QUESTION 1

ANSWER

Fraud
s17. Fraud includes any of the following acts committed by aparty to a contract, or
with his connivance, or by his agent, withintent to deceive another party thereto or his
agent, or to induce himto enter into the contract:
(a)

The suggestion, as to a fact, of that which is not true by one who does not believe
it to be true;

(b)

The active concealment of a fact by one having knowledge or belief of the fact;

(c)

A promise made without any intention of performing it;

(d)

Any other act fitted to deceive; and

(e)

Any such act or omission as the law specially declares to be fraudulent.

The definition of fraud under section 17 covers fraudulent misrepresentation. As stated above
fraud is defined in section 17 to cover certain acts which are committed with intent to induce
another party to enter into a contract. It provides 5 different acts which constitute fraud.
Notwithstanding the above 5 different acts, mere silence as to facts that likely to affect the
willingness of a person to enter into a contract is not fraud (Keates v Lord Cadogan (1851) 10
C.B.591).
In S. 18, misrepresentation is defined as false statement made by a representer or before the
contract is entered into and it includes the other party to enter into a contract but the
representer does not intent to deceive as the latter honestly believes in the truth of the
statement which is untrue or causes another to make a mistake of fact (emphasisis mine). For
ease of reference section 18 is reproduced below;
Misrepresentation
1

18. Misrepresentation includes (a)

The 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, or anyone claiming under him, by misleading another to his
prejudice, or to the prejudice of anyone claiming under him; 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.

The Federal Court in the case of Kheng Chwee Lian v Wong Tak Thong [1983] 2 MLJ 320
held that that a fraudulent misrepresentation fell within the ambit definition of fraud under
section 17 of the Contracts Act and not that of misrepresentation as defined in section 18.
Having made the above observation when will the contract become voidable?
To answer the above it is incumbent to refer to sec 19 Contracts Act 1950
Voidability of agreements without free consent
S19.

(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.

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
First and foremost what is the issue posed in the question above. The issue posed is whether
Ahmad can terminate the contract and obtain the money he had paid Farisham as deposit.
Based on the events that took place there is a contract between Farisham and Ahmad wherein
Ahmad had paid RM 10 000 as deposit. Now based on the events that took place can Ahmad
claim back the deposit.
The question which arises here is whether there exist a false statement of fact & not opinion.
Based on the facts, this condition is fulfilled as Farisham did make a statement of fact.
Having answered this in the positive the next question is whether the said statement was
made before the contract is entered into. On the facts, this condition is also fulfilled as the
answer is in the affirmative. Now the next question would be whether the said statement had
induced Ahmad to enter into the contract. On the facts, this condition is also fulfilled as
Ahmad bought the watch based on what Farisham had told him. The applicable law here is
the law of misrepresentation. Ahmad had relied on the representations by Farisham pertaining
to the watch as more than 100 years of age. These representations were false and they
constituted misrepresentations in law. It is trite law that the effect of a misrepresentation is to
3

render the contract voidable and not void. In essence this means that the contract is construed
to be valid between the parties unless and until it is set aside by the representee i.e. Ahmad. It
is the law that when the representee discovers the misrepresentation, the representee may
make an election: to affirm or to rescind the contract (Segar Oil Palm Estate Sdn Bhd v Tay
Tho Bok [1997] 3 MLJ 211 at p 220). As succinctly put by Lord Atkinson in Abram SS Co v
Westville Shipping Co Ltd [1923] AC 773 at p 781:
Where one party to a contract expresses by word or act in an unequivocal manner that by
reason of fraud or essential error of a material kind inducing him to enter into the contract he
has resolved to rescind it, and refuses to be bound by it, the expression of his election, if
justified by the facts, terminates the contract, puts the parties in status quo ante and restores
things, as between them, to the position in which they stood before the contract was entered
into
Once an election is unequivocally made by Ahmad i.e. as in this case he wanted to terminate
and claim back the deposit paid this will result in rescission of the contract and then the
matter comes to an end forever (Clough v London and North Western Rly Co (1871) LR 7 Ex
26 at p 35)
There are two types of representation provided by Contracts Act 1950:
S17 Contracts Act 1950 fraud-there is an intent to deceive i.e. purposely lied;
S18 Contracts Act 1950 misrepresentation-though statement is true BUT comes out to be
untrue.
Based on the facts given it is not clear whether Farisham had an intention to deceive or not. If
he did, then s17 will apply. If not, then s18 will be applicable.
Further pursuant to the Exception to s.19, if Ahmad could have found out about the truth had
he been diligence, then there will be no misrepresentation. On the facts, nothing is stated
about this.
For ease of reference I reproduce section 65 :
4

Consequences of rescission of voidable contract

S65.

When a person at whose option a contract is voidable rescinds it, the other party
thereto need not perform any promise therein contained in which he is promisor. The
party rescinding a voidable contract shall, if he has received any benefit thereunder
from another party to such contract, restore the benefit, so far as may be, to the person
from whom it was received.

Conclusion
Based on the discussion above Ahmad can terminate the contract & get back his deposit

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 instalments. 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.
5

ANSWER

Now Raju and Kamala have set up a partnership. The pertinent question is whether can assign
her interest?
The relevant provision is section 33 of the said Act. For ease of reference reproduce the same:

Section 33. Rights of assignee of share in partnership

(1)

An assignment by any partner of his share in the partnership, either absolute or by

way of mortgage or redeemable charge, does not, as against the other partners, entitle
the assignee, during the continuance of the partnership, to interfere in the management
or administration of the partnership business or affairs, or to require any accounts of
the partnership transactions, or to inspect the partnership books, but entitles the
assignee only to receive the share of the profits to which the assigning partner would
otherwise be entitled, and the assignee must accept the account of profits agreed to by
the partners.

(2)

In the case of a dissolution of the partnership, whether as respects all the partners or
as respects the assigning partner, the assignee is entitled to receive the share of the
partnership assets to which the assigning partner is entitled as between himself and
the other partners, and, for the purpose of ascertaining that share, to an account as
from the date of the dissolution.

In my point of view which based on the section 33 , Kamala may assign her Shares of the
partnership provided there is no agreement between Kamala and Raju precluding Kamala
from assigning her interest.
Based on the case there is no proscription mentioned in the statement .If there is a
proscription, Kamala cannot assign her interest. By saying this, the bank is not entitled to
interfere in the Management of Kamala and Rajus partnership business or to attain by right
6

any accounts of the partnership transactions or to inspect the partnership books. The Bank
Business in only entitled to attain the shares profit which Kamala will be entitled if she had
not assigned her interest.
Based on the case of Ong Kian Loo v Hock Wah Trading Co & Ors [1990] 1 MLJ 315 Malik
J

In the case of Ong Kian Loo v Hock Wah Trading Co & Ors [1990] 1 MLJ 315 Malik J
referred to the following passage in page 383 and 384 Lindley On Partnership which states:
Still less can a partner by assigning his share entitle his assignee to take his place in the
partnership against the will of the other members. The assignment, however, is by no means
inoperative; on the contrary, it involves several important consequences, more especially as
regards the dissolution of the firm and the right of the assignee to an account.
Again, at p 388, it states:
Where a partner has an unconditional right to transfer his share, he may transfer it to a
pauper, and thus get rid of allliability as between himself and his co-partners in respect of
transactions subsequent to the transfer and notice thereof given to them. But even in this case
the transfer alone does not render the transferee a member of the partnership, and liable as
between himself and the other members to any of the debts of the firm. In order to render him
a partner with the other members, they must acknowledge him to be a partner, or permit him
to act as such.
I conclude that Kamala may assign her interest in the partnership.

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 courts order?

ANSWER
7

A partnership can dissolved by the following manner:

By expiration of term or notice;
By death, bankruptcy or charge;
By supervening illegality; or
By court order.
Dissolution of partnership is provided under Part V of the Partnership Act 1961
The same is reproduced below for ease of reference.
Part V DISSOLUTION OF PARTNERSHIP AND ITS CONSEQUENCES SECTION
S34.

Dissolution by expiration or notice

S35.

Dissolution by bankruptcy, death or charge

S36.

Dissolution by illegality of partnership

S37.

Dissolution by the court

Since Raju decided to apply for dissolution by court order hence he has to refer to section 37
wherein there is 6 grounds that Raju can consider in his application.
37.

Dissolution by the court

On application by a partner, the court may decree a dissolution of the partnership in any of
the following cases:
(a)

When a partner is found lunatic or is shown, to the satisfaction of the court, to be of

permanently unsound mind, in either of which cases the application may be made as
well on behalf of that partner by his committee, or next friend, or person having title
to intervene as by any other partner;

(b)

When a partner, other than the partner suing, becomes in any other way permanently
incapable of performing his part of the partnership contract;

(c)

When a partner, other than the partner suing, has been guilty of such conduct as, in the
opinion of the court, regard being had to the nature of the business, is calculated to
affect prejudicially the carrying on of the business;

(d)

When a partner, other than the partner suing, wilfully or persistently commits a breach
of the partnership agreement or otherwise so conducts himself in matters relating to
the partnership business that it is not reasonably practicable for the other partner or
partners to carry on the business in partnership with him;

(e)

When the business of the partnership can only be carried on at a loss; and

(f)

Whenever in any case circumstances have arisen which, in the opinion of the court,
render it just and equitable that the partnership be dissolved.

In the case before us to my mind the best provision which Raju should consider is section
37(f) as the ground for dissolution.

-END -

REFERENCES
1.

Rozman Abdul Rahman.(2011)BMLW5103 Business Law, Metecor Doc. Sdn.

Bhd.
9

2.

Abbott, K.R and Pendlebury, N. (1993) Business Law, DP Publications

Ltd.,London.

3.

Visu Sinnaduai. (1987) The Law Of Contract In Malaysia and Singapore Cases
and Community, second edition,University of Malaya.

10