Free Consent at Contract Law

Team Mebers:1-Hasan Ali sari

2- Hamoud Alsegi3- 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; and4. 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; and3. 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.’