INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

AHMAD IBRAHIM KULLIYYAH OF LAWS

LAW OF CONTRACT 2

NAME: FARAH BINTI TAIB

(0926050)
SARIZA BT MOHD SARIFFUDIN
(0927500)
HUSNA BINTI ABDUL AZIZ
(0925902)
SECTION: 2
LECTURER: MADAM NURHASHIMAH
TOPIC: COMPILATION OF TUTORIAL
QUESTION
UNDUE INFLUENCE

Robert loves Cynthia very much. They have been going steady for the past three years.
Robert adores Cynthia and to him, whenever she smiles, the stars rose in the sky.
One day Robert returns from work and told Cynthia that Jerry was suing him for the loan
of RM50, 000 which he has yet to repay and that Jerry wants to get a court order to sell
Roberts’s house. Cynthia advised Robert to sell his house to her for RM50 000.Cynthia wish
was Robert’s command. Robert had followed Cynthia’s instructions.
The transfer of the house was executed in the presence of Robert’s lawyers. Six months
later, Cynthia left Robert to marry her new boyfriend George.
Robert’s heart was broken. He could not believe that Cynthia would ever leave him. After
one year of crying over a broken heart, Robert came to accept the fact of their separation. He
now wants to set aside the transfer of his bungalow to Cynthia. The market value of the
bungalow at the time of the transfer was RM600, 000. Advise Robert.

Answer:

The issues arise in this case are:

1) Whether there is a relation between Robert and Cynthia?
2) Whether Cynthia used his dominant position to bought Robert bungalow?
3) Whether Robert have the right to set aside/ rescind the contract?
4) Whether this presumption can be rebutted?

Undue influence happen when a certain transaction had been obtained by certain
kinds of improper pressure. It is not involve any elements of violence to the person or
detention of property.

Under section 14(b) Contract Act 1950, free consent. Consent is said to be free when
it is not caused by undue influence as defined in section 16

Under section 16 (1) a contract is said to be induced by “undue influence” where the
relation 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 advabtage
over the other.

Based on section 16(1), Robert must show that:

a) At the time of the contract, there was already a close relationship between him and
df and that in the relationship the df was in a dominant position. In case Rosli
Darus V. Mansor Hj.Saad. Pf lost his adoptive father when he was 11. Since
then, the df i.e. Brother of his adoptive mother and living together with them in
the same house, provided food, clothing and expenses to the pf. Pf adoptive
mother died when he as 22. Since then, df continued his role as guardian to the pf.
Df testified the pf always listened to his advice and instrucruons. Pf transferred his
land to the defendant.
 The court held that, the defendant was in loco parentis. Plaintiff was unemployed,
without parents and was totally dependent on the defendant for his daily
subsistence. The defendant could dominate the will of the plaintiff if he wanted to.

b) The defendant made use of his dominant position to obtain the gift or the contract
from the pf. In case Southern Bank Bhd V Abdul Raof B. Rakinah. The plaintiff
granted an overdraft facility to the first defendant. The second defendant who was
the wife of the first defendant stood as guarantor. The pf sued the df. The second
defendants defended plaintiff claim and alleged undue influence on the part of the
first defendant on her at the time she executed the guarantee agreement. The court
held that, section 16 of the Contrcts Act 1950 as well as decided cases makes it
clear that there is no presumption of undue influence between husband and wives.
However, where a wife has been induced to stand surety for her husband debt by
his undue influence, she has equity as against him to set aside the transaction.

c) The making of the gift to the defendant, or the contract entered into with him was
unfair to the pf. In case, Tate V. Williamson. A nephew sold a property to his
uncle at an undervalue price. The transaction was made through a solicitor. The
court held that the sale of the property which was at undervalue from the nephew
to his uncle shall be set aside. The uncle stood in a confidential relationship to his
nephew and should not have purchased the property without the fullest
communication to him of all material information that he had obtained as tpo its
value. The fact that the nephew acted through independent solicitors was of no
consequences because of the concealment of a material fact i.e. surveyor’s report,
which the defendant was bound to disclose.

In this case Robert and Cynthia have been steady for the past 3 years. Robert loves and
adores Cynthia very much. Besides that, Cynthia use of his dominant position to obtain the
bungalow from Robert. As in the fact that, Cynthia advise Robert to sell his house to her for
RM50, 000. Cynthia wish was Robert command. Robert had always followed Cynthia
instructions. To sum up, the house had been sold to Cynthia at RM50, 000 while the market
value at the time of the transfer was RM600, 000. This clearly shows that, the contract
entered into with Cynthia was unfair to the Robert.

This case has been classified under class 2 b) presumed undue influence.
The complainant must shoe 2 things, the wrongdoer was in a dominant position in his
relationship of trust and confidence with the complainant. The impugned (disputed)
transaction was so unfair to the claimant.

Whether this presumption can be rebutted?

Under section 16(3)(c). It is for Cynthia to prove the act that Robert entered into the contract
freely without any undue influence. Cynthia must shows that Robert understood the nature of
the transfer but its full significance and effect. In case Lim Kim Hua V Ho Chui Lan. The
plaintiff was the registered proprietress of a piece of land on which stood a shophouse. She
executed a will devising and bequeathing the shophouse to four of her grandchildren
including the second defendant. The plaintiff later executed a memorandum of transfer
transferring her one-half share of the shophouse to the second defendant and shortly
afterwards she executed another memorandum of transfer transferring her remaining half-
share of the shophouse to the first defendant (the mother of the second defendant). The
plaintiff sought a declaration that the two memoranda of transfer are null and void and relied
on the ground of fraud or dishonesty and undue influence on the part of the defendants.
There was sufficient evidence to show the existence of a special relationship between the
plaintiff and the first defendant. The plaintiff was living with the first defendant who
provided her with food and accommodation and the first defendant was entrusted by the
plaintiff to manage the affairs of the shop house. There can be no question that the plaintiff
was very much dependent on the first defendant in both her physical and financial needs as
she was getting old in age, had a poor memory and was illiterate. From these factors undue
influence can reasonably be inferred and the first defendant’s allegation that the plaintiff
wanted to affect the transfer in hurry and the contents were read and explained to her were
not sufficient to rebut the inference of undue influence.

However we can rebut back by saying that Robert doesn’t seek any legal advice from other
people. What Robert knows that Cynthia asked Robert to sell his house at RM 50, 000
because Cynthia wants to help Robert out of his problem with Jerry. Robert doesn’t know or
notice about the transfer of his bungalow its full significance and effect.

Therefore the effect of undue influence is that the agreement is a voidable. Section 20 of
Contract Act 1950, the contract may be set aside. We advise to Robert to set aside the
contract.
FRAUD

Akram agreed to sell his house “Akram Villa” in Penang to Banhawi at the prevailing market
value. Before the contract was signed Akram took Banhawi over to the house and represented
to him that:
 The design was Spanish moor
 He would repaint the house
 It was freehold property
 The drains were sanitary, and that
 The surrounding view was most beautiful at sunset.
After Banhawi purchased the house he discovered that none of the representations were true.
Furthermore, Akram failed to mention that a week before he made the above representation,
the government had issued a notice to him that the government would compulsorily acquire
his land at a price lower than the market value. Advise Banhawi as to the remedies available
to him. Has Akram any defences?

Answer.

The issues arise in this case:

1) Whether Akram act / description about the house to Banhawi is amount to fraud?
2) Whether Akram act by failed to disclose /mere silence about the issued notice by
government is amount to fraud?
3) Whether Banhawi can recession the contract and claim for damages in fraud/
4) Whether Akram act /silence non disclosure about the house that the government will
require the land is caveat emptor?

As a general rule, it may be stated that whenever a person cause another act on a false
representations which the maker himself does not believe to be true, he is said to have
committed a fraud.
Under section 17 of Contract Act 1950, fraud is defined to include certain acts which are
committed with intent to induce another party to enter into a contract and to deceive another
party.
First issue, Whether Akram act / description about the house to Banhawi is amount to
fraud? Under section 17 (a) the suggestion as to a fact of that which is not true by one who
does not believe it to be true. Based on the case, none of the of the representation given by
Akram to Banhawi is true. From the design, repaint the house, freehold property, drains
sanitary to the beautiful view. Here, we can show that Akram (the maker) of the statement
does not believe it to be true. He intends to deceive another party. In case Kheng Chwee
Lian V Wong Tak Tong. R bought a half share in a piece of land from A. Respondent then
built a biscuit factory on part of the land with the knowledge and consent of A. Later, A
induced R to sign another agreement that give R a smaller share of the land, which was even
less than the area now occupied by R’s factory. The court held that R was the beneficial
owner of one half share in the land. R had been inducted into signing the second agreement
by A’s misrepresentation, which was fraudulent within the meaning of S.17 (a) and (d) of
Contract Act 1950
Under section 17 (c) fraudulent promises. If a promise is made without any intention of
performing it, it is an act of fraud. Here, either the promisor knows that when he makes the
promise, he cannot perform it or he makes a promise that he intends to break. The promisor is
said to have fraudulently misrepresented his existing intention.
Based on this case, Akram promised to do repaint, sanitary drain and so on, he knows that he
cannot perform it or he makes a promise that he intends to break. This is because his
promised is just to make Banhawi enter to contract which is he knows that the government
will take over the land at a lower price, so from the very beginning any promise that he made
is without intention to perform it, just to deceive the other party. Similar in case Mui Plaza
Sdn.Bhd V Hong Leong Bank. Second defendant (ex. Chairman of first defendant, the Bank)
represented to P that he would be responsible for any loss and damage suffered by P for
allowing the Bank to remain in occupation of P’s premises. P relied on second defendant
representation, allowed the Bank to occupy the premise. Consequently, P suffered a loss of
bargaining power with prospective tenants. P sued second defendants on the promise. Second
defendants contended since the presentation was in the nature of the promise, it was not
capable of having the character of being true or false, second defendant then applied to strike
out P claim. The court held that, second defendant had no actual intention of fulfilling his
representation or was reckless to the fact at the time he gave it. Such statement of capable of
being true or false at the time made it because it relates to his present state of mind and his
particular intention at the time he made it. Since the pf claim that the representation was false,
he has a cause of action to recover damages for fraudulent misrepresentation and for the tort
of deceit. The court dismissed second defendant application.
Second issue is whether Akram act by failed to disclosure/ mere silence about the issued
notice by government is amount to fraud. Under section 17(b) active concealment of a fact by
one having knowledge of belief the fact. If a party to contract actively conceal or prevent
certain material information from reaching the other party to the contract, his active
concealments is amount to fraud. Section 19 Illustration (c): B having discovered a vein of
ore on the estate of A adopts means to conceal, and does conceal, the existence of the ore
from A. Through A ignorance, B is enable to buy the estate at an undervalue. The contract is
voidable at the option of A. In this case, we can see that Akram try to conceal about the
government who had give notice to Akram about the government compulsorily acquire his
land at a price lower than the market value. It is fraud because from the basis that Akram
know about the fact that government will buy his land at the lower price from market value. It
is fraud because from the basis that Akram know about the fact that government will buy his
land, to protect his interest, he sell it to Banhawi at prevailing market value. Here we can see
that, Banhawi will suffer loss while Akram will made profit. In case Horsfall V. Thomas.
The seller of a gun took active steps to conceal the defects in the gun which he was selling.
The buyer of the said gun did not examine it prior to purchase. It was held that the
concealment of a defect in the gun did not affect the purchaser’s decision to purchase as,
since he was unaware of the misrepresentation, he could not have been inducted into the
contract by it.
Third issues, whether Banhawi can rescission the contract and claim for damage in fraud.
Under section 19 the mislead party may elect to rescind the contract. It renders the contract
voidable. Therefore we advise Banhawi to rescission the contract. The aim is to put the
parties bank in their original position as though the contract had not been made. Once the
contract is rescind, each party is entitled to be relieved of his obligation under the contract
and recovered any benefit which he may have conferred upon the other party. In case Abdul
Razak b Datuk SamahV. Shah Alam Properties. The plaintiff, 25 May 1982 entered into an
agreement with the defendant, a developer to purchase an apartment for RM236, 000. The
purchase price had been paid in full from loans disbursed to the plaintiff by two institutional
lenders. Interest had been paid on these loans. The plaintiff complained that he had been
induced to enter into an agreement in question on the basis of a false and fraudulent
representation made by the defendants in its brochure. He claimed that in consequences
thereof, he had lost the value of his investment.
Last issue is whether Akram act/ silence non disclosure is amount to fraud. General rule of
caveat emptor that silence does not amount to fraud/ misrepresentation i.e. a party to contract
is not bound to disclose material fact to the other party. Under section 17 illustration (a)&(d),
show passive concealment of material facts, which is parallel with caveat emptor. Under
section 19 exception, if such consent was caused by misrepresentation or by silence,
fraudulent within the meaning of section 17, the contract nevertheless is not voidable, if the
party whose consent was so caused had the means of discovering the truth with ordinary
diligence. In Tan Chye Chew & Anor V. Eastern Mining. The evidence that the area covered
by the approved permit exceed three square miles in extent and was situated in jungle area of
which no proper survey were available. Little support for allegation of fraud. Onus of proof is
on the person claiming fraud. There was misrepresentation but could have been discovered by
the party by the exercise of ordinary diligence. Visit was 4 days before the contact was
signed, large sum were paid out before any further check was made, thus the contract is
voidable. In this case, if Banhawi go to any land department to investigate using his ordinary
diligence, he will know about the land that the government want to take over.
MISTAKE

Distinguish between common, mutual, and unilateral mistake?

Unilateral mistake is there is some mistake or misunderstanding in the communications

between the parties which prevent there being an effective agreement, for instance one party
in an offer states terms which the other party knows the first party does not intends. Only one
parties is mistaken. The other party knows, or must be taken to know of his mistake. For
example, A agree to buy from B a specific picture which A believes to be genuine Mona Lisa
but which in fact is a copy. If B is ignorant of A’s erroneous belief, the case is one of mutual
mistake, but if he know of it, of unilateral mistake.

Mutual mistake is the parties are agreed on the terms of the contract but have entered it
under a mutual (or shared) and fundamental misapprehension as to the facts. The parties
misunderstand each other and are at the cross purposes. For example A, intends to offer his
Proton Satria for sale, but B believes that the offer relates to Proton Wira also owned by A

Common mistake when both parties make the same mistake. Each knows the intention of
the other and accept it, but each is mistake about some underlying and fundamental fact. The
parties e.g. are unaware that the subject matter of their contract has already perished.