According to this situation, the concept which is involved is fraud.

Fraud is defined in the law as

a false representation of goods made by someone to make others to believe an untrue fact. A mere
false representation is not recognised as fraud. By Eddie unpacked the carpet and found out that
the best hand-made Persian carpet which is stated in the advertisement is an old faded yarn. We
knew it as a fraud by the phrase that Ali stated in the advertisement, ‘This is a serious offer.’

Section 17 Fraud

“Fraud” includes any of the following acts committed by a party to a contract, or with his
connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce
him to enter into the contract:

(a) The suggestion, as to a fact, of that which is not true by one who does not believe it to be true;

(b) The active concealment of a fact by one having knowledge or belief of the fact;

(c) A promise made without any intention of performing it;

(d) Any other act fitted to deceive; and

(e) Any such act or omission as the law specially declares to be fraudulent.

Explanation: Mere silence as to facts likely to affect the willingness of a person to enter into a
contract is not fraud, unless the circumstances of the case are such that, regard being had to them,
it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent
to speech.

According to the section we mentioned, Eddie has two choices such as terminate or continue the
contract. This situation is a voidable because it caused by one of the elements of free consent,
fraud. Besides that, Eddie can also terminate the contract because Ali is involved in breach the
condition. A condition is a basic statement of element or promise. It could form a necessary term
of the contract. According to contractual term, the breach of which gives the injured party the
right to terminate the contract or continue the contract but claim remedies. The remedy that can
claim by Eddie is damages.

Section 74 Compensation for loss or damage caused by breach of contract

(1) When a contract has been broken, the party who suffers by the breach is entitled to receive,
from the party who has broken the contract, compensation for any loss or damage caused to him
thereby, which naturally arose in the usual course of things from the breach, or which the parties
knew, when they made the contract, to be likely to result from the breach of it.
(2) Such compensation is not to be given for any remote and indirect loss or damage sustained by
reason of the breach.

Compensation for failure to discharge obligation resembling those created by contract

(3) When an obligation resembling those created by contract has been incurred and has not been
discharged, any person injured by the failure to discharge it is entitled to receive the same
compensation from the party in default as if the person had contracted to discharge it and had
broken his contract.

Explanation: In estimating the loss or damage arising from a breach of contract, the means which
existed of remedying the inconvenience caused by the non-performance of the contract must be
taken into an account.

It is a valid contract at first by Eddie agreed to paid RM5000 in cash to Ali for the best hand-
made Persian carpet and Ali wanted to sell to Eddie. Although Eddie has the opportunity to check
the condition of the carpet before paying Ali to warrant buyer rights but he didn’t. However, after
unpacked the carpet Eddie found out that it is only an old faded yarn, therefore this contract
changed to illegal contract due to breach of conditions. According to the section 74, Eddie can
claim the damage from Ali. Remedy is a treatment may be in the form of money compensation
with the purpose to let the injured party to continue with the contract by performing act and
obligation as agreed. The type of damage that can claim by Eddie is Compensatory/ Ordinary
damages. It is a natural damage caused by breach of contract.

To prove this statement, here we have an old Malaysian case which under fraud in Contracts Acts
1950. This statement stated by the appellant which led the respondent to accept the representation
contained in the document presented to him by the appellant as to the number of trees on the land
he had agreed to purchase was fraudulent within the meaning of s 17 of the Contract Enactment
1899 (now the Contracts Act 1950). --- hvnt done yet

As a result, both parties have affected by their own carelessness and lack of knowledge. This is
because fraud is legally and morally wrong. Fraud had affected the reputation of seller and benefit
of buyer. For example, Ali have earned RM5000 from Eddie but he may be compensate for lost
by higher amount and his business also will be affect because of his fraudulent act. Eddie is buy
a carpet that it was made of old faded yarn, it is not equivalent to the price that he has pay for Ali.
Both parties have loss in this situation. In the conclusion, fraud is not allowed in contract, it is
because fraud is an improper act in contract.