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.