Question

Dec 2013 Part C

The issue raised in the question is whether fraudulent misstatement made by the
Defendant (Maniam) amount to a voidable contract which render the plaintiff (Mr
Cheong Fatt) to claim the return of his deposit?
In order to advise Mr Cheong Fatt, the area of law that must be further discussed
is regarding the consent of a party to a contract. In order to form a valid contract, there
must be a free consent. It was one of the essential elements of contract. According to
Section 10(1) of the Contract Act, all agreements are contracts if they are made by free
consent of parties competent to contract. The importance of free consent was further
elaborated in Section 13 of the Contract Act where it is stated that two or more person
are said to consent when they agree upon the same thing in the same sense.
Section 14 of the Contract Act list down all the circumstances where consent was
not given freely. In this question, the consent was not freely given because there is an
element of fraud as stated in Section 14 (c). As a general rule, it may be stated that
whenever a person cause another to act on a false representation which the maker
himself does not believe to be true, he is said to have committed a fraud. Fraud is
defined in Section 17 to include acts which are committed with intent to induce another
party to enter into contract.
The definition of fraud under Common Law was defined by the House of Lords in
the case of Derry v Peek (1889) 14 App Cas 337. Under a Special Act incorporating a
tramway company, it was provided that the carriages might be moved animal power and
with the consent of the Broad of Trade, by steam power. The directors of the company
in question issued a prospectus containing a statement that by the special act the
company had the right to use stream power instead of horses. The plaintiff bought
shares in the company relying on the statement. The Board of Trade later refused to
give approval for the use of steam power. The company was wound up and the plaintiff
sued the directors for deceit based on their false statement. The House of Lords held
that the defendant were not liable since the statement as to steam power was made by

them in honest belief that it was true. Their lordship opined that a plaintiff in an action for
deceit must prove actual fraud. Fraud is proved by showing that a false representation
has been knowingly made, without belief in its truth or recklessly without caring whether
it be true or false.
Section 17 under Contract Act lays down five different act which may constitute
fraud. Firstly, Section 17 (a) the suggestion, as to fact. Of that which is not true by one
who does not believe it to be true. Second, Section 17 (b) the active concealment of a
fact by one having knowledge of belief of the fact. Third, Section 17 (c) a promise made
without intention of performing it. Section 17 (d), any other act fitted to deceive. Lastly,
Section 17 (e) any such act or omission as the law specially declares to be fraudulent.
In this case, Section 17(b) was applicable. The requirement under Section 17(b) is that
the must be an active concealment of a fact and the concealment was made by a
person who has the knowledge about it.
Looking back at our local authority under Section 17, which defines fraud with
reference to the intention with which the one contracting party performs certain acts.
The acts performed are representations made by that contracting party which refers to
the representor either by positive action, by conduct or even by silence to the other
party (representee). The representor must perform the act with the intent to deceive the
representee or to induce the representee to enter into contract. It means that the
representor must make the representation knowing it to be false.
Reference can be made to Tay Tho Bok & Anor v Segar Oil Palm Estate Sdn
Bhd [1996] MLJ 181 HC. In his particular case, the plaintiff had agreed to purchase
from the defendant 11 pieces of land totaling about 65 acres. After paying a deposit
10% and signing the agreement, the plaintiff found that about 4.06 acres of the land was
being used by the Public Utility Board of Nasional Bhd for transmission cables. The
plaintiff argued that the price of the land should be decreased. The defendant in reply
said that they were not aware of any land acquisition by the authorities and that they did
not represent to the plaintiff that the transmission lines did not run across the land. The
court held that the defendant already knew about the structures of the land prior signing
to the contract. The misrepresentations were made though an agent and the plaintiff

had deliberately misled and deceived by it. This was held to amount to fraud under
Section 17.
If there is an existence of fraud in the contract between the two parties, the
contract is said to be voidable at the option of the representee. According to Section 19
of the Contracts Act,when the consent to an agreement is caused by fraud, the
agreement is a contract voidable at the option of the party whose consent was so
caused.
In applying to our question, the intention of the party must be taken into a
consideration. Maniam also has no intention to deceive Mr Cheong Fatt in order to
induce him in entering the contract. This is because there is no evidence showing that
Maniam had done any act of deceiving Mr Cheong Fatt into entering the contract. Other
than that, silence does not constitute fraud. Maniam argued that he did not make any
representation about the transmission lines that runs across the land. Therefore he is
not liable for fraud.
We must distinguish this case from Tay Tho Bok & Anor v Segar Oil Palm Estate
Sdn Bhd [1996] MLJ 181 HC. In this case, the defendant has the knowledge about the
existence of the structures of the land prior to signing of the contract. The intention to
deceive another contracting party was essential for the court in making their decision.
This law is refuted in our question, where Maniam did not know that a portion of the land
was used by Tenaga Nasional Berhad for transmission cables. He did not make any
representation that the transmission lines did not run across the land. Mr Cheong Fatt
on the other hand also did not ask any question about it. Therefore there is no active
concealment of fact as Maniam did not hide any information from Mr Cheong Fatt.
Other than that, since there is no element of fraud exists in the contract, the
contract shall not become voidable at the option of the innocent party.
In conclusion, Mr Cheong Fatt cannot claim fraud under the law of contract
because he cannot prove that Maniam had exercised fraudulent misrepresentation.