Chapter 2 - The Law of Contract (Part A) PDF

CHAPTER 2 THE LAW OF agreement CONTRACT LAW AMELIA MASRAN CONTRACT Faculty of Law, UiTM Shah Alam [email protected]  At t...

CHAPTER 2 THE LAW OF agreement CONTRACT LAW AMELIA MASRAN CONTRACT Faculty of Law, UiTM Shah Alam [email protected]  At the end of this chapter, students should be LEARNING able to: OUTCOME Explain the basic elements of a contract and determine whether a contract is valid. ELEMENTS CONTRACT State how a contract can be discharged and the available remedies. Describe online contracts.  What is a Contract? r in c ip a l A contract must be A contract is an The p o r a t io n f made without any agreement legisl f the l a w o voidable factors between two or t in co n tr a c such as coercion, more parties that is th e Malaysi a duress, fraud, is legally binding t s A c t undue influence or Contr a c between them. 1950. misrepresentation. Section 2(h) of the Contracts Act 1950 provides that “A contract is an agreement enforceable by law.” Elements of a Elements of Contract Contract Offer / Proposal Acceptance Intention to create legal All contracts are agreements relation but not all agreements are Consideration contracts. Certainty Legal capacity In order for an agreement to Free Consent become a contract, there are few elements to be fulfilled. certainty offer  1. Offer/Proposal Section 2(a) of the Contracts Act 1950 : “Proposal is made when one signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence.” Section 2(c) of the Contracts Act 1950 : the one making the offer is called a promisor. Affin Credit (Malaysia) Sdn Bhd v Yap Yuen Fui 1 MLJ 169: the court held that lack of offer in hire purchase agreement had rendered the agreement void ab initio. Communication of Proposal A proposal must be communicated to the acceptor before it can be accepted. Section 4(1) of the Contract Act 1950: The communication of offer is complete when it comes to the knowledge of the person to whom it is made. A proposal is said to have been communicated only if the party who accepts it knew about the proposal. If a party accepting the proposal is not aware of the proposal, then there is no contract. R v Clarke (1940) 40 CLR 227: Facts: In this case, the Australian government offered a reward for information regarding murder of police officers. X and Clarke were later arrested. Clarke gave information to the police, resulting in the arrest of Y. Clarke was released as he was not guilty. Clarke then knew about the reward and claimed. Court’s decision: Clarke’s claim failed because the offer was not present in his mind when he gave the information to the police. Ignorance of an offer is akin to never hearing it or forgetting the offer after hearing it.  To whom can a proposal be made? It can either be made to: 1. Particular person 2. General public Carlill v Carbolic Smoke Ball Co Ltd 1 QB Facts: The Defendant advertised that they would offer to pay 100 pounds to anyone who still suffers from influenza after using their medicine. The Plaintiff used it and still caught influenza. The Plaintiff sued the Defendant. Court’s decision: The Plaintiff was entitled to the 100 pounds as she had accepted the offer made to the world at large (i.e. general public). Invitation To Treat (ITT) An offer should be differentiated with an invitation to treat. An invitation to treat is not a proposal but a sort of preliminary communication which passes between the parties at the stage of negotiation. An invitation to treat is only an invitation to induce offers or to instigate negotiations.  The rationale of invitation to treat Sometimes, when a person offers something to another person, it may not always mean that it is a proposal or an offer. This may happen when the offerer is actually inviting you to make the proposal. When this situation happens, it is known as invitation to treat. The reason is that when there is a proposal and the proposal is accepted, it constitutes a contract. When there is an invitation to treat, the person who accepts the invitation to treat is actually the person making the proposal. Basically, invitation to treat is an offer to consider an offer.  Examples of invitation to treat a) A price list/catalogue b) Display of goods with price tags in a supermarket These types of invitation to treat can be Displays of goods in a shop do not constitute found in a price list or catalogues. a proposal to sell. These are not binding. The shop owner merely holds himself prepared to consider proposals made to him It merely invites the customers to their at the suggested prices. shop and buy from them. The proposal is in fact made by the customer when he selects the desired goods.  Pharmaceutical Society of Great Britain v Boots Cash Chemist Limited 1QB 401 Facts: Boots Cash Chemist Ltd were charged under the Pharmacy and Poison Act 1933 UK which states that it was unlawful to sell certain poison unless such sale was supervised by a registered pharmacist. The plaintiff claimed that the sale was unlawful since no pharmacist was seen. The case depended on whether a sale had occurred in the self-service shop when a customer selected articles, which he desired to purchase and placed them in a wire basket. Payment was to be made at the exit where a cashier was stationed and, in every case, involving drugs, a pharmacist supervised the transaction. Issue: Whether the display of goods on the shelves constituted an offer? Court’s decision: The Court ruled that the goods displayed was only an invitation to treat. A proposal to buy was made when the customer placed the article in the basket. Acceptance of this sale is only made when the cashier receives the money from the customer. That being the principle, since there was a registered pharmacist at the cashier, the shop owners were not liable. c) An advertisement Whether an advertisement is an offer or an invitation to treat is a question of the intention of the party placing the advertisement. In most cases, advertisements are treated as attempts to induce offers unless on exceptional facts situations. Majumder v. A-G of Sarawak (1967): The Federal Court held that an advertisement in the newspaper for the post of a doctor was an invitation to treat. d) Auction e) Tender The purpose of auction is to get the A tender request is considered highest price for the auctioned article. an invitation to treat. A call for Thus, the actual state of law is that the tenders is usually an invitation auctioneer is only making an invitation to treat and the submitted to treat i.e. merely inviting bidders to tender is the offer. make proposal which the auctioneer may accept or decline. Only when bidder makes a bid to buy does it constitute an offer.  Revocation of Offer/Proposal Section 5(2) of the Contracts Act 1950: A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. Section 6 of the Contracts Act 1950 - Means of revocation: By the communication of notice of revocation by the proposer to the other party. By the lapse of time prescribed in the proposal for its acceptance, or if no time is prescribed, by the lapse of reasonable time, without communication of the acceptance. By the failure of the acceptor to fulfill a condition precedent to acceptance. By the death or mental disorder of the proposer, if the fact of his death or mental disorder comes to the knowledge of the acceptor before acceptance.  2) Acceptance Section 2(b) of the Contract Act 1950 Section 2(b) of the Contracts Act 1950: “when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.” Section 2(c) of the Contracts Act 1950: Section 2(c) of the one accepting the offer is called a promisee. the Contract Act 1950 General rule of acceptance: Acceptance of a proposal must be communicated to the promisor in order to create a binding contract between the parties. A proposal once accepted becomes a promise.  Elements of Acceptance a) The acceptance must be absolute and unqualified (Section 7(a)) Acceptance must be made on exactly the same terms as proposed without modifications or variations. Modification or variation of proposal does not constitute acceptance but amounts to counter proposal by party whom original offer was made. A counter proposal is a rejection of the original proposal.  Hyde v Wrench (1840) Facts 6 June – The defendant offered to sell his estate to the plaintiff for 1000 pounds. Court’s Decision 8 June – In reply to the offer, the plaintiff made a counter offer to buy at 950 The court ruled that there was no pounds. The defendant refused to accept acceptance because the this offer. plaintiff’s letter on 8th June had 27 June – The plaintiff wrote a letter, rejected the original proposal by saying that he agreed to buy at the making a counter offer. original price of 1000 pounds. The defendant refused and the plaintiff sued for specific performance. b) An acceptance must be made within a reasonable time (Section 7(b)) What amounts to a reasonable time is a question of fact depending on the circumstances of each case. Examples: the nature of the subject matter or the method by which the offer is communicated. Though communication of acceptance may be waived it is still necessary to do something positive to accept a proposal like actually performing the conditions of c) Acceptance may be expressed in proposal or express acceptance in some usual and reasonable manner acceptable manner. unless proposal prescribes a manner in which it is to be accepted (Section 7(b)) Silence, absence of response or just total disregard of proposal is not acceptance as there is no positive act relating to the proposal. Communication of an acceptance Acceptance is only effective when it has been communicated. General Rule: An acceptance is completely express communicated when it is actually brought to the notice acceptance or comes to the actual knowledge of the offeror. The communication can be by words of mouths (examples: telephone, letter, telex, facsimile or by implied recorded message) – expressed acceptance. acceptance The law also recognizes that acceptance may be implied from conduct.  Felthouse v Bindley (1862) 142 ER 1037 ? Facts The plaintiff wrote a letter to his nephew and offered to Court’s Decision buy the nephew’s horse at 40 pounds. The plaintiff wrote, “If I hear no more from you, I shall consider the It was held that horse as mine”. The nephew actually intended to sell it acceptance was never but did not reply the letter. Six weeks later, the nephew expressed nor arranged for auction and told the defendant communicated. It was (auctioneer) not to auction off the horse as the horse also not implied from the has already been sold. The defendant accidentally sold nephew’s conduct. the horse. The plaintiff sued the defendant.  Exception: The Postal Rule Entores v Miles for East Corporation – acceptance by post 2 QB 327: When an offer is made by post, it is clear law that acceptance is complete as soon as the letter of acceptance is put into the post box. That is the place where contract is made. Section 4(2)(a) of the Contracts Act 1950 – Ignatius v Bell 2 FMSLR 115 the communication of acceptance is complete as against the proposer when it is put in course of transmission to Facts: The plaintiff sued for specific performance him, so as to be out of the power of the acceptor. over his rights to purchase the defendant’s land. The option was to be exercised on or before 20.8.1912. The Plaintiff sent a notice of Section 4(2)(b) of the Contracts Act 1950 – acceptance by registered post in Klang on the communication of acceptance is complete as against 16.8.1912 but it was not delivered until 25.8.1912. the acceptor when it comes to the knowledge of the Court’s decision: The option was duly exercised proposer. by the plaintiff when the letter was posted on 16.8.1912. There was a valid contract.  Revocation of acceptance Examples Section 5(2) of the Contracts Act 1950: Ali offers by post to sell a house to Betty. An acceptance may be Betty accepts the offer and posted letter revoked at any time before of acceptance. the communication of the Ali may revoke the offer before or at the acceptance is complete as time Betty posted the letter of against the acceptor, but not acceptance and not afterwards. afterwards. Betty may revoke the acceptance before or at the moment Ali receive the letter of acceptance not afterwards. 3) Intention to create legal relation For an agreement to be a contract, there must be intention between the parties that they want to enter into a legal relationship. The intention to create legal relations means the intention of a party to become legally bound, with legal consequences to sue and be sued. There are two types of relationship namely; 1. Business/Commercial Agreement 2. Domestic, Social or Family Agreement Business/Commercial Agreement Under this type of agreement, it is always presumed that the parties have the intention to create legal relation, unless proven otherwise. Facts: Few letters have been exchanged Lim Keng Siong v to negotiate on a sale. Appellant said Yeo Ah Tee that the sale was subject to contract, (1983) 2 MLJ 39 had informed lawyer that he did not wish to proceed with the sale. Court’s decision: There was a contract. It was the intention of the parties to come to a definite agreement, even though a written contract is yet to be drawn up. Domestic, Social or Family Agreement A domestic agreement normally does not constitute a legally binding agreement. This is because the parties have no intention to create legal relations. Balfour v Balfour (1919) 2 KB 571 Facts: The defendant was a civil servant stationed in Ceylon and while on leave in England, he had promised to pay his wife a monthly allowance as maintenance. The wife was unable to accompany the defendant to Ceylon due to her poor health. But the defendant did not pay her any allowances. The wife sued the defendant for breach of contract. Court’s decision: It was not a legally enforceable agreement because the parties did not intend that they should be attended by legal consequences.  HOWEVER, NOT ALL SOCIAL, DOMESTIC OR FAMILY AGREEMENTS ARE NOT Facts LEGALLY ENFORCEABLE. The husband left the matrimonial home which was in the joint names of the husband and wife and subject to a Court’s mortgage. The husband and wife had Decision a discussion in which the husband agreed to pay the wife 40 pounds a The husband month out of which she would pay the and wife had outstanding mortgage payments and Meritt v Meritt intended to when such payments had been (1970) 2 All ER create legal completed, he would transfer the 760 relations and property to her sole ownership. The thus the court agreement was recorded in writing on ordered for the a piece of paper and signed by the house to be husband. Upon completion of the transferred to payment, the husband refused to the wife. transfer his share of the house to the wife’s name. 4) Consideration Section 26 of the Section 2(d) of the Contracts Act 1950 states that “When, at the desire of the promisor, the Contracts Act 1950: promisee or any other person has done or An agreement abstained from doing, or does or abstains from without a valid doing, or promises to do so or abstain from consideration is doing something, such act or abstinence or void. promise is called consideration of the promise” Consideration may be Example: if a person used money viewed as sort of a to purchase a computer, the bargain or price which computer is the seller’s one party pays to buy consideration and the money is the promise or act of the buyer’s consideration. the other.  Types of consideration: 1 2 3 Executory consideration: Executed consideration: Past consideration: Consideration which is yet to be It is a consideration where the Under English law, generally past given or performed. promises made in a contract consideration is no consideration. Where promises made in a are delivered immediately and However, in limited cases, past contract will be delivered in the the party performs an act in consideration has been future. exchange for a promise by the recognized as good Example: Siti contracts to buy a other party. consideration, the exception car from Aminah for Consideration which has been being that, the act done at the RM60,000.00. Siti’s consideration completed by a party at the request of the promisor. is the promise to pay for the car time of the contract. A finds B’s wallet and gives it to B. at a later date and Aminah’s B promises A RM50 for the wallet. consideration is the promise to This is regarded as a valid give the car to Siti. contract.  Elements of a) Consideration need not be adequate consideration Section 26, Explanation 2 of the Contracts Act 1950: “An agreement to which the consent of Example: A agrees to sell his horse the promisor is freely given is not void merely worth RM1000 for RM10. A’s consent to because the consideration is inadequate, but the agreement was freely given. The the adequacy of the consideration may be agreement is a contract taken into account by the court in determining notwithstanding the inadequacy of the question whether the consent of the consideration. promisor was freely given.” Phang Swee Kim v Beh I Hock MLJ 383 Facts: There was a contract between parties to buy and sell a piece of land at 500 pounds when it was worth more than that. Later the seller refused to sell the land stating that the price was inadequate for a consideration. Court’s decision: Inadequacy of consideration was not an issue. The seller had agreed to transfer the land for 500 pounds and there was no evidence of fraud or duress.  b) Past consideration is a good consideration Lampleigh v Brathwait Court’s Decision: 80 ER 255 An act originally done at the request of the promisor, a promise Facts: made subsequent to the doing of Brathwait committed a murder and then an act, was deemed binding since sought assistance from Lampleigh to the act constituted consideration. procure pardon. Lampleigh successfully obtained the pardon and handed it over to Braithwait, who agreed to compensate Lampleigh 100 pounds for his assistance. The issue was whether past consideration was valid. c) Waiver of performance The rule applies when the promisor waives the performance of the original consideration. Example: A contract with B to borrow RM5000. The consideration in this contract is the promise from A to settle the RM5000 he owes B in 20 installments. After the third installments, A was declared bankrupt and he negotiated with B to pay RM2000 in full settlement of his remaining debt. If B agrees then this amounts to a waiver of performance. B waive liability of A to pay the original amount of consideration. Exception to the general rule of consideration A) AGREEMENT RELATED TO NATURAL B) AGREEMENT TO COMPENSATE FOR LOVE AND AFFECTION (SECTION 26(A) A PAST VOLUNTARY ACT (SECTION OF THE CONTRACTS ACT 1950) 26(B) OF THE CONTRACTS ACT 1950) Re Tan Soh Sim & Ors v Tan Saw Keow MLJ 21 Example: Ali, your neighbour took care of your cat while you were away. When you Facts: A woman on her deathbed expressed returned, you promised to give Ali RM200. her intention to leave all her properties to her If you fail to give Ali RM200, Ali can bring adopted children. an action against you. The promise that you gave is valid, even though Ali did not Court’s decision: The claims of the adopted give any consideration after you had children were not effective as it was contrary made the promise. to Section 26(a) i.e. it was not written and there was no natural love and affection between parties standing in near relation to each other.  D) AGREEMENT TO PAY A STATUTE C) AGREEMENT TO COMPENSATE FOR BARRED DEBT (SECTION 26(C) OF THE AN ACT THE PROMISOR WAS LEGALLY CONTRACTS ACT 1950) COMPELLED TO DO (SECTION 26(B) OF THE CONTRACTS ACT 1950) A statute barred debt is a debt which cannot be recovered through legal action The necessary ingredients: because of a lapse of time fixed by law. The promisee has voluntarily done an The time limit for an action in contract act. under the Limitation Act is 6 years from the The act is one which the promisor was time the cause of action arises (usually legally compelled to do. calculated from the moment of the breach An agreement to compensate wholly or of contract). in part the promisee for the act. When the 6 years has lapsed, the action is statute barred i.e. the aggrieved party Example: A supports B’s infant son. B cannot sue. But if there is a fresh promise to promises to pay A’s expenses in doing so. pay the statute barred debt, it can be This is a contract. enforceable. Example: A owes B RM1,000.00 but the debt is barred by limitation. A signs a written promise to pay B RM500.00 on account of the debt. This is a contract. 5) Certainty of Contract The terms of a contract must be certain and not vague. An agreement which is not certain or is not capable of being made certain is void. (Section 30 of the Contracts Act 1950) Example: A agrees to sell to B “my white horse for RM500 or RM1000”. There is nothing to show which of the two prices was to be given. The agreement is void. A agrees to sell to B “1000 gantangs of rice at a price to be fixed by C”. As the price is capable of being made certain, there is no uncertainty here to make the agreement void. But if C refuses or is unable to fix the price, the agreement will become void.  Karuppan Chetty v Suah Thian (1916) Facts: Court’s decision: The parties agreed to a The contract was void. lease of RM35 per month There was no certainty “for as long as he likes” as to the time frame of the lease.  RULE 01 Section 10(1) of the Contracts Act 1950: “All agreements are contract if they are 6) legal made by the free consent of the parties capacity competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared void.” RULE 02 Section 11 of the Contracts Act 1950: “Every person is competent to contract who is of the age of majority according to the law which is subject to and who is of sound mind and not disqualified from contracting by any law to which he is subject.”  General Rule: All contracts entered into by a minor are void. In Malaysia, the age of majority is 18 Who is competent to years old. (The Age of Majority Act contract? 1971). Those who are below 18 are 1. has attained the age of known as minors. majority The contractual incapacity of a minor 2. of sound mind is regarded as a protection of the 3. not disqualified from minor against the consequences of its contracting by any law to own actions and presumed lack of which he is subject. judgment in such matters.  Exceptions: Minors are bound by certain contracts as follows a) Necessaries: food, shelter, medical services “Necessaries” is not defined in the Nash v Inman 2 KB 1 Contracts Act, thus must refer to the common law. The Court in the case of Government of Malaysia v Facts: a Savile Row tailor sought to Gurcharan Singh & Ors 1 MLJ recover 122 pounds for clothes 211 concluded that “necessaries” including 11 fancy waistcoats at 2 must be construed broadly - guineas each supplied to an infant regards must be had to the facts undergraduate at Cambridge. of the case, the conditions and Issue: Whether the tailor can sue the circumstances in which the supply infant undergraduate student for was made and the purpose which the price of the waistcoat. was served. Court’s decision: The evidence What constitutes “necessaries” showed that the defendant already may vary according to the had an adequate supply of clothes position of the particular for his station in life, the waistcoats individuals. were not necessaries and therefore the tailor could not succeed.  b) Beneficial contract of employment and education A beneficial contract is a contract under which the minor obtains education or training for a trade or profession, or beneficial experience in a trade or profession. The minor is therefore bound by the contracts. A minor is bound by a beneficial contract unless the terms of the contract appear to be unfair and unreasonable.  De Francesco v Barnum (1890) 45 CH D 430: The court held that the terms of the contract between the plaintiff and the minor was unreasonably harsh and therefore the contract cannot be enforced against the minor. Roberts v Gray (1913) 1 KB 520: The Government of Malaysia v The defendant who is a minor is Gurcharan Singh & Ors 1 MLJ 1211: bound by his contract because the The contract entered by a minor was teaching and experience he would void but since education was a receive from the plaintiff would be to necessity, the first defendant was his benefit and there were no terms liable for the repayment of the monies which were harsh or unreasonable to spent on him. the defendant.  c) Scholarship The law relating to scholarship agreements with governmental institutions has been modified by the Contracts (Amendment) Act 1976. Section 4(a) provides that “No scholarship agreements shall be invalidated on the ground that the scholar entering the agreement is not of the age of majority…” Scholarship agreements are any contract/agreement between an appropriate authority and any person with respect to any scholarship, award, bursary, loan, sponsorship or appointment to a course of study, the provision of leave with or without pay or any other facility for the purpose of education and learning.  d) Insurance A minor over the age of 10 years old may enter into a contract of insurance (under the Financial Services Act 2013). A minor between the age of 10 - 16 years old may enter a contract of insurance with the written consent of the parents or guardian.  e) Apprenticeship The Children and Young Persons (Employment) Act 1966: This Act regulates any labour of a child or young person. under the Act, a “child” is a person who is under the age of 15 years and “young person” is a person who is 15 or older, but below the age of 18 years. Section 13 of the Act: “any child or young person shall be competent to enter into a contract of service under this act otherwise than as an employer and may sue as plaintiff without his next friend or defend any action without guardian ad litem.”  7) Free Consent Section 10(1) of the Contracts Act 1950: Section 13 of the Contracts Act 1950: “All agreements are contract if they are made “Two or more persons are said to consent by the free consent of the parties competent when they agree upon the same thing in to contract, for a lawful consideration and the same sense.” with a lawful object and are not hereby expressly declared void.” Section 19 of the Contracts Act 1950: When consent to an agreement is caused by coercion, fraud or misrepresentation and undue Section 14 of the Contracts Act 1950: influence, the agreement is a contract voidable “Consent is said to be free when it is not at the option of the party whose consent was so caused by: caused. Coercion If the contract is under mistake of fact essential Undue influence to the agreement, the agreement is void. Mistake Void - no right and obligation created. Misrepresentation Voidable - agreement which gives the aggrieved Fraud party the choice of either affirming or rejecting it.  a) Coercion Section 15 of the Contracts Act 1950: “Coercion is the committing, or threatening to commit any act forbidden by the Penal Code, or unlawful detaining or Kesarmal s/o Letchman v threatening to detain, any property to the prejudice of any Valliappa Chettiar (1954): person whatever, with the intention of causing any person to the court held invalid a transfer enter into an agreement” executed under the orders of the Sultan issued in the presence of 2 Coercion refers to an unlawful act done with the intention of Japanese officers during the causing the person to enter into an agreement. Japanese occupation in Malaya. In this case, consent was not free and Example: A is in Petaling Street and saw a fake Gucci watch. therefore the transfer became A asked the seller for the price. The seller said the watch cost voidable at the will of the party RM50. A have no intention to buy the watch. The seller whose consent was so caused. however threatens A with a knife and forces A to buy the watch. A reluctantly paid and took the watch. In this situation, there is coercion by the seller and hence the contract is voidable; i.e. A can either accept the contract or terminate it.  b) Undue Influence Section 16 of the Contracts Act 1950: Three circumstances of dominating the will “A contract is said to be induced by 1) when one party holds a real/apparent authority over another. Example: undue influence where the relations teacher and student subsisting between the parties are such doctor and patient one of the parties is in a position to parents and children dominate the will of the other and uses 2) where one party stands in a fiduciary that position to obtain unfair advantage relation to the other. Example: over the other.” lawyer and client director and shareholders principal and agent There are two elements in determining trustee and beneficiary undue influence: 3) where a party makes a contract with a 1) the domination of the will of the other; person whose mental capacity is temporarily 2) obtaining an unfair advantage over the or permanently affected by reason of age, other. illness or mental or bodily distress.  ALLCARD V SINNER Facts: The plaintiff became a member of Court’s decision: It was held that the a religious sisterhood and bound herself plaintiff’s gifts were voidable because to observe the rules of poverty, chastity of undue influence. However, the and obedience. Within a few days after plaintiff’s claim was time-barred as becoming a member, she made a will she delayed in taking actions against bequeathing all her property to the the defendant after six years. defendant, the lady superior of the sisterhood. Subsequently she left the Effects of contract under undue sisterhood and six years later, influence: The contract is voidable at commenced an action claiming the return the option of the party whose consent of her property on the ground that it was was so caused. (Section 20 of the made by her while acting under the Contracts Act 1950) undue influence of the defendant.  c) Mistake Section 21 of the Contracts act 1950: mistake of fact essential to agreement. When both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. Example: Mrs Daisy owns two hotels. She offers to sell one of them to Jeffry. In her mind, Mrs Daisy is thinking about the one in Klang, while Jeffy thinks that he is purchasing the one in Shah Alam. Both parties make a mutual mistake as to an important fact i.e. the identity of the hotel. Therefore, either party will be able to terminate the contract. A mistake of fact essential to agreement should be distinguished with a mere mistake of fact. Freeman v Kiamesha Concord (1974) Facts: A guest at a resort hotel misread an advertisement concerning Memorial Day weekend entertainment and so believed that a popular entertainer would be performing for 3 nights during the weekend rather than 1 night. Upon learning the truth, he sought to cancel part of his 3 day reservation. Court’s decision: The court held that his mistake was a mere mistake of fact and it was unilateral. Therefore, although he departed the resort before the end of the 3 day weekend, he remained obliged to pay his hotel bill in full.  d) Misrepresentation Example: Section 18 of the Contracts Mr Lim arrived at a hotel on a hot day and found that the temperature at the hotel was uncomfortably Act 1950: “Misrepresentation is warm. He asked the manager if the air-conditioner confined to innocent was working properly. The technician had worked on misrepresentation. Innocent it that afternoon and informed the manager that it misrepresentation is an untrue was working properly. statement that the speaker Based on the statement, the manager, believing the believes is accurate.” air conditioner was working properly, informed Mr Lim who then contracted for a room. Later, Mr Lim Misrepresentation refers to discovered that the temperatur and the room certain false statements made by remained warm, indicating that the air-conditioner failed to cool the air. a representing party (A), which induces the other party (B) to This is a situation whereby the manager made an enter a contract. innocent misrepresentation which will then enable Mr Lim to terminate the contract.  Low Kon Fatt v Port Klang Golf Resort (M) Sdn Bhd Court’s decision: Facts: the object of these Effect of The inner page of statements was to misrepresentation: the brochure attract buyers and the agreement is a described the the plaintiff was a contract voidable resort as ‘the victim of this attraction when these at the option of first seaside golf the party whose facilities were not resort with sea consent was so provided. Therefore, sport facilities in this was a case of caused. Malaysia’ and misrepresentation promised various under Section 18 of facilities. the Contracts Act 1950.  e) Fraud Section 17 of the Contracts Letchemy Arumugam v Act 1950: Fraud within the Annamalay 2 MLJ 198 meaning of this section requires Facts: The defendant had made a The basic differenc fraudulent misrepresentation to the e the doing of an act by a party to between a contract with the necessary plaintiff, an illiterate Indian woman rubber misrepresentation and intention to deceive the other tapper and induced her to enter into a sale fraud is that in frau contracting party. d the and purchase agreement. The defendant person making the Fraud occurs whenever a had fraudulently represented to the representation doe person causes another to act on s not plaintiff that the document she was himself believe in it a false representation which the s required to sign was for a loan she took for truth whereas in ca maker himself does not believe ses her land. However, the documents she of misrepresentatio to be true, he is said to have n, he signed included a sale and purchase may believe the committed fraud. agreement relating to a transfer of a land. representation to b Fraud refers to deceitful acts e Court’s decision: The court found that intended to induce the other true. the agreement was voidable at the option party to enter into a contract. of the plaintiff and must be rescinded. Q&A