TOPIC 4: CONTRACT LAW

Contract Law
(DIL 1232)
 CONTRAC
T
VOIDAB VOI DISCHARG
VALID LE D
E OF
CONTRAC
T
COERCION MISTAKE
BY
1. Offer PERFORMAN
CE
2. Acceptance ILLEGAL
UNDUE
3. Capacity INFLUENCE CONTRACT
BY
4. Consideration AGREEMENT
5. Intention to Create
Legal Relation FRAUD
BY
6. Certainty FRUSTRATIO
N
MISREPRESENTATIO
N
BY BREACH
 • Both parties agreed & consented to the
Valid contract
• No element missing

• No consent by either parties

• One or more elements missing
• Both parties must agree and may choose:
Voidable • to cancel the contract or
• to proceed but with few elements not
satisfied

• Void ab initio (void at the very beginning)

Void •Contract cancelled once mistake found out.
•As if the contract did not exist.
 Sectio
Contract n

Acts 1950

(related
sections for
void contract)
 Void Contract (illegal contract)

Void contract is an agreement which is not in existence from the

very beginning from the legal point of view.
The effects of void contract are as follows:
1. It is not enforceable by the law under section 2(g) of CA
2. Any person who has received any advantage under the
agreement is bound to restore it, or to make a compensation for
it, to the person from whom he received it. (section 66 of CA.)
 
 4.1 Mistake
Mistake has 2 types:
1) Mistake of Fact
2) Mistake of law

Section 21 of CA, ‘Where both parties to the contract are under a mistake as to
the matter of fact essential to the agreement, the agreement is void.’ (See
illustrations to section 21 of CA)

It should be noted that the parties to a contract may make various types of
mistakes in the process of negotiating and agreeing to the contract. Some of
those mistakes have legal significances and others do not.

A mistake made by a buyer who failed to exercise care in judgment when

entering into a contract will not affect the validity of the contract.
E.g. Taufiq purchased a desk, believing it is an antique
made from expensive wood. His belief in this regard was
based on his own judgment on the desk and not on any
representations made by the seller.

Later, Taufiq learned that the desk was an imitation of an

antique and worth significantly lesser that the amount
paid. Taufiq here has made a mistake in judgment as to
the value or quality of the wood.
The contract is not affected by this mistake i.e. he cannot
cancel the contract as the mistake was only on his part i.e.
party to the contract (unilateral) by virtue of section 21 of
CA.
TYPES OF MISTAKE OF FACT

 a) Mistake as to the existence of the subject matter of

the Contract

 Examples : A agrees to buy from B 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 void.
 b) Mistake as to the identity of the subject matter

case : Raffles v Wichelhaus

 The parties contracted for a sale of a cargo of cotton by a

ship called 'the Peerless', sailing from Bombay and arriving
in London. But unknown to the parties, there were two ships
at the same name leaving from Bombay at different times.
they were both negotiating under a mistake and had in mind
different ships.
 It was held by the court that the contract was for mutual
mistake.
 c) Mistake as to the possibility of performing the
contract

 Case : Sheikh Brother's v Ochsner

 The appellant granted to the respondent the 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 the sisal fibre for sale. The respondent was
then unable to do so as the leaf potential of the sisal was not
sufficient to produce that much.
 It was held that it was a mistake as to the possibility of
performing the contract. The agreement was void.
 UNILATERAL MISTAKE

Freeman v Kiamesha Concord Inc, 351 NYS 2d 541 (1974)

A guest at a resort hotel misread an advertisement concerning

the Memorial Day weekend entertainment and believed that a
popular entertainer would be performing for three nights during
the weekend rather than just one. Upon learning the truth, he
sought to cancel part of his three days reservation.

The court held that his mistake was a factual one and it was
unilateral. Thus, although he checked out the of the resort before
the end of the three days reservation, he remained obligated to
pay his hotel bill in full.
 Unlike unilateral mistakes, mutual mistakes involving
an important fact will enable either party to avoid the
contract.
MUTUAL MISTAKE

This can be seen in the case of:

Chop Ngoh Seng v Esmail & Ahmad Bros [1948-9] MLJ Supp 93

The subject matter of the contract was not in existence. This fact
was not known to both the parties when they entered into the
contract.
It was held that the contract is void.
Similarly, Tan owns a few houses situated at different
locations. She contracted to sell one of them to Khoo.
Tan thought that she was selling the house situated in
JB whereas Khoo thought that he was purchasing the
house situated in Malacca.
Both parties made a mutual mistake as to an
important fact, the subject matter of the contract.
Either party will be able to avoid the contract under the
circumstances.
 MISTAKE OF LAW

Section 22 of the Contracts Act 1950 provides for

“mistake of law” where 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.
Illustration: A and B make a contract grounded on the
erroneous belief that a particular debt is barred by
limitation: the contract is not voidable.
ILLEGAL CONTRACT

1. MINOR
2. ILLEGALITY
3. INCAPACITY
 OFFER

CERTAINTY ACCEPTANCE

ELEMENTS of
a valid contract
INTENTIO
N TO CAPACIT
CREATE
LEGAL Y
RELATION
CONSIDERATION
Section 11 of CA, the parties entering into a contract
should be competent to contract, of sound mind and not
legally disqualified.

* competent: attain age of majority (Section 2 of the Age of

Majority Act 1971)
* sound mind: a healthy mind or not insane
* not legally disqualified: not bankrupt or not a criminal