CHAPTER 2: LAW OF CONTRACT

Subtopic 3: Free consent: voidable and void contracts

Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

FREE CONSENT
The law requires that parties enter into contracts with their full and free consent. The contract is vitiated for lack of consent. The burden of proving lack of consent normally lies on the person seeking to rescind the contract.

S 10 CA 1950 provides that all agreements are contracts if they are made by free consent of parties.

Source: Lee Mei Pheng & Ivan Jeron Detta, Commercial law, Oxford Fajar, 2011. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

Cont.
S 14 CA 1950: consent is said to be free when it is not caused by one or more of the following: 1. 2. 3. 4. 5. Coercion Undue influence Fraud Misrepresentation Mistake

Source: Law of Contract 1950. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

Cont.
Lack of consent?

Voidable

Void

Voidable contract is defined in Section 2(i) of Contracts Act, 1950 as an agreement which is enforceable by law at the option of one or more parties but not at the option of other or others.

Section 2(g) of Contracts Act, 1950 Defines void contract as an agreement which is not enforceable by law. It gives rise to no rights or obligations.

Source: Law of Contract 1950. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

1.

COERCION

S. 15 CA 1950: coercion is:-

do/treat to do any act forbidden by Penal Code or unlawful detaining/treat to detain any property so that the other party will enter into an agreement

> English law: coercion means duress. The meaning of duress under English law is not co-extensive with duress under English law. Why? Because English law does not recognize duress of goods, i.e. the unlawful detention or threatened detention of a mans goods so as to coerce him to enter into agreement.
Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani.

Cont.
The effect of coercion is that the agreement is a contract voidable:S. 19(1) CA 1950 provides that 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 so caused.

Source: Law of Contract 1950. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

Cont.
Teck Guan Trading Sdn Bhd v. Hydrotek Engineering Sdn Bhd [1996]: The defendant argued that the plaintiffs refusal to supply the bars at the price RM 1,180 amounted to an unlawful detention of property in order to get the first defendant to agree to the price of RM 1,244. The judge held that the plaintiffs refusal did not amount to unlawful detention of property as the plaintiff was exercising its legal right over its own property. Therefore, there was no question of the plaintiff committing coercion on the defendant.

Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani.

2.

UNDUE INFLUENCE

S.16(1) CA 1950: - Influence by one of dominant position - to obtain unfair advantage Malaysian French Bank v Abdullah bin Mohd Yusuf [1991] It was held that in order to establish undue influence, the defendants had to prove that the plaintiff was in a position to dominate their will and thus obtained an unfair advantage by using that position. A plea of undue influence can only be raised by a party to the contract and not by a third party.

Sources: Lee Mei Pheng & Ivan Jeron Detta, Commercial law, Oxford Fajar, 2011; Contract Act 1950. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

Cont.
S. 16(2) CA 1950: A party deem to be in a position to dominate the will of another where one party Holds a real or apparent authority over the other Stands in fiduciary relation over the other Makes a contract with a person whose mental capacity

a. b. c.

Source: Law of Contract 1950. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

Cont.
Inche Noriah v. Shaikh Allie bin Omar [1929] A Malay woman, who was of great age and wholly illiterate, executed a contract in which she agreed to transfer her property in form of land as a gift to her nephew (respondent). The court found that she was feeble old woman, unable to leave the house, relying entirely upon the respondent for everything, even for her food and clothes and leaving the management affairs to him. She had no knowledge of her own affairs or to the value of her property. Dispute arose between the parties and the appellant wished to set aside the contract. Held: the court set aside the gift made to him on the basis of undue influence. The respondent was deemed in a position to dominate the will of the appellant whose mental capacity was permanently affected by reason of age and bodily distress.

Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani.

Cont.
The effect of undue influence is that the agreement is a contract voidable:S. 20 CA 1950 provides that when consent to an agreement is caused by undue influence the agreement is a contract voidable at the option of the party whose consent was so caused.

Source: Law of Contract 1950. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

3.

FRAUD

S. 17 CA 1950 Certain acts which are committed with intent to induce another party to enter into a contract. In other words, act done with the intention to deceive. Fraud includes any of the following acts: 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.
Source: Law of Contract 1950. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

Cont.
The effect of fraud is that the agreement is a contract voidable:S. 19(1) CA 1950 provides that 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 so caused. 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.
Source: Law of Contract 1950. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

Cont.
Weber v. Brown: The respondent sued the appellant for damages in respect of an alleged false and fraudulent misrepresentation relating to the number of rubber trees on an estate. Held: The appellants statement that he counted the trees taken in conjunction with the written enumerated of trees amounted to fraud. The court also agreed that the representation made by the defendant had clearly induced the plaintiff to exercise the right to purchase.

4.

Misrepresentation

A misrepresentation is a false statement of existing or past fact made by one party, before or at the time of making the contract, addressed to the other party to the contract, and the maker of the statement believes that what he said is true. S. 18 CA 1950 misrepresentation includes: a. a person makes positive assertion, of that which is not true, though he believes it to be true. b. any breach of duty which is made without intention to deceive c. causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.
Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005; Law of contract 1950. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani.

Cont.

The basic different between misrepresentation and fraud is that in fraud the person making the representation does not himself believe in its truth whereas, in cases of misrepresentation, he may believe the representation to be true.
Misrepresentation Believes what he said is true

Fraud

Knows what he said is lie

Cont.
S. 19(1) CA 1950 provides that 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 so caused. Bisset v. Wilkinson [1927]: The respondent agreed to buy from the appellant certain land for sheep farming. The respondent relied on the appellants statement that he estimated the land would carry 2,000 sheep. The appellant had not and no person had carried on sheep farming on the land in question. The land in fact could carry less than the said amount. The respondent alleged misrepresentation. The court held that the statement was merely an honest opinion by the appellant and the sale cannot be set aside for misrepresentation.

Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani.

5.

MISTAKE

S. 21 CA 1950 provides when both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. Elements of mistake: 1. it must be mistake of both parties 2. there must be a mistake as to a matter of fact essential to the agreement. Example: A agrees to buy B a certain cow. It turns out that the cow was dead at the time of the transaction, though neither party was aware of the fact. The agreement is void.
Source: Law of Contract 1950. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

Cont.
Galloway v. Galloway (1914)

A separation deed between a man and a woman was declared a nullity because it was made on the mistaken assumption that they were in fact married to each other.

Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005. Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani.

Questions
1. When there is consent but it is not free (i.e. when it is caused by coercion or undue influence or fraud or misrepresentation), the contract is usually void at the option of the party whose consent was so caused (True/False)

2.

A farmer agrees to supply 100kg potato that will be produced by him out of his field, after three month. Two months has been lapsed, but the farmer neither implant seeds, nor does cultivation. This is case of: a. mistake b. fraud c. undue influence d. coercion
Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

Cont.
3.
4.

Silence amounts to fraud (True/False)

X threatens to kill Y if he does not sell his house for Rs. 1,00,000 to X. Y sells his house to X and receives the payments. Here, Y's consent has been obtained by____. Hence, this contract is ____ at the option of _. a. fraud, voidable, y b. coercion, void, x c. coercion, voidable, y d. mistake, voidable, y If the consent of either of the parties is not free the agreement cannot become a contract (True/False)
Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

5.

Cont.
6.
A compels B to enter into a contract on the point of pistol. This is case of: a. mistake b. coercion c. undue influence d. fraud Which ONE of the following statements regarding undue influence is not true. A party deem to be in a position to dominate the will of another where one party Holds a real or apparent authority over the other Stands in fiduciary relation over the other Contract makes in writing Makes a contract with a person whose mental capacity
Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

7.

a. b. c. d.

Cont.
8. F having advanced money to his son B during his minority, upon B's coming of age obtains by misuse of parental influence, a bond from B for a greater amount than the sum advanced. F employs_______. a. undue influence b. mistake c. fraud d. coercion My land produces 12 tons of rice. A believes the statement to be true although he did not have sufficient grounds for the belief. Later on it transpires that the land does not produce 12 tons of rice. This is________. a. misrepresentation b. mistake c. fraud d. coercion

9.

Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

Cont.
10. M agrees to buy from N a certain horse. It turns out that the horse was dead at the time of the bargain though neither party was aware of the fact. The agreement is voidable (True/False)

Copyright lecture notes prepared by Miss Fadhilah binti Abdul Ghani

End of subtopic 3: law of contract

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