Void & voidable Contract

Void contract - section2(g)

means an agreement in which no rights or
obligations are created at all.

Void & voidable Contract

Voidable contract - section 2(i)

means an agreement which gives the rights to the
parties whether to affirm or reject the contract.
1. Coercion (Voidable)

What is coercion?

The practice of compelling a person or
manipulating him to behave in an involuntary way
by use of threats some other form of force.
1. Coercion (Voidable)

S. 14(a) of CA:

The consent is not freely given when the making of
the consent is caused by coercion.

What constitute Coercion?
S. 15 of CA,
The coercion include;

the committing or threatening to commit any act
forbidden by penal code,

i.e. Putting a gun to Abu's head" or putting a "knife under
Abus throat" to compel Abu to transfer his land to
Minah.

What constitute Coercion?

The unlawful detaining or threatening to detain any
property to the prejudice of any person,

i.e. threat to close down his market stall and to seize his
goods if he refuse to enter into agreement (i.e . Pay
toll).



What constitute Coercion?

with intention of causing any person to enter into an
agreement.


2. Undue Influence

S. 14(b) of CA:
The consent is not freely given when the
making of the consent is caused by undue
influence.





2. Undue Influence

It means that influence alone is not sufficient. It
is necessary to establish such influence is
undue.





Example:

Ali constantly visits his aunt B while she is ill. She
is alone and her son does not visited her. Ali always
urges her to leave her property to him instead of
her son. Failing to do so, he will stop from
visiting her. It finally brings over a lawyer to write
a new will in favor of B.
Isnt it Undue Influence?









What is undue influence?



One person taking advantage of a position of
power or influence over another person.
He uses his power to persuade someone into
signing (or not to sign) a contract.
Party to the contract had lost the ability to exercise
his/her judgment.
Salwath Haneem v Hadjee Abdullah
(1894) SSLR 57
The Plaintiff's husband made a conveyance of
property belonging to himself and the plaintiff to
his brother; B and C.
The Plaintiff initially agreed to the conveyance
the said property but after her husbands death,
she brought an action seeking to set aside the
agreement on the ground of Undue Influence.




Salwath Haneem v Hadjee Abdullah
(1894) SSLR 57

Held:
There was a confidential relationship existed
between plaintiff and the B and C.
Therefore, the burden of proof was on B & C to
show the plaintiff was fully understood to the
agreement that made and the consent was freely
be given.
Since both B &C failed to discharge the burden,
the said contract was set aside.
Datuk Jaginder Singh v Tara
Rajaratnam [1985] MLJ 105

Facts:
T was the owner of one piece of land. J as a lawyer to
T had used his position to influence T, to transfer
his land to the 3rd party.

Held:
The consent given is not freely given and the transfer
become voidable as it was caused by undue
influence.

Inche Noriah v Shaik Allie Bin
Omar [1929] AC 127
A Malay woman who was great age and wholly
illiterate, depends wholly on R (her nephew) to get
supply of food and cloths. All matters are settled by
R, until she has no idea of how much her own
property worth.
It leads to the execution of the deed of gift of landed
property in Singapore in favour of Respondent.
Effects of Undue Influence
S. 20 of CA, 1950:

A party to the contract may rescind a contract on
the ground that he has entered into that agreement
by influence of the other party
(Voidable /Rescission + Restitution).

Effect of Undue Influence

However, where the complainant has received any
benefit there under, the court may set aside the
contract and ordering the complainant to restore
benefits he has obtained under the contract.
3. Fraud

Section 14(c) of the Contract Act provides that the
consent given caused by fraud is not a valid
consent (not freely given).



Fraud is :-

a deception (penipuan) made for personal
gain or to damage another individual.

Certain acts which are committed with
intent to deceive another party or to induce
him to enter into a contract.




Examples:
The seller (Kassim) found the necklace on the
street, he then told the buyer (Sofea) that it
was new and special edition.

Ah Keong sell a radio for RM500 telling
Aminah that it is fully functional, when he
knows that it is actually totally broken

What constitute Fraud?
Sec 17 of CA; fraud includes:

a) fraud includes the suggestion as to fact which is
not true by one who does not believe it to be true.
(the maker knows the facts are not true/ false).

Kheng Chwee Lian v Wong Tak
Thong [1983]2 MLJ 320
the respondent had been persuaded by the appellant to
enter into second contract on the false
representation that the area of land to be
transferred was the same size as the land which the
respondent had agreed to buy under a first
agreement. In fact, the area even less than that.

What constitute Fraud?
b) the active concealment of a fact by one
having knowledge of belief of the fact.



Letchemy Arumugan v Annamalay
[1982] 2 MLJ 198

the defendant had induced the plaintiff an illiterate
Indian woman to enter into sale and purchase
agreement.
The defendant had fraudulently represented to the
plaintiff that the document that she was signed was
for loan she took and it was to free the land from a
charge .


Letchemy Arumugan v Annamalay
[1982] 2 MLJ 198

In fact the document that she signed was included a
sale agreement relating to land, a transfer of the land
and further agreement to purchase three unapproved
sub-lots in her own land.

Held:
The agreement was voidable.


What constitute Fraud?
c) a promise made without any intention of
performing it
What constitute Fraud?
For example;
Skim Cepat Kaya and Kad Gores & Menang
The owner of the house (A) promised to the tenant
(B) that he will repair the defects of the house and
he will disburse the said repairs done by the tenant.
However, after the said repairs are completed, the
owner of the house refused to pay that. He actually
from the very beginning does not intend to pay for
that. A = a promise made without an intention
to perform it'
Does Silence Constitute Fraud?
(Explanation of S.17)

Mere silence as to facts likely to affect the
willingness of a person to enter into contract is
not fraud

unless the person has the duty to speak or
his silence is equivalent to speech.


4. Misrepresentation
According to Section 14(d) of the Contract Act, the
consent is not freely given when it caused by
misrepresentation.

False statement of fact made by one party
before or at the time of making the contract
;
which is addressed to other party ;
and induces the other party to enter into
the contract.



Furthermore, the maker believe in the
truth of the statement
( the maker honestly believed that facts of
such statement is True, in fact the said
statement is False ).



example
A (seller) is telling the buyer (B) that a
radio is "practically new" so that B buy it, it is
in fact 5 years old and heavily been used. So
in the above example, if the seller didn't know
the radio was actually old, he would only be
liable for an innocent misrepresentation

What constitute misrepresentation?

S.18 (a) of CA:

Representation of one of the fact which is
not true but he believes it to be true
(Innocent misrepresentation)

What constitute misrepresentation?
S. 18(b) of CA:
There is a duty imposed to a party to disclose
information to each other but the parties failed
to do it or breach of it Negligent
Misrepresentation.

Basically, it means that you did not directly lie
(without intention to deceive), but you made a
representation about something while having no
reasonable reasons for believing it to be true.
For example:

A broker tries to sell a house to a buyer, who
stresses his need for peace and quiet. The broker
promises that the house is very quiet. In reality, the
house next door is undergoing a very noisy
reconstruction. Although the broker did not know
this, his promise of that house was quiet was made
without he having any reason to believe that was the
case. he simply assumed that the house is quiet.
The broker in this case is making negligent
misrepresentation.


Duty of Misled Party to
Exercise Diligence
The misrepresentation does not make
the contract voidable if the misled party
had the opportunity to investigate and
ascertain the truth of the
representation.


Conditions for Misrepresentation
(Summary)
There must be false representation
The Misrepresentation must be one fact (mere
expression of opinion is not a representation of fact).
The Misrepresentation must be made by a party to
the contract
The party was acted or induce the contract by
relying on that misrepresentation
The P must have suffered damage as a result of
misrepresentation
Silence is not a misrepresentation
Generally, a party to a contract is
not bound to disclose materials
facts to the other party.

Silence is not a misrepresentation
Keats v Lord Cardogan,

D lets a house that was in bad condition to P.
P however, never ask any information from D
with regard to the house.
The act of D is not misrepresentation P should
caution and investigate.
Effect or Remedies of Misrep.
& fraud

Section 19 (1) of Contract Act 1950.-
voidable/ Rescission (S. 34 of the Specific
Relief Act 1950.
Section 65- Restitution / restore the
benefit
Section 66-compensation/ recover any
benefit
5. Mistake
When one party to a contract enters into it under
some misunderstanding.
The contract entered into is invalid/ void as if
they know the true facts they would never have
entered into the contract.

1) Common Mistake - Mistake of facts by both
parties = VOID

Section 21 of CA-
Elements:
i) both parties to an agreement under mistake (mutual) .
ii) mistake relating to a matter of fact essential to the
agreement.

Explanation of S.21
An erroneous opinion as to the subject matter of
the agreement is not amount to mistake as to a
matter of fact.
Illustrations:

A) Mistake as to existence (kewujudan) of subject
matter or where both parties were unaware
that the subject matter of the contract of the
contract had already perished at the time of
contract was entered into

Illustration (a) of Section 21
A agrees to sell B a specific cargo of goods supposed to
be on its way from England to Kelang. Before the day
of bargain, the ship that carry the same had been cast
away and the goods lost. Neither party aware of the
facts. The agreement is VOID.
B) Mistake as to identity of subject matter

Raffles v Wichelhaus

Facts:
Raffles agreed to sell cotton to Wichelhaus. The agreement
provided that the cotton was to arrive England from Bombay.
However, there were two different ships regularly sailing from
Bombay to England, one leaving in October and the other in
December.
Raffles shipped the cotton on the December ship, and defendant
Wichelhaus refused to accept the cotton. Raffles sued on the
alleged contract. Wichelhaus argued that it understood the
shipment would be shipped on the October ship.




B) Mistake as to identity of subject matter

Raffles v Wichelhaus

Held:
The court concluded there was no binding contract.
Since the parties meant different ships and there was a
mistake as to identity of the subject matter by both
Raffles and Wichelhaus.




C) Mistake as the possibility of performing the
contract

Illustration (c) of Section 21



C) Mistake as the possibility of performing the
contract

Sheikh Brothers v Ochsner

The appellant granted to the respondent, license and
authority to cut and manufacture all sisal growing on
5,000 acres of land in Kenya, and to deliver to the
appellant 50 tons per month of sisal fiber for sale.
Respondent then was unable to do so as the leaf
potential of the sisal was not sufficient to produce
that much.
Held: it was mistake as to the possibility of performing
the contract. The said agreement was void.


2) Mistake of Facts by 1 party
(UNILATERAL MISTAKE)

Section 23 of CA:
The contract is not voidable or still valid. But the
party making the mistake would be entitled to an
order of rescission.
1) Mistake as to identity of party to the contract
E.g: A wants to contract with B but instead contracted
with C.

CUNDY V LINDSAY
Blenkarn offered to buy goods from the Plaintiff by
pretending to be Belkiron & Co. a reputable business
on the same street. He signed the letter in such a way that
it could be read as Belkiron. Then, the Pliantiff
dispatched the goods and sold to the defendant who took
the property in good faith. The plaintiff sued defendant
because of that mistake.
Held: the offer by the plaintiff was only to Belkiron & Co,
so it could not be accepted by Blenkern. Hence, there is
no contract between the plaintiff and Blenkern.


2) Mistake as to quality of subject matter

E.g: A agrees to buy from B a picture that A believe
to be genuine Lats drawing but which in fact was
painted by Leman. B in this case intends to sell a
picture by Leman but A believes that the sale is of
a picture painted by Lat.
What is the effect of the said contract?
A = mistake as to quality of subject matter= not
voidable = right to rescission.

3. Mistake by Law
Section 22 of CA:
A contract is valid in the event of mistake by law.

See ILLUSTRATION of section 22 of CA.
A and B make a contract grounded on the erroneous
belief that a particular debt is barred by limitation ;
the contract is not voidable

i.E . Debt is already barred by Limitation Law, but still
you claim for that.
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