Voidable Contracts and the Doctrine of Unconscionability in Cases of Undue Influence

THE DOCTRINE OF UNCONSCIONABILITY:

IS IT APPROPRIATE FOR IT TO BECOME THE UNDERLYING PRINCIPLE FOR A CLAIM OF VOIDABLE CONTRACTS ON THE GROUNDS OF UNDUE INFLUENCE?

Table of Contentss

1.0

  1. Introduction

A rescindable contract is one that gives the aggrieved party the right to take whether or non to continue or end its public presentation. Therefore, rescindable contracts shall hold the significance allocated to it as per subdivision 2 ( I ) of the Act.

To analyse the similarities and differences between the two philosophy of undue influence and unconsiounability, it is pertinent to measure the development and patterned advance of jurisprudence regulating these philosophies in specific states. Through a tendency analysis over the past few old ages, the jurisprudence in states such as Malaysia, Australia and United Kingdom have seen to been significantly developed. For an case, in Australia, the authoritative determination in the instance ofCommercial Bank of Australia V Amadio[ 1 ] is in line with the Common Law place sing the philosophy of unconscionability. Similarly, inSaad Marwi V Chan Hwan Hua & A ; Anor[ 2 ] the court’s determinations show that the philosophy of unconscionability which was foremost applied locally, was so distinguished inAmerican International Assurance Co Ltd V Koh Yen Bee[ 3 ] , for grounds that this philosophy should non be interpreted in conformity with subdivision 14 of the Contracts Act as the significance within that Act is subjected to contracts entered into without free consent. In footings of statute law, the Consumer Protection ( Amendment ) Act 2010 recognizes this philosophy in a wider extent whereby a contract or a term of a contract that is substantively unjust or conscienceless as per subdivision 24D ( degree Celsius ) will be unenforceable or declared nothingness. However, this merely limited to consumer contracts. Therefore, this basically shows that the philosophy has improved and extended in application.

Therefore, though both philosophies are parallel in disposition, they nevertheless differ in footings of application and to be able to develop holistically for their significance, they ought to develop independently and autonomously in contract jurisprudence. I will supply a thorough survey on the philosophies of undue influence and of unconscionability, the correlativity between these two philosophies and the influence of the Consumer Protection ( Amendment ) Act 2010 on the development of the philosophy of unconscionability.

2.0 Concept of Undue Influence

The philosophy of Undue Influence is fundamentally concerned with the consent of the party who was induced to come in into a contract due to the ruling influence of the other party upon the weaker party. In this sense, this philosophy is chiefly to turn out that the consequence of come ining a contract in the presence of undue influence is procedurally unjust because it impaired one of the party’s opinion and free will in catching. A contract is procedurally unjust if the mode in which it was entered into was unjust. In short, freedom to contract does non be when undue influence is present during the commencing of the said contract.

In an effort to turn out that there was undue influence [ 4 ] , be it existent or presumed during the catching phase, the party induced must turn out 2 prerequisite elements [ 5 ] , i.e. in a place to rule the will of the other [ 6 ] and unjust advantage [ 7 ] . Upon set uping these two elements, the burden of cogent evidence so shifts to the party accused. [ 8 ] Harmonizing toPoosathurai V Kannappa Chettiar and Others,the party avering must demo that the influence was undue and conscienceless. Absence of which does non sort as Undue Influence as per subdivision 16 ( 1 ) of the Act.

3.0 Doctrine of Unconsciobility.

Unconsciobility, on the other manus is non a construct embodied within the Contracts Act 1950 [ 9 ] and as such is non exhaustively explained nor is it good established. Unconscionability is fundamentally an English philosophy that trades with the instability power of two undertaking parties in which one suffers from a particular damage. It is adopted in our local context and applied in a broader position inSaad Marwi V Chan Hwan Hua & A ; Anor.[ 10 ] Here, the plaintiff in error owned two pieces of land elsewhere and both parties so entered into an understanding whereby the plaintiff in error was to sell his land to the respondent for an undervalued monetary value of RM42, 000 ( a sedimentation of RM4200 was to be paid beginning to reap coconut ) . The contract was drawn up by the respondent’s canvasser in English, which the plaintiff in error is incapable to understand and to do affairs worse, he did non obtain any separate legal advice refering it. It can be seen that the respondent had acted unconscionably when he used the appellant’s place to ‘force’ him to come in into the alleged understanding due to the fact the plaintiff in error depended on his permission and when he bought the belongings for an undervalue monetary value, drafted the understanding in English knowing that the plaintiff in error would non grok the linguistic communication and eventually, decided that sedimentation ought to be paid on an embark footing. In that instance, Gopal Sri Ram JCA adopted the philosophy of unconscionability to get the better of state of affairss of inequality of dickering powers. [ 11 ]

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There are two grounds why undue influence could non be established in this instance, foremost being that the appellant’s will can non be said to hold been dominated by the respondent though he owned the said land in which the plaintiff in error used to reap coconut( existent )and secondly, a relationship of trust and assurance did non be even though the plaintiff in error suffered mental hurt to a certain grade( presumed )

4.0 Correlation and differentiation of the philosophy of undue influence and unconsciobility.

Both philosophies are just in nature to guarantee that there is a sense of independence on the portion of the weaker party in doing opinions and purposes to relieve the hazard of maltreatment by the party in the stronger bargaining place. [ 12 ] Both philosophies deal unequal bargaining power of the parties, concern instability and conscienceless behavior by the suspect. [ 13 ] Basically, both parties are agreeable to contract but the ground as to why somewhat differs in these two philosophies. In instances of undue influence, it can be said that free consent to contract was absent because the purpose to be contractually bound did non happen voluntarily and freely but instead, out of use and domination. By contrast, in state of affairss where a dealing is conscienceless, acquiescence is willfully given but impaired whereby the weaker party believes that he has consented to something good to him but in world, the contract is lopsided and to his hurt. This philosophy can be identified when the place of the dominant party can be proven in which he has cognition and is good informed of the weaker party’s particular disablement and in bend, manipulates that ‘weakness’ to do the weaker party to want to contract.

The Supreme Court instance ofFuiLian Credit V Renting SdnBhd[ 14 ] could hold been either a instance on undue influence, unconscionability, or both. An illustration of how the two philosophies can be employed to bring forth similar consequences is inRichardson V Harris[ 15 ] where Mr Richardson was an experient money-lender knew of Mr Harris’ fiscal troubles i.e creditors haling him to borrow money to pay off debts had entered into an understanding with him to buy his life involvement for an overpriced sum. It was held that this was a affair for undue influence and that Mr Richardson was unsuccessful in dispatching the load placed on him to turn out that the dealing was just, merely and sensible, it was held to be an conscienceless deal.

A immense difference between the two philosophies is that undue influence is concerned with the damaged consent of the weaker party and therefore can be said to be aggrieved-oriented while unconscionability in itself is focused on the actions and development of the stronger party in which it was unconscitious behavior. [ 16 ] In instances of undue influence, the will and consent of the guiltless party is dependent and nonvoluntary because it is overborne while in unconscionability state of affairss, it is independent and voluntary due to the disadvantageous place he is placed in and of the other party frivolously mistreating that failing. [ 17 ]

However, the weaker party may believe that the contract was for and in his best involvement, non cognizing that the stronger party had really known of a defect and had taken advantage of it. In other words, though there is ‘free consent’ , the consent given by the guiltless party is defected because due to the multiple modification factors, he is so unable to do a worthwhile judgement in affairs where his best involvement is in inquiry. This is apparent in fortunes of presumed undue influence in which when rebutting, the offender must turn out that the plaintiff had acted independently where as for unconscionability, the offender is required to verify something more than merely the claimant’s ‘independent act’ , in its actual sense which is that the dealing is just, merely and sensible.

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A glowering differentiation between undue influence and unconscionability is the purpose of refuting the evidentiary given of undue influence. If the elements of unconscionability are established, the load of proof displacements to the stronger party to demo that the dealing was just, merely and sensible. For undue influence, the dominant party must demo that the weaker party had acted independently whereas in instances of unconscioubility, the burden is to demo that the dealing was a just one.

Another occasion would be the function of independent advisors. In an unconsionability instances, they seek to rectify the parallel instability which would otherwise subsist due to grounds of particular defects of the weaker party [ 18 ] . In field footings, their responsibility is to unclutter the moralss of the stronger party. Their making AIDSs to determine that the stronger party did non misapply his high quality to work the weaker. In a instance of undue influence, the their duty is non limited to merely assist the weaker party realize that they are being influence and later, liberating them from it ( defendant-based facet ) , but besides to guarantee that free will was exercised ( complainant -based facet ) . [ 19 ]

Undue influence requires that there exist a anterior relationship between both parties in which 1 is in a place to rule the will of the other party which causes the incentive of the contract i.e inequality high quality. It hinges crucially on the being of a relationship which enables one party to unduly influence the other. Unconscioubility nevertheless, can be established without the demand to hold a party in a dominant place and without at that place being a relationship, outside that of the immediate contract, between the parties. [ 20 ] ; instead what is needed is basically an conscienceless behavior of the offender that brings in a gross disadvantage to the plaintiff. Unconsiounability centralizes with the nature and conditions of the deal itself, and the other party’s particular disadvantage which is known by the other party at the point of dealing. Hence, this is the ground why unconscionability was easier to be established inSaad Marwi’s instancewhich stated:

“the latter philosophy ( unconscionability ) operates in fortunesless rigorousthan those demanded by ( undue influence ) .”

In short, undue influence is concerned with set uping the relationship of both parties in which 1 was susceptible to the domination of the other party which vitiated the consent. which caused one party to be in a more controlling and dominating place compared to the other. Unconscioability nevertheless seeks merely to turn out the one party was in fact in position, dominant and the ground to that is because he has material cognition of the other party’s personal incapableness and slightly misuses his ascendant place and informed cognition to do the weaker party to contract. The component of free will is technically present but the process in which the contract was commenced was conscienceless.

5.0 The impact of subdivision 16 ( 3 ) ( a ) of the Contracts Act.

‘Unconscionable’ under this subdivision raises the issue whether it can be the implicit in footing in turn outing undue influence by virtuousness of this subdivision.

There were two typical positions inChait Singh V Budin bin Abdullah[ 21 ] andAbdul Majeed v Khirode Chandra Pal[ 22 ] in reading this subdivision. In the former, the tribunal held that the conscienceless dialogue based on the place of the parties existed without necessitating to turn out the demand under subdivision 16 ( 1 ) , which is the laterality of the will. This instance referred to the Pricy Council instance ofAbdul Majeedwhere the tribunal ruled that a degage philosophy of unconscionability can non jump from this subdivision of the Contracts Act.

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Therefore, thoughChait Singh’sinstance, it should be noted the determination in this instance ought to be read with cautiousness that there is an extent to the application of the said philosophy merely for the intent of the tribunal to assume undue influence. In other words, this subdivision is more to a pre-conditional subdivision that lays down the demands needed to be fulfilled before the offender is allowed to refute the given. Hence, the phrase “ … minutess appears, on the face of it… .to beconscienceless” simply refers to the 2nd component of presumed undue influence, which is manifest disadvantage. In other words,Unconscionabilityin s16 ( 3 ) serves as agatewayfor the tribunal to assume undue influence and flip the load of turn outing otherwise to the alleged offender. So, if the given non rebutted, the understanding is rescindable for grounds of the fulfilment of the elements in section16 ( 1 ) and 16 ( 2 ) and non on the impression of unconscionability.

In add-on, unconscionability is nevertheless, restricted to the construct of procedural and evidentiary intent merely. The development of unconscionability can be done through an general-purpose construct of laterality in subdivision 16 ( 1 ) merely because the two classs of laterality relationship under subdivision 16 ( 2 ) does non concern its application as there is no weight on the relationship of trust and assurance [ 23 ] .

6.0 The linkage of how the philosophy of unconsciobility affects the Consumer Protection Ammendment Act

Besides this, the 2010 amendments to the Consumer Protection Act 1999 [ 24 ] has, by conveying in Part IIIA to the said act [ 25 ] potentially significant alterations to the jurisprudence of contract that it may impact the development of the philosophy of unconscionability.

So, by dissecting the Malayan base, it can be seen that freedom to contract be when there is a claim for undue influence because where the two catching parties have agreed to be lawfully bound to one another, harmonizing to the contractual footings stated, local tribunals are instead loath to step in in their contractual relationship. Though one party’s consent was overborne, the tribunal feels that there is no demand to interfere as when something has been reciprocally consented to, the tribunal is in no place to make up one’s mind otherwise or talk on behalf of one party. However, for unconscioubility, the tribunal will look into the party’s particular disadvantage in which the stronger party manipulated it to derive an indefensible contract.

7.0 Decision

These two philosophies overlap in construct but are different in application. Undue influence prioritizes the plaintiff’s consent, whether or non it was freely given where as, unconscioubility is concerned with the defendant’s unjust behavior in obtaining the contract. It is critical to indicate out that when the plaintiff’s consent is overborne, the suspect had acted unconsciously. The simple logic behind this is that when the contract was non entered into voluntarily and willfully, a sensible adult male would inquire whether or non the suspect had behaved unethically in seeking to pull the aggrieved party to contract. Undue influence can be categorized as a type of conscienceless act in which if it falls short of undue influence, it may still amount to impropriety for the intents of unconscionability. [ 26 ] Therefore, an conscienceless deal can be without undue influence. The ground is as laid down supra, the many undistinguished differentiations between the two philosophies in footings of their maps and focal points and so should be applied to jobs it seeks to work out [ 27 ] .However, I stand by the justification that the philosophy of unconscioubiliy is inappropriate to organize the implicit in footing for a claim of rescindable contract on the land of undue influence merely because there are two separate philosophies that should develop independently and in isolation of the other.There are reciprocally sole philosophies that by right, must be allowed to taste its originality in application or else lose their individualism.