assignment: business law (example of answer)

QUESTION 1 (a)

“In simple language, a misrepresentation is a representation that is untrue. It is a false statement made by one party to the contract to the other, before, or at the time of contracting, on which that other party relied on in contracting.”

Per Abdul Malik Ishak J. in Travelsight (M) Sdn Bhd & Anor v Atlas Corp Sdn Bhd [2003] 6 MLJ 658.

With reference to the Contracts Act 1950 and relevant cases, discuss the circumstances and elements of misrepresentations which cause a contract to be voidable.

[15 marks]

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.

This definition means that the absolute assertion of an untrue statement is

misrepresentation especially if the statement made is in a business transaction designed to

conclude the contractual rights and liabilities of the parties to the transaction.

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The main element of section 18 of the Contracts Act 1950 is to give the person making an

assertion or representation an advantage in the contractual rights and liabilities. This

negates the other party’s consent in concluding or agreeing to any of the terms of the

contract if the other party does not know of the advantage at the point of concluding and

agreeing the terms of the contract.

Having said that, it is stated under Section 19 of the Contracts Act 1950 that the other

party to the contract has a safety net where this section provides that:-

(1)When consent to an agreement is caused by coercion, fraud, or misrepresentation, the

agreement is a contract voidable at the option of the party whose consent was so caused.

(2) A party to a contract, whose consent was caused by fraud or misrepresentation, may,

if he thinks fit, insist that the contract shall be performed, and that he shall be put in the

position in which he would have been if the representations made had been true.

However, if the other party is aware of the misrepresentation and decided to continue to

enter the contract, then the contract is not voidable. This is due to the fact that he fully

consented getting into the contract with full knowledge of the misrepresentation. A

misrepresentation is a misrepresentation of a statement of fact, not of general opinion and

in that it influenced a person to enter into the contract and it is false. A fact must be

something current and cannot be something in the future.

One of the famous case of misrepresentation is the case of Bisset v Wilkinson (1927)

AC177. In this case, the seller of the farm that had never run sheep gave his opinion that

it would support 2000 sheeps. This turned out not to be the case, and the buyer sued for

the return of his purchase money.

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.

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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.

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

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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.

QUESTION 1 (b)

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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.

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

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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 appellant’s part.

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

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less than 100 years ago. However, it is not necessarily that the watch was made in 1957.

Most probably that Yatt’s 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 Yatt’s 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 can’t

claim that there is a case of fraud or misrepresentation. Farisham will be successful in

pleading innocent misrepresentation.

QUESTION 2

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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) The right of Kamala to assign her interest in Expert Consultancy to Bank

Business.

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

fixed, or by the termination of an adventure or undertaking, or by any partner giving

notice to the other of his intention to dissolve partnership.

In Kamala and Raju situation, even though the partnership agreement was signed in June

2000 stated that the partnership shall remain for a ten year period which was supposed to

expire in June 2010, there is possibility that the partnership has been renewed. Kamala

and Raju also are still bound to the partnership because there was no notice give by either

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party with the intention to dissolve the partnership. They are also still conducting the

partnership business as usual.

The provisions contained in Part IV (Section 21 to 33) of the Partnership Act 1961 will

only apply where partners did not provide the terms of partnership in their partnership

agreement. Section 21 of the Partnership Act 1961 provides that the mutual rights and

duties of partners, whether ascertained by agreement or defined by the Act, may be varied

by the consent of all the partners and such consent may be either expressed or inferred

from a course of dealing. Above all, the principle of utmost good faith towards each other

is implicit in the partnership agreement.

Under Section 33(1) of the Partnership Act 1961, it is stated that a partner may assign

his/her share if there is no agreement among the partners prohibiting the assignment. It is

also common in partnership for the partner to assign own interest to third party without

consent of the other partner. Therefore, Kamala may assign her share in the firm to Bank

Business, unless there are terms and conditions stated in the partnership agreement that

the partnership is non-transferrable. The relationship between Raju and Kamala as

partners may be regulated by a partnership agreement made by them which outlines the

rights and duties and other terms relating to business management, division of capital and

profits of each partner, etc. However, the assignee, which is Bank Business is not

entitled to interfere in the management of the partnership business or to require any

accounts of the partnership transactions or to inspect the partnership books. The Bank

Business is only entitled to receive the share of profits to which the assigning partner

would be entitled.

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

doesn’t has a right to interfere in the administration of the partnership business.

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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. What are the grounds that Raju could

use to apply for dissolution of partnership by way of court’s order?

Answer

A firm ceased to exist when it is dissolved. All the firm’s 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 there’s 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 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.

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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) The court may dissolve the firm when a partner becomes insane by virtue of

Section 37(a). The partner concerned must be unable to perform his/her

duties due to mental disorder, of managing his/her property and affairs. The

mental capacity must be permanent, otherwise there can be no grounds to

dissolve the partnership.

ii) According to section 37(b) of Partnership Act 1961, the Court may dissolve a

partnership if a partner suffers permanent physical incapacity. For example,

in Whitwell v Arthur case, the partner has been paralyzed for few months.

However, by the time the case arrived at the court, the partner has healed

from that condition. The court rejected the application according to Section

37(c), and the partners found guilty of misconduct.

iii) The Court may dissolve the partnership by Section 37(d) of Partnership Act

1961 when one partner breaches the partnership either willfully or

persistently. This dissolution can only be expedite by virtue of the words

“virtually” and “willfully” which means that the breach must be a serious one

and resulted to the damages to the business or the firm itself. However, the

court will not interfere if the breach was a minor one and has no impact on

the business of the firm.

iv) Section 37(c) of Partnership Act 1961 provides that a partnership may be

dissolved when a partner is found to be guilty of any misconduct. This

situation will be considered by the courts as affecting prejudicially the

carrying on the business. Moral misconduct is not enough, unless in the view

of the court, it is like to effect the business. In Snow v Milford (1868), a

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partner’s massive adultery all over Exeter was not regarded by the court as

sufficient grounds for dissolution.

v) The court may dissolve a partnership if the business carried on at a loss. This

is provided by Section 37(e) of Partnership Act 1961, if the business carried

on at a lost that can be petitioned to the court for dissolution of partnership.

The essential of having a partnership is in order for two or more people to

get together in the common view of making profit. If this purpose is

defeated then it is proper for the court to dissolve the partnership.

vi) According to section 37(f) of Partnership Act 1961, the court may dissolve the

partnership if it is just and equitable to do so. In the case of Yenidje Tobacco

Co Ltd 2 Ch 426, a company dissolution based upon the fact that the

company was in reality a partnership, that deadlock between the partners is

enough for dissolution, even though the business is prospering.

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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assignment: business law (example of answer)

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