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Chapter 2 Law of Contract

Lecture notes copyrights Mr. Ravi Nagarathanam Page 1

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.

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

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.

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iii. Makes a contract with a person whose mental capacity

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.

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

the innocent party.

Malaysian F rench Bank v Abdul lah 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.

I nche Noriah v. Shaikh All ie 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.

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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. Br own

The respondent sued the appellant for damages in respect of an alleged false and fraudulentmisrepresentation 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.

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.

Bisset v. Wi lk inson [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.

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c. For example, A agrees to buy Bscertain 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, thedoctrine 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 nonoccurrence 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 selfinducted 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 quasicontract.

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 performancea. 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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