GLUL2023

BUSINESS LAW

TOPIC 7

VOIDABLE CONTRACTS

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 INTRODUCTION
• S.2(h) – an agreement enforceable by law is a contract –
valid contract
• S.2(g) – an agreement not enforceable by law is said to be
void – void contract
• S.2(i) – an agreement which is enforceable by law at the
option of one or more of the parties thereto, but not at the
option of the other or others, is a voidable contract –
voidable contract – parties may continue or rescind the
contract
• Unenforceable contract – valid contract but cannot be
enforced because of failure to comply with the
requirement of certain acts. E.g – hire purchase contract
must be in writing, if made orally not enforceable

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TYPES OF CONTRACT

• S.2(h) - Valid contract

• S.2(i) - Voidable contract – agreement enforceable at one

party’s option but not the other – Can either rescind or
affirm.

• S.2(g) - Void contract – agreement not enforceable by law .

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FREE CONSENT
• S.10(1) - All agreements are contracts if they are made by
the free consent of parties competent to contract, for a
lawful consideration and with a lawful object, and are not
hereby expressly declared to be void
• S.13 - Two or more persons are said to consent when they
agree upon the same thing in the same sense.
• Consent must be freely given

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• S14 – Consent is said to be free when it is not caused by—
• (a) coercion, as defined in section 15;
• (b) undue influence, as defined in section 16;
• (c) fraud, as defined in section 17;
• (d) misrepresentation, as defined in section 18; or
• (e) mistake, subject to sections 21, 22 and 23.
• If consent is caused by coercion, undue influence, fraud,
misrepresentation or mistake – there is no free consent.

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COERCION
• S.15 – ‘…..is the committing, or threatening to commit any act
forbidden by the Penal Code, or the unlawful detaining or
threatening to detain any property, to the prejudice of any
person whatever, with the intention of causing any person to
enter into an agreement’
• Coercion will thus negative the free consent and
consequently the contract can be invalidated by the party
whose consent was so obtained

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Elements under coercion
(a)Committing/Threatening to commit any act
• Any acts which is against the law (Penal Code).
• Not extend to tortious act or offences under any other
law
• There is force/actual violence (this act must have been
done)
(b) Unlawful detaining or threatening to detain property to
the prejudice of any person
(c )With the intention of causing any person to enter into
an agreement 
• Use the force/threat to influence other party to enter
into a contract without any free consent

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• Effect of coercion - S.19 – the contract is voidable at the
instance of the party whose consent was so obtained.
• Kesarmal A/L Letcumanan Dass V Valiappa
Chettiar
• Chin Nam Bee Dev Sdn Bhd V Tai Kim Choo
& 4 Ors
• Respondents (purchasers of houses constructed by
appellant) signed sale and purchase agreement to buy
house RM29,500 each.
• Dispute on RM4000 for additional payment by each
respondents
• Court: Payment of RM4000 was not voluntary but made
under a threat by respondent to cancel their bookings

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UNDUE INFLUENCE
• S.16(1) – a contract is said to be induced by undue influence
where the relation subsisting between the parties are such
that one of the parties is in a position to dominate the will of
other and uses the position to obtain an unfair advantage
over the other.

• The provision applied in Malaysian Contract Act 1950 is the

same as prevailing in England.

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• Lloyld Bank Ltd v Bundy
• D mortgage his farm to P bank in helping his son’s business.
When a new bank manager was appointed, he visited him
and persuaded him to mortgage his farm. D agreed. Then
the D pleaded undue influence. The P claimed failed and the
mortgage by the bank was set aside because of undue
influence.

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Elements of undue influence

• (1) S. 16(1) – there is domination of the will of

another
• 3 circumstances where presumption of dominating
the will of another – S.16(2)
• a. real/apparent authority over another S.16(2)
(a); (e.g. father-child)
• b. fiduciary relationship S.16(2)(a); (e.g lawyer-
client)
• c. contracting with a person whose mental
capacity affected by age, illness or
mental/bodily distress S.16(2)(b).
• (2) S.16(1) - Contract been made based on this
• (3) S.16(1) - Obtaining unfair advantage.

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Burden of proof rely on the party to rebut the
presumption of undue influence

• S.16(3)(a) – where a person who is in a position to dominate

the will of another, enters into a contract with him and the
transaction appears, on the fact of it or on the evidence
adduced, to be unconscionable, the burden of proving rely
upon the party who dominate the will of the other.
• Salwath Haneem v Hadjee Abdullah
The court held that the contract entered by the parties was
void because the defendant failed to prove the transaction
was free from undue influence.

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• Chait Singh V Budin Bin Abdullah
• The issue in this case is whether the high interest rate
(36%) charged by the plaintiff against the illiterate
defendant is considered as undue influence?
• Decision: The plaintiff failed to prove that no undue
influence was imposed on the defendant.
• Che Som Bte Yip & Anor V Maha Pte Ltd
• Datuk Jaginder Singh & Anor V Tara Rajaratnam

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• Remedies for undue influence
• Contract set aside or to be affirmed on terms determined by
court – S.20

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FRAUD
• S.17 – 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 a contract:
• The suggestion as to fact of that which is not true by one who
does not believe it to be true.

• The active concealment of a fact by one having knowledge of

belief of the fact.

• A promise made without any intention of performing it.

• Any such act or omission as the law specially to be fraudulent.

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•It can negative a contract when the party enter into a
contract by relying on the fraudulent statement

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Categories of fraud
(a) S.17(a) – fact of that which is not true by one who does not
believe it to be true.
- Senananyake lwn Annie Yeo
- By relying on the false statement made by D who defraud the P
by saying that his co has a good financial management and
caused P invested RM20k
- There was fraud – P was under option to take his money back

(b) S.17(b) – concealment of a fact by one having knowledge of

belief of the fact.
- Illustration C S.19
B, having discovered a vein of ore on the estate of A, adopts
means to conceal, and does conceal, the existence of the ore
from A. Through A’s ignorance B is enabled to buy the estate at
an undervalue. The contract is voidable at the option of A.
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(c) S.17(c) – promise made without any intention of
performing it.
Letchemy Arumugan lwn Annamalay
- P who was an illiterate woman was defraud by the D a
housing developer
- D insisted the document to be signed was a mortgage
transaction – in fact it was document of transfering her land
- Held: it involved fraud – contract voidable at the option of P.

(d) S.17(d) - Any such act or omission as the law specially to

be fraudelent.
- Discertionary power of the court to determine it.

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Silent?
GENERALLY silence does not amount to a fraud
• Explanation of S17 – mere silence as to facts likely to affect
the willingness of a person to enter into a contract is not
fraud….
• Example under Illustration (a) of S17
• A sells, by auction to B, a horse which A knows to be unsound.
A says nothing to B about the horse’s unsoundness. This is not
fraud on A.

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• Vyramuthu lwn State of Pahang.
• D sold his land to P and D did not know that the land has
been developed
• After the D realized, he refused to sell the land to P on the
ground that P has prior knowledge on the matter and he
will get a lot of benefit from the land.
• Held: P has not under duty to tell D – P has right to claim
for the loss for D’s refusal

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EXCEPTION where silence does amount to a fraud

• Explanation S17 – 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. It equivalent to speech

• 2 circumstances where silence of one party may

amount to speech:

i.Impose upon the person keeping silence the duty to speak;

ii. Where a silence made is equivalent to speech/ a silence is

as good as speech.

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 (i)Impose upon the person keeping silence the duty to speak;
• Where a representation is true when made but becomes
untrue subsequently
• Where a fiduciary relations exists
• Where there is a contract of the utmost good faith (uberrimae
fidae)

(ii)Where a silence made is equivalent to speech.

• Illustration (c) S.17 - B says to A, “If you do not deny it, I shall
assume that the horse is sound.” A says nothing. Here, A’s
silence is equivalent to speech.
- Half truth or partial disclosure
- Case: R lwn Kyslant
- A prospectus issued by a co. stated that every year the co.
had paid dividend to all shareholders
- In fact, the co. failed to declared its loss and dividend paid
previous years was from other sources.
- Held: the prospectus was an attempted to deceive – option
of the innocent party to set aside the contract.

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Effects of fraud

• S.19 – the innocent party has the option either to set aside
the contract or continue with the contract.

• Nevertheless it is not voidable , if the party whose consent

was so caused had the means of discovering the truth with
ordinary diligence

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Remedies for fraud

• Affirm contract and sue for damages – S.19(2).

• Rescind and restore any benefit received – S.65.

• Compensate – S.37 Specific Relief Act 1950.

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MISREPRESENTATION
S.18 – misrepresentation includes:
(a)The positive assertion…which is not true, though he believe it to
be true
(b)Any breach of duty, without an intent to deceive gives an
advantages to the person committing it, or anyone claiming
under him…
(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.

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• Example: A obtained the information that the price of the
Proton car will increase two times within 2 years. A
believes with the information and he persuades B to buy
the car from him. However the statement was untrue.
After a year, the price decreased.
• Misrepresentation is a statement made by the
representor without any intention to deceive although in
fact, the misrepresentation made gives him benefits.
• Bisset v Wilkinson – two parties had entered into a
contract of purchasing a land in New Zealand – the seller
stated that the land was able to cater 2,000 sheep – in
fact no one had done it before – Held: the statement
made was only on opinion and not misrepresentation.

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Exception under S19

• S.19 – when consent was caused by coercion, fraud or

misrepresentation, the agreement is voidable (can be set
aside or continue)
• Here, the contracting party must prove that he relied on the false
statement made by the representator or continue the contract
depending on his options.
• 2 Exceptions–
i.If the party knows that the statement was untrue – he
cannot rely on the misrepresentation because he cannot
be influenced to enter into the contract
ii.He had the means of discovering the truth with ordinary
diligence but failed to do it.

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• J.C Weber v E.A B Brown
• D agreed to buy P’s estate and prior to the agreement, D
claimed that he already calculated the number of rubber
trees in the estate and wrote it down to the P
• P realized the number was exactly not the same
• Held: the court refused the P’s claim to set aside the
contract.

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• Silence does not amount to misrepresentation – explanation
to S.17.

• Unless silence is equivalent to speech or duty of silent

person to speak - explanation to S.17

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EFFECT OF MISREPRESENTATION
• The contract is voidable - S.19(1)
• It is up to the innocent party’s option

REMEDIES
• Affirm contract and sue for damages – S.19(2).
• Rescind and restore any benefit received – S.65.
• Compensate – S.37 Specific Relief Act 1950.

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MISTAKE
• (1) Mistake of fact
• S.21 (2 parties) - Where both the parties to an agreement
are under a mistake as to a matter of fact essential to the
agreement, the agreement is void.
• S.23 ( 1 party) - A contract is not voidable merely because
it was caused by one of the parties to it being under a
mistake as to a matter of fact.
• (2) Mistake of law S.22 - A contract is not voidable because
it was caused by a mistake as to any law in force in Malaysia;
but a mistake as to a law not in force in Malaysia has the
same effect as a mistake of fact.

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MISTAKE OF FACTS
• Mistake by 2 parties/mutual mistake (s21)
• Both parties made mistake
• Mistake as to the facts
• The facts must be important to a contract
• Illustration (a), (b) & (c ) of S.21

• Mistake by one party /unilateral mistake(s23)

• Mistake made by one party
• Normally not terminating a contract (non voidable)
• Non voidable – the effect is either the contract is valid or
void, but normally it will be a valid contract.

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• Courturier v Hastie
• A & B had entered into a contract of selling a corns. At the time when
they entered into the contract, they knowingly believed that the goods
was delivered from Salonica to England
• Unknowingly to both of them, the goods has been sold to Tunis Port due
to unavoidability which caused a lot of damages to the corns
• Held: void contract as both party has mistakenly as to the facts of the
contract.

• Galloway v Galloway
• The court held that an agreement of divorce separation between a
spouses was invalid because both of them were mistakenly as to facts
presuming that they were husband and wife.

• Raffles v Wichelhaus

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• Mistake of law
• (1) Malaysian Law
• S.22
• Not voidable
• (2) Foreign law
• S.23
• Unilateral – non voidable
• Mutual – void contract

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• Seck v Wong & Lee
• A contractor (P) had asked for a work plan from his
architect (D) and he (D) demanded for RM500 without
knowingly that it is prohibited by laws.
• Held: P cannot claim the money back by relying on the
mistake of laws – because it may not treated the
contract as void.
• Held – court found that the D had taken an unfair
advantages against P and ordered the D to return the
money to the P.

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Exceptions
Generally - when one party make mistake – the contract is still valid

(a) Mistake as to identity

i. The identity of others are very important to the contract
ii. Another party to a contract realized that he is not supposed
to be a contracting party.
iii. The mistaken party has taken reasonable steps to identify on
whom he is having a contract
iv. Case: Cundy lwn Lindsey
- Alfred Blenkarn ordered goods from resp represented
himself as Blenkiron & Co
- The goods was delivered to Blenkarn but he failed to pay
- Blenkarn then sold it to the app
- Resp believed that was having a contract with Blenkiron &
Co and Blenkarn had knowledge about it.
- Held : no contract between resp and Blenkarn. Resp may
set aside the contract

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(b) Mistake as to documents
i. Serangoon Gardens Estate Ltd lwn Marian Chye
ii. Subramaniam lwn Retnam

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Effect of mistake

• Repay money paid or return property delivered under

mistake – S.73.

• Remedy: Restore any advantage received or compensate –

S.66.

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