid contractual agreements. In the absence of genuine consent, the enforceability and fairness of a contract are severely undermined, leading to potential disputes and legal challenges. Misrepresentation may be either innocent or intentional. In the case of intentional misrepresentation, a fact is represented as being true when it is false or without genuine belief in its truth, with the intention of deceiving the other party to the agreement. If, however, a misrepresentation is made, honestly believed to be true or without knowledge that it is false, it is known as innocent misrepresentation. In law, innocent misrepresentation is referred to as misrepresentation, while intentional misrepresentation is referred to as fraud. Misrepresentation is representation that is untrue in reality. The contract made on the ground of misrepresentation is voidable.
Understanding Misrepresentation
Consent is the foundation of a legally binding agreement. It means that the parties involved have mutually agreed on the same thing in the same sense. It is often referred to by the Latin phrase consensus ad idem, which translates to “a meeting of the minds.”3
For consent to exist, there must be a clear offer from one party and an unqualified acceptance of that exact offer by the other party. Both parties must understand and agree upon the essential terms of the contract. The consent shall be free from any internal or external factors.
For Instance, if you offer to sell me your “blue car” for NPR 1,000,000, and I agree to buy your “blue car” for that price, we have consent. We have both agreed on the same subject (the specific blue car) and the same terms (the price)
Section 504 of the Muluki Civil Code 2074 defines a contract as “an agreement between two or more persons to do or not to do any act enforceable by law”. Free Consent is a crucial additional layer. It’s not enough for parties to agree; their agreement must be genuine, voluntary, and not obtained through improper means.4 Section 505 outlines the essential conditions for contract enforceability, requiring free consent expressed by contracting parties, contractual capacity, certainty of subject matter, and lawful obligations.
The Muluki Civil Code 2074 defines free consent as “consent that is free from coercion, undue influence, fraud, and misrepresentation”. Section 518 explicitly addresses vitiating factors, establishing that contracts concluded through coercion, undue influence, fraud, or misrepresentation shall be voidable at the option of the aggrieved party. Misrepresentation is one of the above factors that influence the free consent and enforceability of the contract.5
Misrepresentation is a false statement of a material fact made by one party to another, which induces (or persuades) the other party to enter into a contract. Misrepresentation occurs when a party makes a false statement of fact or law to another, inducing the latter to enter into a contract. This false statement can be either a statement of fact or law, and it must be a misrepresentation that causes the other party to enter the contract, resulting in loss.
When misrepresentation is proven, the agreement is not automatically void. Instead, it becomes voidable. This means the innocent party has the option to either rescind the contract or affirm it. In addition to rescission, the innocent party may also be entitled to claim damages (monetary compensation) for any losses suffered. Section 18 of the Indian Contract Act, 1872 has defined Misrepresentation as: Misrepresentation means and includes;6
- 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;
- Any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under him; by misleading another to his prejudice, or the prejudice of anyone 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.
Similarly, Section 518(2) (d) of the National Civil Code, 2074 of Nepal, provides for a contract caused by misrepresentation. Misrepresentation means any of the following acts:
- Presenting a false description of any matter or fact without a reasonable basis
- Misleading any party to their detriment
- Causing a mistake as to any matter of the contract
- Making assurance to have concluded a contract in one subject, but causing it to be entered into in another subject.
Types of Misrepresentation
Contract law recognizes three distinct types of misrepresentation, each with different legal requirements, levels of culpability, and available remedies. These are the three main types of misrepresentation:7
Innocent Misrepresentation
Innocent misrepresentation occurs when a false statement is made by someone who genuinely believes it to be true, and the statement then induces another person to enter into a contract. It is the least culpable form of misrepresentation where the representor acts without any intention to deceive and has reasonable grounds for believing their statement is accurate. The statement is regarded as “wholly innocent” when the representor has no knowledge of its falsity and exercises reasonable care in forming their belief about its truth.
The essential elements of innocent misrepresentation include:
- False statement of a material fact by the defendant, who was unaware at the time of contract signing that the statement was untrue.
- Reasonable belief in the truth of the statement by the
- Inducement of the other party to enter the contract based on a false
- Absence of negligence or fraudulent intent on the part of the
For instance, a person selling a car who claims it has never been in an accident, but was involved in a minor accident before they owned it. In this scenario, the seller genuinely believes their statement to be accurate, based on their knowledge and experience with the vehicle.
Remedies for Innocent Misrepresentation
The remedy for innocent misrepresentation is generally to rescind the contract, with the intention of restoring the parties to the position they would have been in, but for the contract. The only remedy for innocent misrepresentation is rescission, meaning damages will not be possible for an innocent misrepresentation. However, courts in certain jurisdictions have discretion to award rescission or damages in lieu of rescission, but typically cannot award both remedies simultaneously.
Negligent Misrepresentation
Negligent misrepresentation represents a middle ground between innocent and fraudulent misrepresentation. It arises when a party provides false or misleading information to another party, but does so without intending to deceive. This occurs when a person makes a statement or representation without exercising reasonable care or competence, leading to harm or loss to the other party who relied on that information.8
To establish a negligent misrepresentation claim, the following elements must typically be proven:9
- False statement or misrepresentation: The defendant must have made a false statement of fact, whether orally or in writing, or provided misleading information.
- Lack of reasonable care: The defendant must have failed to exercise reasonable care or competence in making the statement, either by not properly investigating the information or by providing inaccurate information.
- Special relationship or duty of care: Many jurisdictions require a special or privity-like relationship, imposing a duty on the defendant to provide accurate information to the
- Reliance: The plaintiff must have justifiably relied on the false statement or information provided by the defendant.
- Damages: The plaintiff must have suffered actual harm or loss as a result of their reliance on the false statement.
The special relationship between the parties acts as a crucial aspect in negligent misrepresentation. A duty to speak with care exists when the relationship of the parties, arising out of contract or otherwise, is such that, in morals and good conscience, one has the right to rely upon the other for information.
Liability for negligent misrepresentation has been imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party, such that reliance on the negligent misrepresentation is justified. Generally, a special relationship does not arise out of an ordinary arm’s-length business transaction between two parties.
Burden of Proof
Negligent misrepresentation claims require proof by clear, cogent, and convincing evidence, a higher standard than the typical preponderance of the evidence used in most civil cases. This elevated burden reflects the serious nature of the allegation and its potential consequences. In negligent misrepresentation, courts typically allow both rescission and damages as possible remedies. This provides more comprehensive relief than innocent misrepresentation while reflecting the higher degree of culpability involved.10
Fraudulent Misrepresentation
Fraudulent misrepresentation is the most serious form of misrepresentation, representing intentional misrepresentation where a party knowingly provides false information to deceive another party. It involves a knowingly false assertion intended to mislead another and induce them to agree to a contract due to that misrepresentation.11 This type of misrepresentation is based on deceit, where a false representation has been made that has induced someone to enter into a contract. It applies to false statements made:
- Knowingly
- Without belief in its truth
- Recklessly or carelessly as to whether it is true or
The courts typically require six elements to prove fraudulent misrepresentation:12
- A representation was made.
- The representation was false.
- The defendant knew the representation was false or made it recklessly without knowledge of its truth.
- The misrepresentation was material to the transaction.
- The fraudulent misrepresentation was made with the intention that the plaintiff rely on it.
- The plaintiff did rely on the fraudulent misrepresentation and suffered harm as a result.
Remedies for fraudulent misrepresentation.
Fraudulent misrepresentation justifies the most comprehensive remedial response. The aggrieved party can seek rescission of the contract, claim damages for all directly consequential losses, and restitution to prevent unjust enrichment. In some cases, the court may be subject to criminal prosecution under fraud statutes. Fraudulent misrepresentation: Requires proof of intent and knowledge, often by clear and convincing evidence.13
Case Laws Related to Misrepresentation.
Case 1: Dhanamaya Maharjan v. Tulasi Maharjan & Others (2062)
Brief Facts: This case involved a contractual dispute in which the court had to determine the validity and essential elements of a contractual agreement. The parties had entered into what appeared to be a contractual arrangement; however, questions arose regarding whether the document contained the necessary elements to constitute a valid contract under Nepalese law.
Legal Issues
- Whether the document in question constituted a valid contract?
- What essential elements are required for contract formation under Nepalese law?
- What are the requirements of consent and its manifestation in contractual agreements?
Holdings: The Supreme Court of Nepal held that there is no prescribed format for contracts under Nepal’s public law regulating contracts. However, the court established that a contract document must clearly state the stipulations of responsibility of the parties and require the consent of the parties, often manifested through a fingerprint or signature, as an essential element of the contract.
Reasoning: The court reasoned that while formal requirements are minimal, the substance of the agreement must be clear. The emphasis was placed on mutual consent and clear articulation of obligations rather than adherence to a specific format. This decision highlighted the court’s flexible approach to contract formation while maintaining the fundamental requirement of free consent.
Case 2: Ircon International Ltd. v. Ratidevi Mahato (2069)
Brief Facts: This case concerned the principle of free consent in contract formation. The dispute arose when one party alleged that they were coerced or pressured into entering the contractual agreement, thereby challenging the validity of the contract due to the absence of free consent.
Legal Issues
- Is free consent required in contract formation?
- The effects of coercion and undue pressure on contractual validity.
- Whether a court can compel a party to enter or re-enter a contract.
Holding: The Supreme Court held that free consent is a fundamental requirement for contract formation. The court established that due to the use of coercion and pressure, one cannot oblige a person to enter into a contract. If a person does not accept the offer, there is no contract without the free consent of a party; a court cannot oblige a person to enter or re-enter a contract.
Reasoning: The court’s reasoning was grounded in the fundamental principle that contracts must be based on the voluntary agreement of the parties. Any element of coercion, undue influence, or pressure vitiates the consent and renders the contract voidable. This decision reinforced Section 518 of the Muluki Civil Code 2074, which explicitly addresses factors that vitiate contract formation.
Case 3: Weyujiang (Chinese citizen) v. Government of Nepal (2069)
Brief Facts: This case involved a Chinese businessman who had entered into a contract with the Government of Nepal for the sale of goods. When disputes arose, the plaintiff attempted to file a writ petition instead of pursuing civil remedies. The case raised important questions about the proper legal forum for contractual disputes.
Legal Issues
- Whether writ jurisdiction applies to contractual disputes
- The distinction between civil and criminal liability in contract matters
- The definition of fraud in contractual contexts
Holdings: The Supreme Court established a landmark precedent that writ petitions cannot be entertained in contractual cases. The court held that:
- Contracts for the sale of goods are special contracts with specific obligations for the parties
- Breach of contract gives rise to civil liability, not criminal liability
- A fraud case can only be established where there is deception, violation of law, contract by fraud or misrepresentation, or reckless behavior by a party against another.
- When both parties enter into a contract with free consent, there is no fraudulent
Reasoning: The court reasoned that contractual disputes fundamentally differ from constitutional or administrative law matters that warrant writ jurisdiction. The decision
emphasized that contractual obligations create civil liability, and the proper remedy lies in civil courts rather than constitutional remedies. This case clarified the boundaries between different types of legal proceedings and reinforced the principle that contract law operates within the civil law framework.
Case 4: Chitra B. Karki v. Maniram Agarwal (2071)
Brief Facts: This case addressed the essential elements required for a valid contract under Nepalese law. The dispute centered on whether an agreement between the parties contained all necessary elements to constitute a legally binding contract.
Legal Issues
- Essential elements of a valid contract
- The role of consideration in contract formation
- Requirements for enforceable agreements
Holdings: The Supreme Court held that for a contract to be valid, there must be an enforceable agreement between parties, but mutual agreement alone is insufficient. The court established that:
- The contract must contain stipulations necessary to attain lawful objectives
- Consideration is an essential and compulsory element for a contract
- There must be mutual promises between parties involving gain or detriment
- The agreement must create rights and obligations for the
Reasoning: The court’s reasoning emphasized that mere consensus is inadequate for contract formation. The decision stressed the importance of consideration as a fundamental principle ensuring fairness and reciprocity between contracting parties. This case reinforced the principle that contracts must be supported by valid consideration and must serve lawful purposes.
Legal Gap Analysis
Inconsistencies in Judicial Decisions
The Supreme Court of Nepal’s approach to contract law, while generally progressive, has demonstrated certain inconsistencies that create legal uncertainty. The research reveals that, despite its influential role, there have been instances of inconsistency in the court’s decisions.
These inconsistencies, coupled with the potential for frequent overruling of previous decisions, have created a sense of confusion within the business community.
Treatment of Misrepresentation and Fraud
One significant area where legal gaps emerge is in the distinction between misrepresentation and fraud. While the Muluki Civil Code 2074 provides a definition of misrepresentation in Section 518(2) (d), the courts’ practical application has not always been consistent. The Weyujiang case established that fraud requires specific elements, including deception, violation of law, contract by fraud or misrepresentation, or reckless behavior, but the boundary between innocent misrepresentation and fraudulent conduct remains unclear in many practical applications.
Enforcement Challenges
The practical enforcement of contract law decisions remains problematic. Efforts to establish greater uniformity and stability in contract law decisions are crucial to fostering a favorable business environment in Nepal. This may involve efforts to clarify legal principles, promote greater consistency in judicial rulings, and enhance legal predictability for businesses and stakeholders.
Free Consent and Vitiating Factors
While the Muluki Civil Code 2074 provides comprehensive coverage of vitiating factors, including coercion, undue influence, fraud, and misrepresentation, the practical application of these principles faces challenges. The Ircon International case established clear precedents regarding free consent, but gaps remain in determining the threshold for what constitutes sufficient pressure or influence to vitiate consent.
Conclusion
Misrepresentation is a fundamental concept in contract law, directly impacting the validity and enforceability of agreements by vitiating the free consent of the contracting parties. The study has highlighted that under the Muluki Civil Code 2074 of Nepal, misrepresentation, whether innocent, negligent, or fraudulent, renders a contract voidable at the option of the aggrieved party, ensuring protection against unfair contractual obligations. The analysis of key Supreme Court cases, such as Dhanamaya Maharjan v. Tulasi Maharjan and Ircon International Ltd. v. Ratidevi Mahato, demonstrates that Nepalese courts have consistently emphasized the necessity of genuine consent and have clarified the boundaries between civil and criminal liability in contract disputes. However, the research also reveals significant legal gaps, including inconsistent judicial interpretations, limited reported case law, and challenges in distinguishing between misrepresentation and fraud in practice. Furthermore, the frequent legislative changes and the integration of contract law into the broader civil code have introduced both opportunities for modernization and challenges in enforcement. Despite these limitations, the legal framework in Nepal provides essential remedies such as rescission and, in some cases, damages, ensuring that parties misled by false statements are not left without recourse. Moving forward, greater consistency in judicial decisions, more straightforward legislative guidelines, and improved enforcement mechanisms are necessary to strengthen the protection of free consent and promote fairness in contractual relationships. Ultimately, understanding and addressing the nuances of misrepresentation is crucial for fostering trust, certainty, and justice in Nepalese contract law.
References
Muluki Civil Code, 2074
Muluki Civil Code, 2074
Indian Contract Act (1872).
Misrepresentation Lecture, Law net (June 20, 2025),
https://www.lawteacher.net/lectures/contract-law/vitiating- factors/misrepresentation/?vref=1#citethis
What is Consent?, UC RIVERSIDE (June 23,2025), https://care.ucr.edu/education/what-is-consent
What are the different types of misrepresentation?, LINCOLN &ROWE, https://lincolnandrowe.com/2023/09/18/types-of-misrepresentation/
John Lundin, Negligent Misrepresentation Claim Fails for Lack of Special Relationship, LUNDIN PILLC (June 21, 2025), https://lundinpllc.com/commercial- case-notes/fraud-misrepresentation/negligent-misrepresentation-claim-fails-for-lack- of-special-relationship-2/
Negligent Misrepresentation, Badri Civil Defense (June 21, 2025),
https://www.bidaricivildefense.com/negligent-misrepresentation/
What is Misrepresentation and Its Types?, Kanun Corner (June 22,2025), https://kanuncorner.com/what-is-misrepresentation-and-its-types/
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