Thursday, 24 March 2011

Law of Contract-Undue Influence

Finished my part-group assignment business law. Just wanna share a bit. If in case you are facing the same situation..Luckily the question is same as the last semester. I still have my friends'. Same question. yippee!! copy a lil bit from Haziwan and Hanis's assignment.. .^_^.
happy reading! and don't forget to leave a comment.. 

Question 5
One evening, Abu was told by his spiritual adviser Ali that their religious group urgently needed a new meeting place and Ali reminds Abu in a friendly way about his holiday resort, on being told to prayer for guidance, Abu announces that he is selling his villa resort to Ali at 10% of its actual value. Three days later Abu told his lawyers to transfer the villa to Ali. Two month later Abu was expelled from his religious group by Ali .He now want to set aside the sale of his villa resort. Advice Abu what kind of remedies are available to him.  
            According to the above situation, Ali is a spiritual adviser for Abu which is respected by him. Ali told Abu that they need a new meeting place and suggest Abu about his villa. Then Abu agreed to sell it to Ali at a lower price than actual value. A few months later Abu was barred from the religious group by Ali. He feel unsatisfied and want to set aside the contract.

Legal Issue:
      Whether there is free consent of the contract?
      Whether there is an undue influence element?
      Whether Abu can claim remedies for the contract?
      Whether the contract is void or voidable?
      Whether there is an adequacy of consideration?

What Is Free Consent?
Free consent is one of the essential elements in the formation of a valid contract. Section 10(1) of the Contract Acts 1950 provides, “All agreements are contracts if they are made by free consent of parties...” This shows that the consent of the parties must be given freely and voluntarily.

What Constitute Consent?
Section 13 defines “Two or more person are said to consent when they are agree upon the same thing in the same sense.” It means that there must be a meeting of minds as to the nature and scope of the contract.

What Constitute Free Consent?
According to Section 14, “Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation and mistake.” If one of the factors which are mentioned under Section 14 exists in the agreement, the consent is said to have been given without freely and voluntarily. Therefore the contract may become void or voidable (Zuramaznum, 2010).

What is void or voidable contracts?
Void Section 2 (g) definesan agreement not enforceable by law is said to be void”
According to the act, no rights given to the parties, and no obligations imposed on them and the contract cannot be enforced at all, even by the court.  
Voidable – Under Section 2 (i), An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract”.  
Elements that may effects the ‘free consent
  1. Coercion
  2. Undue influence
  3. Fraud
  4. Misrepresentation
  5. Mistake
In this situation the cases has been affected by undue influence element.
What Is Undue Influence?
Undue influence happen when one of the parties to a contract, entered such contract by the influence of the other party who was able to influence him. Section 16(1) gives the elements of undue influence: ‘A contract is said to be induced by “undue influence” where the relations subsisting between the parties are such that one of the parties is in position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.’
            Under this section, there are two essential ingredients in order to claim that there is ‘undue influence’ in a contract. Firstly they are the domination of the will by one party over the other party. Secondly the dominating party obtains an unfair advantage in the contract. For example in illustration (c) section 16, A, being in debt to B, the moneylender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.”

The Conditions To Be Fulfilled In Order To Rescind A Contract Due To ‘Undue Influence’.
            To rescind a contract by reason of undue influence, plaintiff must establish that the agreement was being ‘unconscionable’ by proving firstly, there is a relation between the contracting parties; where one of them naturally relied upon the other for advice, help and the like and the other was in a position to dominate the will of the first party. Secondly, the person in the position of domination has used that position to obtain an unfair advantage for himself and causing loss or injury to the other party as in illustration (c) to section 16 above. When those two mentioned requirements have been proved by the plaintiff then the dominant party (defendant) has to prove that no domination was done to tempt the other party to enter into the contract. If the dominant party (defendant) failed to do so, the contract therefore may be rescinded on the ground of ‘undue influence’. This may be referred to section 16 (3) (a); “Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction
appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that the contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.”

Presumption Of Domination
            In certain circumstances, a party is deemed by law to be in position that can dominate the will of another. The circumstances are provided under section 16 (2) (a) and (b), “..a person is deemed to be in a position to dominate the will of another…
(a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or
(b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

The Effect Of ‘Undue Influence’ In A Contract
Section 20 of the Contract Acts 1950 provided that “When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely...” If the defendant failed to rebut the proof or presumption of undue influence, the contract is voidable.

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