Chapter 2 Law of Contract

2.3 Viodable (Viatiating) Contracts

1. 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.
2. Section 10 of Contract Act 1950 provides that all agreements are contracts if they are
made by free consent of parties.
3. Section 14 mentioned, consent is said to be free when it is not caused by one or more of
the following:
a. Coercion
b. Undue influence
c. Fraud
d. Misrepresentation
e. Mistake

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4. Coercion
a. Section 15 stated 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.
b. According to English law, coercion means duress. The meaning of duress under
the law is not co-extensive with duress under English law. This is because English
law does not recognize duress of goods. For example, the unlawful detention or
threatened detention of a mans goods so as to coerce him to enter into agreement.
c. The effect of coercion is, the agreement in a contract is voidable:i. Section 19(1) 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.

Kesarmal s/o Letchman Das v. Valiappa Chettiyar [1954] 20 MLJ 119

It was held that, a transfer executed under the orders of the Sultan, issued in
the ominous presence of two Japanese officers during the Japanese
Occupation of Malaya, was invalid. The court held that consent was not
freely given and the agreement was voidable at the will or option of the
party whose consent was so caused.

5. Undue Influence
a. According to section 16, the doctrine of undue influence is a development of
equity to cover cases of particular relations and is sometimes used as a
comprehensive phrase to included cases of coercion, domination or pressure
within those special relations.
i. Influence by one of dominant position,
ii. To obtain unfair advantage.
b. Section 16(2) stated that, a party deem to be in a position to dominate the will of
another where one party, where;
i. Holds a real or apparent authority over the other
ii. Stands in fiduciary relation over the other
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iii. Makes a contract with a person whose mental capacity

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.

c. A plea of undue influence can only be raised by a party to the contract and not by
a third party.
d. A confidential relationship exists between the parties, the law raises a
presumption that undue influence has been exercised and the onus of proof is
upon the done to show that the transaction is righteous and proper.

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.

e. The effect of undue influence is to render the contract voidable at the option of
the innocent party.

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f. He can recover his losses under section 66, which requires a person who received
any advantages under the contract, before it becomes void, to restore it or to make
compensation for it to the party from whom it was received.
6. Fraud
a. Section 17 defined fraud as certain acts which are committed with intent to induce
another party to enter into a contract. (, act done with the intention to deceive).
b. Fraud includes any of the following acts:

17 (a) the suggestion, as to a fact, of that which is not true by

one

who does not believe it to be true;

17 (b) the active concealment of a fact by one having knowledge or

belief of the fact;

17 (c) a promise made without any intention of performing it;

17(d) any other act fitted to deceive;

17 (e) any such act or omission as the law specially declares to be

fraudulent.

c. The effect of fraud is that the agreement is a contract voidable:i. Section 19(1) 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.
ii. 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.

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.

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7. Misrepresentation
a. Section 18 of the acts defined misrepresentation as 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. It also includes:
i. a person makes positive assertion, of that which is not true, though he
believes it to be true,
ii. any breach of duty which is made without intention to deceive,
iii. 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.
b. Section 19(1) 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.

8. Mistake
a. Section 21 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.
b. Elements of mistake:
i. It must be mistake of both parties
ii. There must be a mistake as to a matter of fact essential

to the

agreement.

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c. For example, A agrees to buy Bs certain cows. 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.

2.4 Void and Illegal Contracts

1. Section 2(g) stated a void contract is an agreement that is not enforceable by law.
2. Section 24 provides that, the consideration or object of an agreement is unlawful if it falls
within any of the subsections of the sections, unless;
a. (a) Forbidden by law;
b. (b) Of such nature as to defeat the law;
c. (c) Fraudulent;
d. (d) Involves / implies injury to person / property;
e. (e) Immoral / against public policy.
3. There are also under Section 25 to Section 31 which provides for other instances that
renders a contract void in law.
a. Section 25, any part of a single consideration or any part of several considerations
unlawful.

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b. Sec 26 - agreement made without consideration.

c. Sec 27 - agreement in restraint of marriage.
d. Sec 28 - agreement in restraint of trade.
e. Sec 29 - agreement to restraint legal proceeding.
f. Sec 30 - agreement void for uncertainty.
g. Sec 31 - agreement by way of wager.
4. Consequence of Void and Illegal Contract.
a. General rule under Contract Act stated ex turpi causa non oritur actio , which
means no action will arise from a wrong done.
b. Contracts under section 27, 28 and 29 states not void in toto (severable).
c. Section 66 illustrates Right of restitution, the doctrine of unjust enrichment

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2.5 Discharges by Frustration, Performance and Breach
1. Discharge by frustration
a.

If a party promises to carry out a particular act, the law will hold them to their
promise.

b. This principle commonly known as doctrine of absolute liability.

c. The doctrine applies when the following situation occur:

Physical impossibility because of destruction of subject matter;
Physical impossibility under contract of personal service;
Change in the law rendering performance impossible;
Impossibility due to non occurrence of event basic to contract;
Where the particular state of affairs ceases to exist.
d. According to section 57(2), a contract is frustrated when there is a change in the
circumstances which renders a contract legally or physically impossible of
performance.
e. There are two instances of frustration, i.e. when a contract to do an act becomes
impossible or unlawful.
f. However, the frustration should be supervening and subsequent to the formation
of the contract.
g. It should be some event which the promisor could not prevent, as self induced
does not discharge a party of his contractual obligations.

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h. The following case, a contract was held to be frustrated and discharge although
there was no breach or default by either party.

i. Frustration is not available, if;

The parties have made specific provision in the contract for what might
otherwise have been a frustrating event;
It should have been foreseen, but for some reason or other way not;
The frustrating event was self inducted by the party making the plea;
Hardship;
Inconvenience;
Expense in performance.
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j. Effect of frustration;
Is to discharge a contract immediately, but only as the future.
The contract is not void ab initio, but only void from the time of the
frustrating event.
For the period that the contract is valid, any obligation that arises must be
fulfilled.

2. Discharge by performance
a. As a general rule, performance of a contract must be exact and precise and should
be in accordance with what the parties had promised.
b. Section 38(1) provides, parties to a contract must either perform offer to perform
their respective promises, unless been dispense with by any law.
c. Performance may be from a third party and not necessarily from the promisor.
d. Section 42 provides that when a promisee accepts performance of the promise
from a third party, he cannot afterwards enforce it against the promisor.
e. Section 56 provides regulates the positions when time is of the essence of a
contract.
f. Section 51 provides, performance of any promisee may be made in any manner,
or at any time, which the promisee prescribes or sanctions.
g. Section 48 provides, when a promise is to be performed on a certain day, and the
promisor has undertaken to perform it without application by the promisee, the
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promisor may perform it at any time during the usual hours of business on the day
at the place at which the promise ought to be performed.

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3. Discharge by breach
a. Occurs when a party fails to perform their obligations as agreed.
b. It also occurs in some ways including;
A failure to comply with a term of the contract;

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By a party announcing to the other party that they are no longer interested
in carrying out their obligations prior to the time for performance
(anticipatory breach);
A delay in the performance where time is of the essence in the contract.
c. One of the parties indicates to the other either by conduct or in clear terms an
intention not to go on with the contract, the party is said to have repudiated or
renounced the contract.

2.6 Remedies.
1. Remedy is the method by which an injured party enforces a right or corrects a loss.
2. The remedies available to the injured party will depend on the nature of the breach and
the results will differ between the parties.
3. The usual remedy for a breach of contract is an award of damages, which is common law
remedy.
4. If a monetary remedy is not satisfactory, the court may exercise its discretion and order
any one of several equitable remedies.
5. The remedies available for breach of contract are as follows;
a. Rescission
b. Restitution
c. Damages
d. Specific Performance
e. Injunction
f. Anton Piller Order
g. Quantum meruit
6. Rescission
a. Rescission is an equitable remedy, which allows an innocent party to cancel the
contract by rescinding it or, if there has been misrepresentation by the other party,
raising that misrepresentation as a defence if sued for the damages or specific by
the other party

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b. Its purpose is to reverse the contract and restore the parties to as near as
practicable to their original pre contractual positions, relieving each party of
their obligations and permitting recovery of any benefits conferred on each other.
7. Restitution
a. Restitution (or restoration) is sometimes referred to as quasi contract.
b. It is not contractual and does not rely on the plaintiff suffering loss or damages.
c. Unjust enrichment (situation where it would be very unfair if the defendant was
allowed to retain the money, goods or services, without payment.
8. Damages
a. The main purpose of damages is to enable the innocent party to receive monetary
compensation from the party responsible for the breach of contract.
b. Damages are not awarded to punish a wrongdoer, but rather to put the injured
party back in the position that they would have occupied if the contract had been
performed as originally intended.
c. So, damages are calculated on the basis of looking at what the position should
have been if the contract had been properly performed.
d. Section 74 stated, damages are granted to a party as compensation for the
damage, loss or injury that a person suffered through a breach of contract.
9. Specific performance
a. A discretionary order granted by the courts directing a person to carry out their
obligations under the contract.
b. It is not generally used in breach of contract actions unless damages prove to be
inadequate.

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