What is misrepresentation
Misrepresentation is a false/ untrue/ misleading pre-contractual statement of fact made by one party (party A) that induces another party (party B) to enter into a contractual relationship with A, which usually results in B suffering loss.
How many types of misrepresentation are there?
There are three types of misrepresentation in Malaysia. In Sim Thong Realty Sdn Bhd v Teh Kim Dar @ Tee Kim, the court gave us a glimpse of the type of misrepresentation:
“…it is trite that the expression ‘misrepresentation’ is merely descriptive of a false pre-contractual statement that induces a contract or other transaction. But it does not reflect the state of mind of the representor at the relevant time. The state of mind of the representor at the time he made the representation to the representee varies according to the circumstances of each case. It may be fraudulent. It may be negligent. Or it may be entirely innocent…”
Below is a brief explanation of the three misrepresentation:
1) Fraudulent misrepresentation
Fraudulent misrepresentation occurs when A entered into a contract with B after being supplied false representation(s) by B and B who supplied such representation(s) knew that the representation(s) supplied is untrue/ doesn’t believe it to be true/ reckless as to the truth of the statement.
2) Negligent misrepresentation
Negligent misrepresentation generally occurs in instances where there is a duty to take care in making statements but the party in question has failed to do so. Such a duty may arise under a contract, where the parties stand in a fiduciary relationship between them or out of a ‘special relationship’ between parties.
3) Innocent misrepresentation
Innocent misrepresentation occurs when the party who made the representation(s) believes his assertion to be true and consequently has no intention of deceiving the other party.
How does one raise misrepresentation?
- There must be a false representation made by one party to another. Such representation can be in the form of verbal communication or conduct.
- The false representation made must be a factual one.
- The false representation must be addressed by the person intended to enter into a contract with another party, and the other party actually acted upon it i.e. it must have induced the contract. Essentially, if for example, party A knew that party B made a false representation and went ahead with the contract, A cannot then turn around later on and sue B on the grounds of misrepresentation i.e. he cannot avoid the contract.
- The party who was misled must have done at least a certain degree of due diligence to ascertain whether the representation given by the other party was a false representation. This was emphasized by the court in Tan Chye Chew & Anor v Eastern Mining and Metals Co Ltd noted that the party who enters into the contract premise on the false representation cannot avoid the contract if the party had the means of discovering the truth with ordinary diligence.
What happens when one party successfully raise misrepresentation? What are they entitled to?
Fraudulent and negligent misrepresentation – the innocent party can rescind the contract and claim for damages against the party who made the false representation.
Innocent misrepresentation – the innocent party can rescind the contract and claim for restitution against the party who made the false representation.
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