Mistake

HYE!

This is the last element of free consent, which is a mistake. 

Mistake generally arises in a situation where if both parties to an agreement enter into it under some misunderstanding or misapprehension, in certain circumstances the law will permit them to allege that the contract is defective , on the ground that if they had known the true facts , they would never have entered into the agreement.

For a mistake to affect the validity of a contract it must be an "operative mistake", ie, a mistake that operates to make the contract void.

Mere mistake, in itself, it is said, ought not to affect the consent of one of the parties to the contract, or to their obligations under the contract.

At common law, if a contract is entered into under a legally operative mistake, the contract is void ab initio, and as such it has no legal consequence whatsoever.

Basically, there are 2 types of mistakes:

• Unilateral mistake: there is some mistake or misunderstanding in the communications between the parties which prevents there being an effective agreement, for instance, one party in an offer states terms which the other party knows the first party does not intend. Only one of the parties is mistaken. The other knows or must be taken to know, of his mistake. 
• Mutual mistake: the parties misunderstand each other and are at cross purposes.

English Common law has identified three different types of mistake in contract: unilateral mistake, mutual mistake, and common mistake.

1. Common mistake: both parties make the same mistake. Each knows the intention of the other and accepts it, but each is mistaken about some underlying and fundamental fact. The parties, e.g. are unaware that the subject matter of their contract has already perished
2. Mutual mistake 
3. Unilateral mistake

The relevant provisions under the CA  are S. 21, S.22, and S.23

• S 21: an agreement is void if both the parties to the agreement are under a mistake as to a matter of fact essential to the agreement
• S 23: a mistake caused by one of the parties to an agreement does not render the contract void.
• S. 22: a contact is not voidable because it was caused by a mistake as to any law in force in Malaysia, but a mistake as to any law not in force in Malaysia has the same effect as a mistake of fact

Position under Contract Act

• S 21 covers both mutual and common mistakes
• only a few reported cases where the scope of S.21 has been considered by the Malaysian courts.
• it would appear that the basis for rendering agreements void under S.21 is that, in such situations, either there had been no free consent between the parties, or the consent was nullified (CR S.14(e) ).
• For a mistake to be operative under S.21, it must be one ‘essential to the agreement.’ The circumstances under which a fact may be regarded as ‘essential to an agreement’ are not made clear by the Act.

Misrepresentation

 

Hello everyone! Next, we move on to discuss misrepresentation. Misrepresentation is defined as the representation which was false in fact when it was being made by one party to another, which, whilst not being a term of the contract, induces the other party to enter the contract. Section18 of Contract Act 1950 provides that Misrepresentation includes:

(a) the positive assertion, in a manner not warranted by the information of the person making it, if that which is not true, though he believes it to be true;(commonly used)

(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 to his prejudice, or to the prejudice of any one claiming under him; and

(c) causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.

The exception to section 19:

If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.

Conditions to be fulfilled before misrepresentation can be actionable:

• First condition: a false statement of fact where an actionable misrepresentation must be a false statement of fact, not opinion or future intention or law.
• Second condition: inducement where the false statement must have induced the representee to enter into the contract
• Requirements:-

    (a) the misrepresentation must be material and

    (b) it must have been relied on.

• Note: these are the requirements under English Law.

There are three types of misrepresentation under English Law:

(i) fraudulent,

(ii) negligent and

(iii)wholly innocent.

Note: This classification is also applicable in Malaysia [Case: Sim Thong Realty Sdn Bhd v Teh Kim Dar (2003) ]

FRAUD

 

As a general rule, it may be stated that whenever a person causes another to act on a false representation which the maker himself does not believe to be true, he is said to have committed fraud.

Section 17 of the Contracts Act 1950 explains that fraud refers to acts committed by a party to a contract with the intent to deceive the other contracting party.

Section 17 lays down five different acts that may constitute fraud:

1. The suggestion, as to a fact, of that which is not true by one who does not believe it to be true;

S.17(a) has similar requirements as S.18(a) in that there must be a false representation of fact addressed to the party misled.

The only difference is the state of mind of the maker of the statement.Under17(a) maker of the statement does not believe it to be true.

Kheng Chwee Lian v Wong Tak Thong [1983] 2 MLJ 322

2. The active concealment of a fact by one having knowledge or belief of the facts;

Where a party to a contract actively conceals or prevents certain material information from reaching the other party to the contract,  this active concealment amounts to fraud.

Horsfall v Thomas

3. A promise made without any intention of performing it;

Where a promise is made without any intention of performing it, it is an act of fraud under S.17(c). Either the promisor knows that when he makes the promise he cannot perform it or he makes a promise that he intends to break.

MUI Plaza Sdn Bhd v Hong Leong Bank Bhd (No 2) [1998] 7 MLJ 122

4. Any other act fitted to deceive; and

S. 17(d) is a catch-all clause to prevent any fraud from escaping the net of the law.

Loi Hieng Chiong  v Kon Tek Shin

5. Any such act or omission as the law especially declares to be fraudulent.

Where  any law specially declares certain acts or omissions to be  fraudulent, such act  or omission  amounts to fraud under S.17 (e)

Undue Influence

 

Hi everyone! 

Today I'm going to share about undue influence >.< 

Basically, Undue influence is an equitable doctrine, where the courts step in to prevent one party from using its influence to persuade another party to enter into a contract.

Section 16 of the Contracts Act 1950 provides that undue influence occurs when one party who is said to be in a dominant position, uses it to take an unfair advantage over the other by forcing him/her to enter into a contractual undertaking.

Undue influence has 2 classes :

1) Actual undue influence where the wrongdoer expressly uses the influence on the complainant for the purpose of containing the transaction (e.g gift or contract). In these cases, it is necessary for the claimant to prove affirmatively that the wrongdoer exerted undue influence on the complainant to enter into the particular transaction which is impugned. For example, can be seen in the case of Morley v Loughnan [1893] and Williams v Bailey [1866]

2) Presumed undue influence arises when undue influence was presumed to have been exerted due to a relationship of trust and confidence between the parties. Regarding this, the complainant only has to show, in the first instance, the wrongdoer in the dominant position in his relationship of trust and confidence with the complainant. The complainant also needs to show that the transaction was unfair. For example, you can refer to the case of Allcard v Skinner.

What is the dominant position? 

The dominant position is where the other party in a position to dominate the complainants will either in real or apparent authority or in a fiduciary relationship. There are two ways to differentiate the classification of fiduciary relationship or relationship of trust and confidence under indue influence :

1. Class 2A
2. Class 2B

Class 2A : The relationships where undue influence is presumed have been held to be: parent & child (Wright v Vanderplank (1855); solicitor & client (Wright v Carter (1903)); doctor & patient (Mitchell v Homfray (1881)); trustee & beneficiary (Ellis v Barker (1871)); and religious adviser & disciple (Roche v Sherrington (1982)). For a case example see:

Allcard v Skinner (1887) 36 Ch D 145.

Class 2B : If the complainant proves the existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of undue influence.

In a class 2B case, therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting aside the impugned transaction merely by proof that the complainant reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction impugned. For example the relationship of husband and wife or siblings. Class 2B can be seen in the case of Polygram Records Sdn bhd v The Search and Tate v Williamson

Coercion

What is coercion in free consent?

Coercion is described in Section 15 of the Contracts Act 1950 as the “the committing or threatening to commit any act forbidden by the Penal Code, or the unlawful detaining or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement”. 

The element of coercion :

 1) The coercion must be the committing of an act forbidden by the Penal Code

2) The coercion must be the unlawful detaining or threatening to detain any property

3) The act of coercion must be carried out with the intention of causing any person to enter into an agreement

For instance, coercion can be seen in the case of Kesarmal s/o Letchman Das v Valiappa Chettiar [1954] MLJ 119 where a transfer of property was made under 'the orders of the Sultan, issued in the presence of 2 Japanese officers during the Japanese occupation of Malaysia. Therefore the court held that the transfer of land was not valid as the consent given was under a threat and not free.

Free Consent

FREE CONSENT 

In Malaysia, our contract law is basically governed and enforced by the Contract Act 1950. When entering into an agreement, the parties must be free to consent to the contract. The free consent as provided in Section 10(1) “All agreements are contracts if they are made by the free consent of parties competent to contract…” Under Section 14, consent must be free and not caused by

1. coercion, as defined in section 15;
2. undue influence, as defined in section 16;
3. fraud, as defined in section 17;
4. misrepresentation, as defined in section 18; or
5. mistake, subject to sections 21, 22, and 23.

WELCOME

 HELLO EVERYONE!

It has been a while and this is my first blog for this year by the way STAY SAFE EVERYONE and take care .