Assignment for fulfillment of the MBA Program with Open University Malaysia - Paper on BUsiness Law

1. Assignment Question
Answers as submitted by Santhy A/P Govindasamy for Business Law Paper for the MBA
Program at Open University Malaysia
Question 1
(a) “In simple language, a misrepresentation is a representation that is untrue, it is a false statement
made by one party to the contract to the other, before, or atthe time of contracting, on which that
other party relied on in contracting.”
Per Abdul Malik Ishak J. in Travelsight(M) Sdn Bhd & Anor v Atlas Corp Sdn Bhd [2003]6MLJ658.
With reference to the Contracts Act 1950 and relevant cases discuss the circumstances and
elements of misrepresentation which cause a contract to be voidable.
(b) O 4 March 2014, Ahmad, an antique collector, entered a contract for the purchase of an antique
watch, which was described in good faith, by Farisham, the seller, as more than 100 years ofage.
Ahmad paid the depositofRM10, 000 outof the total price ofRM50, 000 and promised to pay the
balance within one week. On 6 March 2014, while attending an auction for antiques, Ahmad met
Yatt, who told him that, she was the person who sold the antique watch which she inherited from
her father, to Farisham. Yatt told Ahmad that the watch is not very old as her father boughtthe
watch on the day that Malaysia got its independence, i.e. on 31 August 1957. Ahmad was very
disappointed with what Yatt told him and immediately sentan email to Farisham which stated that
he intended to terminate the contract which he entered with Farisham on the ground that there
was misrepresentation offact. Ahmad also wanted to claim back the RM10, 000 of depositwhich
he has already paid to Farisham.
Advice Farisham.
Question 1 (a)
One of the important elements for a valid contract is there must be free consent between the
parties in order to contract. Section 13 Contracts Act 1950 states, “two ormore persons are said
to consent when they agree upon the same thing in the same sense.”

2. One of the factors which would affect the free consent of one or both parties to a contract is
the element of “misrepresentation”.
Misrepresentation is an untruthful or misleading statement of fact made by the proposer of
the agreement to the other party with whom he wishes to enter into acontract with. However
the law provides where the contract has been entered into as a result of misrepresentation by
one party, the contract becomes voidable at the option of the party whose consent was
obtained.
The Contracts Act 1950 s. 18 defines “misrepresentation” as includes –
(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;
(b) any breach of duty which, without an intent to deceive, gives an advantage to the person committing
it, or anyone claiming under him, by misleading another to his prejudice, or to the prejudice ofanyone
claiming under him; and
(c) causing, however innocently, a party to an agreementto make a mistake as to the substance of the
thing which is the subject of the agreement.”
It must be noted here the misrepresentation under Section 18 is one made without any element of
fraud being present in the statement. Thisis because the party who is making the statement does so
“honestly believing in the truth ofthe statementhe makes, or negligently or innocently makes such statement
which is untrue or causes another to make a mistake of fact”.
In Edgington v. Fitzmaurice [1885] 29 Ch D 459., the directors of a company issued prospectus
inviting subscriptions for raising money, to make improvements on the building, purchasing horses
and vans and developing the trade of the company. However the director’s plan was to use the
money to pay off existing debts of the company. It was held there was misrepresentation of fact
because there was no intention on the part of the company to use the money in the manner it had
stated. The contract was thus voidable at the option of the party who was wronged.

3. An important point to note here is that the untrue statement must be a statement of fact and not
merely a statement of opinion. When the misrepresented statement made is one of opinion then
the claim of the representee to treat the contract as voidable in his favor fails.
A case which supports this point is Bisset v. Wilkinson[1927] AC 177. The respondents wanted to
purchase land for purpose of sheep-farming. They relied on the appellant’s statement that an
estimated two thousand sheep can be reared on the land. The appellant had no prior experience in
sheep-farming. The claims were found to be untrue and the respondents wanted to rescind the
contract on the ground of misrepresentation. It was held the statement by the appellant was merely
his honest opinion and the claim to rescind the contract failed.
However in the case of Smith v. Land and House Property Corporation [1884] 28 Ch D 7,
Lordship Bowen LJ said: “if the facts are not equallyknownto both sides,then a statementof opinionbythe one
who knows the facts best involves very often a statementof materialfact, for he impliedlystates that he knows facts
which justify”and his Lordship allowed the defendant to rescind the contract for misrepresentation.
Misrepresentation renders the contract voidable. This means the contract is construed to remain
valid between the parties, unless and until it is set aside by the party to whom the misrepresentation
was made to. Once the party to whom the misrepresentation was made to refuses to be bound by
the contract then the contract in question is terminated ab initio as if it had never existed. The
parties are thus restored to the position in which they stood before the contract was entered into.
Section 19(1) Contracts Act 1950 provides that, “the result of an agreement, which has been entered
into due to a misrepresentation on the part ofthe party making it, would cause the agreementto be voidable
at the option of the party whose consent was thus caused”.
Section 19(2) Contracts Act 1950provides, “A party to a contract, whose consentwas caused by …
misrepresentation, 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 representation made had been true.”
An exception to this is “If such consentwas caused by misrepresentation ....., is notvoidable, ifthe party
whose consent was so caused had the means of discovering the truth with ordinary diligence”. The law

4. further states “A …misrepresentation which did cause the consent to a contract of the party on whom
……….., the misrepresentation was made, does not render a contract voidable.”
In the case Attwood v Small [1838] 6 Cl & Fin 232., Attwood was selling a mine. He made
exaggerated and untrue statements as to its earning capacity. But before agreeing to buy the mine,
Small sent his own experts to assess the mine’s capacity. They concurred in Attwood’s assessment.
When the true factual situation was discovered, Small decided to rescind the contract for
misrepresentation. Held the action for rescission failed because Small had relied upon his own
experts rather than on Attwood’s’ representation.
Similarly in the case of Travelsight(M) Sdn Bhd & Anor v. Atlas Corporation Sdn Bhd High Court
Malaya, Kuala Lumpur[2003],there was a sale and purchase agreement between the parties for the
sale of a piece of property measuring in area approximately 1,592 sq. ft.. The purchaser had
specifically told the seller he wanted the premises for his own occupation. When the property was
final delivered to the buyer upon his making full payment of the purchase price it was discovered
the floor plan had been reduced by 122 square feet. There was also misrepresentation alleging the
building plans had been approved by Dewan Bandaraya Kuala Lumpur before the signing of the
Sales & Purchase Agreement (SPA), but apparently the approval was only obtained after the
signing of the SPA. The courts held there was misrepresentation and the contract was voidable at
the option of the plaintiff.
Another point to note here is the party deciding to rescind the contract due to misrepresentation
must communicate his decision within a reasonable span of time. This would enable the party who
made the untrue statement (representor), know his exact position pertaining to the contract. The
reason being that unless termination of contract is informed to the representor, he is otherwise
entitled to treat the contract as existing.The action by the representee to terminate the contact,
would effectively nullify the contractual link between him and the representor. The recission of
the contract is pronounced by the courts. The judge in Travelsight sighted the case of Abram SS
Co. v Westville Shipping Cp. Ltd(supra) and Car and Universal Finance Co. Ltd v. Caldwel[1965]
1 QB525.[1964] 1 All ER 290 to support the above statements.
Section 65 Contracts Act 1950, further goes on to provide the representee who choses to terminate
the contract should restore any benefit he may have received back to the person from whom it was
received, being the representor.

5. Thus in JC Lam Gow & Anor v Maju-Tekno Sdn Bhd[1994]3CLJ783 the judge gave the plaintiffs
the right to rescind the contract and ordered the sum paid by the plaintiffs to the defendants be
refunded with interest at the rate of 8% and costs.
In summary the circumstances and elements of misrepresentation which causes a contract to be
voidable is:
1. The very fact there was misrepresentation, would cause the contract to be voidable at the
option of the party who was wronged.
2. The misrepresentation must be one as to the facts and not one of opinion by the representor.
3. The representee can either terminate or affirm the contract.
4. It is important the representee discloses his intention to the representor within a reasonable
time.
5. Termination of the contract results in the parties being restored to the position they were in
before entering into the contract.
6. Affirmation of the contract means the representee choses to overlook the misrepresenta tion
and wishes to continue with the contract.
Question 1 (b)
In order to form an agreement which is enforceable in law, the following elements must be
present:

6. 1. Proposal – This signifies the willingness of the party making the proposal to be in a
contractual relationship with the other party, whenever the terms of the contract are
agreed upon by the acceptor. A proposal made to a specific person means it can only be
accepted by that person and no other persons. The proposal must be clear and
communicated to the other party.
Section 6 Contracts Act 1950 provides, the proposal may be revoked “where the acceptor
fails to fulfill a condition precedent to acceptance.”
2. Acceptance – An acceptance is the agreement by the person to whom the proposal is
made to on the terms contained in the proposal made by the proposer. It is important the
acceptance be a positive act of acceptance and must be communicated to the proposer in
the usual and reasonable manner.
3. Consideration – This is the price paid by the acceptor to buy the promise or act of the
other person. Explanation 2 of Section 26, Contracts Act 1950 provides, adequacy of
consideration is immaterial as long as the agreement has been entered into by the parties
with free consent.
4. Intention to Create Legal Relations – For contracts entered into in business or
commercial agreements, the parties are presumed to have intention to create legal
relations.
5. Capacity to Contract – In order to form a valid contract, it is important the parties entering
into a contract have reached the age of majority and not of unsound mind.
6. Free Consent to Contract – To determine the legality of the contract, the parties to the
contract must have entered into it with free consent. One factor which may negate the
free consent is “misrepresentation”.
The Contract Act 1950 provides when all of the above elements are present in a contract then there
is a valid contract enforceable in law.

7. From the facts of the case provided in question 2 (b) there appears to be proposal from Ahmad, to
enter into a contract for the purchase of an antique watch from Farisham. It also appears Farisham
has given his acceptance in the usual and reasonable manner to Ahmad. Ahmad as consideration
for Farisham promising to sell the antique watch to him has provided him with a deposit of RM10,
000. The parties to the contract had intention to create legal relations with each other. I shall also
assume they had capacity to contract. However when it comes to matter of “free consent” there is
a hitch.
Farisham, has made an innocent misrepresentation when he made a statement in “good faith”
describing the antiquity of the watch to Ahmad who relied upon the statement made in order to
enter into the contract.
The misrepresentation under Section 18, Contracts Act 1950 is one made with no intention to
deceit. “The party making such a statement honestly believes in the truth of the statement, or negligently or
innocently makes such statement which is untrue or causes another to make a mistake of fact”. It is
important the statement be one of fact and not a mere opinion as in the case of Bisset v.
Wilkinson[1927] AC 177. In this case the representation by the seller as to how many sheeps the
land could carry was made on the sellers own estimate. It was held by the courts that this was a
statement of opinion and the claim to rescind the contract failed.
In law the effect of misrepresentation is to render the contract voidable. This means the contract is
construed to be valid between the parties unless and until it is set aside by the representee –
referring to the party to whom the misrepresentation was made to. This proposition is supported
by the case of Newbigging v. Adam [1886] 3 Ch D 582 at 592. The law states, when the representee
discovers the misrepresentation, the representee may make an election; to affirm or to rescind the
contract (Segar Oil Palm Estate Sdn Bhd v TayTho Bok [1997]4 CLJ 158). Once the representee
makes it clear, that the representee refuses to be bound by the contract then the contract in question
is terminated ab initio as if it never existed. This statement is also supported by the case law
Travelsight (M) SdnBhd v. Atlas Corporation Sdn Bhd, High Court Malay, Kuala Lumpur[2003].
Lord Atkinson in Abram SS Co. v. Westville Shipping Co. Ltd [1923] AC 773 at 781:

8. “Where one party to a contract expresses by word or act in an unequivocal manner that by reason of fraud
or essential error ofa material kind inducing him to enter into the contract he has resolved to rescind it, and
refuses to be bound by it, the expression ofhis election, ifjustified by the facts, terminates the contract, puts
the parties is status quoante and restores things, as between them, to the position in which they stood before
the contact was entered into.”
It is crucial once the representee decides to rescind the contract, the representee must communicate
his decision to the representor within a reasonable span of time. This is to enable the representor
to know the exact position pertaining to the contract because the representor is entitled to treat the
contract as subsisting unless he is duly informed of its termination (Car and Universal Finance Co
Ltd v Caldwell [1965] 1 QB 525,, [1964] 1 All ER 290). It is the court that pronounces recession.
Once the representee elects to terminate the contract it would effectively destroy the contractual
link between him and the representor (Abram SS Co. v. Westville Shipping Co. Ltd (supra)). And
when the contract is wholly performed, as in the case of Travelsight where the plaintiff had paid
the full purchase price, the defendant was asked to pay him back the full purchase price with
interest at a rate determined by the courts.
In the case of Lam Gow & Anor v. Maju-Tekno Sdn Bhd & Anor [1994] 3 CLJ 783. there was a
reduction of 25.19% in the sizeof the land, the plaintiffs who were the purchasers of the land had
the right to rescind the contract because the “difference would notgive the purchasers substantially what
they bargained for”. The judge allowed the recession and the judge ordered the defendants to refund
with interest at the rate of 8% and costs the sum paid by the plaintiffs. The courts also held the
plaintiffs be entitled to damages on account of the non-fulfillment of the agreement.
Another important point to note is the decision by the representee to either rescind or continue
with the contract should be communicated within a reasonable time. In this case Ahmad had made
known his intention not to continue with the contract on 6 March which was two days after the
contract was entered into between both parties.
Based on the facts provided I come to the following conclusions:
1. There is a representation of good faith on the part of Farisham. Farisham made “positive
assertion” of an information on the age of the watch, claiming it be a 100 year old antique.

9. Farisham honestly believed in the truth of his statement to Ahmad and there was no
malicious intent.
2. Farisham’s representation was made to an antique collector, Ahmad. Being an antique
collector, it is reasonable to expect Ahmad to have an expert knowledge to value and to
assess on the authenticity of claims made by a third party on an item before making a
purchase.
In the case of Attwood v Small the judge refused to grant the contract voidable at the option
of the party claiming he was misrepresented. This was because he had relied on his own
experts before making the decision to purchase.
Thus being an antique collector the courts may be doubtful as to believe Ahmad’s claim that
he was misrepresented to by Farisham as to the age of the watch.
3. Ahmad’s decision to rescind the contract is based on Yatt’s claim that she sold an antique
watch inherited from her father to Farisham and that the watch was bought by her father on
Malaysia’s Independence Day. It is important to determine:
 Date of manufacture of the watch. Although Yatt’s father bought the watch on Independence
Day, it ispossible it was manufactured in 1914, thereby making the claim it’s a 100 year old
watch valid.
 Whether the watch Ahmad purchased from Farisham and the watch Yatt is referring to are
one and the same. It is possible they are not talking about the same watch in which case
Farisham could be correct on the age of the watch he sold to Ahmad. However if they are
talking about the same watch then, as mentioned above, the date of manufacture of the watch
must be determined.
4. Ahmad in his email to Farisham, intends to terminate the contract on the ground there
was misrepresentation of fact.

10. There was no element of fraud in Farisham’s statement and applying the case of Bisset v.
Wilkinson [1927] AC 177, it is possible the courts may decide Farisham’s statement was
only his opinion.
5. Another important matter is the degree of reliance on the misrepresentation by Ahmad. In
Attwood v. Small[1838]6 Cl & Fin 232, the courts held there was no material reliance on
the misrepresented statement as Small had used his own experts to assess the land. Thus
it is possible the courts to reconsider Ahmad’s claim of misrepresentation as it is
reasonable to presume of Ahmad’s expertise in valuing an antique.
In conclusion, the worst case scenario for Farisham would be Ahmad can claim for
misrepresentation under Section 18, Contracts Act 1950, in which case the contract between the
parties would be voidable at Ahmad’s option. Once the courts declare rescission of the contract,
Farisham would have to refund the RM10, 000 deposit as well as pay any interest decided to by
the courts. Ahmad would also be entitled to damages on account of the non-fulfillment of the
agreement. This amount would also be determined by the courts.
It is also possible for the courts to look at the fact that Ahmad being an antique collector should be
an expert on assessing authenticity of purchases he makes. Applying Attwood v Small[1838]6 Cl
& Fin 232, case the courts may not allow recession of the contract and the contract would be valid
between the parties. In which case the contract continues and Farisham is entitled to payment of
the balance purchase price from Ahmad.