Tutorial 3: Misrepresentation (Malaysian Law)

Ghani wanted to buy two used cars for his business. He first visited Kamal’s Used Cars where he
identified Toyota as a possibility. He asked Kamal whether the Toyota had met with any accidents
before. Kamal, who had another Toyota in mind, mistakenly told Ghani that it had not. Ghani then
purchased the Toyota for RM40,000 in cash.

Ghani next visited Mansor’s Used Cars where he identified a Nissan as a possibility. He asked Mansor
whether the Nissan was accident-free. Mansor, who knew because agree upon the same thing in the
same sense which is Ghani buy the Toyota car from that the Nissan had previously met with an
accident, did not answer, and simply diverted 转移 Ghani’s attention to something else. Ghani then
took the Nissan for a test-drive and took it to his workshop where he was mistakenly told that the
car was accident-free. Ghani then purchased the Nissan for RM38,000 in cash.

A few days later both cars broke down and Ghani discovered that in fact both cars were not
accident-free. In fact, if Ghani had had them examined by an expert, he could have easily discovered
that they were not accident-free.

Ghani first confronted 解决 Kamal who apologised for his error and offered to pay for the repairs to
the Toyota. Ghani said that he was in fact thinking of returning the Toyota and seeking a refund, but
that he would think about Kamal’s offer. Ghani next confronted Mansor who said, “I did not say that
the Nissan was accident-free.” Ghani told Mansor that he did not want the Nissan and wanted a
refund of his purchase price.

Ghani proceeded to have the Toyota repaired for RM5,000, but it broke down again the very next
day. This time Ghani wrote a letter to Kamal saying that he was cancelling the purchase and wanted
a refund of his purchase price as well as RM5,000 being the cost of repairs.

Advise Ghani as to his rights and remedies, if any, against Kamal and Mansor.
Answer:
Parties: Ghani v Kamal

Issue: Whether there was a misrepresentation of the contract made between Ghani and Kamal

Type of misrepresentation: misrepresentation

Consent:
 According to s10(1), an agreement is a contract only if they are made by the free consent of the
parties competent to contract
 The agreement made between Ghani and Kamal is a contract because the contract made by
the free consent of both parties
 According to s13, two or more persons are said to consent when they agree upon the same thing
in the same sense
 Ghani and Kamal are said to consent Kamal, and Kamal sell his Toyota car to Ghani at
RM40,000
 According to s14(d), consent is said to be free when it is not caused by misrepresentation.
 The agreement made between Ghani and Kamal is not free consent, Ghani made such
agreement caused by Kamal’s misrepresentation

Misrepresentation:
 According to s18(a), 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
 Kamal mistakenly told Ghani that the Toyota car is free accident. There was
misrepresentation by Kamal to Ghani
 Not fall under s18(b), because seller don’t have duty to tell buyer the condition of the car
 Not fall under s18(c), because it not related to subject matter

Causal link:
 According to Explanation s19, a misrepresentation which did not cause the consent to a contract
of the party on whom the fraud was practised, or to whim the misrepresentation was made,
does not render a contract voidable. Thus, it means that misrepresentation must have caused
the innocent party to enter into a contract
 Datuk Jagindar Singh & Ors v Tara Rajaratnam & Edgington v Fitzmaurice
a. Facts: 2nd Df had promised Pf that although the documents signed by Pf were in the form of a
transfer of Pf's land, Pf's property would not be transferred to anyone, since the transaction
was for security for a loan, and not a transfer. Pf's property was later transferred to 3rd Df
b. Held: This amounted to fraud because Df when they made the promise not to transfer the
land, had no intention of fulfilling it
 There is a casual link between Ghani and Kamal because Kamal’s misrepresentation had
caused Ghani to enter into a contract with him for buying the Toyota car at RM40,000

Consequences of fraud or misrepresentation:

  Ghani entered into the contract because of Kamal’s misrepresentation. Thus, Ghani can
choose to rescind or affirm the contract
 According to s19(2), the innocent party may, if he thinks fit, insist that the contract shall be
performed, and that he shall be put in the position in which he would have been if the
representations made had been true. If the innocent party chooses to affirm, and brings an
action under this section, he would be compensated on a different basis such as contractual
basis or tortious basis
 Kamal offered to pay the repairs fee for Ghani, and Ghani also accepted this offer by
performance because he proceeded to have the car repaired. Thus, Ghani choose to affirm
the contract to continue use the car. Hence, Ghani can claim damages of the cost of repairs
RM5,000 from Kamal. If the car subsequent break again, Ghani can claim the damages again
only if it caused by negligent misrepresentation

Duty to discover the truth of a statement:

 According Exception s19, if such consent was caused by misrepresentation, the contract is not
voidable if the party whose consent was so caused had the means of discovering the truth with
ordinary diligence
 Ghani has a limited duty to discover the truth of the statement. Ghani has a duty to discover
the truth of Kamal’s statement that made during the negotiation provided that only if Ghani
had the means of discovering the truth with ordinary diligence
 Tan Chye Chew & Anor v Eastern Mining and Metals Co Ltd
a. Misrepresentation by Pf's agent to Df's geologist that the land inspected by both parties was
included in the prospecting permit but it did not
b. There was misrepresentation within the meaning of s18 but Exception s19 applied because
Df could with ordinary diligence have discovered whether the representation was true or
false. The contract was not voidable
 Gemakota Enterprise Sdn Bhd v Public Bank Bhd
a. Facts: Misdescription by Df of area and terrain of property which put up for sale by public
auction. Pf successfully bid for the property and paid a deposit. Pf’s surveyor’s report
showed property had been misdescribed
b. Held: Df had made an innocent misrepresentation within meaning s19(b) and Pf had been
induced by the misrepresentation to enter into the contract. There was misrepresentation,
innocent party had the means to discover the truth but only through extra ordinary
diligence. Exception s19 did not apply, so contract voidable. Pf was entitled to recover the
deposit
 Exception s19 did not apply. Ghani do not exercise ordinary diligence because he just ask
Kamal the whether the car is accident free

Conclusion:
Although Ghani can choose to affirm the contract under s19(1) or affirm the contract under s19(2).
However, the facts show that Ghani did not exercise the ordinary diligence to check the car whether
it is free accident or not, he just ask Kamal, so the contract is not voidable. Thus, Ghani cannot claim
RM5000 damages

Parties: Ghani v Mansor

Issue: Whether there was a fraud of the contract made between Ghani and Mansor

Type of misrepresentation: fraud

Consent:
 According to s10(1), an agreement is a contract only if they are made by the free consent of the
parties competent to contract
 The agreement made between Ghani and Mansor is a contract because the contract made
by the free consent of both parties
 According to s13, two or more persons are said to consent when they agree upon the same thing
in the same sense
 Ghani and Mansor are said to consent because agree upon the same thing in the same sense
which is Ghani buy the Nissan car from Mansor, and Mansor sell his Nissan car to Ghani at
RM38,000
 According to s14(c), consent is said to be free when it is not caused by fraud
 The agreement made between Ghani and Mansor is not free consent, Ghani made such
agreement caused by Mansor’s fraud

Fraud:
 According to s17, fraud includes any of the following acts committed by a party to a contract, or
with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or
to induce him to enter into the contract
 There was a fraud because the acts committed by Mansor, he intent to deceive Ghani and
induce Ghani to enter into the contract with him for buying the Nissan car
 According to s17(b), fraud include the active concealment of a fact by one having knowledge or
belief of the fact
 Segar Oil Palm Estate Sdn Bhd v Tay Tho Bok
a. Facts: Pf sold Df land. During negotiations, Df had viewed land together with Pf’s agent and
saw fixtures running through the land but Pf’s agent told Df that the fixtures did not run
through the land up for sale. Df paid a deposit upon signing the agreement. Later, Pf
discovered that the fixtures were within the land being sold. Df asked Pf for a reduction of
the purchase price but Pf refused and forfeited Df’s deposit
b. Held: Pf was fraud because aware of the existence of the fixtures during the negotiations but
actively concealed this fact. COA ordered rescission and refund of all monies paid together
with interest to Df. However, no order as damages for fraud was made because Df had not
led any evidence on damages
 Mansor diverted Ghani’s attention to something else
 According to s17(d), any other act fitted to deceive
 This section is very wide, can cover any act, anything can come into this section if it is
intention to deceive

Mere silence:
 According to Explanation s17, mere silence did not amount to fraud
 However, according to Illustration s19 (c) and (d) show that fraud requires active steps to be
taken by one party either to conceal facts from the other party or to prevent material facts from
coming to his intention
 Lau Hee Teah v Hargill Engineering Sdn Bhd & Anor
a. Facts: Pf purchased a loader from Df. During negotiations, Df’s dealer did not inform Pf
regarding the machine’s year of manufacture or that it had been previously involved in an
accident. Pf did not inquire also
b. Held: Relying on the Explanation s17, there was no active duty on the dealer to inform Pf.
The general is caveat emptor, let the buyer beware. A duty to disclose material facts exists in
the case of contracts uberrimae fidei (utmost good faith), or where there is fiduciary
relationship between the parties
 Does not apply because Mansor don’t have duty to disclosure neither mere silence or silence
equivalent to speech, so Mansor not fraud

Duty to discover the truth of a statement:

 According Exception s19, if such consent was caused by misrepresentation, the contract is not
voidable if the party whose consent was so caused had the means of discovering the truth with
ordinary diligence
 Tan Chye Chew & Anor v Eastern Mining and Metals Co Ltd
a. Facts: Misrepresentation by Pf's agent to Df's geologist that the land inspected by both
parties was included in the prospecting permit but it did not
b. Held: There was misrepresentation within the meaning of s18 but Exception s19 applied
because Df could with ordinary diligence have discovered whether the representation was
true or false. The contract was not voidable
 Gemakota Enterprise Sdn Bhd v Public Bank Bhd
a. Facts: Misdescription by Df of area and terrain of property which put up for sale by public
auction. Pf successfully bid for the property and paid a deposit. Pf’s surveyor’s report
showed property had been misdescribed
b. Held: Df had made an innocent misrepresentation within meaning s19(b) and Pf had been
induced by the misrepresentation to enter into the contract. There was misrepresentation,
innocent party had the means to discover the truth but only through extra ordinary
diligence. Exception s19 did not apply, so contract voidable. Pf was entitled to recover the
deposit
 Exception s19 did not apply. Ghani had exercised ordinary diligence because he test drive

Causal link:
 According to Explanation s19, a misrepresentation which did not cause the consent to a contract
of the party on whom the fraud was practised, or to whim the misrepresentation was made,
does not render a contract voidable. Thus, it means that misrepresentation must have caused
the innocent party to enter into a contract. Fraud must be a cause is sufficient
 Datuk Jagindar Singh & Ors v Tara Rajaratnam & Edgington v Fitzmaurice
a. Facts: 2nd Df had promised Pf that although the documents signed by Pf were in the form of a
transfer of Pf's land, Pf's property would not be transferred to anyone, since the transaction
was for security for a loan, and not a transfer. Pf's property was later transferred to 3rd Df
b. Held: This amounted to fraud because Df when they made the promise not to transfer the
land, had no intention of fulfilling it
 There is a casual link between Ghani and Mansor because Mansor’s fraud had caused Ghani
to enter into a contract with him for buying the Nissan car at RM38,000. Moreover, he
entered into the contract because of the workshop. Thus, a reason is sufficient, then it is
misrepresentation.

Consequences of fraud or misrepresentation:

 According to s19(1), when consent to an agreement is caused by fraud, the agreement that
comes into existence is voidable at the option of the party whose consent was not free
 Ghani entered into the contract because of Mansor’ fraud. Thus, the contract between
Ghani and Mansor is voidable at the option of Ghani
 According to s65, if the innocent party chooses to rescind the agreement, he must restore any
benefit he received from the other party to the other party, or he must compensate the other
party for the benefit
 According to s66, where the agreement is rescinded, the other party too must restore any
benefit he received from the innocent party to the innocent party, or he must compensate the
innocent party for the benefit
 Ghani told Mansor that he did not want the Nissan and wanted a refund of his purchase
price. Ghani had choose to rescind the contract that made between him and Mansor. Thus,
Ghani need return the Nissan car to Mansor and Mansor need to return RM38,000 to Ghani
 Can only applied s66 because advising innocent party. s65 means only innocent party need to
restore but s66 means both parties need to restore