VOID CONTRACT, VOIDABLE

CONTRACT AND UNENFORCEABLE

CONTRACT
SYAFINAZ IDRUS, NURUL SYAQIRA ZAIRUL AZMAN, RAJA SHAHIRAH RAJA
ISKANDAR, NUR IMAN SYUHADA FAUZI, SYAFIQA ALISSA NOOR HISHAM

TYPES OF CONTRACT: VOID CONTRACT, VOIDABLE

CONTRACT & UNENFORCEABLE CONTRACT

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

MANANG LIMNATUVE SDN. BHD V.

MANANG SELAMAN [1986] 1 MLJ 379.
Facts :
A non-native sought to deal in native land and this was
against the Sarawak Land Code uncles the dealing was
authorized by the Yang di-Pertua Negeri Serawak
Court held :
The Supreme Court held that an agreement entered into
for an illegal consideration and was therefore void
agreement within the meaning of Section 2 (g) of the
Contracts Act 1950

EFFECTS OF VOID CONTRACT

The general rule under the Contracts Act 1950 is that
the courts will not enforce an illegal contract.
It is stated under section 66 of Contracts Act
1950: 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.

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.

DIFFERENCES BETWEEN THE

TYPES OF CONTRACT
VOID CONTRACT

VOIDABLE CONTRACT

MEANING

Void contracts are unenforceable

by law. You cannot recover
anything even if one party
breaches the agreement because
essentially there was no valid
contract.

Voidable contracts are valid

agreements, but one or both of the
parties to the contract can void the
contract at any time. Therefore, you
may not be able to enforce a voidable
contract.

EXAMPLES

Contracts involving an illegal

subject matter. For example,
gambling, prostitution, or
committing a crime.
Contracts entered into by
someone who is not mentally
competent (mental illness or
minors)

Contracts entered when one party

was incapacitated such as drunk,
insane or delusional.
Contracts where one party was
forced or tricked into entering.

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

Section 14 of the Contracts Act 1950:

Consent is said to be free when it is not
caused by ;
a) Coercion
b) Undue influence
c) Fraud
d) Misrepresentation
e) Mistake
If the consent is given under the
circumstances above, contract may be either

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.

NURI ASIA SDN BHD V FOSIS

CORP SDN BHD [2006] 3 MLJ 249
Facts :
The plaintiff supplied goods to the defendant and claimed
that they did so because the defendant had given them an
oral guarantee that they would pay for the goods. However,
the plaintiff then got the defendant to sign a written
guarantee when the defendant failed to pay and went on to
sue the defendant. The defendant then claimed that he was
coerced to sign the written guarantee when he had gone to
meet the plaintiffs chairman.

 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.

Chin Nam Bee Development v Tai Kim Choo [1988] 2

MLJ 117
Facts :
The respondent purchased certain houses for construction from the
appellant. The respondent claimed that they had to pay additional
sum of RM 4000 to the appellant under threat of the appellant to
cancel the booking of the houses. The lower court had found that
the payment was not under the respondents willingness but had
been made under threat.
Issue :
Whether the respondent is liable for remedies under coercion.

Held : On appeal, the High Court has dismissed the appeal

which ruled that there was coercion as defined in section
15 of the Contracts Acts 1950. Furthermore, it was added
that the definition in section 15 should only applied for the
purpose contained in section 14, and not for the entire Act.

KESARMAL S/O LETCHMAN DAS V VALIAPPA

CHETTIAR (1954) MLJ 119
Issue :
Invalid transfer executed under the orders of the Sultan, issued
in the menacing presence of 2 Japanese officers during the
Japanese Occupation of Malaysia.
Held :
The transfer became voidable at the will of the party whose
consent was so caused since the consent was not given
voluntarily.

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:

A contract is said to be induced by undue influence

where the relations subsisting between 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.

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.

ELEMENTS THAT ARE

NECESSARY TO ESTABLISH
UNDUE INFLUENCE ACCORDING
TO SECTION 16(1) OF
CONTRACTS ACT 1950
INCLUDES:
1. The offender holds the dominant position
over
the victim, and
2.The offender acquired the transaction from the
victim using the dominant position, and
3.The transaction was unjust to the victim.

ALLCARD V SKINNER [1887]

36 CH D 145
Facts:
The plaintiff became a professed member of a sisterhood and bound herself
to observe the rules of poverty, chastity and obedience. The rule as to
poverty required a member to surrender all her property either to her
relatives, the poor or to the sisterhood itself. The rules also provided that no
sister should seek advice from anyone outside the order without the consent
of the Lady Superior. Within a few days of becoming a member Miss Allcard
made a will leaving all her properties to Miss Skinner, the Lady Superior, and
in succeeding years made gifts to the value of about 7000 to the same
person. When Miss Allcard left the sisterhood she revoked the will and
wished to claim all her properties back.

Held:
The court held that the contract was voidable due
to undue influence.

ACCORDING TO SECTION 16(2)

OF CONTRACTS ACT 1950:
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.

INCHE NORIAH V SHAIKH ALLIE

BIN OMAR [1929] AC 127
Facts:
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.
Held:
Privy Council held that when the plaintiff executed the gift to the
defendant, the relationship between both parties are sufficient to
raise the presumption of 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;

b) The active concealment of a fact by one

having knowledge of 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.

KHENG CHWEE LIAN V WONG

TAK THONG [1983] 2 MLJ 320
Facts:
The appellant sold a half share of land to the
respondent. Then, the respondent acquired consent
from the appellant to build a biscuit factory on part
the land. Subsequently, the appellant induced the
respondent to sign another agreement which gave
the respondent a smaller share of the land, lesser
than the current land the respondent owns.

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.

DOES SILENCE CONSTITUTE

FRAUD?

 The general rule states that silence does not constitute to

fraud.
Explanation of Section 17 of Contracts Act 1950 states
that:
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.
To simplify, silence does not constitute fraud BUT it is fraud if
there is duty for a person keeping silence to speak, or his
silence is equivalent to speech.

 Illustration (a) to Section 17 of Contracts Act 1950: A sell by auction

to B a horse which A knows to be unsound. A says nothing to B about
the horses unsoundness.
COMPARE WITH
Illustration (c) to Section 17 of Contracts Act 1950: B says to A If you
do not deny it, I shall assume that the horse is sound. A says
nothing. Here, As silence is equivalent to speech.
Under the circumstances of the illustration (c) above, As silence
would amount to an answer that his horse is sound, which is untrue.

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.

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 of anyone claiming under him; and
(c) Causing, however innocently, a party to an
agreement to make a mistake as to substance of the
thing which is the subject of the agreement.
Section 19 of Contracts Act 1950 explained that the
contract is voidable and the mislead party has the
right to rescind the contract.

SIM THONG REALTY SDN BHD V TEH KIM

DAR @ TEE KIM [2003] 3 MLJ 460, CA
Facts
In this case, the parties entered into a sale and purchase agreement. Subsequently, it was discovered
that the land had no such access which an access to the main road. The defendant refused to
complete the sale and purchase on the ground that the agreement had been vitiated by the plaintiffs
estate agent, Wong.
Issue :
Whether the agreement had been vitiated by the plaintiffs estate agent, Wong.
Held :
The Court of Appeal held that on the facts of the case, as the defendant had not made a specific and
particularized plea of fraud or negligence, it must be taken as asserting a case of innocent
misrepresentation.

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.

 However, there is an exception explained in Section 19 of

Contracts Act 1950: If such consent was caused by
misrepresentation or by silence, fraudulent within the
meaning of section 17, the contract, nevertheless, is not
voidable, if the party whose consent was so caused had
the means of discovering the truth with ordinary diligence.
Illustration (b) Section 19 of Contracts Act 1950: A, by
a misrepresentation, leads B erroneously to believe that 500
gantangs of indigo are made annually at As factory, B
examines the accounts of the factory, which show that only
400 gantangs of indigo have been made. Despite this B buys
the factory. The contract is not voidable on account of As
misrepresentation.

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.

CHAN YOKE LAIN V. PACIFIC & ORIENT

INSURANCE CO. SDN. BHD. [1997] 4 C.L.J.
SUPP. 8
Facts :
The plaintiff, as administratrix of the estate of the deceased,
sued the defendant (insurer) for the sum of money covered
under the Personal Accident policy of the deceased. The
defendant had rejected the plaintiffs claim because the
signature on the proposal form did not belong to the
deceased as it had differed from the deceaseds signature on
his motor insurance policy. On this ground, inter alia, the
defendant alleged that the contract was 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

TYPES OF MISTAKES UNDER

ENGLISH LAW
Common mistakes
Common mistake occurs where both parties are mistaken
on the same matter about the facts to the contract. As to
provide a rise to a cause of action, three categories have
occurred. The first is Res Extincta which means, the
subject matter of the contract no longer exists.

COUTURIER V HASTIE (1856)

5 HLC 673
Facts :A cargo of corn was in transit being shipped from the Mediterranean to England.
The owner of the cargo sold the corn to a buyer in London. The cargo had
however, perished and been disposed of before the contract was made. The seller
sought to enforce payment for the goods on the grounds that the purchaser had
achieved title to the goods and therefore bore the risk of the goods being
damaged, lost or stolen.
Issue :
Whether the seller was liable to enforce payment for the goods.

 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.

Cooper v Phibbs (1867) LR 2 HL 149

Facts :
A nephew leased a fishery from his uncle. His uncle died. When the lease came up for renewal the
nephew renewed the lease from his aunt. It later revealed that the uncle had given the nephew a
life tenancy in his will.
Issue :
Whether the nephew is liable to receive the lease.
Held :
The lease was held to be voidable rather than void as the claim was based in equity as it related
to beneficial ownership as oppose to legal ownership.

 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.

RAFFLES V WICHELHAUS (1864) 2

H & C 906 COURT OF EXCHEQUER
Facts :
The parties entered a contract for the sale of some cotton to be shipped by 'The
Peerless' from Bombay. The Peerless had a sailing from Bombay in October and in
December. The defendant thought that it was the October sailing and the claimant
believed it was the December sailing which had been agreed.
Held :
The court applied an objective test and stated that a reasonable person would not
have been able to state with certainty which sailing had been agreed. Therefore
the contract was void as there was no consensus ad idem (mutual assent).

 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.

HARTOG V COLIN & SHIELDS

[1939] 3 ALL ER 566
Facts :
The defendants mistakenly offered a large quantity of hare skins
at a certain price per pound whereas they meant to offer them
at that price per piece. This meant that the price was roughly
one third of what it should be. The claimant accepted the offer.
Issue :
Whether the offer accepted by the claimant is valid by the
defendants mistake.

 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.

KINGS NORTON METAL CO LTD V EDRIDGE,

MERRETT & CO LTD (1897) 14 TLR 98
Facts :
A rogue ordered goods from the claimant using a printed letter head a claiming
to be a company called Hallum & co. In fact there was no such company
existed. The claimant sent out the goods on credit. The rogue sold the goods on
to the defendants who purchased them in good faith. The rogue then
disappeared without paying for the goods. The claimants brought an action for
conversion of the goods based on their unilateral mistake as to identity. The
court held that the contract was not void for mistake as they could not identify
an existing company called Hallum & co with whom they intended to contract.
The mistake was only as to the attributes of the company. The contract was
voidable for misrepresentation but that would not stop title passing to the
rogue and the defendants therefore acquired good title to the goods.

 Held :
In determining whether a contract will be held void for mistake, the courts draw a distinction
between:

Contracts made inter absentes (at a distance)

Contracts made inter praesentes (face to face transactions)

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;

the party they dealt with knew of this intention;

he regarded identity as a matter of crucial importance;

he took reasonable steps to check the identity of the other person

 Mistakes relating to signed documents or non est

factum is known as a plea that a written agreement is invalid
because the defendant was mistaken about its character when
signing it. The general rule is, when a person bound by their
signature to a document, whether or not they have read or
understood the document. However, where a person has been
induced to sign a contract with fraud or misrepresentation, the
contract is voidable.

 Facts :

SAUNDERS V ANGLIA BUILDING

SOCIETY (GALLIE V LEE) [1970] AC 1004

Mrs Gallie, a woman of 78 years, signed a document which

stated it was the sale of her interest in her home to Mr Lee. Mr
Lee then used that document to obtain a mortgage on the
property for 2,000. He failed to keep up repayments on the
mortgage and the building society sought possession of the
property mortgaged. Mr Lee was a friend of Mr Parkin who was
Mrs Gallie's nephew. Mrs Gallie knew that they wished to raise
some money and she had agreed to help them. She had told
them she would assign her house to the nephew as a gift on
condition that he allowed her to remain there rent free for life.
She had been told by the two men that the document she
signed gave effect to that agreement. She signed the document

 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