Imagine signing a contract because the other party told you something important only to discover later that it was not true.
Perhaps you bought a business after being told its monthly revenue was much higher than it really was. Or you entered into an agreement because you were assured that a particular licence, approval or feature existed when it did not.
Under Malaysian contract law, this may amount to misrepresentation.
What Does Misrepresentation Mean?
Misrepresentation is dealt with under section 18 of the Contracts Act 1950.
In simple terms, it involves a false statement or representation that causes another party to enter into a contract.
Unlike fraud, misrepresentation does not necessarily involve dishonesty. The person making the statement may genuinely believe that what they are saying is true.
That is the main distinction between the two concepts. Fraud generally involves an intention to deceive, while misrepresentation can arise even where the statement was made honestly.
What Must Be Proven?
Generally, the person relying on misrepresentation must show that:
- a false representation was made;
- the representation was material to the transaction;
- it was made before or when the contract was entered into; and
- it induced the person to enter into the contract.
A false statement that had no influence on your decision will usually not be enough.
Does Misrepresentation Make a Contract Void?
No. A contract affected by misrepresentation is generally voidable, not automatically void.
Under section 19 of the Contracts Act 1950, where consent was caused by misrepresentation, the affected party may generally choose whether to affirm the contract or avoid it.
This is an important distinction because a voidable contract remains legally effective unless and until the innocent party elects to set it aside.
Can I Cancel a Contract Because of Misrepresentation?
Potentially, yes.
If you entered into a contract because of a material misrepresentation, you may be entitled to rescind the contract and seek to restore the parties to their original positions.
However, rescission is not automatic. Factors such as delay, affirmation of the contract, third-party rights and whether the parties can practically be restored to their previous positions may become relevant.
There are also qualifications under section 19, including circumstances where the truth could have been discovered through ordinary diligence.
Need Help Understanding Your Contractual Rights?
If you need help understanding your contractual rights or interpreting a contract under Malaysian law, feel free to get in touch. You can also explore Contract Law in Malaysia: A Practical Guide to Contracts, Agreements and Legal Rights for practical articles covering everything from contract formation to breach of contract and legal remedies.
Misrepresentation vs Fraud
The easiest way to remember the difference is:
Misrepresentation may be an honest false statement. Fraud involves deception.
For example, if a seller gives you an incorrect figure because they genuinely relied on inaccurate records, that may amount to misrepresentation.
If the seller deliberately invents the figure knowing it is false, that may amount to fraud.
Read more: Fraud vs Misrepresentation in Malaysian Contract Law: What’s the Difference?
A Practical Tip Before Signing
If a particular statement is important enough to persuade you to enter into a contract, try to have it expressly included in the written agreement.
For example, instead of relying on a seller’s verbal statement about revenue, property condition or business performance, ask for that representation to be included as a contractual warranty.
It is much easier to deal with these issues before signing than to argue later about what was said during negotiations.
Frequently Asked Questions
1. Can a verbal statement amount to misrepresentation?
Yes. A representation does not necessarily have to appear in the written contract. The issue is whether the statement was made and whether it induced the other party to enter into the agreement.
2. Is every incorrect statement misrepresentation?
No. The statement must generally be sufficiently material and must have influenced the decision to contract.
3. Can I claim damages for misrepresentation?
The remedies depend on the circumstances and the legal basis of the claim. Rescission is an important remedy, while damages may also be available in appropriate cases depending on whether fraud, negligence or another cause of action is established.
Final Thoughts
Misrepresentation protects parties who enter into contracts because they were given materially false information.
But not every mistake or inaccurate statement gives you the right to cancel an agreement. Under Malaysian Contract Law, the key questions are usually what was represented, whether it was false, and whether you relied on it when entering into the contract.
