Free Consent at Contract Law

Team Mebers:
1-Hasan Ali sari
2- Hamoud Alsegi
3- Ghazali
 Introduction
• Section 10 of the contracts act provides that all
agreements are contracts if they are made by the free
consent of the parties. Consent is said to be free if it is
not caused by
• coercion
• undue influence
• fraud
• misrepresentation
• mistake, except in the case of a mistake made by both
parties
1- Misrepresentation and Fraud

• What is the difference between

Misrepresentation and fraud?
 1- Misrepresentation

• Defenition
• Elements of misrepresentation
• Types at common Law
• Elements
• Remedies
 1- Misrepresentation
• Misrepresentation in general is a legal term
that means "a false statement of fact that has
the effect of inducing someone into a contract

• Example:, telling someone a stereo is

"practically new" so that they buy it, when it is
in fact 5 years old and heavily used.
 Common Law Elements of
Misrepresentation
• In order for a misrepresentation to occur, the
representee must show that the representor
made:
1. A false statement of past or existing fact;
2. Addressed by one to another;
3. Before or when the contract was made; and
4. Which intended to induce, and in fact
induced, the contract.
 Type of misrepresntation at common law
• There are thre types of misrepresentation :
• Innocent Misrepresentation
• Fraudulent Misrepresentation
• Negligent Misrepresentation

• Each type of misrepresentation has slightly different requirements

and can lead to different remedies.
• Therefore, in respect of each type of misrepresentation we will
• endeavour to answer these questions:
• When does this form of misrepresentation apply?
• o What remedies are available?
 Innocent Misrepresentation

• An innocent misrepresentation is one where the representor has neither

been fraudulent nor negligent.
• The maker of the statement honestly believes the statement to be true.
• To establish an innocent misrepresentation, the four common law
elements must be satisfied.

• Remedies
• The representee will normally be entitled to a remedy in equity for the
misrepresentation, and be entitled to elect to rescind the contract.
•  
• There is no common law right to damages for innocent
misrepresentation: Redgrave v Hurd.
 Fraudulent Misrepresentation

• Fraud is proved when it is shown that, in addition to the four basic elements, a false representation
has been made:
 knowingly; or
 without belief in its truth; or
 recklessly, careless whether it be true or false
• with the intention that it should be acted upon by another party who is thereby induced to act upon
it.
•  
• Fraud embraces situations in which the representor lacked belief in the truth of the representation or
made it recklessly, not caring whether it be true or false.
•  
• Remedies
• The representee will normally be entitled to a remedy in equity for the misrepresentation, and be
entitled to elect to rescind the contract.
•  
• The representee will also be entitled to recover damages in tort (not in contract) for deceit in respect
of the fraud
 Negligent Misrepresentation

• Negligent Misrepresentation
• In order to prove negligent misrepresentation, the representee must prove the
four common law elements of misrepresentation and the three elements of
negligence:
1. The representor owed the representee a duty to take reasonable care that the
statement made by the representor was true and reliable;
2. that the representor breached such duty; and
3. the false representation led to the representee’s suffering loss or damage.
• Remedies
• The representee will normally be entitled to a remedy in equity for the
misrepresentation, and be entitled to elect to rescind the contract.
•  
• The representee will also be entitled to recover damages in tort (not in contract)
for deceit in respect of the fraud
 Cases Law
• Malayan Miners Co (M) LTD v Lian Hock & Co [1966] 2 MLJ 273
• In this case the defendants had made a successful bid for a
Tourna dozer which was described in the auctioneer’s list as
being in good condition. The written contract of sale contained
a condition that the lots were sold as they lie with all faults and
errors of description. After the sale the defendants alleged that
the tournadozer was not in good condition. It was subsequently
resold and the plaintiffs thereupon claimed the sum of
$3,905.50 being the difference on the resale and costs. The
defendants pleaded that there was innocent misrepresentation
by the auctioneers on behalf of the plaintiff.
 Cases Law
• Held:
• On the facts there was no fraudulent misrepresentation
on the part of the plaintiff or his agents;
• Even if there had been innocent misrepresentation the
remedy for it was damages for breach of warranty and
not rescission and as no claim for damages was made in
this case by the defendant, the court could not come to
any finding on it;
• The plaintiff was therefore entitled to damages for
breach of contract.
Hedley Byrne & Co Ltd v. Heller & Partners Ltd [1963] 2 All ER 575

• Facts:
• Hedley Byrne was a firm of advertising agents.
• A customer, Easipower Ltd, put in a large order.
• Hedley Byrne wanted to check their financial position, and credit-worthiness, and
subsequently asked their bank, National Provincial Bank, to get a report from
Easipower’s bank,
• Heller & Partners Ltd., who replied in a letter that was headed, "without
responsibility on the part of this bank" It said that Easipower was, "considered
good for its ordinary business engagements".
• The letter was sent for free. Easipower went into liquidation and Hedley Byrne lost
£17,000 on contracts.
• Hedley Byrne sued Heller & Partners for negligence, claiming that the information
was given negligently and was misleading. Heller & Partners argued there was no
duty of care owed regarding the statements, and in any case liability was excluded.
• Held, The court found that the relationship between the
parties was "sufficiently proximate" as to create a duty of
care.
• It was reasonable for them to have known that the
information that they had given would likely have been
relied upon for entering into a contract of some sort. This
would give rise, the court said, to a "special relationship",
in which the defendant would have to take sufficient care
in giving advice to avoid negligence liability. However, on
the facts, the disclaimer was found to be sufficient enough
to discharge any duty created by Heller's actions.
 Exceptions
• Silence:
• The general rule of contract is that silence cannot
amount to a misrepresentation,
• Naturally, there are exceptions to this rule, and if
there is a material change in the circumstances; if
remaining silent would make a statement misleading;
if the parties had a fiduciary relationship; and
• In cases where the contract is one of good faith, then
an actionable misrepresentation is possible
 Fraud
• Definition by Contracts Act 1950:
• “Fraud” includes any of the following acts
committed by a party to a contract, or with his
connivance, or by his agent, with intent to
deceive another party thereto or his agent, or
to induce him to enter into the contract:
 Fraud
• Elements:
• (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.
 Exceptions
• Mere silence as to facts likely to affect the
willingness of a person to enter into a contract
is not fraud, unless the circumstances of the
case are such that, regard being had to them,
it is the duty of the person keeping silence to
speak, or unless his silence is, in itself,
equivalent to speech.
 Remedies for Fraud
• [Section 19]
•  
• (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.
 Case in Fraud

• Derry V Peek (1889) 14 App Cas 337, HL

• Facts:
• A tram company's prospectus stated that the company had permission to use
steam trams, rather than horse powered ones.
• In fact, it did not because the right to use steam power was subject to the 
Board of Trade's consent.
• The company had applied, and honestly believed that they would get it because
permission was a mere formality.
• After the prospectus was issued, they did not get permission. Shareholders who
had purchased their stakes in the company on the faith of the statement's truth
sued when the company's business went down and ended up in liquidation.
• Held:
• The shareholders' action failed, because it was not proved
that the director lacked honest belief in what they had said.
•  Lord Herschell however did point out that though
unreasonableness of the grounds of belief is not deceitful,

• it is evidence from which deceit may be inferred. There are

many cases, where the fact that an alleged belief was
destitute of all reasonable foundation would suffice of itself
to convince the court that it was not really entertained, and
that the representation was a fraudulent one."
 Cases in Fraud
• Weber v Brown (1908) 1 FMSLR 12
•  
• A case in point is Weber v Brown (1908) 1 FMSLR 12. Here, the court
found that the defendant had falsely and fraudulently misrepresented to
the plaintiff the number of trees on an estate. This had induced the
plaintiff to enter into the contract with the defendant.
•  
• The court held that the plaintiff was entitled to damages.
• The active concealment of a fact may also constitute fraud. An example
is illustration (c) to s.19, which states: ‘B having discovered a vein of ore
on the estate of A, adopts means to conceal, and does conceal, the
existence of the ore from A. Through A’s ignorance B is enabled to buy
the estate at an undervalue. The contract is voidable at the option of A.’