When Can I Void a Contract For Misrepresentation?
Contracts are ever present in our day-to-day activities, and may come in the form of verbal or written agreements. When you purchase a handphone from a shop at the mall, a contract is formed. However, if the seller has misrepresented the qualities of the piece of merchandise to you, it is sometimes possible to void (i.e. undo) the contract.
A misrepresentation is a false statement, communicated from one party to the other, which induces the latter to enter into a contract.
To be misrepresentative, the statement must refer to a fact. One example would be if a salesman claims that a car has manual transmission when in fact it does not. In contrast, puff, or mere exaggeration, such as a claim that driving in the car will make you feel as if you are flying, is not a misrepresentation.
Silence can also constitute misrepresentation, when a party makes an incomplete disclosure of crucial facts, or fails to correct a representation that subsequently became false. In the case of Alacran Design Pte Ltd v Broadley Construction Pte Ltd, the court found that the silence of one party had misled the other party by giving a false impression that there was agreement as to what was stated.
In addition, a misrepresentation must also be material enough to cause inducement. It must relate to a matter which would influence a reasonable person’s decision to enter into the contract. If a person enters a contract to buy a car, unaware of the false advertisement that it the car is accident-free, there is no misrepresentation. This is because there has been no inducement.
If misrepresentation is established, the victim can choose to rescind or affirm the contract. Rescinding the contract would free both parties from all obligations (for example, to pay for the car, and to supply the car), and restore the parties to their original positions before the contract. However, the right to rescind may be lost, if:
- The victim affirms the contract by choosing to continue with it after being aware of the misrepresentation;
- An innocent third-party buys the subject matter of the contract (e.g. goods) from the main parties;
- It is impossible to restore the parties to their previous positions; for example, if the buyer had already eaten the food which the seller had misrepresented; and
- The time period prescribed by the Limitation Act passes (claims expire if not brought to the court’s attention within a certain period of time, where this period of time depends on the nature of the claim);
In addition to rescinding a contract, a victim may also be able to claim compensation if the misrepresentation was fraudulently or negligently made.
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