FACULTY OF COMPUTING AND BUSINESS MANAGEMENT
Date Assigned: 20th September 2014
Due Date: 24th November 2014
Student ID: s111023248
Student name: Imad Mohamed
First of all I would like to thank God as I am able to finish this assignment given by Mr.Fayyaz, lecture of the Module: Business Law. This task cannot be completed without guidance and continued support of from lecture. Therefore I would like to take this opportunity to tank lecture, Mr.Fayyaz for his guidance for and explanation of the subject, and kind extension of deadline for submitting the assignment. I also appreciated those Villa College’s facilitations, to grant me late registration and extension for submitting the assignment.
I am a civil servant having heavy workload especially during the time there is much challenges for our work to uphold decentralization system in Maldives. My studies and work towards this assignment is completed because of the flexibility and support given by my office management and staff as well. I recognized the support of office management and thanks management of Local Government Authority
This task has been done with the help of and discussion with colleague students of the class, and I would address big thanks to all fellow students.
Last but not least I thanks to my beloved family and friends that always stick together and also work hard to produce good assignment.
a) “In simple language, a misrepresentation is a representation that is untrue. It is a false statement made by one party to other, before, or at the time of contracting, on which that the other party relied on in contracting.”
Per Abdul Malik Ishak J. in Travelsight (M) Sdn Bhd & Atlas Corp Sdn Bhd (2003) 6 MLI 658.
With reference to the contract Act 1950 and relevant cases, discuss the circumstances and elements of misrepresentation which cause a contract to be voidable. [15 marks]
Voidable contract is a valid contract that all the requirements of a valid contract is the fact that the innocent party is entitled to terminate the contract, if he so desires fulfilled used. Circumstances or characteristics which are to make a contract voidable (1) non-proliferation of one or more material facts, (2) misrepresentation, (3) the mutual error, (4) lack of free will of a party, or that there is a contract undue influence on the other party, and (5) a violation of the agreement or a material breach of the terms of the contract. A contract is voidable only one or a few parts can be secured from the process of withdrawal. Not to be confused to be confused with an invalid contract
Misrepresentation is a factual statement concerning a certain state of affairs but is not true (it however must be material). A misrepresentation is a statement made by one party to the other before the time of contracting; the statement must be material i.e. of much importance), factual and relates to the subject matter of the contract. Further the statement must induce the other party into a contract (i.e. must have relied upon it).
A contract which is induced by misrepresentation is voidable. There are 3 types of misrepresentation:
(i) Innocent misrepresentation – i.e. misrepresentation made in honest belief that a statement is true.
(ii) Fraudulent misrepresentation – the statement made by a party knowing fully that it is untrue or are made recklessly
(iii) Negligent misrepresentation – a statement made in belief that it is true but the circumstances of the contract demonstrate that it is untrue. Once there is a misrepresentation a question obviously arises.
In view of the contracts’ Act 1950, the elements of misrepresentation are sound and clear. In subsection 18 of the law “Misrepresentation” comprises (a) the positive declaration, in a mode not justified by the information of the declaring person, of that which is false, although he considers it to be true. (b) Secondly, any violation of duty that without intent to mislead, benefits the person performing it, or any person call for under him, by deceiving another to his bias, or to the bias of anyone claiming under him. (c) Third, causing, though innocently, another party to an agreement to commit a mistake as to the element of the thing that forms the subject of the contract or agreement.
In order to quantify to an actionable misrepresentation, an action must follow and satisfy certain criteria, for example, the criteria of false statement. For a misrepresentation to occur there must occur a false word or statement of law or fact as opposed to estimating or opinion of future events as shown in the case below.
In Esso Petroleum v Mardon  QB 801 Court of Appeal, Mr. Mardon came into an agreement of tenancy with Esso Petroleum subject to a new Petrol station. Esso’s experts had approximated that the station would be able sell 200,000 petrol gallons. This approximation was based on records that were prepared preceding the planning. The permission for planning altered the reputation of the petrol station that would have a hostile effect on its sales rates. However, Esso made no alterations to the estimate. Additionally, the tenancy rent was also subject to the inaccurate estimate. Subsequently, it became intolerable for Mr. Mardon to run the station profitably. In effect, notwithstanding his best endeavors the station only sold 78,000 petrol gallons in the first business year but made £5,800 loss. The Court of Appeal said that there could not be any action for misrepresentation since the statement was an approximation of future sales rather than a fact statement. However, the court entitled damages to the claimant based on either breach of guarantee of the collateral contract or common law negligent misstatement.
An opinion statement may amount to an actionable misrepresentation in a situation where the represented was at a position of knowing the facts. In the case of Smith v Land and House Property Corp (1884) 28 Ch D 7 the claimant procured a hotel. The seller labeled one of the tenants as the ‘most desirable’. Indeed, to the knowledge of the seller, the tenant was in debts and on the edge of bankruptcy. The court held this to be a fact statement rather than opinion statement since the seller was in a position of knowing the facts.
A statement of future intent cannot aggregate to a misrepresentation unless the person who made the statement did not have the intention of operating the specified intent. In Edgington v Fitzmaurice (1885) 29 Ch D 459, the claimant procured shares from the defendant company. The prospectus of the company indicated the shares were being given to raising money for expanding the company. Indeed, the company was undergoing financial difficulty. Therefore, true to that the raised money from the sale of the shares was to be used in paying the debts of the company. The court Held that: even though that the statement associated to future statement intent, it could be considered an actionable misrepresentation since the defendant didn’t have an intention of expanding the company with the money from sale of shares.
Unless the contract is of begrime fide, that is, of utmost good faith, for example an insurance contract or where the person making the statement is at a fiduciary position, there exists a duty to disclose all material facts for such a contract. Failure to disclose such facts may be actionable for misrepresentation, for example, the case of HIH Casualty and General Insurance Ltd v Chase Manhattan Bank.
Inducement or reliance is another element of misrepresentation. Once it has been recognized that a party has made a false statement it becomes necessary for the represented to confirm that it is the false statement that induced them to enter into an agreement or contract. There can be no reliance or inducement if the represented was ignorant of the said false statement. In Horsfall v Thomas  1 H&C 90, the claimant bought a gun that had a hidden defect. However, action for misrepresentation failed since the claimant hadn’t inspected the gun prior to making a purchase. For that reason, the misrepresentation wasn’t the induction for him to enter the agreement since he was unaware of the defect.
These elements provide a segregation of different circumstances of misrepresentation consideration. A misrepresentation can be fraudulent, negligent or innocent depending on the situation. The conclusion of a discovering a misrepresentation in a contract is voidable. That is; the contract occurs but may be sidelined by the represented. The remedy available for the different misrepresentation depends on the type of misrepresentation. However, as aforementioned, the remedy consists of damages and or rescission. Nonetheless, the right to withdraw a contract may be lost in certain circumstances.
Misrepresentation law mainly originates from common law and the Contract Act 1950 also provides further details. Lord Herschell cleared fraudulent misrepresentation in Derry v Peek as a statement that is made either: knowing it to as false, having no belief in its truth, or irresponsible and careless as to it being false or true. In all situations, the burden of evidence lies with the claimant. In Derry v Peek (1889) 5 T.L.R. 625, in a prospectus of the company the defendant detailed the company was rightful to use steam powered trams and not horse powered trams. Conversely, during that time companies could only use steam powered trams after approval by the Board of Trade that was refused later. The claimant acquired shares in the company relying on the statement and later brought a claim due to the alleged defendant’s fraudulent representation. The court held that: the statement was not fraudulent but that it was made in the honest confidence in a forthcoming endorsement.
Negligent misrepresentation is a statement made without sensible grounds for confidence in its truth. The burden of evidence in negligent misrepresentation lies on the represents to establish they had sensible grounds for trusting the truth of the statement. This liability of proof is problematic to discharge. In Howard Marine v Ogden  QB 574, the claimant, hired two ransacking barges from the defendant for £1,800 weekly to carry out some diggings for Northumbrian Water Authority. To make a precise estimate for completion of the tender work, the claimant asked the defendant the barge’s capacity. After checking Lloyds register, HM, the defendant, stated 850 cubic meters. The entry in Lloyds register was, in fact, the wrong and the capacity was much lower. Subsequently the work went on and took much longer with increased cost to perform. The claimant, thus, brought an action for negligent misrepresentation. The court held that; the defendant had not cleared the burden of proof by signifying they had rational grounds for trusting its truth since they had the registration document that had the correct capacity and they lacked reason for checking Lloyds register instead of the registration document
b) On 4 March 2013 Ahmed, an antique collector, entered a contract for purchase of an antique watch, which was described in good faith, by Farisham, the seller, as more than 100 years of age. Ahmed 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 2013, while attending an auction for antiques, Ahmed 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 Ahmed 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. Ahmed was very disappointed with what Yatt told him and immediately sent an email to Farisham which stated that he intend to terminate the contract which he entered with Farisham on the ground that there was a misrepresentation of fact. Ahmed also wanted to claim back the RM 10 000 of deposit which he has already paid to Farisham. Advise Farisham. [15 marks] [TOTAL: 30 MARKS]
I can call this case Jalil v Farid 6/3/2013 in which case Jalil is the Complainant, the plaintiff, while Farid is the defendant. Jalil has presented an action for misrepresentation of fact against Farid. Jalil was induced by the age the watch due to his nature of business and bought the watch entering into a commitment agreement with Farid. In reference to the law of contract 1950, in section of misrepresentation, once it has been recognized that a party has made a false statement it becomes necessary for the representee or the claimant to prove that the false statement induced them to make an agreement or enter the contract.
Misrepresentation is one of the very difficult areas in the law of contract. This is because it is mixture of common law, statutory and equity rules. To handle misrepresentation of this nature I must be vigilant to the following issues. Are the statements made during the agreement representations or terms? If the there’s any chance the statements representations then I must also check if there any actionable misrepresentation. If there is an actionable representation I must also identify what type of misrepresentation that the statement belongs. Is the statement fraudulent, negligent or innocent? On the facts presented this may be a very difficult question to make a decision about. Therefore, I should also learn what remedies available for the misrepresentation are. Lastly, I must deal with any clause claiming to exclude liability for misrepresentation. I can advise Farid to argue his case in three ways depending on situations that Jalil can use to argue his case.
First, Farid made a statement of representation in an utmost good faith that the watch was more than 100 years old. As the business person and the seller he needed to disclose all the facts about the watch including its age, which was the most important. Failure to do so would have given rise to an action for misrepresentation. Farid can argue his case in reference to HIH Casualty and General Insurance Ltd v Chase Manhattan Bank  UKHL 6 House of Lords.
In this case, Chase Manhattan insurance Ltd. forwarded significant sums to finance the production and creation of the film syndicate. HIH offered insurance in case the film did not make adequate revenue to repay the loan. Consequently, Chase Manhattan ltd. made the insurance a stipulation of receiving the loan and also stated the agent, Heath North America (HNA), which must be made use of to acquire the insurance. HNA acquired the insurance policies, however, in doing so committed certain fraudulent misrepresentations and consequently failed to disclose an account story that put forward that the films were not likely to make any profit. The films did not make adequate revenue to shelter the loan and Chase Manhattan sought to claim subject to the insurance policy. HIH refused to pay out the claim appealing to revoke the contract for misrepresentation and a forsaking to release an important as obligatory under s.19 & 20 of the 1906 Marine Insurance Act (relevant to all insurance contracts and not just marine insurance). S. 18(3) (c) of the Act makes available that the insured should not disclose information that has been ignored by the insurer.
The insurance contract contained a truth of statement clause that provided: “ the Insured will not have any duty or obligation to make any representation, warranty or disclosure of any nature, express or implied (such duty and obligation being expressly waived by the insurers.”  “And shall have no liability of any nature to the insurers for any information provided by any other parties.”  “And any such information provided by or nondisclosure by other parties including, but not limited to, Heath North America & Special Risks Ltd (other than section I of the questionnaire) shall not be a ground or grounds for avoidance of the insurers’ obligations under the policy or the cancellation thereof.”
Chase Manhattan sought to depend on on this clause to contend that the insurance company could not revoke the contract. The court held that: The clause was ineffectual. The insurance company was entitled to revoke or rescind the contract of insurance through both the non-disclosure and the misrepresentation. In this way Farid disclosed the information that to him he didn’t care if it was true but did not induce Jalil to enter into the agreement either. Jalil is not entitled to revoke the contract because the satiation of the contract is not due to Farids false statement but because he didn’t care to examine the details of the product.
Second, in his case, Jalil may say that he was induced by the age the watch, which Farid told him, due to the nature of his business and bought the watch entering into a commitment agreement with Farid. He should provide proof in the lack of truth in Farid’s statement. In reference to the case of Horsfall v Thomas  1 H&C 90, there can be no reliance or inducement if the representee was ignorant or unaware of the false statement. In this case the claimant bought a gun that had a hidden defect. However, his action for misrepresentation failed since he hadn’t examined the gun before buying it. Therefore, the misrepresentation statement did not induce him to buy the gun or enter the contractual agreement as he was unaware and ignorant of its defects.
In the same way, when Farid made the statement, Jalil was unaware that he was making a false statement in the age of the watch. Additionally, he didn’t care to examine if the watch was truly over 100 years. He was motivated by the kind of action price he would get from the watch and rushed to enter into a contract only to later realize that the age of the watch was wrong. In that ground, if Jalil depends on the case to build his action then his action for misrepresentation has failed according to me.
Third, Jalil may represent his argument as a fraudulent misrepresentation. In that view Lord Herschell defined fraudulent misrepresentation in the case involving Derry v Peek as a statement which is made either: i) knowing it to be false, ii) without belief in its truth, or iii) recklessly, careless as to whether it be true or false. In such a case, the burden of proof lies on the claimant. Jalil will have to prove that at the time of Farid’s statement there were any of the three cases of fraudulent misrepresentation.
In the case of Derry v Peek (1889) 5 T.L.R. 625, in the prospectus of a company the defendant stated the involved company had the right of use in steam powered trams in opposition to horse powered trams. But, during that time the right to use the steam powered trams lied in the approval of the Board of Trade that was refused later. The claimant bought shares from the company in confidence of the statement made and but later brought a claim based on the supposed defendant’s fraudulent representation. The court said that there was no fraud in the statement, but it was made in the honest belief of a forthcoming approval i.e. there was no belief in its truth.
In reference to that case, I would advise Farid that in Jalel’s case regarding his statement there is no fraud. The statement is not actionable unless Jalil can prove that Fared made the statement either: i) knowing the statement to be false or ii) without belief in the statement’s truth, or iii) recklessly, careless as to whether it is true or false. Farid can argue that he made his statement in the honest belief that it was true that the watch was over one hundred years.
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.
A partnership agreement or contract is a contract between partners in a partnership business which sets out the terms, rules and conditions of the relationship between the partners, including: ownership Percentages and distribution of losses and profits; description of management duties and powers of each partner; term (length) of the partnership; terms of termination of the partnership and sharing or transfer of partnership interests.
Upon a partnership business coming into existence, the business’ partners hold interests in the partnership business. A partner’s interest in the partnership business may decrease or increase over time. Additionally, a partner’s interest is turned off if the partner withdraws from the partnership unless the partner sells his interests or assigns his interest to another entity. Once the partnership stops to exist, there are no interests held in the partnership.
In a partnership, an interest includes the right to an amount of the surplus after the insight of the assets and payment of the business debts and other involving liabilities of the partnership. Additionally, the rights are inclusive of a partner’s claim to a share of the partnership capital.
According to business law, transfer, in part or whole, of a partner’s interest in the partnership is acceptable. The transfer does not, by itself, cause the partner’s dissolution or dissociation and winding up of the partnership business. Additionally, the transfer does not warrant the transferee, as in contradiction of the partnership or the other partners, during the continuation of the partnership, to participate in the conduct or management of the partnership business. Moreover, the transfer does not permit the transferee to need access to any information concerning the partnership transactions, or to copy or inspect the partnership records or books.
A transferee of a partner’s economy interest in the partnership business has a right to: 1) receive, in agreement with the transfer, allocations to which the transferor would be entitled to otherwise; (2) To receive subject to the winding up and dissolution of the partnership business, in agreement with the transfer, the net amount that would otherwise be given to the transferor; and (3) To seek a resolve by a tribunal that it is rightful to wind up or dissolve the partnership business.
In business law and the law of partnership, upon the winding up or and dissolution, a transferee has the right to an account of partnership transactions. However, the right extends only from the recorded date of the latest account that all of the partners agreed. Upon transfer, the transferor holds all the duties and rights of a partner except the interest in allocations transferred. A partnership cannot give effect to a transferee’s rights until it has reasonable proof and notice of the transfer. Additionally, a transfer of a partner’s interest in a partnership in abuse of any restriction on transfer as specified in the partnership agreement is ineffectual as to an individual having notice of the limit at the time of interest transfer.
A partnership is not obligatory to give assent to a transfer forbidden by a partnership agreement. Also, in business law, according to the IRS an interest in a partnership can be used as a financial interest. The interest becomes a financial supply after meeting the requirements as specified by the law of partnership.
Kalama acted in all rights in assigning her interest to the Bank Business. In view of all the business laws regarding transfer of partnership, either part of or whole, Kamala had all the needed rights to assign her interest in Expert Consultancy to the Bank Business. She took a loan on the 11th year of their business after expiry of their contract and therefore was not obligated to act in accordance with the partnership agreement. As their partnership specifically stated, that the partnership shall remain for a ten-year period. When Kalama took the loan in December 2010, the partnership already entered its 11th year.
She used her interest in the partnership as a financial interest to carry out her obligatory duty into the Bank Business, which she could not perform. In effect, she would still remain loyal to the partnership and continue to hold all her duties and rights as a partner, except her interest in allocations that she transferred. She was indeed fully right to transfer her rights as the transfer did not mean her withdrawal from the partnership, and thereof there would not be a need for wind-up or dissolution of the partnership.
b) Discuss the ways for dissolution of partnership. What are the grounds that Raju could use to apply for dissolution of their partnership by way of court’s order?
The dissolution of a partnership involves the process wounding up of the affairs of the partnership (where the partnership relationship terminates). The dissolution of a partnership can be effected in many several ways. In the absence of other partnership arrangements, the dissolution should be followed by a winding up and ultimate settlement of accounts. But, many partnership agreements or contracts contain stipulations to enable the alteration without winding up.
Dissolution of a partnership will ordinarily be prompted. As a result any or one of the following events. 1) The shared agreement of the partners in a partnership, which may be an informal agreement, or an agreement preserved in the partnership agreement (where, for instance, the partners in the partnership agreed that the partnership business would be wound up or dissolved after a certain date or after a particular event). Such a partnership agreement may be implied than actual. 2) By notice of a partner where the partnership provides for such an action in the agreement. 3) The application of a particular power in the partnership contract or agreement (where, for instance, the partnership agreement permitted that a majority of the partners to pursue dissolution). 4) The application of power in legislation. 5) Misrepresentation, fraud, illegal activity or rescission may lead to the dissolution of a partnership. 6) By a court order (following, for instance, the mental incapacity or other ill-health of a partner or application of a partner due to an arisen issue). 7) Where the partnership business may only continue at a loss, the partners can agree to dissolve the partnership.
Dissolution of a partnership by court order can take place upon court application by a partner in a partnership. On application by a partner in the partnership, the court may order dissolution of the partnership in the following different cases: when a partner is of unsound mind and incompetent of managing their partnership affairs; when a partner develop permanently incapacity to perform his or her their part of their partnership contract; when a partner has engaged in manner that prejudicially affects operations of the partnership business; when a partner executes a breach of the partnership contract or agreement; and when the partnership business can only continue at a loss.
Because the partnership business already entered its 11th year, Raju had very little grounds of applying for court dissolution. The contract had ended six month before Kamala took the loan and the partners were only bound by trust and implication but no contract. Kamala did not breach any partnership contract. However, Raju could exploit the section of the law that states that “a partner can apply for court dissolution of the partnership when a partner engaged in a manner that prejudicially affects operations of the partnership business.”
On that ground, she could argue that despite the end of the partnership agreement, the partners were still under implied agreement to continue with the business. In the essence of continuing with the business, the partners were still bound to certain duties and rights to the partnership. Hence, in Kamala’s decision to assign her interest in Expert Consultancy to Bank Business could affect the she acted in a way that would affect the operations of the business. Kamala had abandoned her duties to the partnership and therefore incapable and incompetent of managing the business affairs.
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