The issue here is whether the purchase agreement entered by Mr.. Echoing Fat and Mania is avoidable by virtue of Sec. 17(b)? In order for a contract to be executed properly, it must be done in favor of Sec. 10, 13 and 14. Sec. 10 prescribes that an agreement in a contract if it done with the free consent of parties for a lawful consideration and with a lawful object. The word “consent” here is defined based on Sec. 13 where two or more parties agreed in the same sense and for an agreement to be a contract, the consent is off to be a “free consent”.
A “free consent” is said to be free if it is not caused by five taters which are coercion(Sec. 15), undue influence(Sec. 1 6), fraud(Sec. 17), misrepresentation(Sec. 18) or mistake; subject to Sec. 21, 22 and 23. If the contract is off from any of the five prescribed manner, it is held to be a free consent. The principle of fraud is stated based on Sec. 17 of the Contracts Act 1950 which clarifies the act done by a party with the intention to deceive another party or to induce him to enter into a contract. A contract must be made with free consent as stated in the Explanation in Sec. 9. A form of fraud may cause the contract to be avoidable. As in the case of Ghent Cache Liana v Wong Take Thong [1983] 2 ML 322, the respondent bought a half share in a piece of land from the appellant from the appellant and paid the purchase price. However, it was required for the respondent to induce into another contract which he was allocated a smaller portion of land than in the earlier agreement. The respondent alleged that he was induced by the false representation of the respondent to sign the second agreement.
He then applied to the court in order to obtain a declaration he was the owner of one half of the land and an order for the land to be subdivided. Portions of the land had been transferred to the sons of the appellant. However, the sons were not parties to the action. The trial judge found that the respondent had been misled into signing the second agreement and was not aware that pursuant to it. The Federal Court agreed with the trial judge’s finding that the respondent was induced after all by the misrepresentation into signing the second agreement and held that the misrepresentation was fraudulent within the meaning of Sec. 7(a) and (d) of the Contracts Act. It was avoidable by virtue of Sec. 19. Proceeding to Sec. 17(b), a contract is to be considered as fraudulent if it involves with an active concealment of a fact by one having knowledge of belief of the fact. An active concealment here refers to situation where a party conceals any information which they have a duty to disclose. The concealment may occur through actions, writings, or spoken words. This is more than simply a failure to disclose private information- active concealment involves a positive act intended to conceal the information. Under Sec. 7(b) of the Contracts Act, there must be an active concealment of a fact and the concealment was made by a person who has knowledge of it. In the case of Tat Too Book & Nor v Sugar Oil Palm Estate Sad. Bad, the plaintiff entered into an agreement to purchase 11 pieces of land but after paying the deposit and signing the agreement, the plaintiff found that part of the land was being used by the Public Utilities Board for water pipelines and Tenant National Bad for transmission cables. The plaintiff argued for the purchase price to be reduced to reflect the presence of these encumbrances.
The defendant however stated that they had no knowledge of any land acquisition. The High Court held that the acts of the defendant amounted to fraud within the meaning go Sec. 17. It was found that the defendant knew the condition of the and prior to the purchase agreement. It was found that there is an active concealment as the defendant’s agents had informed the plaintiff and those structures were not within the land. There are other several elements in order to prove there is an existence of fraud in an agreement.
The first element which requires to be fulfilled is to see whether there is a false representation by the party. In order to do so, there must be some positive conduct from which a statement can be applied but mere silence as to facts does not conduct to a false representation. According to Explanation of Sec. 17, the circumstances of the ease are such that it is the duty of the person keeping silence to speak or his silence is in itself equivalent to speech. Plus, another exception derived from Sec. 8 (b) is where silence in certain situations where there is a duty imposed to disclose may amount to misrepresentation. In this element, we could refer it to the case of Luau He Teat v Hardily Engineering Sad. Bad & Nor. [1980] 1 ML 145. In this case, the appellant had entered into an agreement on August 14, 1968 to take a loader on hire-purchase as hirer, with the first respondent as dealer and the second respondent as owner. The first respondent (as seller) did not inform the hirer of the year of manufacture of the machine and the fact it has been previously been involved in an accident.
The Federal Court held that this did not amount to misrepresentation as there was no active duty on the part of the seller to inform the hirer of these matters. Moving on to the second element, the representation must induce the contract as in accordance to Explanation to Sec. 19. The representation must form real inducement to the represented to enter into the contract. Here we could refer to the case of Horsefly v Thomas (1862) 1 58 ERE 813 where the claimant purchased a gun which had a concealed defect. His action for misrepresentation failed as he hadn’t inspected the gun before purchasing it.
Therefore the misrepresentation did not induce him to enter the contract as he was unaware of it. The third element that needs to be fulfilled is that the misled party must have exercised their ordinary diligence as they has the duty to do so. This can be further explained by virtue of Explanation SSL 9 of the Contracts Act which stated that if a consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract would not e avoidable, if the consented party had the means of discovering the truth with ordinary diligence.
Thus, in the said situations, the contract would not be held avoidable if the innocent party was able to ascertain the validity of the matter by exercising his ordinary diligence. However, there are some cases in which Explanation to SSL 9 would not be applicable. For instance, in the case of Weber v Brown, the appellant agreed to transfer to the respondent an option to purchase an estate comprising about 660 acres. Before the agreement was entered, the appellant stated that he had counted the trees.
The respondent completed the arches of the land and subsequently discovered that there were fewer trees on the estate than the number stated by the appellant. In an action by the respondent for damages for fraudulent misrepresentation, the appellant attempted to rely on the Exception in sis. The Court held that the Exception in sis did not apply to cases where the misrepresentation is by a false and fraudulent assertion. The next element that needs to be fulfilled is that the representation must be one of fact. This simply means that the mere expression of opinion or a statement of law is not a representation.
Hence, it would be impossible to argue such opinion is fraud as it requires the representation or acts by a party which has the intention to deceive other parties on entering into their contract. In order to grasp a better understanding on this element, we could refer to the case of Ibises v Wilkinson. In this case, the vendor of a piece of land told a prospective purchaser that, in his opinion, the land would carry 2000 sheep. In fact, the land could carry only a number less than this. Held there was no misrepresentation as the statement was one of opinion which was honestly held.
Thus, it could be shown here that the mere opinion of a party is not strong enough to constitute read. Lastly, such fraudulent statement should be addressed to the party which acted upon it. This means that the statement should be addressed from the deceiving party to the misled party directly without any intervention of third parties. The case of Peek v Gurney would be a good way in illustrating the said element. This is because, in the mentioned case, the plaintiff had bought shares from a third party, relying on the statements made in the prospectus issued when the company sold shares.
It was held he could not rely on the statements, which turned out to be untrue, because the prospectus was addressed only to he original purchasers of shares sold to the company. Hence, this further enforces the view in which the statement should be directly addressed to the misled party in order for such party to succeed in bringing up a claim against the deceiving party. By virtue of SIS (1) of the Contracts Act, when consent to an agreement is caused by coercion, fraud, or misrepresentation, the agreement is a contract avoidable at the option of the party whose consent was so caused.
In other words, the effect of entering agreements due to coercion, fraud or misrepresentation is avoidable at the option of the complaining parties. If the parties to the contract ashes to rescind the agreement, SIS of the Contracts Act shall be applied. In the provision, it stated that when an agreement is discovered to be void, or when a contact 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.
SIS, basically, provides the remedy in which the complaining parties could recover their money or properties that they’ve allocated for the purpose of entering into agreements with the defendants or be compensated by the defendants for the acts they’ve committed n inducing such innocent parties in contracting with them. In the case of Abdul Raze bin Dates ABA Assam v Shah Lam Properties Sad Bad, the Court of Appeal found that there had been fraudulent misrepresentation on the part of the defendant which had induced the plaintiff to enter into a sale and purchase agreement for an apartment.
The Court, then granted rescission of the contract. Hence, SIS could be applied as it sets asides the contract and the parties were put in a position as if the agreement had never come into being. Plus, under Sec. 19(2), if a party still wishes to perform the contract despite whose consent was caused by fraud or misrepresentation shall be put in the position in which he would have been if the representation made had been true. In order to succeed in proving Mania had committed a fraud by active concealment, he must fulfill all of the elements provided.
In arguing the matter of knowledge of the status of the land, according to the Electricity Act 1946, as in accordance to the case of Tat Too Book v Sugar Oil Palm Estate Sad. Bad, that in order to make any land acquisition, the owner should have been given the notice by the company and should lodge a rejection by the time given an if there is any objection, the company may inquiry to compensation. Referring to this authority, before the Tenant National Bed’s action in installing the transmission cables, it is necessary to inform the owner of the land by notice and gave a period of time respond.
Therefore, Mania should be able to acknowledge such acquisition by Tenant National Bad in his property of land as he is the owner. However, he does not inform Mr.. Echoing Fat regarding this matter which constitutes the action of active concealment. Moving on to the first element stated that there must be a false representation could be seen as Mr.. Echoing Fat relies on the statement dad by Mania. Based on the situation, Mr.. Echoing Fat was entirely induced to the contract as there a form of active concealment made by Mania as in the case of Tat Too Book v Sugar Oil Palm Estate Sad. Bad.
Thus, there is an existence of a positive conduct. In the second element, the representation must induce the contract. Here, Mr. Echoing Fat relied on the statements made by Mania to made the agreement and the statement by Mania seems to be convincing enough for him to enter the contract despite the fact that Mania knew an important fact which could cause the contract not to be executed. Hence, there as an inducement made to cause the contract to occur. The third element stated that there is a duty of the misled party, Mr. Echoing Fat to exercise his ordinary diligence by virtue of Explanation SSL 9 (1).
From the given situation, we could see that Mr. Echoing Fat had not attempted to exercise his ordinary diligence in surveying or examining the land which he intended to buy from Mania. However, referring to the case of Weber v Brown, Explanation of SIS (1) is not applicable if it was made by a false and fraudulent assertion. Thus, the fact that Mania had concealed the facts on the surroundings of the researched land, which he ought to know, from Mr. Echoing Fat, it constituted to fraud. As Explanation of SIS (1) is not applicable to fraudulent assertions, there is no need for Mr. Echoing Fat to exercise his ordinary diligence.
In the next element, it stated that such representation must be one of fact. Although Mania had not made any clear representation to Mr. Echoing Fat regarding the land, he had actively concealed the fact on transmission cables being situated on the land with the intention to induce Mr. Echoing Fat on entering into the agreement. In addition to that, as Mania and Mr. Echoing Fat were the only arties in the dispute over the land agreement, it could be seen that the fraudulent act committed by Mania is directly addressed to Mr. Echoing Fat.
Hence, fulfilling the last element. As all of the elements of fraud had been fulfilled by Mania, the contract is proven avoidable by virtue of s 19 (1) as Mania had committed fraud by active concealment in accordance to s 17 (b). Hence, Mr. Echoing Fat could rescind the contract entered by him with reference to sis which would make Mania bound to restore the deposit of ARM 95000 paid by Mr. Echoing Fat. The second issue in this case is whether the agreement between Mr. Echoing Fat and Summit Golf Resort is avoidable by virtue of Section 18 of Contract Act 1950.
In addressing the above issue, the law and principle of Misrepresentation should be discussed. Misrepresentation can be defined as a false statement of existing or past fact made by one party before or at the time of making the contract, which addressed to other party and induces the other party to enter into the contract without any intention to deceive. Section 18 of the Contract Act 1950 defines misrepresentation as (a) the positive assertion in a manner not warranted by the information of the person making it of that which is not true, Hough he believes to be true. 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 another to his prejudice or to the prejudice of anyone 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. It can be conclude that section 18(a) and (c) appear to cover the subject of innocent misrepresentation and section 18(b) to cover negligent misrepresentation.
Section 10(1) of Contracts Act stated that all agreements are interacts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Both Mr. Echoing Fat and the golf club consented to the agreement made with the valid considerations for the membership and the fees paid. Section 13 defines consent as two or more persons are said to consent when they agree upon the same thing in the same sense. And Section 14(d) defines free consent when it is not caused by misrepresentation, as defined in section 18 above.
In order to establish misrepresentation, all the elements must e fulfill to prove. Firstly, to constitute misrepresentation, there must be a false representation and some positive statement or conduct from which statement can be implied. In the case of Luau He Teat v Hardily Engineering sad bad & Nor as the facts of the case was discussed in the first issue. However, in the case of Low Kong Fat v Port Slang Golf Resort (M) SAD BAD, although the defendant argues that they would provide the facilities in the future, they had failed to prove that the facilities can be provided in the future.
The court held that the defendant liable to refund the membership as by the time the brochure was dad, the defendant should have check it first and make the enquiries with the Port Slang Authority for the facilities. In applying the first element, there is a false representation and some positive statement from Summit Golf Resort to Mr. Echoing Fat when the publish the brochure which promoted all facilities which they promised to be high standard where in fact, there is only single story club house instead the promised three and sea sport facilities were not available.
Based on the case above, the brochure was made in present time, implied that all the facilities were available. Besides, the continuous assured of he General Manager of Summit Golf Resort cannot be proof that the facilities can be provided in future. Hence, there are false representation by Summit Golf Resort, thus the first element is fulfilled. Secondly, the representation must induce the contract. The explanation of section 19 Contract Act provided that a misrepresentation which did not cause the consent to a contract of the party to whom the misrepresentation was made does not render a contract avoidable.
Hence, the representation must form a real inducement to the represented to enter into contract. In the case of Couch Tong Young v Koala Lump Golf Country Club, the developer and the manager of the Koala Lump Golf & Country Club, issued a brochure and prospectus listing the facilities and features of the club such as library, gymnasium and health center. The plaintiff paid a sum of ARM 90, 000 to become a member.
However, he found out that some of the listed facilities did not exist and eventually sought rescission of the membership agreement and damages based on misrepresentation. The High Court held that the defendant had breached its representation to provide the library although the plaintiff had suffered no real loss or damage. Further, although there were misrepresentations on some other facilities, they were not matters of major decisive consideration to the plaintiff in his decision to purchase a membership in the club.
In applying to the case above, Mr. Echoing Fat is induced to sign up for the membership of the golf club because of the high standard facilities promised in the brochure itself. In this case, the defendant promised to have three storey golf resort complex with convention halls, a golf course, a swimming pool, tennis courts, sea sport facilities, and the most alluring sea sport facilities. It is clear that these statements were only made to attract errs. Thus, there is inducement on behalf of the defendant in the brochure which later believed by Mr. Echoing Fat.
Thirdly, duty of misled party to exercise ordinary diligence. In this element, the represented has no means to discover the truth. The exception of section 19 provided that if such consent was caused by misrepresentation or by silence, or fraudulent, had the means of discovering the truth with ordinary diligence, the contract is still valid. In the case of Tan Achy Chew v Eastern Mining and Metals Co Ltd the respondent had entered into two separate contracts with the first and second appellants.
In the contract with first appellant, the first appellant assigned to the respondent rights to prospect certain mining land included in an approved application for prospecting permit. In the contract with the second appellant, the respondent agreed to pay a commission to the second appellant in bringing about the first contract. The respondent alleged that the second appellant had shown to the respondent’s geologist some land which later discovered not to be included in the approval application.
The court held that there had been misrepresentation by the second appellant but concluded that the respondent company had the means covering the truth with ordinary diligence They had entered into the contract without checking the true position of the mining land despite having facilities to do so and realized the risk that was involved in taking the unusual course of entering into contract without further check. Therefore, the contract was not avoidable. In applying the above case, Mr. Echoing Fat had no means to discover the truth with ordinary diligence as he doesn’t have any facilities to do so.
He signed up for membership and paid ARM 50 000 after reading the brochure, means the total reliance on the brochure without getting an opportunity to discover the truth. Only after he signed, that he knows the facilities were not completed. Hence, the third element is fulfilled. The fourth requirement that is needed in order to prove misrepresentation is the representation must be one of fact. As the meaning of the misrepresentation itself means false statements of facts, this third element requires a person to prove that the representation made by another party is one of the crucial fact that inducing him to enter into the contract.
If the representation is merely assumptions or opinions, it cannot be taken as a misrepresentation because the representation made is not a representation of facts. For example is in the case of Ibises v Wilkinson, in this case, the plaintiff and the defendant entered into a contract purchasing two adjoining blocks of land. During negotiations, the defendant stated “that with a good six horse team, the farm would carry 2000 sheep in the future”. After two years of unsuccessful farming, the plaintiff realized that the land could not hold 2000 sheep thus he claimed for a misrepresentation.
Court held that, what the defendant said is merely an opinion and was not intended to be a serious representation, therefore no misrepresentation. Applying to the question given, the brochure made without NY disclaimer and it basically promotes the Summit Golf Resort (M) Sad. Bad. It is not a norm for someone to merely put assumptions or opinions or any lies in a brochure as the brochure can induce and attract people to it. So, if the content of the brochure is not a fact and merely lies or exaggerating stuff, people will be deceived by it. Therefore, it can be said that the brochure made is a fact.
Thus, the representation (brochure) is one of fact. The last requirement is, the statement was addressed to the party which acted upon it. This requirement simply means that, the plaintiff must enter the entrant because of the representation made to him. The plaintiff must rely on the representation solely and acted upon the representation, not because of something else. In the case of Peek v Gurney, the defendant claimed that there is a misrepresentation in the facts represented to him and it caused him a loss when he bought shares from a company who has high liabilities.
The plaintiff claims on the grounds of active concealment and misrepresentation. Court held that, there is no misrepresentation as the plaintiff entered the contract not because of the representation made to him and he did not rely on it since e bought the shares from market. Therefore, there is no misrepresentation in the case of Peek v Gurney. Applying to the question, Echoing Fat is relying on the brochure and the representation from the brochure do attracts him to sign a membership with the Summit Golf Resort (M) bad.
However, he did not enter into the membership because of the facilities and all the things that is promised to him. Back to the case of Couch Tong Young v Koala Lump Golf & Country Club bad. The court held that there is no misrepresentation because the plaintiff did not actually entered into the contract because of the facilities remised to him and the absence of the facilities does not really bother him since it doesn’t cause him any loss or damage.
But, since Echoing Fat signed the membership because of the brochure he saw, it can be said that he is acting upon the representation made to him which is the brochure itself. If Echoing Fat brings this matter to the court and can prove that there is a misrepresentation, in accordance to section 19(1), when consent to an agreement is caused by coercion, fraud, or misrepresentation, the agreement is a contract avoidable at the option of the party whose consent was so cause.
And the remedies is provided under section 66 of the Contracts Act 1976 where it says that when an agreement is discovered to be void, or when contracts become void, any person who has received any advantages under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it. In a conclusion, since the elements of misrepresentation are not all fulfilled, Echoing Fat cannot claims for damages or rescind the contract on the ground misrepresentation because in order to establish for liability toward the defendants, all element need to be fulfilled.
