VOIDABLE CONTRACT

Section 2(i) a voidable contract :-

An agreement enforceable by lawAt the option of one or more of the parties to itBut not others

It is initially valid but one or more of the parties to it have the right to rescind it to render it void. Until and unless this right of election is exercised, a voidable contract remains valid

• Sec. 19(1) :

• When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was caused.

What contracts are voidable?

A contract is voidable:

a) When consent to an agreement is caused by coercion, fraud or misrepresentation

b) When consent to an agreement is caused by undue influence at the OPTION of the party whose consent was so caused

• Sec. 14: Consent is said to be free when it is not caused by -

Why it is voidable?

(a)Coercion – Sec. 15(b)Undue influence – Sec. 16(c)Fraud – Sec. 17(d)Misrepresentation – Sec. 18(e)Mistake – subject to Sec. 21,22 &

23

• Section 10 • “All agreements are contracts if they

are made by the Free consent…..”• Is the basis of a contractual

relationship• The consent of the parties must be

given freely and voluntarily

What is consent?

• Section 13• “two or more persons are said to consent when they agree upon

• the same thing in the same sense”

• Section 14Section 14

Consent is Consent is saidsaid

to be free to be free when it is when it is

not caused not caused byby

MISTAKE

UNDUEINFLUENCE

Coercion

FRAUD

MISREPRESENTATION

(a) COERCION – SECTION 15(a) COERCION – SECTION 15

Committing or threatening to commit act forbidden by Penal Code.

Unlawful detaining or threatening to detain property, to the prejudice of any person.

With intention to cause the person enter into agreement.

• Threaten to do something forbidden by the Penal Code so that Offeree enters into an agreement

Committing or threatening to commit act forbidden by Penal Code.

Unlawful detaining or threatening to detain property, to the prejudice of any person.

With intention to cause the person enter into agreement.

• Threaten to do something forbidden by the Penal Code so that Offeree enters into an agreement

Illustration to Sec.15

• Kanhaya Lal v. National Bank Of India the court held that the definition of coercion in s.15 is limited to an unlawful act done ‘with the intention of causing the person to enter into an agreement

Effect of a contract entered into by coercion:

Section 19

When consent to an agreement is caused by coercion…… the agreement is a contract voidable at the option of the party whose consent was so caused

• Kesarmal s/o Lethcman Das v Valiappa Chettiar

• A transfer executed the orders of Sultan, issued in the ominous presence of 2 Japanese officers during the japanese occupation of Malaya, was invalid. The court held that consent was not freely given & the agreement was voidable at the option of the party whose consent was so caused.

Barton v. ArmstrongHeld: A deed executed under threat to kill was held to be void for duress.

• Chin Nam Bee Development Sdn Bhd v Tai Kim Choo & 4 Ors.

• s. 65 – • Can either proceed with the contract or

rescind the contract. If choose to rescind the contract, must restore benefits obtained.

Remedies or effect of Coercion?

(b) UNDUE INFLUENCE – SECTION 16

• It happens where one of the parties to a contract,

• Entered into such contract• By influence • Of the other party who was able to

influence

Section 16(1)

Where the relations subsisting between the parties

One of the parties is in a position to dominate the will of the other

Uses that position to obtain an unfair advantage over the other.

1) relations subsisting between the parties

2) Domination of will by one party3) Unfair advantage obtained due to

domination of will

•S.16 – 2 ingredients to form undue influence :

1) Where a person holds a real or apparent authority over the other or

eg. A parent’s authority over a child.

illustration (a) to section 16

Sec. 16(2)(a)&(b):THREE (3) circumstances whereby a party is deemed to be in a position to dominate the will of another:-

2) Where one party stands in a fiduciary relation to the other

illustration (c) to section 16

eg. In the case of the confidential relationship between a solicitor & client, trustee & beneficiary, religious advisor & follower/diciple, doctor & patient

3) Where a party makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental/bodily distress

illustration (b) section 16

Cases :• Salwath Haneem v Hadjee Abdullah• Datuk Jaginder Singh v Tara Rajaratnam

• S.16(3) – agreement is unconscionable • Chait Singh v Budin b Abdullah

• If there is domination of will but advice obtained from others, no undue influence. But advice must be independent & person giving advice must know all facts

• Inche Noriah v Shaik Allie b Omar

EFFECT OF UNDUE INFLUENCEEFFECT OF UNDUE INFLUENCE

• Contract is voidable – s. 20• s. 65 – Can either proceed with the contract or

rescind the contract. If choose to rescind the contract, must restore benefits obtained.

• Includes certain acts which are committed with intent to induce another party to enter into a contract – with intent to deceive another party

(c) FRAUD – SECTION 17

(c) FRAUD – SECTION 17

A. S.17(a): when A suggests as to a fact which he knows not true.

B. S.17(b): when A made active concealment of fact he believes to be true.

C. S.17(c): when A made a promise w/o intention of performing it.

D. S.17(d): any other act fitted to deceiveE. S.17(e): any act/omission as the law

specially declares to be fraudulent

(S. 17) - 5 acts which may constitute fraud:

DERRY v PEEK

• Court held that:• Fraud is proven when it is shown that false

representation has been made either.• i) knowingly,• Ii) without belief in its truth, or• Iii)recklessly, careless whether it be true or

false

1) False representation/statement made with the intention to deceive;

2) The representee must have relied on the representation in making decision to make a contract.

Element s of fraud

Cases

• Derry v Peek• Weber v Brown• Kheng Chwee Lian v Wong Tak Thong• Letchemy Arumugam v Annamalay

• Effect of fraud : contract is voidable – s.19(1) • S.65

Does silence amount to fraud?

Gen. Rule: mere silence/non-disclosure would not constitute fraud. Auth: Explanation to Sec. 17

Exceptions (mere silence constitute fraud):A. The act of silence equivalent to speech that

later found out to be untrue.B. The contract is of uberrimae fide.

EFFECT of FRAUD

SECTION 19- VOIDABLE CONTRACT

• Is a false or untrue statement or representation made by the representor and by such statement the other party may be induced to enter into a contract.

(d) MISREPRESENTATION – SECTION 18

(d) MISREPRESENTATION – SECTION 18

• a) false or untrue representation• b) the representation must induce the misled

party to enter into a contract

• A person is said to to be induced if:-• a) the representation is material fact• b)the party to whom the statement was addressed

believes that the misrepresentation to be true

Elements Elements

DUTY OF MISLED PARTY TO EXERCISE DILEGENCE

The misrepresentation does not make the contract voidable if the misled party had the opportunity to investigate & as the certain the truth ofrepresentation

Exception to s.19Case: Tan Chye Chew v Eastern Mining Metals Co

Effect of the contract being entered due to misrepresentation

S 19 (1)Voidable

However if the misled party chooses to affirm the contract – he entitled to damagesS 19(2)

MISTAKEMISTAKE

• Wrongful belief about certain matter while making a contract.

• 2 kinds of mistake2 kinds of mistake:• Mutual mistake (both parties)• Unilateral mistake (one party )

• Both parties made mistake i.e. Common/Mutual mistake

• Mistake is of Fact Essential to Agreement

• EFFECT: Contract is Void!

MUTUAL MISTAKE (s.21)MUTUAL MISTAKE (s.21)

Mistake of fact essential to the agreement

a)Mistake as to the existence of subject matter of contractboth parties are unaware that the subject matter has ceased to exist. Illustartion (a) and (b) section 21

b) Mistake as to identity of the subject matter• Raffles v Wichelhaus c) Mistake as to the possibility of performing the contract• Sheikh Brothers Ltd v Ochsner

EFFECT of MUTUAL MISTAKE

• Agreement is VOID

• Remedies under section 66

UNILATERAL MISTAKE (s.23)

• Mistake of Fact• Made by One Party only or Unilateral mistake• Effect: Contract is Valid!• Tamplin v Janes

• GENERAL RULE: Person is BOUND by the terms of the contract that he SIGNS

• Case: L’Estrange v F Graucob (1934)• M’sian Case: Subramaniam v Retnam (1966)• EXCEPTIONS: plea of ‘non est factum’• because of mistaken belief as to: character &

class of document

MISTAKE AS TO DOCUMENTMISTAKE AS TO DOCUMENT

Mistake caused by any one of the following:• Illiteracy• Blindness• Sensibility of the signor• Fraudulent conduct of the other party• Foster v Mackinnon (1869)• Awang b. Omar v Hj. Omar & Anor. [1949]

PLEA OF NON EST FACTUM

MISTAKE OF LAW

• Mistake as to any law in force in M’sia – NOT VOIDABLE/VALID