CONSENT Consent of the Parties to the

CONSENT

Consent of the Parties to the Contract The objectives: To determine a valid consent according to Contract Act 1950 as one of the essential elements of contract. What are the circumstances that would impair or affect the validity of the consent given?

What constitutes consent? Section 10(1) of the Contracts Act ‘all agreement are contracts if they are made by free consent of parties competent to contract…’ Section 13 of CA, elaborates it as 'two or more person are said to consent when they agree upon the same thing in the same sense‘ Hence, consent must be free.

Circumstances that would affect the Validity of the Agreement S 14 of the Contract Act has listed 5 circumstances where consent given is to be said not be given freely: (a) Coercion (S 15) (b) undue influence (S 16) (c) Fraud (S 17) (d) Misrepresentation (S 18) ; and (e) Mistake (S 21, 22 & 23).

Circumstances that would affect the Validity of the Agreement In such cases the contract may be set aside by the court and declared the said contract either void or voidable.

Void & voidable Contract Void contract - section 2(g) means an agreement in which no rights or obligations are created at all.

Void & voidable Contract Voidable contract - section 2(i) means an agreement which gives the rights to the parties whether to affirm or reject the contract.

1. Coercion (Voidable) S. 14(a) of CA: The consent is not freely given when the making of the consent is caused by coercion.

1. Coercion (Voidable) What is coercion? The practice of compelling a person or manipulating him to behave in an involuntary way by use of threats some other form of force.

What constitute Coercion? S. 15 of CA, The coercion include; qthe committing or threatening to commit any act forbidden by penal code, i. e. “Putting a gun to Abu's head" or putting a "knife under Abu’s throat" to compel Abu to transfer his land to Minah.

What constitute Coercion? q. The unlawful detaining or threatening to detain any property to the prejudice of any person, i. e. threat to close down his market stall and to seize his goods if he refuse to enter into agreement (i. e. Pay toll).

What constitute Coercion? qwith intention of causing any person to enter into an agreement.

Kesarmal a/l Letchumanan Das v Valiappa Chettiar [1954] MLJ 119 Facts: The sultan transfer of property on the basis of coercion of two Japanese officer during Japanese occupation in Malaya. Held: Consent was not given freely and the transfer of the property is not a valid transfer because the consent given is caused by coercion.

Chin Nam Bee Development Sdn Bhd v Tai Kim Choo & 4 Ors. [ 1988] 2 MLJ 117 Respondent purchased houses off to be constructed by the appellant. Each of the respondents had signed a sale and purchase agreement to purchase house at RM 29, 500. Subsequently, the Respondent were forced to pay additional RM 4, 000 under a threat by the appellant to cancel the respondent’s booking of their house.

Chin Nam Bee Development Sdn Bhd v Tai Kim Choo & 4 Ors. [ 1988] 2 MLJ 117 Court held: respondent’s promise to pay extra money for house-booking is voidable since the promise made under coercion

EFFECT i) Rescission (Section 19)- VIODABLE ii) Restitution (Section 65) Iii) Compensation (Section 66)

Maskell v Horner [1915] 3 KB 106 Lord Reading CJ stated that: “ if a person pays money, which he is not bound to pay, under a compulsion of urgent and pressing necessity or of seizure, he can recover it as money had and received.

2. Undue Influence S. 14(b) of CA: The consent is not freely given when the making of the consent is caused by undue influence.

2. Undue Influence It means that influence alone is not sufficient. It is necessary to establish such influence is undue.

Example: Ali constantly visits his aunt B while she is ill. She is alone and her son does not visited her. Ali always urges her to leave her property to him instead of her son. Failing to do so, he will stop from visiting her. It finally brings over a lawyer to write a new will in favor of B. Isn’t it Undue Influence?

What is undue influence? v. One person taking advantage of a position of power or influence over another person. v. He uses his power to persuade someone into signing (or not to sign) a contract. v. Party to the contract had lost the ability to exercise his/her judgment.

What constitute Undue Influence? S. 16(1) of CA/ Ingredients: i) Domination of the will by one party over other party; (the other party was in position to dominate the will of the first party), ; and

What constitute Undue Influence? S. 16(1) of CA/ Ingredients: - ii) The use of that position to obtain an unfair advantage in the contract. (The person who in the position of domination had used that position to obtain unfair advantages for himself and causing loss or injury to other party)

What constitute Dominant Position S 16(2) of CA: (a): when party holds a real and apparent authority over the other i. e. father authority over a child, senior officer over junior officer OR where he stands in a fiduciary relationship (amanah) e. g. : lawyer-client, doctor-patient.

What constitute Dominant Position S 16(2) of CA: (b) Where party makes a contract with a person whose mental capacity is affected by reason of age e. g. illness or mental or bodily distress.

Salwath Haneem v Hadjee Abdullah (1894) SSLR 57 The Plaintiff's husband made a conveyance of property belonging to himself and the plaintiff to his brother; B and C. The Plaintiff initially agreed to the conveyance the said property but after husband’s death, she brought an action seeking to set aside the agreement on the ground of Undue Influence.

Salwath Haneem v Hadjee Abdullah (1894) SSLR 57 Held: There was a confidential relationship existed between plaintiff and the B and C. Therefore, the burden of proof was on B & C to show the plaintiff was fully understood to the agreement that made and the consent was freely be given. Since both B &C failed to discharge the burden, the said contract was set aside.

Datuk Jaginder Singh v Tara Rajaratnam [1985] MLJ 105 Facts: T was the owner of one piece of land. J as a lawyer to T had used his position to influence T, to transfer his land to the 3 rd party. Held: The consent given is not freely given and the transfer become voidable as it was caused by undue influence.

Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 A Malay woman who was great age and wholly illiterate, depends wholly on R (her nephew) to get supply of food and cloths. All matters are settled by R, until she has no idea of how much her own property worth. It leads to the execution of the deed of gift of landed property in Singapore in favour of Respondent.

Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 Held: A’s action that gave to R an estate under a writing agreement = UI.

Chait Singh v Budin Bin Abdullah (1918) 1 FMSLR 348 Facts: P is a Sikh moneylender sued the Defendant who was an illiterate Malay agriculturist upon a pro -note. The note provided for interest at the rate of 36%. Defendant has charge his land as security and the interest charged exceeded 18%.

Chait Singh v Budin Bin Abdullah (1918) 1 FMSLR 348 This circumstance raise in the opinion of the court that the said transaction was unconscionable. The interest rate is too high for a loan with security. It shows that the contract is advantageous to one party only. Thus, UI.

Effects of Undue Influence S. 20 of CA, 1950: A party to the contract may rescind a contract on the ground that he has entered into that agreement by influence of the other party (Voidable /Rescission + Restitution).

Effect of Undue Influence However, where the complainant has received any benefit there under, the court may set aside the contract and ordering the complainant to restore benefits he has obtained under the contract.

3. Fraud Section 14(c) of the Contract Act provides that the consent given caused by fraud is not a valid consent (not freely given).

Fraud is : a deception (penipuan) made for personal gain or to damage another individual. Certain acts which are committed with intent to deceive another party or to induce him to enter into a contract.

Examples: The seller (Kassim) found the necklace on the street, he then told the buyer (Sofea) that it was new and special edition. Ah Keong sell a radio for RM 500 telling Aminah that it is fully functional, when he knows that it is actually totally broken

What constitute Fraud? Sec 17 of CA; fraud includes: a) fraud includes the suggestion as to fact which is not true by one who does not believe it to be true. (the maker knows the facts are not true/ false).

Kheng Chwee Lian v Wong Tak Thong [1983]2 MLJ 320 the respondent had been persuaded by the appellant to enter into second contract on the false representation that the area of land to be transferred was the same size as the land which the respondent had agreed to buy under a first agreement. In fact, the area even less than that.

Kheng Chwee Lian v Wong Tak Thong [1983]2 MLJ 320 Court held: The respondent had been induced by fraudulent misrepresentation into signing the second agreement and that misrepresentation was fraudulent meaning of Section 17 (a) and (d).

What constitute Fraud? b) the active concealment of a fact by one having knowledge of belief of the fact.

Letchemy Arumugan v Annamalay [1982] 2 MLJ 198 the defendant had induced the plaintiff an illiterate Indian woman to enter into sale and purchase agreement. The defendant had fraudulently represented to the plaintiff that the document that she was signed was for loan she took and it was to free the land from a charge.

Letchemy Arumugan v Annamalay [1982] 2 MLJ 198 In fact the document that she signed was included a sale agreement relating to land, a transfer of the land further agreement to purchase three unapproved sub-lots in her own land. Held: The agreement was voidable.

What constitute Fraud? c) a promise made without any intention of performing it

What constitute Fraud? For example; Skim Cepat Kaya and Kad Gores & Menang The owner of the house (A) promised to the tenant (B) that he will repair the defects of the house and he will disburse the said repairs done by the tenant. However, after the said repairs are completed, the owner of the house refused to pay that. He actually from the very beginning does not intend to pay for that. A = a promise made without an intention to perform it'

Does Silence Constitute Fraud? (Explanation of S. 17) Mere silence as to facts likely to affect the willingness of a person to enter into contract is not fraud unless the person has the duty to speak or his silence is equivalent to speech.

Gen. Rule: silence does not constitute a fraud. See Illustration (a) of section 17 See Illustration (d) of section 17

See Illustration (a) of section 17 A sell by auction to B a horse which A knows to be unsound. A says nothing to B about the horse’s unsoundness. This is not fraud in A. See Illustration (d) of section 17 A and B , being traders enter upon a contract. A has private information of a change in prices which would affect B’s willingness to proceed with the contract. A is not bound to inform B.

However, in certain circumstances, SILENCE MAY CONSTITUTE A FRAUD. The law puts a duty upon a person in position of trust a duty to speak and disclose all relevant information to the person putting trust in him in any transaction between them. See Illustration (b) of section 17 See Illustration (c) of section 17

See Illustration (b) of section 17 B is the daughter and has just come of age. Here, the relation between parties would make it A’s duty to tell B if the horse is unsound. (if A not tell- fraud). See Illustration (c) of section 17 B says to A, “If you don not deny it, I shall assume that the horse is sound”. A says nothing. Here, A’s silence is equivalent to speech. (If A did not speak the truth- his silence=fraud).

4. Misrepresentation According to Section 14(d) of the Contract Act, the consent is not freely given when it caused by misrepresentation.

False statement of fact made by one party before or at the time of making the contract ; which is addressed to other party ; and induces the other party to enter into the contract.

Furthermore, the maker believe in the truth of the statement ( the maker honestly believed that facts of such statement is True, in fact the said statement is False ).

example A (seller) is telling the buyer (B) that a radio is "practically new" so that B buy it, it is in fact 5 years old and heavily been used. So in the above example, if the seller didn't know the radio was actually old, he would only be liable for an innocent misrepresentation

What constitute misrepresentation? S. 18 (a) of CA: Representation of one of the fact which is not true but he believes it to be true (Innocent misrepresentation)

What constitute misrepresentation? S. 18(b) of CA: There is a duty imposed to a party to disclose information to each other but the parties failed to do it or breach of it – Negligent Misrepresentation. Basically, it means that you did not directly lie (without intention to deceive), but you made a representation about something while having no reasonable reasons for believing it to be true.

For example: A broker tries to sell a house to a buyer, who stresses his need for peace and quiet. The broker promises that the house is very quiet. In reality, the house next door is undergoing a very noisy reconstruction. Although the broker did not know this, his promise of that house was quiet was made without he having any reason to believe that was the case. he simply assumed that the house is quiet. The broker in this case is making negligent misrepresentation.

Duty of Misled Party to Exercise Diligence The misrepresentation does not make the contract voidable if the misled party had the opportunity to investigate and ascertain the truth of the representation.

Caparo Industries v Dickman, - an auditor (Dickman) who had negligently approved an overstated account of a company's profitability. - A takeover bidder (Caparo) relied on these statements and pursued its takeover on the basis that the company's finances were sound. - Once it had spent its money acquiring the company's shares and a company control, it found that the finances were in poorer shape than it had been led to believe. Caparo sued the auditor for negligence misrepresentation.

Caparo Industries v Dickman, The House of Lords however held: there was no duty of care between an auditor and a third party pursuing a takeover bid. The auditor had done the audit for the company. The bidder could have paid for and done its own audit.

Conditions for Misrepresentation (Summary) There must be false representation The Misrepresentation must be one fact (mere expression of opinion is not a representation of fact). The Misrepresentation must be made by a party to the contract The party was acted or induce the contract by relying on that misrepresentation The P must have suffered damage as a result of misrepresentation

Opinion is not Misrepresentation Bisset v Wilkinson, contract of sale a poultry farm is valid even though the seller made a statement that the farm can breed 2000 sheep is not true. It is because it is an opinion. He never breeds a sheep at the farm before. Thus, the contract is valid.

Silence is not a misrepresentation Generally, a party to a contract is not bound to disclose materials facts to the other party.

Silence is not a misrepresentation Keats v Lord Cardogan, D lets a house that was in bad condition to P. P however, never ask any information from D with regard to the house. The act of D is not misrepresentation P should caution and investigate.

Effect or Remedies of Misrep. & fraud Section 19 (1) of Contract Act 1950. voidable/ Rescission (S. 34 of the Specific Relief Act 1950. Section 65 - Restitution / restore the benefit Section 66 -compensation/ recover any benefit

5. Mistake When one party to a contract enters into it under some misunderstanding. The contract entered into is invalid/ void as if they know the true facts they would never have entered into the contract.

1) Common Mistake - Mistake of facts by both parties = VOID Section 21 of CA- Elements: i) both parties to an agreement under mistake (mutual). ii) mistake relating to a “matter of fact essential to the agreement”. Explanation of S. 21 “An erroneous opinion as to the subject matter of the agreement is not amount to mistake as to a matter of fact”.

Illustrations: A) Mistake as to existence (kewujudan) of subject matter or where both parties were unaware that the subject matter of the contract had already perished at the time of contract was entered into Illustration (a) of Section 21 A agrees to sell B a specific cargo of goods supposed to be on its way from England to Kelang. Before the day of bargain, the ship that carry the same had been cast away and the goods lost. Neither party aware of the facts. The agreement is VOID.

B) Mistake as to identity of subject matter Raffles v Wichelhaus Facts: Raffles agreed to sell cotton to Wichelhaus. The agreement provided that the cotton was “to arrive England from Bombay. ” However, there were two different ships regularly sailing from Bombay to England, one leaving in October and the other in December. Raffles shipped the cotton on the December ship, and defendant Wichelhaus refused to accept the cotton. Raffles sued on the alleged contract. Wichelhaus argued that it understood the shipment would be shipped on the October ship.

B) Mistake as to identity of subject matter Raffles v Wichelhaus Held: The court concluded there was “no binding contract. ” Since the parties meant different ships and there was a mistake as to identity of the subject matter by both Raffles and Wichelhaus.

C) Mistake as the possibility of performing the contract Illustration (c) of Section 21

C) Mistake as the possibility of performing the contract Sheikh Brothers v Ochsner The appellant granted to the respondent, license and authority to cut and manufacture all sisal growing on 5, 000 acres of land in Kenya, and to deliver to the appellant 50 tons per month of sisal fiber for sale. Respondent then was unable to do so as the leaf potential of the sisal was not sufficient to produce that much. Held: it was mistake as to the possibility of performing the contract. The said agreement was void.

2) Mistake of Facts by 1 party (UNILATERAL MISTAKE) Section 23 of CA: The contract is not voidable or still valid. But the party making the mistake would be entitled to an order of rescission.

1) Mistake as to identity of party to the contract E. g: A wants to contract with B but instead contracted with C. CUNDY V LINDSAY Blenkarn offered to buy goods from the Plaintiff by pretending to be “ Belkiron & Co. ” a reputable business on the same street. He signed the letter in such a way that it could be read as “Belkiron”. Then, the Pliantiff dispatched the goods and sold to the defendant who took the property in good faith. The plaintiff sued defendant because of that mistake. Held: the offer by the plaintiff was only to “Belkiron & Co, so it could not be accepted by Blenkern. Hence, there is no contract between the plaintiff and Blenkern.

2) Mistake as to quality of subject matter E. g: A agrees to buy from B a picture that A believe to be genuine Lat’s drawing but which in fact was painted by Leman. B in this case intends to sell a picture by Leman but A believes that the sale is of a picture painted by Lat. What is the effect of the said contract? A = mistake as to quality of subject matter= not voidable = right to rescission.

3. Mistake by Law Section 22 of CA: A contract is valid in the event of mistake by law. See ILLUSTRATION of section 22 of CA. “ A and B make a contract grounded on the erroneous belief that a particular debt is barred by limitation ; the contract is not voidable” i. E. Debt is already barred by Limitation Law, but still you claim for that.

Note: This Notes and Copyright therein is the property of Madam Norazla Abdul Wahab and is prepared for the benefit of her students enrolled in the MGM 3351 course for their individual study. Any other use or reproduction by any person WITHOUT CONSENT IS PROHIBITED. 78