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VOID CONTRACT
Section 2(g) of Contracts Act 1950 stated that an
agreement not enforceable by law is void.
A void agreement is an agreement that is
destitute of any legal effect ab initio so that no
rights or obligations are created at all.
SECTION 24 OF CONTRACTS
ACT 1950
This provision provides that consideration or object of an agreement is
unlawful if it falls within any of the subsection of the section. The said
section says that the consideration or object of an agreement is
lawful unless : (a) It is forbidden by a law
(b) It is of such a nature that, if permitted, it would be defeat any law
(c) It is fraudulent
(d) It involves or implies injury to a person or property of another
(e) The court regards it as immoral, or opposed to public policy
VOIDABLE CONTRACT
Section 2(i) of Contracts Act 1950: An
agreement which is enforceable by law at the
option of one of the parties, but not at the option
of the other.
The agreement is valid and binding, until the party
who is entitled to rescind the contract chooses to
rescind it.
VOIDABLE CONTRACT
An agreement is voidable when consent to that
agreement is caused by coercion, fraud,
misrepresentation, undue influence and mistake.
Section 65 of Contracts Act 1950: When a person at
whose option a contract is voidable rescinds it, the other
party thereto not perform any promise therein contained
in which he is a promisor. The party rescinding a voidable
contract shall, if he has received any benefit, so far as
may be, to the person from whom it was received.
UNENFORCEABLE CONTRACT
Anunenforceablecontractor transaction is one that is
valid but one the court will not enforce
Unenforceable is usually used in contrary to void (or void ab
initio) and voidable. If the parties perform the agreement, it
will be valid, but the court will not compel them if they do
not.
This contract has all the elements of a valid contract, yet
neither party can sue the other to force performance of it.
For example, an unsigned contract is generally
unenforceable.
VOIDABLE CONTRACT
MEANING
EXAMPLES
FREE CONSENT
For a contract to be binding, the contracting parties must
give their consent willingly and freely. Consent occurs when
two or more persons agree upon the same thing in the same
sense.
Section 10(1) of the Contracts Act 1950 : All agreements are
contracts if they are made by the free consent of parties
competent to contract.
Section 13 of the Contracts Act 1950 : Two or more persons
are said to consent when they agree upon the same thing in
the same sense.
FREE CONSENT
COERCION
Coercion is where one of the parties is forced to enter
into contract by violence or the threat of violence.
Section 15 of the Contracts Act 1950 : Coercion 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.
Held:
The High Court held that the defendant was indeed coerced
into signing the written guarantee and the written
guarantee was executed under certain circumstances. Thus,
dismissed the plaintiffs claim against the defendant.
Reason:
This is because the defendant had succeeded in proving
that the plaintiffs act was indeed against the Penal Code
and the written guarantee was tainted with coercion as
stated in section 15 and the absence of free consent as
defined in section 14.
UNDUE INFLUENCE
UNDUE INFLUENCE
Undue influence is when a person enters into a
contract because of the influence of other person.
Section 16(1) of Contracts Act 1950:
UNDUE INFLUENCE
Effect of contract made under undue influence is
explained in section 20 of Contracts Act 1950: The
injured party may rescind the contract and restore
the benefit obtained by the other party.
Held:
The court held that the contract was voidable due
to undue influence.
Reason:
The facts proved by the defendant were insufficient
which shows that the gift was executed not on the
plaintiffs free will. Based on section 16(2)(b), the
defendant holds the dominant position over the
plaintiff whose mental capacity was permanently
affected due to reason of age and bodily distress.
FRAUD
FRAUD
According to Section 17 of Contracts Act 1950:
Fraud includes 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 the
contract:
a)The suggestion, as to a fact, of that which is not true
by one who does not believe it to be true;
Held:
The court held that this whole contract is fraudulent
as it is acknowledged that there is one party
inducing the other on the face of untrue
representations.
MISREPRENSENTATION
MISREPRESENTATION
Misrepresentation is a false statement of facts
made by one party to another, which induces
the other party to enter into the contract.
Section 18 of Contracts Act 1950:
(a) The positive assertion, in a manner not
warranted by the information of the person
making it, of that which is not true, though he
believes it to be true.
BISSET V WILKINSON
[1927] AC 177
Facts:
The defendant sold a land to the plaintiff and said that
the land could accommodate up to 2000 sheeps. Relying
on this statement, the plaintiff bought the land but later
discovered that the land could not accommodate up to
2000 sheeps as represented by the defendant.
Held: The contract was not voidable because the
statement was only an honest opinion of the defendant.
He never carried on sheep-farming on that land but
poultry-farming.
MISREPRESENTATION VS FRAUD
In fraud, the maker of the statement does not
believe in the truth of the statement made
whereas in misrepresentation, the maker believes
that the statement is true.
MISTAKE
A mistake is an error in understanding facts, meaning of words or the
law, which causes one party or both parties to enter into a contract
without understanding the responsibilities or outcomes. Such a mistake
may entitle one party or both parties to a rescission of the contract.
Section 21 of Contracts Act 1950:
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.
This section explains, a wrong opinion as to the value of the thing which
forms the subject-matter of the agreement is not to be considered a
mistake as to a matter of fact. In simpler words, an incorrect statement
made by either one of the party may cause the contract to be void.
Issue :
Whether the contract is void.
Held :
1.The signature on the proposal form was not signed
by the deceased.
2.When a proposer did not execute the proposal form,
the legal concept of offer and acceptance is affected.
There would be no offer from the proposer and
therefore there can be no acceptance by the insurer
and when there is no acceptance there can be no
contract. Any contract purported to be created will
Held :
The court held that the contract was void because the subject
matter of the contract did not exist at the time the contract was
made. Where both parties enter a contract with the belief that
the subject matter exists when in fact it does not exist, Res
extincta will be applied.
GALLOWAY V GALLOWAY
(1914) 30 TLR 531
Facts:
Mr and Mrs Galloway believed that they were lawfully married and they
entered a deed of separation. In fact, when they married, Mr. Galloways first
wife was still alive, unbeknown to Mr. Galloway. When Mr. Galloway fell into
arrears making payments pursuant to the deed, Mrs. Galloway sued him. He
argued that the deed was void, as it had been entered on a mistaken belief.
Issue :
Whether they were lawfully married and he was obliged to support his wife
and three children
Held :
The deed was void on the ground that the marriage
(the basis or fact on which the deed was made) never
existed. Mrs. Galloway therefore could not sue for
payment under it, because in law it never existed.
The second category is Res sua which is defined as where the goods already belong to the
purchaser.
Mutual Mistakes
It occurs when both parties misunderstood each others intention.
An example can be given where both parties contract to buy or sell a car: A
offers to sell his car, a Perodua Myvi. B thought it was an offer for a Perodua
Viva that A also owns. If A intended to sell his Perodua Myvi but B thought it
was a Perodua Viva, there is a no required consensus ad idem between the
parties. As a result, the contract is void for mutual mistake.
Unilateral mistakes
In unilateral mistake, only one of the parties is mistaken. There
are two categories of unilateral mistake which are (i) mistakes
relating to the terms of the contract and (ii) mistakes as to
identity. Mistake regarding the terms of the contract occurs
where one party is mistaken regarding the terms of the contract
and the other party, knowing this, intends to take advantage
from it to himself.
Held :
The court held that the contract was void for mistake. Hare skins
were generally sold per piece and given the price the claimant must
have recognised the mistake.
Mistake of identity occurs when the mistaken party goes into the
contract due to a misconception regarding the identity of the other
party. In order for a request of mistaken identity to succeed, the
following conditions must be satisfied:
That the mistaken party intended to contract with a person different
from the person with whom he contracted with.
That the person who contracted with him knew or ought reasonably
to have known that he intended to contract with a different person.
That at the time of the contract, the plaintiff regarded the identity of
the other party as being crucial to his entering into the contract.
There was no opportunity for the plaintiff to truly verify the identity of
the party with whom he contracted.
Held :
In determining whether a contract will be held void for mistake, the courts draw a distinction
between:
Inter absentes occurred when the parties are not physically present when the contract is made.
For instance, the contract is made through telephone or email. It occurs when one party is
mistaken as to the identity, not to the points when he intend to deal with the third party one the
other party know this. Then the contract will be void for mistake.
Inter praesentes is known where the parties are inter praesentes (face to face) there is a belief
that the mistaken party intends to deal with the very person who is physically present and
identifiable by sight and sound, irrespective of the identity which one or other may assume. For
such a mistake to be an operative mistake and to make the agreement void the mistaken party
must show that:
he intended to deal with someone else apart from the one present;
Facts :
Held :
The agreement between Mr Lee and Mrs Gallie had been held to be
voidable for misrepresentation. However, in the action against the
building society Mrs Gallie raised the plea of non est factum (its not
my deed). House of Lords found against Mrs Gallie. The document
was not radically different to that which she believed it to be in that
she believed that she was relinquishing her rights to the property in
any event. Furthermore the House of Lords stated that the plea of
non est factum should not be too widely applied and reserved for
those who through no fault of their own are unable to read the
document
EFFECTS OF VOIDABLE
CONTRACTS
(1) Undue Influence
In accordance to section 20 of Contracts Act 1950, it provides that
the contract may be set aside either absolutely or upon such terms
and conditions as the court may deem just. Moreover, he can
recover his losses under section 66 of Contracts Act 1950, which
requires a person who has received any advantage under the
contract, before it becomes void, to restore it or to make
compensation for it to the party from whom it was received but if
the party who rescinds the contract has received any benefit from
other party to the contract, he is also obliged to restore the benefit.
(b) Misrepresentation
Section 19 of the Contracts Act 1950, an innocent party
has the option to rescind or affirm the contract. When a
contract is rescinded, section 65 and 66 of the Contracts
Act 1950 apply. If the party does not wish to rescind the
contract, he may insist that the contract can be
performed by the party who had caused the
misrepresentation, and that he is in the position he had
been if the representations made had been true
(c) Mistake
An agreement entered into under a mistake is
void. Thus, no party is under obligation to perform
it. According to Section 66, if one of the parties
has received any advantage under the agreement
is bound to restore it from whom he received it.
CONCLUSION
Void contracts are unenforceable by law. Even if one party breaches
the agreement, you cannot recover anything because essentially
there was no valid contract. Some examples of void contracts
include contracts involving an illegal subject matter such as
gambling, prostitution, or committing a crime. However, voidable
contracts are valid agreements, but one or both of the parties to
the contract can void the contract at any time. As a result, you may
not be able to enforce a voidable contract when contracts entered
into when one party was a minor. (The law often treats minors as
though they do not have the capacity to enter a contract. As a
result, a minor can walk away from a contract at any time.)
Contracts where one party was forced or tricked into entering it.
Contracts entered when one party was incapacitated (drunk,
insane, delusional).
THE END