Tutorial 3 (Week 4)

Question 1

Laila went to Louis Vuitton Boutique at Aeflux Shopping Complex, Kuantan to buy a
handbag and introduced herself as the famous actress from Indonesia. She told the shop
manager, Mimi, that she was Acha Spetriasa who had won the best actress in Indonesia in the
year 2015. Laila bought a handbag worth RM30,000. Mimi, who is a fanatic fan of
Indonesian celebrity, recognized Laila as he had seen her on TV3 in television series. Laila
wrote a cheque for the amount of RM30000.00. The cheque was dishonoured and Mimi
realized that Laila was impersonating Acha Spetriasa, the famous actress from Indonesia.
Meanwhile, Laila had sold the handbag to Suehaira for RM15,000.00. Mimi made a police
report and seeks to recover the goods.

Advise Mimi.

Answer:

Issue: Whether the contract entered into by Mimi with Laila amounts to fraud

Law: Section 17(a) CA, Section 17(c) CA (Malaysia position)

Case: * Kheng Chwee Lian v Wang Tak Thong

* Datuk Jagindar Singh & Ors v Tara Rajaratnam

Jong Chuk v Chong Tung Sang & 5 Ors

Magnum Finance Berhad v Tan Ah Poi & Anor

Application:

Based on s 17(a) CA, 'Fraud' includes any acts of suggestion as to the fact, of that which is
not true by one who does not believe it to be true to a contract with intent to deceive another
party or to induce him to enter into the contract. S 17(a) CA can be applied to the current fact
as Laila introduce herself as Acha Spetriasa with the intention to deceive Mimi to enter into
the agreement. The judgement in the case, Kheng Chwee Lian v Wang Tak Thong can be
applied here, hence the misrepresentation made by Laila is amounted to fraud.

In s 17(c) CA, fraud can be considered if a promise was made without any intention of
performing it. In the case of Datuk Jagindar Singh & Ors v Tara Rajaratnam, the court
held that fraud has been proved as the defendents did not have the intention to perform the
promises made to the plaintiff. In the current fact, the cheque wrote by Laila for the amount
of RM30000.00 was dishonoured. This showed that Laila did not have the intention to
perform his promise to Mimi and it can be amounted to fraud.
Law: Fraudulent misrepresentation (common law position)

Cases: Derry v Peek & Ors

Double Acres Sdn Bhd v Tiarasetia Sdn Bhd

Application:

In the current fact, Laila was impersonating Acha Spetriasa, the famous actress from
Indonesia with the intent to deceive. By applying the judgement in the case of Double Acres
Sdn Bhd v Tiarasetia Sdn Bhd, Abdul Malik Ishak J stated that “… whenever a person
causes another to act on a false representation which the maker himself does not believe to be
true, the maker is said to have committed a fraud.” In this case, the false statements made by
Laila claiming herself as Acha Spetriasa was made knowingly, or without belief in its truth is
amounted to fraudulent misrepresentation based on the requirement stated in the case of
Derry v Peek & Ors.

Issue: Whether Mimi can seek to recover the goods.

Law: Section 19(1) CA

Section 66 CA

Application:

By applying s19(1) CA to the current fact, the consent to the sale and purchase of the
handbag agreement is caused by fraud and misrepresentation, the agreement is a contract
voidable. An innocent party has the option to rescind or affirm the contract. Hence, it is the
option of Mimi to rescind or affirm the contract. After the contract is rescinded, s 66 CA can
be apply, Laila is bound to restrore or to make compensation to Mimi.

Since Laila had sold the handbag to Suehaira, Mimi is unable to seek for recovery of the
goods if Suehaira is an innocent buyer who bought the goods in good faith.

Question 2

As a general rule, fraud is not committed simply by keeping silent about certain facts that
could affect the decision or willingness of another to enter into a contract. Silence is not
fraud. However, there are two exceptions to this general rule. Explain this statement with
reference to Contract Act and decided cases.

The two exceptions to general rule of Silenec is not fraud are there exists a duty for
the person to speak and the silence, in itself, is equivalent to speech. The first exception is
where the circumstances of the case are such that it is the duty of the person keeping silent to
speak. This can occur in sale and purchase transactions where the relationship is more than
the ordinary relationship of seller and buyer.
 In Lau Hee Teah v Hargill Engineering Sdn Bhd & Anor, the appellant had entered
into an agreement to take a loader on hire-purchase as hirer, with the first respondent as
dealer and the second respondent as owner. The first respondent (as seller) did not inform the
hirer of the year of manufacture of the machine and the fact that it had previously been
involved in an accident. The Federal Court held that this did not amount to misrepresentation
as there was no active duty on the part of the seller to inform the hirer of these matters.

In Karuppannan Chellap pan v Chong Lee Chin, there was a statement in the sale and
purchase agreement that the building was sold "free from all encumbrances". The issue was
whether this is tantamount to a fraudulent misrepresentation by the defendant (vendor) in
view of the defendant's non-disclosure of the condition that the plaintiff, if he purchased the
building, would have to remove the window protrusions at his own expense. The High Court
held that the maxim caveat emptor applied to the plaintiff here. an uncommunicative or
taciturn vendor cannot be faulted if he failed to disclose any patent defect

In Haji Ahmad Yarkhan v Abdul Gani Khan & Anor, AIR 1937 Nagpur 270. a
marriage was arranged between two persons. The father of the groom conducted the
negotiations on behalf of his son and a third person acted on behalf of the bride. The father
later discovered that the prospective bride suffered from epileptic fits. The issue was whether
the third party was under a duty to disclose this fact. The Court first stated that there was no
fiduciary relationship between the parties. However, the Court found there was a duty to
disclose as this type of contract was a contract uberrimae fidei and stated the most common
examples of contracts uberrimafides are contracts of insurance, sale, suretyship, releases
and compromises but contracts to marry also come under this category though the case law
on the subject is meagre and conflicting.

The second exception is when silence is, in itself, equivalent to speech as can be seen
in Illustration (c) to s 17:
B says to A, "If you do not deny it, I shall assume that the horse is sound." A says
nothing. Here, A's silence is equivalent to speech.
In this situation, the content of the speech from B to A require a response from A. If A
does not deny it, B is entitled to assume that the horse is sound (as already held out by B).
It should be noted that being silent is not the same as the active concealment of a fact
under s 17(b). The former involves merely keeping quiet (not considered fraudulent unless
for the two abovementioned circumstances) whereas the latter refers to positive action of
concealing certain facts. Examples of concealment can be seen in Illustrations (c) and (d) to s
19 of the Contracts Act as set out above earlier.