C4 - VOIDABLE CONTRACTS
1. "Voidable contract"
• s. 2(i) CA 1950
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.
2. What contracts are voidable
(i) s. 19(1) CA
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) s. 20 CA: Power to set aside contract induced by undue influence
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. Any such contract may be set aside either absolutely or, if
the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions
as to the court may seem just.
ILLUSTRATIONS
(a) A's son has forged B's name to a promissory note. B, under threat of prosecuting A's son, obtains a bond
from A for the amount of the forged note. If B sues on this bond, the court may set the bond aside.
(b) A, a moneylender, advances RM100 to B, an agriculturist, and, by undue influence, induces B to execute a
bond for RM200 with interest at 6 per cent per month. The court may set the bond aside, ordering B to
repay the RM100 with such interest as may seem just.
(iii) Such agreements are voidable at the option of the party whose consent was so caused.
(iv) Sandrifarm Sdn Bhd v Pegawai Pemegang Harta Malaysia [2000] 2 MLJ 535
By a letter dated 13 September 1997, the respondent informed the appellant that the respondent's head
office had approved the sale of a piece of land held under Geran No 17268 Lot No 4034, Mukim of Port
Dickson ('the land'). The appellant then paid RM190,000 being 10% of the purchase price. After
amendments had been made to the draft copy of the sale and purchase agreement, the appellant forwarded
fair copies of the agreement to the respondent which the respondent failed to execute. One month later,
the respondent requested the government valuer to value the land where the land was valued at RM3.765m.
Based on this report, the respondent refused to conclude the sale and the appellant filed the originating
summons for a declaration that the respondent execute the sale and purchase agreement and complete the
sale. The learned judge held that there was inadequacy of consideration as the purchase price was grossly
undervalued and the inadequacy of the consideration may be taken into account in determining the question
of whether the consent of the promisor was freely given. The learned judge also held that the difference in
the value of the land may reflect misrepresentation and fraud. The issue was whether a valid contract was
formed between the parties even though a valid sale and purchase agreement had not been executed.
Held, allowing the appeal:
(1) A valid enforceable contract had materialized between the parties. The offer to sell was made by the
respondent and this offer was accepted by the appellant. In accordance with the terms of the sale, the
appellant remitted the 10% deposit amounting to RM190,000 which amount was duly received by the
respondent and they issued a receipt for it. The parties, the property, the price and the terms have been
identified with sufficient certainty. Such an agreement is enforceable as if it was embodied in a sale and
purchase agreement.
(2) The second valuation given after the contract had been formed is irrelevant and ought not to be
considered. The respondent ought to have the value of the land determined before they made the offer to
sell. The question of the consent of the promisor not given freely does not arise. There was no evidence of
any misrepresentation or fraud. The respondent openly entered into this agreement without any
misrepresentation by any party. Their omission or neglect to obtain an independent opinion on the value of
the land before they made the offer to the appellant ought not to be blamed on the appellant.
3. Relief
(a) s. 65 CA - Consequences of rescission of voidable contract
When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform
any promise therein contained in which he is promisor. The party rescinding a voidable contract shall, if he
has received any benefit thereunder from another party to such contract, restore the benefit , so far as
may be, to the person from whom it was received.
(i) Rescission of voidable contract –
• Need not perform any promise therein contained
• Party rescinding to restore benefit, advantage received
(ii) What if defaulting party has received benefit - whether to restore?
• cf. s. 65 CA: Party rescinding to restore
(b) s. 66 CA - Obligation of person who has received advantage under void agreement, or contract that
becomes void
When an agreement is discovered to be void, or when a contract becomes void, any person who has received
any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to
the person from whom he received it.
ILLUSTRATIONS
(a) A pays B RM1,000 in consideration of B's promising to marry C, A's daughter. C is dead at the time of
the promise. The agreement is void, but B must repay A the RM1,000.
(b) A contracts with B to deliver to him 250 gantangs of rice before the 1st of May. A delivers 130 gantangs
only before that day, and none later. B retains the 130 gantangs after the 1st of May. He is bound to pay A
for them.
(c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every
week during the next two months, and B engages to pay her RM100 for each night's performance. On the
sixth night A wilfully absents herself from the theatre, and B, in consequence, rescinds the contract. B
must pay A for the five nights on which she had sung.
(d) A contracts to sing for B at a concert for RM1,000, which are paid in advance. A is too ill to sing. A is not
bound to make compensation to B for the loss of the profits which B would have made if A had been able to
sing, but must refund to B the RM1,000 paid in advance.
(i) When a contract becomes void, any person who has received advantage to restore.
• Satgur Prasad v Har Narain Das (PC India) [1932] 59 IA 147
It was held that although s. 66 provided for void contracts, it also covered voidable contracts that had been
rescinded.
(ii) The words "when a contract becomes void" cover the case of a voidable contract which has been avoided.
• Yong Mok Hin v United Malay States Sugar Industries Ltd (FC) [1967] 2 MLJ 9
FC held that a voidable contract when rescinded becomes void and that s. 66 also applies to voidable contracts
that come void.
(c) s. 76 CA - Party rightfully rescinding contract entitled to compensation
A person who rightly rescinds a contract is entitled to compensation for any damage which he has sustained
through the non-fulfilment of the contract.
ILLUSTRATION
A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week
during the next two months, and B engages to pay her RM100 for each night's performance. On the sixth
night A wilfully absents herself from the theatre, and B, in consequence, rescinds the contract. B is entitled
to claim compensation for the damage which he has sustained through the non-fulfilment of the contract.
没有理解错误的话 这个是给 Breach 的
(i) Person who rightly rescinds is entitled to compensation for damage sustained through non-fulfilment of
contract.
• Haji Ahmad v Abdul Gani (High Ct, Nagpur) AIR 1937 Nag 270
HC held that an innocent party cannot claim compensation under s. 76 if the contract is rescinded on grounds
of fraud or misrepresentation as they are not cases of non-fulfillment of the contract.
These words, through the non-fulfilment of the contract” indicates to my mind that the distinction which the
English law draws between contracts rescinded on the ground of fraud and rescinded for other reasons. The
distinction is when any contract is avoided for breach, it remains operative as to the past and so claims for
restitution in respect of acts of performance prior to the rescission are precluded. But when it is rescinded
for fraud, the act has retrospective effect and the contract is rescinded ab initio just as if it had never been
in force… consequently, restitution is all that can be claimed.
(ii) Inapplicable to rescission on grounds of fraud or misrepresentation - these are not cases of non-fulfilment
of contract.
• Tengku Abdullah Ibni Sultan Abu Bakar & Ors v Mohd Latiff bin Shah Mohd & Ors and other appeals [1996] 2
MLJ 265
• Abdul Razak bin Datuk Samah v Shah Alam Properties Sdn Bhd and another appeal [1999] 2 MLJ 500
The plaintiff had entered into a contract with the defendant, a developer, for the purchase of an
apartment. After having paid for the purchase price in full, the plaintiff complained that he had been
induced to enter into the agreement through the false and fraudulent representation of the defendant. The
plaintiff's claim against the defendant in the High Court was dismissed but, on appeal, the Federal Court
found for the plaintiff. The agreement was set aside and, among other things, the court ordered the
defendant to pay the plaintiff damages to be assessed by the High Court. The High Court, pursuant to the
Federal Court's order, awarded damages under the following headings: (i) loss of value of the appreciation
of the property; (ii) loss of value of the appreciation of the club membership together with interest; (iii)
interest paid to the financial institution for the loan utilized for the purchase of the property; (iv) interest
at 8% per annum on each of the monthly interest payments made by the plaintiff to the said financial
institution; and (v) cost of the valuation report.
The plaintiff had also claimed for loss of rent which he would have received had the transaction proceeded
to completion but this was not allowed by the High Court. Both parties, being dissatisfied with these orders,
appealed. The Court of Appeal concerned itself with the question of the measure of damages recoverable by
the plaintiff.
Held:
The Federal Court had found for the plaintiff on the basis that there had been a fraudulent
misrepresentation and thereby granted a rescission of the contract. The assessment of damages should not
be on the footing of a breach of contract, ie to place the innocent party in the same position as though the
contract had been performed, because the contract has been set aside. It should be assessed instead on
the footing that the contract had been rescinded, ie to put the innocent party in the position he would have
been had he not relied on the fraudulent inducement. The plaintiff was entitled to recover all expenditure
reasonably and properly incurred in consequence of and flowing directly from the fraudulent
misrepresentation of the items (i) and (ii), and the plaintiff's claim for loss of rent, are irrecoverable as
they amount to damages for breach of contract. Items (iii) and (iv) constitute expenditure which the
plaintiff reasonably and properly incurred in consequence of the defendant's fraudulent misrepresentation
and are therefore recoverable. Item (v), an expense related to the proof of damages, is not a reasonable
expense and therefore irrecoverable.
4. Coercion
(a) s. 15 CA - "Coercion"
"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.
Explanation - It is immaterial whether the Penal Code is or is not in force in the place where the coercion is
employed.
ILLUSTRATION
A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to
criminal intimidation under the Penal Code.
A afterwards sues B for breach of contract at Taiping.
A has employed coercion, although his act is not an offence by the law of England, and although s. 506 of
the Penal Code was not in force at the time when or place where the act was done.
(i) Act forbidden by Penal Code; Detention of property
• cf. English law
(ii) Duress - actual or threatened violence or imprisonment to person, not duress of goods.
• Skeate v Beale [1841] 11 Ad & El 983
The unlawful detention of another person’s goods did not amount to duress.
这个决定被 Criticized 后来的有些 Cases 也没有 Follow 它
• Teck Guan Trading Sdn Bhd v Hydrotek Engineering (S) Sdn Bhd & Others [1996] 4 MLJ 331
Teck Guan Trading Sdn Bhd ('the plaintiff') agreed to sell round bars to Hydrotek Engineering (S) Sdn Bhd
('the first defendant'), the payment for which was guaranteed by John Fong Nyuk Foh ('the second
defendant') and Christine Voo Heng Choong ('the third defendant'). The dispute here mainly concerned the
price of the round bars. The defendants contend that the price was stated as RM1,180 in a document dated
27 July 1990. However, the plaintiff alleged that there was a typing error as the actual price should be
RM1,244. The plaintiff produced a letter dated 18 September 1990 by the first defendant agreeing to pay
RM1,244 for the round bars. The first defendant stated that they initially resisted the demand but later
agreed as the plaintiff persistently refused to supply; they required the bar to produce the concrete they
had committed themselves to supplying; and there was no time to look for any other source of supply. The
round bars were delivered on 19 September 1990 and the first defendant accepted delivery. Due to the
failure of the defendants to pay for the balance of payment for the bars sold, the plaintiff sent a notice of
demand to the second and third defendants at the address of the first defendant. As there was no reply
from the defendants, the plaintiff commenced action and on 18 February 1992 took out an application for
summary judgment and striking out of the defendants' counterclaim which was granted by the senior
assistant registrar. The defendants appealed against the decision as they alleged that on the facts of the
case there was an inference of undue influence and/or coercion with reference to 'economic blackmail'. The
second and third defendants also contended that they did not receive the letter of demand as it was not
sent to the address expressly set out in the guarantee.
Held, dismissing the appeal:
(1) There are two ways of committing 'coercion' as defined by s 15 of the Contracts Act 1950 ('the Act'),
one of which is the threatening of an act forbidden by the Penal Code (FMS Cap 45) ('the Code'), while the
other is the unlawful detention or the threatening of such to the prejudice of any person, with the intention
of causing any person to enter into an agreement. The party contending that there was coercion must say
what offence had been committed under the Code before the court could decide whether such an offence
had been committed. However this was not done here and, on the facts of the case, no offence under the
Code had been revealed. Further, the refusal of the plaintiff to supply the round bars at RM1,180 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 coercion being committed by the plaintiff on the first
defendant.
(2) The contention of 'economic blackmail' has been variedly termed under the English law as 'commercial
pressure', 'economic duress' and 'unfair use of a dominant bargaining position'. However, the parties here
were dealing with each other at arms' length and in fact the first defendant had before agreeing to the
new price, threatened legal action. Given their pugilistic stance before the agreement, the plaintiff could
not be said to be in a position to dominate the will of the defendants within the ambit of s 16 of the Act.
The transaction in this case was a transaction in the ordinary course of business.
(3) In cases of late delivery, the failure of a party to give notice of their intention to claim compensation as
required under s. 56(3) of the Act, would be regarded as waiver of that right.
(4) It is a matter of interpretation of a particular clause when attempting to ascertain its meaning. The
wordings of the clause of the guarantee in the present case deeming service made it clear that the receipt
of the demand was deemed to have taken place notwithstanding that the second and third defendants (the
guarantors) may not have received them and this was abundantly clear from the words 'despite evidence to
the contrary' in the clause. The words of the clause allowed the plaintiff to choose between sending to the
specific address mentioned in the guarantee or to the 'last known address' of the second and third
defendants. Therefore, considering that at the relevant time the second and third defendants were the
chairman and the general manager respectively of the first defendant, the demand here had been properly
served on the second and third defendants when sent to the address of the first defendant.
(iii) New developments - economic duress
• Universe Tankship of Monrovia v International Transport Workers Federation (HL) [1983] AC 366
The House of Lords accepted the concept of economic duress. In this case the defendant’s trade union
refused to release the plaintiff’s ship unless certain monies were paid including a payment to the union’s
welfare fund. The HoL held that the plaintiff could recover the latter payment which was made as a result of
‘illegitimate’ pressure by the defendant.
(b) Relief
(i) Section 73 CA - to repay money paid or anything received under coercion.
s. 73 - Liability of person to whom money is paid, or delivered, by mistake or under coercion
A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or
return it.
ILLUSTRATIONS
(a) A and B jointly owe RM100 to C. A alone pays the amount to C, and B, not knowing this fact, pays RM100
over again to C. C is bound to repay the amount to B.
(b) A railway company refuses to deliver up certain goods to the consignee, except upon the payment of an
illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled
to recover so much of the charge as was illegally excessive.
(ii) Whether meaning of coercion restricted to definition in section 15 CA
• Kanhaya Lal v National Bank of India (PC India) ILR [1913] 40 Cal 598
• Chin Nam Bee Development v Tai Kim Choo [1988] 2 MLJ 117
5. Undue Influence/Inequality Bargaining of Power
(a) Position substantially based on English principles
(i) s. 16(1) CA - Undue influence
A contract is said to be induced by "undue influence" where the relations subsisting between the parties are
such that one of the parties is in a position to dominate the will of the other and uses that position to obtain
an unfair advantage over the other.
• Poosathurai v Kannappa Chettiar & Ors (PC India) [1919]
(ii) s. 16(2) CA - When person deemed to be in position to dominate
In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a
position to dominate the will of another -
(a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to
the other; or
(b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by
reason of age, illness, or mental or bodily distress.
• Saad bin Marini v Chan Hwan Hua [2002] 2 AMR 2010
(b) Rebutting the presumption
• Inche Noriah v Shaik Allie bin Omar (PC) [1929] AC 127
• s. 16(3) CA
(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 face of it or on the evidence adduced, to be unconscionable, the burden of proving
that the contract was not induced by undue influence shall lie upon the person in a position to dominate the will
of the other.
(b) Nothing in this subsection shall affect section 111 of the Evidence Act 1950 [Act 56].
o Raghunath Prasad v Sarju Prasad (PC India) AIR 1924 P 60
o Malaysian French Bank Bhd v Abdullah bin Mohd Yusoff & Ors [1991] 2 MLJ 475
o Hongkong and Shanghai Banking Corporation v Syarikat United Leong Enterprise Sdn Bhd & Anor [1993] 2
MLJ 449
o Yong Yeu Sin v Liew Nyat Kui & Ors [2003] 3 CLJ 269
o Riviera Bay Resort & Condo Management Sdn Bhd v Sri Rimba Mentari Development Sdn Bhd [2003] 5 AMR
256
o Tengku Abdullah ibni Sultan Abu Bakar & Ors v Mohd Latiff bin Shah Mohd & Ors and other appeals [1996] 2
MLJ 265, CA
o Polygram Records Sdn Bhd v The Search & Anor [1994] 3 MLJ 127
o Saad Marwi v Chan Hwan Hua & Anor [2001] 3 CLJ 98
o Pengiran Othman Shah bin Pengiran Mohd Yusoff & Anor v Karambunai Resorts Sdn Bhd (formerly known as
Lipkland (Sabah) Sdn Bhd) & Ors [1996] 1 MLJ 309
6. Fraud
(a) s. 17(a)(b)(c) CA - fraud under common law
"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;
(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.
Explanation - 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.
• Derry v Peek (1889) 14 AC 337
• Ong Ban Chai & Ors v Seah Siang Mong [1998] 3 MLJ 346
• Chaw Anui v Tan Kim Chai [2004] 5 AMR 671
(b) Proof of fraud
• Lau Hee Teah v Hargill Engineering Sdn Bhd (FC) [1980] 1 MLJ 145
• Eastern & Oriental Hotel [1951] Sdn Bhd v Ellarious George Fernandez & Anor (SC) [1989] 1 MLJ 35
• Ang Hiok Seng & Ang Yeok Seng (Personal Representative of the estate of Chan Weng Sun, deceased) v Yim
Yut Kiu [1997] 1 CLJ 497 (SC) - the distinction between allegations of fraud based on a criminal offence and
fraud which is purely civil in nature.
• Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd [2015] 7 CLJ 584 (FC)
(c) Fraud under s. 340 National Land Code
• Saminathan v Pappa (PC) [1981] 1 MLJ 121
7. Misrepresentation
• s. 18 CA - Substantially similar to common law innocent misrepresentation
"Misrepresentation" includes -
(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;
(b) any breach of duty which, without an intent to deceive, gives an advantage to the person committing it,
or anyone claiming under him, by misleading another to his prejudice, or to the prejudice of anyone claiming
under him; and
(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.
o Segar Oil Palm Estate Sdn Bhd v Tay Tho Bok & Anor [1997] 3 MLJ 211
o Kluang Wood Products Sdn Bhd & Anor v Hong Leong Finance Bhd & Anor [1999] 1 MLJ 193
o Dato' Soo Lai Sing v Kumpulan Sierramas (M) Sdn Bhd [2004] 3 MLJ 546
o Sim Thong Realty Bhd v Teh Kim Dar [2003] 3 MLJ 460
o Chuah Tong Yeong v. Kuala Lumpur Golf & Country Club Bhd [2003] 7 CLJ 180
o Abdul Razak Datuk Abu Samah v. Shah Alam Properties Sdn Bhd & Another Appeal (COA) [1999] 3 CLJ 231
8. Exception to Section 19 CA
(a) Exception - Contract not voidable if party has "means of discovering the truth" with ordinary diligence
• Weber v Brown (1908) 1 FMSLR 12
• Tan Chye Chew v Eastern Mining & Metals Co Ltd (FC S'pore) [1965] 1 MLJ 201
(b) cf. English law
• Nocton v Lord Ashburton [1914] AC 932, 962
9. Mistake
(a) Section 21 CA - mistake by both parties, matter of fact essential to agreement, void
• Matter of fact essential to agreement
o Sheikh Brothers Ltd v Ochsner (PC Eastern Africa) [1957] AC 136
o Tunku Hamman bin Tunku Sulong v City Car Plaza Sdn Bhd [2004] 3 AMR 585
(b) Section 23 CA - unilateral mistake, matter of fact, not voidable
23 Contract caused by mistake of one party as to matter of fact
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.
(c) Section 22 CA - mistake of law in force in Malaysia, not voidable
22 Effect of mistake as to law
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
contact is not voidable.
(d) Relief
(i) Section 73: Restoration of money paid under mistake
• Shiba Prasad Singh v Chandra Nandi (PC India) (1949) 76 IA 244 includes money paid under mistake of law -
section 22
(ii) cf. English law
• Bilbie v Lumley 102 ER 448 payment under mistake of law irrecoverable.
• Lord Denning in Kiriri Cotton Co Ltd v Dewani [1960] AC 192
• Lee Fu Sdn Bhd v Unique Progress Sdn Bhd [2003] 4 CLJ 171
10. Rectification
• Mutual/Common Mustake - section 30 Specific Relief Act 1950
o Southwind Development Sdn Bhd v Hass Plantation Sdn Bhd [1996] 5 MLJ 85
