TOPIC 4: CONTRACT LAW

Contract Law
(DIL 1232)
 CONTRACT

VALID VOIDABLE VOID DISCHARGE

OF
CONTRACT
COERCION MISTAKE
BY
1. Offer PERFORMANCE
2. Acceptance ILLEGAL
UNDUE
3. Capacity INFLUENCE CONTRACT
4. Consideration BY AGREEMENT
5. Intention to Create Legal
Relation FRAUD
6. Certainty BY
FRUSTRATION

MISREPRESENTATION
BY BREACH
 • Both parties agreed & consented to the contract
Valid • No element missing

• No consent by either parties

• One or more elements missing
Voidable • Both parties must agree and may choose:
• to cancel the contract or
• to proceed but with few elements not
satisfied

Void ab initio (void at the very beginning)

Void Contract cancelled once mistake found out.
As if the contract did not exist.
 Section

Contract
Acts 1950

(related
sections for
void contract)
 Void Contract (illegal contract)

Void contract is an agreement which is not in existence from the very

beginning from the legal point of view.
The effects of void contract are as follows:
1. It is not enforceable by the law under section 2(g) of CA
2. Any person who has received any advantage under the
agreement is bound to restore it, or to make a
compensation for it, to the person from whom he received
it. (section 66 of CA.)
 4.1 Mistake
— Mistake has 2 types:
1) Mistake of Fact
2) Mistake of law

— Section 21 of CA, ‘Where both parties to the contract are under a mistake as
to the matter of fact essential to the agreement, the agreement is void.’
(See illustrations to section 21 of CA)

— It should be noted that the parties to a contract may make various types of
mistakes in the process of negotiating and agreeing to the contract. Some of
those mistakes have legal significances and others do not.

— A mistake made by a buyer who failed to exercise care in judgment when

entering into a contract will not affect the validity of the contract.
— E.g. Taufiq purchased a desk, believing it is an antique made
from expensive wood. His belief in this regard was based on his
own judgment on the desk and not on any representations made
by the seller.

— Later, Taufiq learned that the desk was an imitation of an antique

and worth significantly lesser that the amount paid. Taufiq here
has made a mistake in judgment as to the value or quality of the
wood.
— The contract is not affected by this mistake i.e. he cannot cancel
the contract as the mistake was only on his part i.e. party to the
contract (unilateral) by virtue of section 21 of CA.
TYPES OF MISTAKE OF FACT

— a) Mistake as to the existence of the subject matter of

the Contract

— Examples : A agrees to buy from B a certain horse. It turns out

that the horse was dead at the time of the bargain, though neither
party was aware of the fact.The agreement is void.
— b) Mistake as to the identity of the subject matter

case : Raffles v Wichelhaus

— The parties contracted for a sale of a cargo of cotton by a ship

called 'the Peerless', sailing from Bombay and arriving in London.
But unknown to the parties, there were two ships at the same name
leaving from Bombay at different times. they were both negotiating
under a mistake and had in mind different ships.
— It was held by the court that the contract was for mutual mistake.
— c) Mistake as to the possibility of performing the
contract

— Case : Sheikh Brother's v Ochsner

— The appellant granted to the respondent the license and authority

to cut and manufacture all sisal growing on 5,000 acres of land in
Kenya and to deliver to the appellant 50 tons per month of the sisal
fibre for sale. The respondent was then unable to do so as the leaf
potential of the sisal was not sufficient to produce that much.
— It was held that it was a mistake as to the possibility of performing
the contract.The agreement was void.
 UNILATERAL MISTAKE

Freeman v Kiamesha Concord Inc, 351 NYS 2d 541 (1974)

A guest at a resort hotel misread an advertisement concerning

the Memorial Day weekend entertainment and believed that a
popular entertainer would be performing for three nights during
the weekend rather than just one. Upon learning the truth, he
sought to cancel part of his three days reservation.

The court held that his mistake was a factual one and it was
unilateral. Thus, although he checked out the of the resort before
the end of the three days reservation, he remained obligated to
pay his hotel bill in full.
 Unlike unilateral mistakes, mutual mistakes involving an
important fact will enable either party to avoid the contract.
MUTUAL MISTAKE

This can be seen in the case of:

Chop Ngoh Seng v Esmail & Ahmad Bros [1948-9] MLJ Supp 93

The subject matter of the contract was not in existence. This fact
was not known to both the parties when they entered into the
contract.
It was held that the contract is void.
— Similarly, Tan owns a few houses situated at different
locations. She contracted to sell one of them to Khoo.
— Tan thought that she was selling the house situated in JB
whereas Khoo thought that he was purchasing the house
situated in Malacca.
— Both parties made a mutual mistake as to an important
fact, the subject matter of the contract.
— Either party will be able to avoid the contract under the
circumstances.
 MISTAKE OF LAW

— Section 22 of the Contracts Act 1950 provides for

“mistake of law” where 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 contract is not voidable.
ILLEGAL CONTRACT

1. MINOR
2. ILLEGALITY
3. INCAPACITY
 OFFER

CERTAINTY ACCEPTANCE

ELEMENTS of a
valid contract

INTENTION
TO CREATE
LEGAL CAPACITY
RELATION

CONSIDERATION
— Section 11 of CA, the parties entering into a contract should
be competent to contract, of sound mind and not legally
disqualified.

* competent: attain age of majority (Section 2 of the Age of

Majority Act 1971)
* sound mind: a healthy mind or not insane
* not legally disqualified: not bankrupt or not a criminal