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LAW OF CONTRACT

LAW OF CONTRACT. CONSENT: VOIDABLE CONTRACTS. MGM3351 Dr . Zahira Mohd . Ishan. Void, Voidable & Illegal. S. 2(g):an agreement not enforceable by law is said to be void. Void agreements: ss.25-31.

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LAW OF CONTRACT

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  1. LAW OF CONTRACT CONSENT: VOIDABLE CONTRACTS MGM3351 Dr. ZahiraMohd. Ishan

  2. Void, Voidable& Illegal • S. 2(g):an agreement not enforceable by law is said to be void. • Void agreements: ss.25-31. • S.25: Considerations (wholly/partly) for a single object, is unlawful, the agreement is void. • Rights & duties not created. • S.24: Illegal circumstances. • The 3rd party, acting in good faith & without knowledge of any vitiating circumstances. • S.2(i): 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. • S. 14; ss.15-18 • Rights & duties created.

  3. Section 14 of the CA,1950 “Free consent” Consent is said to be free when it is not caused by- (a) coercion, as defined in s 15; (b) undue influence, as defined in s 16; (c) fraud, as defined in s 17; (d) misrepresentation, as defined in s 18; or (e) mistake, subject to sections 21, 22 and 23

  4. "Coercion" : s.15 • 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 section 506 of the Penal Code was not in force at the time when or place where the act was done. • KanhayaLal v NBI Ltd: determining free consent

  5. s.15 covers duress • Common law: narrow definition; restricted to actual/ threatened physical violence to/ unlawful constraint of the person of the contracting party. • Equity: relief granted in cases of coercion where common law provided no remedy. • English courts now combine the effect of common law & equity • Duress of the person: actual / threatened violence / imprisonment. :Seriousness of the action threatened upon A depend upon A’s ability to resist pressure improperly brought to bear. :A’s entitlement to relief: establish that the threats contributed to A’s decision. • Duress of goods: unclear: contract entered into as a result of actual/threatened violence to/ the illegal seizure of goods/ other property. • Threats amounting to blackmail Thorne v Motor Trade Association. • Economic duress

  6. Establishing Coercion: i) Committing /threatening to commit any act forbidden by the Penal Code; not tortious wrongs. ~Penal Code: consolidate the law relating to criminal offences

  7. Application of duress: Kesarmal & Anor v. ValliappaChettiar & Anor[1954] MLJ 119 • The claim of the plaintiff in that suit was that the instruments of transfer executed by the plaintiff in that suit in favour of the two defendants in respect of two pieces of land in the district of Kiang should be set aside on the grounds that they were obtained with the knowledge of the defendants by coercion or duress during the Japanese occupation. The learned trial Judge held that the transfer of the lands was obtained from the plaintiff by duress and the defendants were parties to it or had knowledge of it, and he gave judgment for the plaintiff. The case went before the Court of Appeal who upheld the judgment of the learned trial Judge. Subsequently, the case went to the Judicial Committee of the Privy Council who advised that the appeal should be dismissed, as it in fact was.

  8. ii) Toward any person or just the plaintiff? • The person being coerced & the person pressured to contract ~ there should be a relationship (interest gained) Wong Ah Fook v KNJ , or ~ no relationship needed (humane) iii) The act / threat caused the person to enter into the contract?

  9. s.73 of the CA Under Part VI of the Act: “Of Certain Relations Resembling Those Created by Contract” : 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.

  10. Chin Nam Bee DvlpSdnBhd v Tai Kim Choo & Ors [1988] It would be difficult to give effect to s. 73 illustration (b) if the word `coercion' is to be given the meaning as defined in s. 15 of the Act. They appear to be in conflict with each other. Therefore the word `coercion' in the context of s. 73 of the Act should be given its ordinary and general meaning since there is nothing under s. 15 which says that the word `coercion' should apply throughout the Act. The definition of `coercion' in s. 15 should only apply for the purpose contained in s. 14, as s. 14 of the Act specifically says so.

  11. C.M. Naested v. The State of Perak [1925] FMSLR 185 Fact: The plaintiff’s application for a grant of 23,000 acres of land was approved by defendant. He then paid a certain sum for survey fees calculated upon the area approved as being one block. Yet, the land was cut up into 16 blocks, but plaintiff was not informed. Upon demand made by the District Officer the plaintiff's agents paid a further sum for survey fees, the calculation of the amount being based upon the 16 blocks. The plaintiff sued to recover the sum so paid by the agents. Held: “Under these circumstances, it is impossible to consider the payment as a voluntary one. The parties were not on equal terms. On the one side was the plaintiff, a private individual, and his agents, a mercantile firm, on the other the Government of the State, which had the power of saying "If you do not pay you shall not have your grant". I think that the plaintiff is entitled to recover the money as a payment made without consideration, and under coercion, within the meaning of s. 72 [s.73] of the Contract Enactment.”

  12. KanhayaLal v. National Bank of India Ltd.[1913] ILR XL 598 • the word `coercion' as defined under s. 15 of the Indian Contract Act, (Act IX of 1872) should be confined to the interpretation of the word`coercion' as found under s. 14 of the Indian Act, and that the word `coercion' as found in s. 72 of the Indian Contract Act should be given its ordinary meaning.

  13. Economic Duress • To constitute economic duress, the threat must be illegitimate either because what is threatened is a legal wrong or the threat itself is wrongful or it is contrary to public policy. • Whether the threat is amounting to duress must be considered by reference to its coercive effect in each case. • Mere commercial pressure is not suffice. • The pressure must be such that the victim’s consent to the contract was not a voluntary act on his part.

  14. The Universal Sentinel • Trade Union officials threatened to induce the crew of a ship to break their contracts of employment & so to prevent the ship from leaving port. In view of the “catastrophic” financial consequences which the ship owners would suffer if these threats were carried out, it was conceded that they constituted “economic duress”.

  15. Perlis Plantation Bhd v Mohamad Abdullah Ang [1988]: the concept of economic duress does not exist in Malaysia. • Mohd Fariq Subramaniam v Naza Motor Trading Sdn Bhd: economic duress is a coercion of will that vitiates consent. Silent on s.15.

  16. “Undue Influence”: s.16 • Unconscientious dealing • Def: s.16(1): relations subsisting between the parties; domination of the will by one party over the other; obtaining an unfair advantage. Ragunath Prasad v Sarju Prasad • Common law: 2 classes of ui: • when there is domination over the other party’s will, and secondly, • when there is abuse of duty of care and confidence resulting from a certain form of relationship

  17. The term was initially used by Lord Hardwicke in Morris v. Burroughs(1737) as a reminder to parents to watch their exercise of authority over their children (WHD Winder, 1939) • Cooke v Lamotte (1851): being used to cover possibility of improper or misuse of influence by guardian and those in loco parentis, solicitor, spiritual adviser, doctor, medical attendant, “and may be said to apply to every case in which two persons are so situated, that one may obtain considerable influence over another”

  18. “relations subsisting between the parties” not necessarily special relationship. Morley v Loughnan : ‘unnecessary to show existance of special r/ship between dcsd and D, for he has took possession, so to speak , of the whole life of the dcsd., & the gift were not the result of the dcsd’s own free will, but the effect of that influence and domination’.

  19. s. 16(2): presumption of domination of will • When one party ‘holds a real or apparent authority over the other’ • When one party ‘stands in a fiduciary relation to the other’. • Where one party ‘makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress

  20. Fiduciary relationship: parents (@ in loco parentis) & son/daughter; solicitor & client; doctor & patient; trustee & cestuique trust; spiritual advisor& anybody in relationship with him/her; between fiancee(seldom); but not between husband & wife

  21. Some common law cases: • Allcard v Skinner • Lloyds Bank v Bundy • Tate v Williamson • Smith v Kay • Fry v Lane • Nat West Bank v Morgan • Royal Bank of Scotland Plc v Etridge • Some Malaysian cases: • SalwathHaneem v Hadjee Abdullah • Polygram Records Sdnbhd v The Search & Anor • Saw GaikBeow v Chong Yew Weng • DatukJaginder Singh v Tara Rajaratnam • Public Finance Bhd v Lee Bee Rubber Factory S.B & Ors • IncheNoriah v Shaik Allie

  22. s.16(3): Unconscionable bargain • A protean term; covers unjust/unfair/ immoral bargain. • unconscionable transaction is seen as a result of undue influence by virtue of section 16(3) • Chait Singh v Budin b. Abdullah • Ragunath Prasad v Sarju Prasad

  23. Rebuttal • Plaintiff not relying upon defendant’s advice • No unfair advantage taken / transaction is beneficial to the plaintiff • Fulfillment of duty by defendant to the plaintiff

  24. Effects of Undue Influence • S. 20 of the CA: voidable at the option of the party whose consent was so caused. Set aside absolutely, or if benefit received, upon such terms or conditions as the court may seem just. Illustration (a) & (b).

  25. “Fraud”: s.17 • 5 instances of fraud (intention to deceive other party). • Courts often interpret s.17 as fraudulent misrepresentation. “Misrepresentation”: s.18 • False statement made by representor with no intention to deceive. 3 instances. Covers negligent (breach of duty of care) and innocent (no duty of care to find out the truth) misrepresentations.

  26. Representation i-Representation of certain fact; not opinion: Bisset v Wilkinson. ii-Addressed to the innocent party Peek v Gurney ii- Induce the other party to enter into the contract. Horsfall v Thomas Mithoolal v Life Insurance Corp

  27. Duty of Disclosure • The representation must be expressed. Silence means no positive statement or action made. Keates v Lord Cadogan Mahn Singh v Guan Soon Transport Ltd. [1955] • Explanation to s. 17: mere silence is not fraud unless there is a duty to speak or the silence is equivalent to speech.

  28. Duty of disclosure • Illustration (a) & (b) of s. 17. i) Contract of Utmost Good Faith / Uberrimaefidei: duty to be honest & truthful ~ full disclosure of material facts. ~ Insurance contract; allotment of shares (prospectus); partnership; contract of guarantee & surety. Abu Bakar v Oriental Fire & Gnrl Insurance Tan Kang Hua v Safety Insurance GohChooi Leong v Public Life Assurance Co. Ltd.

  29. ii) Fiduciary relationship Confidence given to the other party. That other party must show that he’s exercising the due care & trust. ~ not abuse his position ~ must disclose the fact Nocton v Lord Ashburton The duty is not imposed on all confidential relationship: Bell v Lever Brothers Ltd : contract of service.

  30. Exceptions to s. 19: Ordinary diligence / rule of caveat emptor ~ consent caused by misrepresentation or by silence, fraudulent within the meaning of s. 17. Effect of coercion, fraud & misrepresentation: voidable at the option of the party so caused.

  31. LetchemyArumugam v Annamalay: P, illiterate rubber tapper signed a S&P letter (thought it was a mere loan agreement) • Tan Chye Chew & Ors. V Eastern Mining Metals Co. Ltd.: a higher degree of probability for fraud. • DatukJaginder Singh v Tara Rajaratnam • KhengChweeLian v Wong Tak Thong • Derry v Peek • Weber v Brown • Keong man v Kishen • Lau HeeTeah v Hargill Engineering SdnBhd

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