LAM GOW & ANOR V. MAJU-TEKNO SDN. BHD. & ANOR.

CONTRACT: Sale and purchase of land - Misdescription - Size of land smaller by 25.19 % - Whether a material misdescription - Whether there was a substantial failure of performance - Whether there was acceptance by conduct of the reduction in the size of the land - Rescission - Whether contract could be avoided - Contracts Act 1950 s. 76 .

[Judgment for plaintiffs].
 

Ranita Hussein JC:

The plaintiffs seek to rescind an agreement for the sale and purchase of a piece of land with a terrace house thereon situated at Mukim Cheras, Daerah Hulu Langat. The plaintiffs aver that they had contracted to purchase the land measuring 258 square metres for a price of RM72,859 on 27 June 1990.

In July 1992 the plaintiffs discovered that the size of the land was smaller by 65 square metres and it was sited adjacent to a road which was on a steep elevation. They now seek to terminate the agreement.

The first defendant, the developer of the land, does not dispute either the difference in the size of the said land or the adjacency of the road to the land. However, it avers that the plaintiffs are not entitled to terminate the agreement because there is a compensation clause in the agreement (clause 11(1)) which allows any reduction in the size of the land to be compensated monetarily. It further avers that when the sale and purchase agreement was signed by the parties, the plaintiffs knew that there was a road next to the piece of land they purchased as this was shown in the plan attached to the agreement (Schedule I).

The issue is whether or not the misdescription in the size of the land and the proximity to the land of a road on a steep hill have affected the subject matter of the agreement so materially as to cause a substantial failure of performance of the contract or amount to breach of an essential term, whereupon the contract can be avoided.

Counsel for the plaintiffs submits that there is a substantial failure of performance or breach of a fundamental term of the contract entitling the plaintiffs to rescind the agreement and to claim for damages in accordance with s. 76 of the Contracts Act on the following grounds:

(a) the reduction in the size of the land that the plaintiffs had contracted to purchase was substantial, being a reduction of 65 square metres i.e. a reduction of 25.19%; and (b) the presence of a road on a step slope next to the house presented the danger of vehicles falling on the house - something which was not envisaged by the plaintiffs.

She argues that in the circumstances, the right to rescind can accrue notwithstanding the presence of the compensation clause in the agreement.

The compensation clause, clause 11 in the agreement reads as follows: 11. Kedudukan dan keluasan Lot

(1) Kedudukan lot tersebut berbanding dengan lotlot lain yang ditunjukkan dalam Pelan Susunatur didalam Jadual Pertama dan ukuran, sempadan dan keluasan lot tersebut seperti yang diberikan dalamnya, adalah dipercayai tetapi tidak terjamin betul dan jika ukuran, sempadan dan keluasan lot tersebut yang ditunjukkan dalam Pelan Susunatur itu berbeza dari ukuran, sempadan dan/atau keluasan seperti yang ditunjukkan dalam dokumen hakmilik muktamad apabila dikeluarkan maka harga beli lot tersebut yang dikira dengan kadar RM80.74 bagi satu meter persegi hendaklah di selaraskan sewajarnya.

A clause such as this appears to reflect a recognition of the fact that initial measurements taken in the zoning of land to be developed and recorded in the plans can well differ from measurements taken on site after subdivision of the plots. However, it is reasonable to expect that the purpose of such a clause would only be to rationalise minor departures from the initial measurements.

In Asia Commodity Traders Pte. Ltd. V. Fook Hai Development Pte. Ltd [1978] 1 LNS 8, the issue before the court was whether the plaintiffs were entitled to rescind the agreement for the sale and purchase of premises, the size of which was stated as being 1,391 square feet but was subsequently discovered to be 1,888 square feet. The Court held that a discrepancy of 18% in the area of the premises and an increase of RM65,000 in the price of the premises were substantial differences. In holding that the misdescription entitled the plaintiffs to the right to rescind the contract the Court applied the principle in Flight v. Booth 131 ER 1160. In that case Tridal CJ said:

Where the misdescription, although not proceeding from fraud, is in a material and substantial point, so far affecting the subject matter of the contract that it may reasonably be supposed that, but for such misdescription, the purchaser might never have entered into the contract at all, in such case the contract is avoided altogether, and the purchaser is not bound to resort to the clause of compensation. Under such a state of facts, the purchaser may be considered as not having purchased the thing which was really the subject of the sale.

In the present case, the plaintiffs had, on 27 June 1990 contracted to purchase land with a building thereon measuring 258 square metres. They did not discover that the said land only measured 193 square metres until July 1992. Immediately upon such discovery, they wrote to the defendant, complaining of the matter. The circumstances and the plaintiffs' conduct indicate that there was no acceptance of the reduction in the size of the land by the plaintiffs.

The argument by Counsel for the defendants that the reduction in the land area does not affect the built-up area of the house is not relevant to the question of whether there was a material misdescription. The fact that the plaintiffs had chosen a corner lot for their single storey terrace house clearly evidences their desire to obtain extra land for their house. The difference of 25.19% in the size of the land, which in my view is a substantial difference, would certainly defeat their purpose.

To make matters worse was the discovery of the fact that the road adjacent to the plaintiffs' land was sited on the top of a steep slope. Although the road was shown in the plan attached to the sale and purchase agreement, no contour lines or indication of gradients were shown in that plan to indicate that the land and the road were on different levels. This fact is one which I would expect to be within the knowledge of the developers but certainly not of the purchasers. The danger that is posed by vehicles travelling along an unguarded road which is high above adjacent houses is not difficult to imagine. However, in the absence of any evidence showing that the plaintiffs had relied on a clear statement by the defendants or in the agreement to the effect that the road and the house were sited, on the same level, I am not prepared to treat the plan as a material misdescription.

In my view, the reduction by 25.19% in the size of the land alone can be regarded as having transformed the subject matter of the sale into one which the purchasers would not have purchased had they known of the true position at the time of the signing of the agreement. In other words, the difference aforesaid would not give the purchasers substantially 'what they bargained for'.

For the reason above, I find that the plaintiffs have the right to rescission.

Judgment is given to the plaintiffs for rescission and it is ordered that the sum of RM14,659 paid by the plaintiffs to the defendants be refunded with interest at the rate of 8% and costs. The interest is, as agreed by the parties, to take effect from 3 January 1991 to date of realisation.

It is also ordered that the plaintiffs be entitled to damages on account of the non fulfillment of the agreement, the amount of such damages to be assessed by the senior assistant registrar.

Other consequential orders are granted as prayed.