Business Law Free Consent Tutorial 6

Question 1 Fuad is the owner of a house in Kuala Lumpur. He has rented the house to Ahmad Chong since 1997. Ahmad Chong is a rich businessman in Singapore. He left his hometown as he is a newly converted Muslim. He wanted to learn more about his new religion. From day to day, his relationship with Fuad becomes closer. They look like siblings. One day, Ahmad Chong was diagnosed with suspected leukemia. He then transferred all of his properties in Singapore to Fuad as he regarded Fuad as if he is his own brother. He went back to Singapore for treatments. It was found later after 5 treatments in a year, he recovered from that suspected leukemia. He wanted to start a new business in Singapore. He needs more assets. He remembered his properties so transferred to Fuad last year. He wanted to recover it back. He wishes to sue Fuad to get back his properties. Advise Ahmad Chong. (15 marks)

Answer Issue Whether there is undue influence in this situation? Whether Ahmad Chong can ask Fuad to return the properties? Whether Ahmad Chong can sue Fuad?

Answer Explanation of the Law 2 categories of undue influence S16(1) – actual undue influence Need to prove 3 ingredients One party of the contract dominated the will of the other Uses the dominant position To take unfair advantage Case: Morley v Loughnan S16(2) – presumed undue influence May occur in 3 situations Where he holds real or apparent authority over the other Where there exists a relation of trust between 2 persons. Such a relationship is usually found between wives and husbands, lawyers and clients, doctors and patients The capacity of one party to the contract is affected, either temporarily or permanently because of age, mental or physical effect Case: Datuk Jaginder Singh v Tara Rajaratnam Effect: voidable-s20: The innocent party may terminate the contract or continue but seek damages upon terms agreed by court

Answer Application of the law Fuad was the owner of the house and rented it to Fuad. Ahmad Chong rented it from him. He was of the state of bodily distress while transferring the properties. Thus the case may fall under fiduciary relationship under s16(2)(c) As it is presumed that there is undue influence in the case under s16(2), Ahmad Chong needs to show to the court that Fuad had dominated his mind and caused him to contract without his own free will and he obtained an unfair advantage by using his position This presumption is still rebuttable. Fuad must deny that. He never dominated nor persuaded Ahmad Chong to transfer. It was done freely Thus, there was no undue influence occurred and the contract is not voidable

Answer Advice Ahmad Chong is advised that he cannot rescind the contract The transfer was valid and Fuad need not retransfer the properties to Ahmad Chong

Question 2 Munni agreed to sell a stolen Mercedes to Karen for RM100,000. Karen promised to pay within 3 days. Three days have passed by, but Karen still has not paid him. He wishes to sue Karen for the payment. Advise Munni. (8 marks)

Answer Issue – Is the contract unlawful and void? Legal Principles An agreement must be for lawful consideration and object – s10(1) What is unlawful consideration/object has been explained in s24. Contracts offending the law – s24(a) and (b) Applied in Chung Khiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd & Anor [1990] 1 MLJ 356 – giving financial assistance to buy shares General rule is, no remedy since contract is unlawful and void. It is based on the principle of ex turpi causa Void contact – agreement not enforceable by law - s2(g) Application of the law and conclusion Buying a stolen car is against the law. Such agreements fall under unlawful contracts. Thus, they are void Concluding advice Karen is advised that he has no right against Munni

Question 3 Mistake may vitiate a valid contract. Discuss. (7 marks)

Answer Introduction A valid contract must consist of all essential elements. One of the elements is free consent

Answer Content Free consent is an essential element of a valid contract – s10(1) Consent means that parties agree upon the same thing in the same sense – s13. Consent must be free. If consent is caused by mistake, there is no free consent Both parties make mistake as to essential fact, contract is void – s21 Void contract: s2(g) & (j)

Answer Content Remedies Repay money paid or return property delivered under mistake – s73 Restore any advantage received or compensate – s66 If it is a mistake of law in force in Malaysia, the contract is valid but if it is a mistake of law not being in forced in Malaysia, the contract is void – s22 One party make mistake, contract still valid – s23

Answer Content If due to misrepresentation, s18(c) is applicable If it is due to misrepresentation, contract is voidable Voidable contract is agreement enforceable at one party’s option but not the other – s2(i) Effect – voidable – s19 – the injured party may terminate or if he/she wishes to continue, can claim for damages No misrepresentation if there is no reliance of false statement – explanation to s19 Silence does not amount to misrepresentation unless there is a duty to speak – explanation to s17 There will be no case of misrepresentation if there is mean of discovering the truth with ordinary diligence – exception to s19 Affirm contract and sue for damages – s19(2) If rescind, must restore any benefit received – s65

Answer Conclusion Therefore mistake is a vitiating factor of a contract which gives effect to the contract being void or voidable

Q & A