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
An unenforceable contract or 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
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.
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)
VOIDABLE 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.
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 void or voidable.
 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
be void ab initio.
 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.
 SAUNDERS V ANGLIA BUILDING
SOCIETY (GALLIE V LEE) [1970] AC
Facts : 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 in both their presence but could not find her
glasses so had not been able to read it.
 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