VOIDABLE CONTRACT
S.14
: Consent is free when not caused by one or more of the following:.coercion,
undue influence, fraud, misrepresentation and mistake
S.19
(1) : when consent of the 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.
1.
COERCION
Definition:
committing or threatening to commit any act forbidden by the Penal Code, or the
unlawful detaining of any person / property with the intention of causing any
person to enter into an agreement. (S.15)
KESARMAL v VALIAPPA CHETTIAR [1954] MLJ 119
A
transfer executed under the orders of the Sultan, issued in the ominous
presence of two Japanese officers during the Japanese Occupation of Malaysia.
Held
- the consent was not free and therefore
the transfer became voidable at the will of the party whose consent was so
caused.
CHIN
NAM BEE DEVPT SDN BHD v TAI KIM CHOO & 4 ORS [1988] 2 MLJ 117
The
respondents purchased homes off the plan to be constructed by the appellants.
Each of the respondents had signed a sale & purchase agreement to purchase
a house at $29,500. Subsequently, the respondent was made to pay an additional
$4,000. the court was asked to determine if the additional payment was made
voluntarily or under threat by the appellants to cancel the respondents’
booking for their houses. The lower court had found that payment was not
voluntarily but had been made under threat.
Held
- on appeal, the appeal was dismissed by the High Court
which ruled that there was coercion as defined in s. 15 . It further added that
the definition in s. 15 should only apply for the purpose contained in s.14 ,
and not for the entire Act.
2.
UNDUE INFLUENCE
Exist when ‘the relations
subsisting between the parties are such that one of the parties is in the
position to dominate the will of the other and uses that position to obtain an
unfair advantage over the other’ - S.16 (1)
Elements of undue influence:
o
Position to dominate
o
Use that position to
obtain unfair advantage
S.
16(2) : Position to dominate exist when:
·
Has real or apparent
authority over the other e.g: parent-child
MORLEY
v LOUGHMAN [1893] 1 Ch 736
Wright
J : ‘The burden lies on the recipient to show that the donor had independent
advice, or adopted the transaction after the
influence was removed, or some equivalent circumtances.’
·
Stand in fiduciary
relationship to the other. e.g: religious leader – follower, solicitor-client
ALLCARD v SKINNER (1887)
Ch D 145
The
plaintiff gave all her property to a convent she had joined as was expected to
obey the vow of poverty. When she left the convent she sought to recover
certain items.
Held –
The court found that she was under undue
influence when transferring her property, but plaintiff has lost her rights
because her delaying in instituting the proceeding after leaving the convent.
TATE
v WILLIAMSON
T, a student , intend to sell his property to
settle his education fees. He then came to see defendant who was a lawyer to
get advice regarding the selling of his property. The defendant then purchased
the property for an amount of 7,000 without informing T that the property ‘s
value should be 20,000.
Held
- The contract should be dismissed
because there was a fiduciary relationship between T and defendant. T refers to
the defendant to get advice and the defendant should not purchased the property
without disclosing the actual value.
·
Made contract with a
mentally incapacitated person by reason of age, illness or distress
INCHE
NORIAH v SHEIKH ALI BIN OMAR [1929]
A.C. 127
An
old and illiterate Malay woman executed a deed of gift of a landed property in
Singapore in favour of her nephew who had been managing her affairs. Before
executing the deed the donor had independent advice from a lawyer who acted in
good faith. However he was unaware that the gift constituted practically the
whole of her property and did not impress upon her that she could prudently,
and equally effectively, have benefited the donee by bestowing the property
upon him by a will.
Held –
The gift should be set aside as the presumption of undue influence, which is
raised by the relationship proved to have been in existence between the
parties, was not rebutted.
S. 16 (3) (a) - Burden of
proving no undue influence is on the person in position to dominate.
3.
FRAUD
Sec
17 – Five acts that would constitute fraud:
i.
Suggestion of fact
that is not true
ii.
Active concealment of
fact - HORSFALL v. THOMAS - inserting metal plug in a cannon is
active concealment
HORSFALL v THOMAS (1862) 1 HC 90
The defendant bought
cannon which had been manufactured for him by the plaintiff. The cannon had a
defect which made it worthless and the plaintiff had tried to conceal the
defect by inserting a metal plug into a weak spot in the gun. The defendant
never inspected the gun; he accepted it and upon using it for the first time,
the gun burst. He refused to pay for the gun and the plaintiff sued him for
payment. Since the defendant had not inspected the gun, the never knew of the
plaintiff’s attempted concealment, which subsequently did not affect his mind
or conduct in entering into the contract. Thus it was held that a person cannot
be said to have been induced to enter into a contract by a representation or
action that did not influence him or affected his mind at the time of contract.
iii.
Promise made without
intent to perform it
iv.
Other act fitted to
deceive
v.
Any acts the law
declares to be fraudulent
There
must be an intention to deceive - that is made knowingly, without belief in its
truth or reckless whether it true or false
Generally
– silence does not constitute fraud - the misled party has the duty to exercise
ordinary diligence
However,
under certain circumstances silence or non -disclosure may constitute fraud –
Takes into account the relationship btw
parties and where silence is equivalent to speech
Duty
to exercise ordinary diligence applies to fraud by silence only – not other cases
of fraud
Weber v. Brown - number
of rubber trees
WEBER V. BROWN (1908)
1 FMSLR 12
In this case, the
respondent sued the appellant for false and fraudulent misrepresentation
relating to the number of rubber trees on an estate which the respondent purchased
from the appellant. The appellant relied on the Exception to Section 19 of the
Contracts Enactment 1899. The Court of Appeal held that the defense that the
respondent had the means of discovering the number of trees with ordinary
diligence could not be set up because the Exception to Section 19 of the
Enactment 1899 does not apply to cases where misrepresentation was made by a
false and fraudulent statement.
4.
MISREPRESENTATION
Misrepresentation refer to
certain false statement of existing or past fact made by a person before or at
the time of making the contract which induces a party to enter into a contract.
S.
18 -
Basic difference between
misrepresentation and fraud is that in fraud the person making the
representation does not himself believe in its truth - but for
misrepresentation - may himself believe it true.
Like fraud - when there is a
duty to disclose - silence may amount to misrepresentation.
However under the Contract
Act - Sec 19 - misled party has duty to exercise due diligence
TAN CHYE CHEW v EASTERN
MINING METALS [1965] 1 MLJ 201
contract not voidable
despite the misrepresentation as the
party has means of discovering the truth with ordinary diligence.
To be actionable:
1. There must be false
representation - KEATES v LORD CARDOGAN
2. The representation is one
of fact , not opinion - BISSET v WILKINSON
3. The statement was
addressed to the party misled - PEEK v GURNEY
4. The statement must induce
the contract - ATTWOOD v SMALL
KEATES V. LORD
CADOGAN (1851) 10 CB 591
The defendant let the
plaintiff a house a house which the defendant knew was in an unfit and
dangerous condition. The defendant kept silent and did not disclose the
condition to the plaintiff although he knew that the plaintiff required the
house on immediate occupation. It was held that silence does not constitute
misrepresentation. The
principle
of caveat emptor applies in this case and thus there is no remedy for the
plaintiff.
BISSET V. WILKINSON.
The plaintiff
purchased from the defendant two blocks of land for the purpose of sheep
farming. During negotiations the defendant said that if the place was worked
properly, it would carry 2,000 sheep. The plaintiff bought the place believing
that it would carry 2,000 sheep. Both parties were aware that the defendant had
not carried on sheep-farming on the land. In an action for misrepresentation,
the trial judge said: "In ordinary circumstances, any statement made by an
owner who has been occupying his own farm as to its carrying capacity would be
regarded as a statement of fact. … This, however, is not such a case. … In
these circumstances … the defendants were not justified in regarding anything
said by the plaintiff as to the carrying capacity as being anything more than
an expression of his opinion on the subject." The Privy Council concurred
in this view of the matter, and therefore held that, in the absence of fraud,
the purchaser had no right to rescind the contract.
PEEK V. GURNEY.
(1873) All E.R. Rep 116
The promoters of a
company were sued by the appellant who had purchased shares on the faith of
false statement contained in a prospectus issued by the promoters. The
appellant however was not the person to whom shares had been allotted on the
first formation of the company; he had merely purchased the shares from the original
shareholders. The House of Lord held that the prospectus was only addresses to
the first applicants for shares, it could not be supposed to extend to others
than these; and that on the allotment, the prospectus has done its work and it
was exhausted.
ATTWOOD V. SMALL
The
purchasers of a mine were told exaggerated statements as to its earning
capacity by the vendors. The purchasers had these statements checked by their
own expert agents, who in error reported them as correct. Six months after the
sale was complete the plaintiffs found the defendant's statement had been
inaccurate and they sought to rescind on the ground of misrepresentation. It
was held in the House of Lords that there was no misrepresentation, and that
the purchaser did not rely on the representations
5.
MISTAKE
Sec. 21 of the Contract Act
- ‘where both the parties under the agreement are under a mistake as to a
matter of fact essential to the agreement, the agreement is void’ - for
lack of free consent.
Sec 22 - mistake as to the
law - contract not voidable due to mistake of law in force in Malaysia, but if
the law not in force in Malaysia - like mistake of fact.
Sec
23 - mistake as to one party (unilateral) - contract is valid
Mistake of fact made by both
parties can be as to :-
Existence of the subject
matter
STRICKLAND v. TURNER.
- annuity for a dead person
Identity of the subject
matter
FALCK
v.
WILLIAMS - identity of charter parties
Quality of the subject
matter
KENNEDY v. PANAMA
ROYAL MAIL. - shares in a mail company
STRICKLAND V. TURNER.
(1852) 7 Exch 208
The plaintiff
purchased an annuity and paid the purchase
price. Unknown to both parties the annuitant was already dead at the time of the contract. The plaintiff was therefore
entitled to recover on the basis that the
contract was void as it lacked subject matter.
The consideration had totally failed
FALCK V. WILLIAMS
(1900) AC 176
The defendants and
the plaintiffs were negotiating about two charter parties; one to carry shale
from Sydney to Barcelona and another one to carry copra form Fiji to Barcelona.
The plaintiff’s agent send a coded telegram intending to confirm the copra charter but the telegram
was ambiguous and was understood by the defendants to refer to the shale
charter. It was held that there was no contract due to the mistake.
KENNEDY V. PANAMA
ROYAL MAIL. (1867) LR 2 QB 850
The Panama etc Company had contracts for the carriage of
intercontinental mail with the government of New Zealand. It issued a
prospectus for shares “in order to enable the company to perform the contract
recently entered into with the government of New Zealand, for a monthly mail
service between Sydney, New Zealand, and Panama, in correspondence with the
West Indian Mail Company’s steamers between Southampton and Panama”. Kennedy,
induced by this statement, applied for and was allotted shares in the company.
The contract referred to in the prospectus had been made by the company with
the agent for the New Zealand government. Both the company and the agent
honestly believed that the agent had the authority to make the contract, but
the government later denied that he had authority, and refused to ratify the
contract. Kennedy brought action to recover the money paid for the shares, and
for an account. The company sued for money due under a call on the shares. The
court held that the shares which he receives were not, because of the
difference in value, different in substance from those that the company had
contracted to deliver. It was stated that where the difference is only in
quality, even though the misapprehension may have been the actuating motive to
the purchaser, yet the contract remains binding.
VOIDABLE CONTRACT
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