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Answer:
Misrepresentation refers to a circumstance where a person is induced to enter into a
contract partly or entirely by untrue information made by the other party.
Misrepresentation can lead to a contract to be voidable. Voidable contract means there is
a valid contract whether it is written or verbal. In any voidable contracts, a party has a
choice whether to rescind or to continue with the contract. However, there are certain
circumstances and elements of misrepresentation that can cause a contract to be voidable.
Misrepresentation can occur in a number of ways. Under Section 18 of the Contract Act
1950, misrepresentation includes:a) Any positive assertion, in a manner not warranted by the information of the person
making it, of that which is not true, though he believes it to be true;
b) Any breach of duty which, without an intent to deceive, gives an advantage to the
person committing it, by misleading another to his prejudice; 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.
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Court held: The court rejected his appeal based on the saying that the statement made
had not been a representation of fact, instead it is merely an expression of the sellers
honestly held opinion.
It is important to note that the person making the opinion should genuinely believe it.
In the case of Travelsight (M) Sdn Bhd & Anor v Atlas Corp Sdn Bhd [2003] 6 MLJ
658, the first plaintiff was referred to a number of cases including Newbigging v Adam
[1886] 34 Ch D 582 which held that when the representee discovers the
misrepresentation, the representee may make decision whether to continue or to rescind
the contract. It is also referred to the case of Segar Oil Palm Estate Sdn Bhd v Tay Tho
Bok [1997] 4 CLJ 158. Once the representee makes it clear, just like the first plaintiff
did, that the representee refuses to be bound by the contract then the contract in question
is terminated as if it had never existed. That would be the state of the law.
Apart from that the first plaintiff also referred to the English authority of Car and
Universal Finance Co. Ltd v. Caldwell[1965] 1 QB 525, [1964] 1 All ER 290 which
held that once the representee decides to rescind the contract, the representee must
communicate his decision to the representor within a reasonable span of time. This is to
enable the representor to know the exact position pertaining to the contract because the
representor is entitled to treat the contract as subsisting unless he is duly informed of its
termination. Referred to Abram SS Co v Westville Shipping Co. Ltd [1923] AC 773 at
781 that once the representee elects to terminate the contract it would effectively destroy
the contractual link between him and the representor.
According to the case of Clough v London and North Western Rly Co. [1871] LR7 Ex
26 at 35, that once an election is unequivocally made, be it in favour of affirmation or of
rescission, then the matter comes to an end forever. The election remains put and it
cannot be revived since, in law, there is no such thing as partial rescission.
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From the above sections and decided cases, the elements of misrepresentation in
discussion leading to an agreement between parties is one party making a statement
which is untrue and that untrue statement gives the other party an advantage. In the mean
while when the plaintiff finds out of the misrepresentation, the contract entered into is
voidable at the sole discretion of the plaintiff whereby the plaintiff now can choose to
continue or rescind the said contract. If the plaintiff chooses to continue then any further
liability cannot be put upon the defendant simply because the decision to continue was
made with full knowledge of the misrepresentation.
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QUESTION 1 (b)
On 4 March 2014, Ahmad, an antique collector, entered a contract for the purchase of an
antique watch, which was described in good faith, by Farisham, the seller, as more than
100 years of age. Ahmad paid the deposit of RM10 000 out of the total price of RM 50
000 and promised to pay the balance within one week. On 6 March 2014, while attending
an auction for antiques, Ahmad met Yatt, who told him that she was the person who sold
the antique watch which she inherited from her father, to Farisham. Yatt told Ahmad that
the watch is not very old as her father bought the watch on the day that Malaysia got its
independence, i.e. on 31 August 1957. Ahmad was very disappointed with what Yatt told
him and immediately sent an e-mail to Farisham which stated that he intended to
terminate the contract which he entered with Farisham on the ground that there was a
misrepresentation of fact. Ahmad also wanted to claim back the RM 10 000 of deposit
which he has already paid to Farisham.
Advise Farisham.
Answer:
Firstly, I would like to ensure if all the elements have been fulfilled to establish a valid
contract between Ahmad and Farisham. There are six (6) elements of valid contract
which are proposal/offer, acceptance, consideration, intention to enter into a legal
contract, capacity to contract and free consent.
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I can confirm that there is a valid contract between Ahmad and Farisham. According to
Section 2(a) of the Contract Act 1950, a proposal is said to exist when one person
signifies to another, his willingness to do or to abstain from doing anything, with a view
to obtain the assent of that other person to the act or the abstinence.
Based on good faith and believe that the watch is more than 100 years of age, Farisham
made a proposal/offer to Ahmad by showing him the antique watch which Ahmad has
accepted the offer by agreeing to purchase the watch. The fact that Ahmad has paid a
deposit of RM10,000 out of the total price of RM50,000 and promised to the balance
within one week, this act would constitute as sufficient consideration.
In contract law, good faith is a general presumption that the parties are dealing honestly,
fairly and in good faith, so as to not destroy the right of the other parties to receive the
benefits of the contract. However, according to exception to Section 19 of the Contract
Act 1950, if such consent was caused by misrepresentation or , the contract, however,
is not voidable, if the party whose consent had the means of discovering the truth with
ordinary diligence.
In the case of Ahmad v Farisham, the contract is valid and it is not voidable as there are
no elements of misrepresentation, fraud, mistake, undue influence or coercion. Ahmad,
being an antique collector should be able to evaluate the fact that the watch is of 100
years of age. He had the opportunity to do due diligence by asking for a certificate or
proof before contracting into purchasing the watch. He was willingly to pay the deposit
of RM10,000 without any influence or inducement from Farisham. Therefore, there is no
base for Ahmad to rescind the contract made with Farisham. This can be referred to a
decided case of Tan Chye Chew & Anor v Eastern Mining & Metals Co Ltd [1965] 1
MLJ 201, where the court decided that the respondent had sufficient means to carry out
his own inspection or investigation in determining the truth of the facts in their contract.
Thus, there was no fraud on the appellants part.
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It is clearly stated that the statement represented is a statement of fact and not only a
statement of opinion. In the case of Bisset v Wilkinson [1927] AC 177, it spelled out
that the court decided that the statement was merely of an opinion which the appellant
honestly held. The claim to rescind the contract failed.
Ahmad definitely will use the information of Yatt that she was the one who sold the
watch to Farisham and the watch was bought by her father on 31 August 1957, which is
less than 100 years ago. However, it is not necessarily that the watch was made in 1957.
Most probably that Yatts father was also an antique collector and bought it from another
seller. The watch as at today, probably really is 100 years of age. Even though, if Yatt
mentioned that she or his father has the certificate to prove that the watch was made in
1957, it was not given to Farisham when he purchased the watch from Yatts father.
Therefore, Farisham really believes that the watch is 100 years of age based on the verbal
information informed to him when he purchased it.
This can be referred to Section 21 of the Contracts Act 1950 where common mistake
occurs when both parties make the same mistake as to the subject matter of the contract,
while mutual mistake occurs when both parties misunderstand each other. In the case of
Raffles v Wichelhaus [1864] H&C 906, where both parties were negotiating under a
mistake and had in mind of different ships. Therefore, the contract of sale was ruled void
for mutual mistakes.
It was clear that the reason of Ahmad purchasing the watch was because he believed that
it is over 100 years of age and worth RM50,000. I would advise Farisham to stand up for
himself that he sold the watch to Ahmad in utmost good faith. Therefore, Ahmad cant
claim that there is a case of fraud or misrepresentation. Farisham will be successful in
pleading innocent misrepresentation.
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QUESTION 2
Raju and Kamala set up a consultancy firm under the name of Expert
Consultancy in June 2000. The partnership agreement clearly stated
that the partnership shall remain for a ten year period. In December
2010, Kamala took a personal loan amounting to RM100,000 from Bank
Business but failed to pay three installments. Kamala later assigned
her interest in the firm to Bank Business. Raju was not happy with the
assignment and gave a notice to Kamala for dissolution of the firm.
Raju decided that if Kamala refused to accept the notice, he would
apply for dissolution by a court order.
Discuss:
a)
Answers:
With reference to Section 3(1) of the Partnership Act 1961, partnership is defined as the
relationship which subsists between persons carrying on a business in common with a
view of profit. It is also stated under Section 29(1) of the same act that where a
partnership entered into for a fixed term is continued after the term has expired, and
without any express new agreement, then the rights and duties of the partners remain the
same as they were at the expiration of the term. However, Section 34 of the Partnership
Act 1961, partnership can be dissolute by expiration term or notice subject to any
agreement between partners, a partnership is dissolved by the expiration of the term
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An example can be seen from a decided case of Ong Kian Loo v Hock Wah Trading co
7 Ors [1990] 1 MLJ 315 where the court decided that Section 33(1) of the Partnership
Act 1961 was applicable in this case where Ong was only the assignee, therefore he
doesnt has a right to interfere in the administration of the partnership business.
With reference to this case, it is clear that share is transferrable. Therefore, it is stressed
out again that Kamala may assign her shares to Bank Business. However, Bank Business
has no rights to interfere in the management of the partnership business.
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Question 2 (b)
Discuss the ways for dissolution of a partnership.
Answer
A firm ceased to exist when it is dissolved. All the firms business
cease to operate upon dissolution of a partnership, except the
obligations of the partners to continue to do the necessaries for
purpose of dissolution and completing the incomplete activities.
Partners are at liberty to fix the duration of the partnership. If theres
no fixed term has been agreed upon for the duration of the
partnership, any partner may terminate the partnership at any time on
giving notice of his intention to do so to all the other partners,
according to Section 28(1) of the Partnership Act 1961. As in Expert
Consultancy case between Kamala and Raju, the firm was set up in
June 2000 for a 10 year period. However, other details were not
stated.
There are several ways in which a partnership may be terminated as
governed in the Part V of Partnership Act 1961. The partnership can be
dissolved by the existing agreement made between them beforehand.
The partnership can be terminated on the expiry of the period
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stipulated or they can dissolve the partnership at any time even before
the expiry period, provided that the partners are mutually agree on
that.
The partnership can be dissolved upon the death or bankruptcy of any
partners. In Section 35(2) of Partnership Act 1961, the other partners
have the option to dissolve the partnership when a partner suffers his
share of the partnership property to be charged with payment of his
personal debt.
The partnership can be dissolved if an event occurs which makes it
unlawful for the business of the firm to be carried on or for the
members of the firm to carry on in partnership.
The partnership also can be dissolved by the order of the court.
However, this method can only be resorted by the partners in 6
situations:
i)
ii)
iii)
iv)
v)
vi)
Raju may dissolve the partnership by court order under Section 37 (f)
of Partnership Act 1961, where the court may dissolve the partnership
if it is just and equitable to do so. It is the foundation of the whole of
the agreement that was made, that the two would act as reasonable
persons with reasonable courtesy and reasonable conduct in every
way towards each other. Having regard to the fact that Raju and
Kamala will not speak to each other and to agree on one decision, Raju
could apply for the court to wind up the company. This is similar to the
case of Yenidje Tobacco Co Ltd 2 Ch 426 where they had two
shareholders with equal shares and each were directors. They could
not agree how the company could be managed. There was no
provision for breaking the deadlock. The judge decided that the
company should not be allowed to continue. After all consideration,
the court exercised its jurisdiction under the just and equitable clause
and to wind up the company.
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