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) ]