Transcript Commercial law Free Consent

Law of Contract: Free
Consent
Commercial Law
Free Consent: Points to Ponder
How can we be sure that the agreement is made
without ‘free consent’?
Agreements made without free consent = voidable
agreements
NOTE the term ‘voidable’!
What does ‘voidable’ means COMPARED with ‘void’
agreements?
What are the laws that govern these matters?
Free Consent & Elements of Contract
S.10 (1) CA:
‘all agreements are contracts if they are made by the
free consent of the parties competent to contract, for a
lawful consideration and with a lawful object, and are
not hereby expressly declared to be void….’
What are the other elements of contract?
Free Consent: Definition
 S.13 CA : Two or more persons are said to consent
when they agree upon the same thing in the same
sense.
 S. 14 CA : Consent is said to be free when it is not
caused by – Coercion, Undue influence, Fraud,
Misrepresentation, Mistake.
NOTE: Mistake is grouped differently due to its effect.
Free Consent: Effects
In any of the circumstances listed above, the validity of
an agreement will be impaired- the agreement shall be
void or voidable
s.2(i)CA: A voidable contract is a contract which is
enforceable by law at the option of one or more of the
parties to the contract but not others (i.e. not
enforceable by third parties
s.19(1)CA When consent to an agreement is caused by
coercion, fraud, or misrepresentation, the agreement is
voidable at the option of the party whose consent was so
caused.
Free Consent: Voidable Contract
Agreements entered without free consent is voidable.
Without free consent may occur with the existence of
either COERCION, UNDUE INFLUENCE, FRAUD
and MISREPRESENTATION in the VOIDABLE
contract.
Authority: See S.19 CA
Voidable Contract: Effects
S.19(1) CA – when a consent to an agreement is caused
by coercion, fraud or misrepresentation, the agreement
is a contract voidable at the option of the party whose
consent was so caused.
Voidable Contract: Effects
S.19(2) CA – If the innocent party in cases of fraud or
misrepresentation may, if he thinks fit, insist that the
contract be performed, and that he shall be put in the
position in which he would have been if the
representation made had been true.
S.65 CA – the party rescinding a voidable contract
shall, if he has received any benefit from the other
party to such contract, restore the benefit to the person
from whom it was received.
Coercion
S.15 CA –
Kesarmal s/o Letchman Das v Valiappa Chettiar (1954)
20 MLJ 119
It was held that a transfer executed under the orders of
the Sultan, issued in the ominous presence of two
Japanese officers during the Japanese Occupation of
Malaya, was invalid. The court held that consent was
not freely given and the agreement was voidable at the
option of the party whose consent was so caused.
Undue Influence
S.16 CA
There are a few circumstances that need to be fulfilled
to prove ‘domination’
Undue Influence
Domination, the 3 circumstances:
A person is deemed to be in position to dominate the
will of another where:
He hold a real or apparent AUTHORITY over the other
He stands in a fiduciary relation to the other
He makes a contract with a person whose mental capacity
is temporarily or permanently affected by reason of age,
illness or mental or bodily stress.
Undue Influence
Inche Noriah v Shaik Allie bin Omar [1929] AC 127
An old and illiterate woman executed a deed of gift a landed
property for her nephew who had been managing her
everyday life.
She took an advice from a lawyer
She signed the deed. Property transferred to the nephew.
Court set aside the agreement on the ground of undue
influence because of the relationship in existence between
the parties.
Fraud
S.17 CA
Fraud includes certain acts which are committed with
the intention to induce another party to enter into a
contract.
There are 5 situations of fraud.
Fraud
The 5 acts of fraud:
The suggestion as to a fact of that which is not true by
one who does not believe it to be true
The active concealment of fact by one having knowledge
of belief of the fact.
A promise made without any intention of performing it
Any other act fitted to deceive
Any such act or omission the law declares to be
fraudulent.
Fraud
Note: Fraud demands ‘act’ to be done.
How about silence?
See illustration to S.17 CA
Misrepresentation
S.18 CA
Misrepresentation is confined to innocent
misrepresentation.
Innocent misrepresentation is an untrue statement
that the speaker believes is accurate.
Silence in situation where there is duty to disclose may
amount to misrepresentation under S.18(b) CA.
Fraud v Misrepresentation
The difference between the two…
The basic difference between fraud and
misrepresentation is that in fraud, the maker does not
believe the truth of the statement made, while in
misrepresentation, the maker believes that the statement
is true.
Mistake
What is mistake?
S.21 CA – mistake of fact
S.22 CA – mistake of law
Mistake of Fact
S.21 CA – Where both parties to the contract are
under mistake as to the matter of fact essential to the
agreement, the agreement is void.
What kind of ‘mistake’?
Answer: One that is a matter of fact essential to the
agreement.
By who?
Answer: Both parties to the agreement
(mutual)
What will happen to the contract?
Answer: VOID
Mistake of Fact
What is ‘a matter of fact essential to the agreement’?
Answer: The mistaken fact is so important that it will
cause impossibility to the contract itself. Such as the (i)
existence, (ii) identity of the subject matter of the
contract.
Example:
A agrees to buy from B a certain horse. It turns out that the
horse was dead at the time of the bargain, though neither
party was aware of the fact. The agreement is void. (see
illustration (b) S.21 CA)
Mistake of Fact
What kind of mistake that will not be considered
under S.21 CA?
Answer: See Explanation of S.21 - An erroneous
opinion as to the value of the thing which forms the
subject-matter of the agreement is not to be deemed a
mistake as to a matter of fact.
Example:
A bought an antique dagger from B. A thought that the
dagger is so expensive so he paid a high price for it. Later he
was told that the value is not that high. His mistake as to the
value of the subject matter will not be deemed as mistake
under S.21.
Mistake of Fact
Mistake of fact must be a mutual mistake.
Mistake by both parties.
What if the mistake is suffered by one party only?
Answer: S.23 CA – A contract is not voidable merely
because it was caused by one of the parties to it being
under a mistake as to a matter of fact.
Mistake of Law
S.22 CA - A contract is not voidable because it was
caused by a mistake as to any law in force in Malaysia;
but a mistake as to a law not in force in Malaysia has
the same effect as a mistake of fact.
Illustration: A and B make a contract grounded on the
erroneous belief that a particular debt is barred by
limitation: the contract is not voidable.
Mistake: Effect
The effect is different from those mentioned above.
Here, mistake will cause the Contract to be VOID
rather than voidable.
S.2(g) CA – the contract will be unenforceable
What to do if the contract is void?
Answer: Remedy of restitution - Look at S.66 CA
Mistake: Effect
S.66 CA – When an agreement is discovered to be
void, or when a contract becomes void, any person who
has received any advantage under the agreement or
contract is bound to restore it, or to make
compensation for it, to the person from whom he
received it.
It imposes a legal duty on the contracting parties to
resolve the matter. If not resolve? “See you in Court!”
Free Consent: Conclusion
What are the 5 circumstances that negate FC? Answer: S.14
If there are coercion, fraud or misrepresentation the
contract will be voidable under S.19
If under undue influence the contract may be set aside
under S.20
If there is mistake of fact, the contract is void under S.21.
Remedies: Ss.19(2), 65, & 66 CA
Are you OK?