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LAW OF CONTRACT: ELEMENTS OF CONTRACT (CONSENT) Prepared by: NURUL NASIHIN ARIFFIN KPMBP LAW OF CONTRACT: ELEMENTS OF CONTRACT (CONSENT) Prepared by: NURUL NASIHIN ARIFFIN KPMBP

Consent in a contract • Section 10 - all agreements are contracts if they Consent in a contract • Section 10 - all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, its not declared as void. • Free consent is the basis of contractual relationship. • The consent of the parties must be given freely and voluntarily.

Cont… • Section 13 - two or more persons are said to consent when Cont… • Section 13 - two or more persons are said to consent when they agree upon the same thing in the same sense. • Section 14 - consent is said to be free when it is not caused by: (a) Coercion (b) undue influence (c) Fraud (d) Misrepresentation and (e) Mistake

Cont… • The effects from those section, the contract become void or voidable Cont… • The effects from those section, the contract become void or voidable

VOID contracts • Section 2(g) provides that void contract is an agreement not enforceable VOID contracts • Section 2(g) provides that void contract is an agreement not enforceable by law. A contract is VOID when the consideration or object of an agreement is unlawful. • Section 24 provides that the consideration or object of an agreement is lawful, unless which had been highlighted in section 24(a)-(e). (see illustration) • Agreement also that are declare VOID by Contract Act: section 26 - 31

VOIDABLE Contracts • Section 2(i) states that “an agreement which is enforceable by law VOIDABLE Contracts • Section 2(i) states that “an agreement which is enforceable by law at the option of one more of the parties thereto, but not at the option of the other or others, is a VOIDABLE contract”. • Voidable contracts are valid contracts that can be made void at the option of party who claimed that he has been forced to enter into the contract without free consent. • Section 10 - all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, its not declared as void.

Cont… • Section 14 - consent is said to be free when it is Cont… • Section 14 - consent is said to be free when it is not caused by: (a) Coercion (b) undue influence (c) Fraud (d) Misrepresentation and (e) Mistake

Coercion • Sec 15: “committing or threatening to commit any act forbidden by the Coercion • Sec 15: “committing or threatening to commit any act forbidden by the Penal Code or the unlawful detaining or threatening to detain any property”. • E. g: causing grievous hurt, kidnapping, criminal force and assault, rape, culpable homicide, murder, extortion.

Cont… • Case: Kesarmal s/o Letchman Das v Valiappa Chettiar A transfer of property Cont… • Case: Kesarmal s/o Letchman Das v Valiappa Chettiar A transfer of property which was made under ‘the orders of the Sultan, issued in the ominous presence of 2 Japanese officers during the Japanese ocupation of Malaysia was held to be not valid. This is because the consent given was not free and therefore the transfer became voidable at the will of the party whose consent was so caused.

Cont… • Case: Chin Nam Bee Development Sdn Bhd v Tai Kim Choo & Cont… • Case: Chin Nam Bee Development Sdn Bhd v Tai Kim Choo & 4 Ors R purchased houses to be constructed by the A. Each of the R had signed a contract to purchase a house at $29, 500. However, the R were forced later to pay an additional $4000 under a threat by the A to cancel the R booking for their houses. Held: the payment was not voluntary but had been made under threat. Thus, there was coercion in the agreement of paying the additional $4000 to the A.

Undue Influence • Sec 16: situation where the relations subsisting between the parties are Undue Influence • Sec 16: situation where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain unfair advantage over the other. • An existence of undue influence is depend on proof by parties to a contract or by a assumption by court or when the contract was obvious to be advantages only to one party.

Cont… i) Existence of influence by proof A person claims to be undue influenced Cont… i) Existence of influence by proof A person claims to be undue influenced must show to the court the existent of the influence and that it has urged him to contract. ii) If it is made under the court assumption A person claims to have been influence must show one of the followings: a) the use of such power by the person in position to dominate to obtain what he desire.

Cont… b) Existence of trusty- beneficiary relationship. case: Salwath Haneem v Hadjee Abdullah P’s Cont… b) Existence of trusty- beneficiary relationship. case: Salwath Haneem v Hadjee Abdullah P’s husband has transferred titles to all his properties to his 2 brothers. When he passed away, P claims that the contract was made under undue influence. held: the contract is void. P shows to court that she is in trusty- beneficiary relationship with her in-laws.

Cont… c) party’s mental capacity is temporarily or permanently affected by reason of age, Cont… c) party’s mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily stress. case: Inche Noriah v Shaik Allie bin Omar An uneducated- old Malay woman executed a deed of gift of a landed property in S’pore in favour of her nephew who had been managing her affairs. Before executing the deed the donor had independent advice from a lawyer who acted in good faith. However, he was unaware that the gift constituted practically the whole of her property and did not impress upon her that she could prudently and equally effectively, have benefited the donee by bestowing the property upon him by a will. held: The gift should be set aside as the presumption of undue influence, which is raised by the relationship proved to have been in existence between the parties, was not rebutted.

Cont… iii) Obvious to advantage one party only. case: Chait Singh v Budin bin Cont… iii) Obvious to advantage one party only. case: Chait Singh v Budin bin Abdullah P (a chetty) sued D (uneducated man) for failure to pay debts. The interest rate is at 36%. D has charge his land as security. held: the interest rate is too high for a loan with security. It shows that the contract is advantageous to one party only.

Fraud • Sec 17: Fraud includes any of the following acts committed by a Fraud • Sec 17: Fraud includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with the intent to deceive another party thereto or his agent, or to induce him to enter into contract • A contract made under fraud is voidable contract. • If person that has been fraud wants to rescind the contract, he must proof that there is fraud in the contract been made.

Cont… • There are 5 acts considered as fraud under sec 17: (a)- (e). Cont… • There are 5 acts considered as fraud under sec 17: (a)- (e). • Elements of ‘fraud’ 1) there must be a false representation/ statement 2) The representee must have relied on the representation • Case: Kheng Chwee Lian v Wong Tak Thong R contracted to buy an estate from A. Under A urge, R bought another estate which the same size as the 1 st contract. But it is not. Held: the R was induced by fraud misrepresentation into signing the 2 nd contract. Therefore, the R has the right to repudiate the 2 nd contract since it is made under fraud.

Cont… • Case: Letchemy Arumugam v Annamalay D had made a fraudulent misrepresentation to Cont… • Case: Letchemy Arumugam v Annamalay D had made a fraudulent misrepresentation to the P, an illiterate Indian woman rubber- tapper, and induced her to enter into a sale & purchase agreement. The D had fraudulently represented to the P that the document she was required to sign was a loan that she had taken and to free and the land from the charge. In fact, it was a sale agreement of the land. held: the agreement was voidable at the option of the P

Cont… SILENCE & FRAUD • The general rule, silence does not constitute fraud. • Cont… SILENCE & FRAUD • The general rule, silence does not constitute fraud. • But there are circumstances where mere silence constitutes fraud. • It is when: (a) the act of silence equivalent to speech that later found out to be true. (b) the contract is of uberrimae fidei. It is a contract that must be made in bona fide. • If a contract wants to be repudiated under fraud of mere silence, a person who claims to be fraud must proof that the silence encourage him to contract and he has taken steps to investigate the truth but fails.

Misrepresentation • It is a false statement made by the representor and which such Misrepresentation • It is a false statement made by the representor and which such false representation induces the other party to enter into a contract. • Misrep, the person making the representation, he believes to be true. No intention to make fraud. (Innocent misrepresentation) • Sec 18: Misrep includes: sec 18 (a)- (c)

Cont… Elements of misrepresentation; a) There must be a false representation, either through a Cont… Elements of misrepresentation; a) There must be a false representation, either through a positive statement or some conduct b) The representation must be one of fact, not a mere expression of opinion Case: 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.

Cont… c) The statement was addressed to the party misled d) The representation must Cont… c) The statement was addressed to the party misled d) The representation must induce the misled party to enter into the contract. case: Peek v Gurney A claims the company prospectus is deceiving. He claims to rescind the contract. held: The claim was rejected. The A bought the company’s share from former shareholder. The company prospectus is directed to new applications to buy shares from the company.

Cont… case: Horsfall v Thomas D refused to pay price for cannon brought from Cont… case: Horsfall v Thomas D refused to pay price for cannon brought from P. he claims that P has made misrepresentation. held: D’s act is a breach of contract. D’s decision to contract was not encourage by misrepresentation.

Mistake • Sec 21: where both the parties to an agreement are under a Mistake • Sec 21: where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is VOID. • The mistake must be by both parties- mutual mistake • There are 2 situation where mistake can happen under mutual mistake: 1) Mistake as to the existence of the subject matter of the contract - look at illustration (a) & (b)to s. 21

Cont… case: Strickland v Turner a buyer bought and pay annuity scheme on X Cont… case: Strickland v Turner a buyer bought and pay annuity scheme on X life. The fact that X has already passed away is unknown to both the buyer and the seller. held: the contract is void, the subject matter of the contract

Cont… 2) Mistake as to the identity of the subject matter - no agreement Cont… 2) Mistake as to the identity of the subject matter - no agreement on the same thing in the same sense and in other words, no consent. case: Raffles v Wichelhaus 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. held: The court concluded there was “no binding contract. ” Since the parties meant different ships and there was a mistake by both Raffles and Wichelhaus.

Cont… • Mistake of Facts by 1 party (Unilateral Mistake) - Section 23 of Cont… • Mistake of Facts by 1 party (Unilateral Mistake) - Section 23 of CA: The contract is valid. - unilateral mistake does not affect validity of a contract. • Mistake by law – Section 23 of CA: The contract is valid if the mistake is of local law. But if of a fact or mistake of other country law, void.

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