CONTRACT LAW I

REPORT
Void Contract, Voidable Contract and Unenforceable
Contact
GROUP B
GROUP MEMBERS
1. Nurul Syaqira Binti Zairul
Azman
2. Syafinaz Binti Idrus
3. Nur Iman Syuhada Binti
Md Fauzi
4. Raja Shahirah Binti Raja
Iskandar
5. Nur Syafiqa Alissa Binti
Nor Hisham

STUDENT ID
244351
244653
244347
244362
244

CONTENT
PAGE
1. DEFINITIONS
2. DIFFERENCES BETWEEN
THE TYPES OF THE
CONTRACTS
3. DEFINATION OF FREE
CONSENT (Section 14 of Contact
Acts 1950)
4. SITUATION WHERE
CONSENTS ARE NOT GIVEN
FREELY
5. EFFECT OF VOIDABLE
CONTRACT

DEFINITIONS
A valid contract must be comprising of its essential elements which are an offer, an
acceptance, consideration, intention to create legal relation. In some cases, the contracts may
seem valid on the surface as all of the essential elements have successfully been fulfilled but if a
contract is formed without the presence of free consent from either party, it will give a huge
impact on that particular contract and it will be declared as void or voidable and also
unenforceable. The term of free consent is described as a meeting of free and fresh minds of the
two parties of a contract and understand the purpose, terms and conditions in the same way, and
they must not understand it in a different way. This is because, a contract is meant to be entered
voluntarily by the both parties and not by force. The importance of obtaining free consent is
propounded in Section 10(1) of Contracts Act 1950 that all agreements are contracts if they are
made by the free consent of parties competent to contract, for a lawful consideration and with a
lawful object, and are not hereby expressly declared to be void.

DIFFERENCES BETWEEN VOID, VOIDABLE

CONTRACT AND UNENFORCEABLE CONTRACT
According to section 2(g) of Contracts Act, an agreement not enforceable by law is said
to be void. First of all, a void contract is invalid and it is also null so that no rights of any kind
can pass or created under it. For instance, a void contract can be captured in a situation between
an illegal drug dealer and an illegal drug supplier to purchase a specified amount of drugs
because the subject matter of the contract involves illegal matters and unlawful as propounded in
Section 25 of Contracts Act 1950, agreements void if considerations and objects unlawful in part.
A contact can also be declared as void when the contract unreasonably restricts rights and
activities. In relation to this, void contract has an effect as stated in Section 66 of Contracts Act
1950, when an agreement is discovered 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. Another instances of void contracts
that have been considered earlier are those without consideration or too vague to be enforced as
propounded in Section 26 (1) of Civil Law Act 1956 that all contracts or agreements, whether by
parol or in writing, by way of gaming or wagering shall be null and void.
Voidable contracts definition is contrary to the definition of voids contract. A voidable
contract is legally binding and both parties are bound to it but one of the both parties can void the
contract. This is because a voidable contract has all of the essential elements to be enforceable.
An agreement is voidable when consent to agreement is caused by coercion, fraud,
misrepresentation, undue influence and mistake. In accordance to 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. For instance, a contract entered into with a minor could be voidable.
An unenforceable contract is valid but it cant be enforced in a court of law because it
does not comply with certain statutory requirements. For instance, the situation where a hirepurchase agreement that is not in writing. Another example for unenforceable contract is a

contract for prostitution under English Law. English Law does not take prostitution as a crime,
but both requesting a prostitute and making a living of a prostitute are criminal offences. The
contract remains valid as long as the contract is fully performed. Nevertheless, if one of the
parties refuses to complete their part in the contract (either the prostitute after being paid or the
payer after receiving the services), the court will not aid the disappointed party.

DEFINITION OF FREE CONSENT

(Section 14 of Contact Acts 1950)
In order for a contract to be binding, the contracting parties must give their consent
willingly and freely. It is also necessary that consent should be obtained without any interference
of force or pressure. The law requires both parties to enter into a contract with their full and free
consent. If the consent is not freely given, then the contract becomes a voidable contract which
enables the court to rescind or set aside the contract due to lack of consent. Section 14 of
Contracts Act 1950:
Consent is said to be free when it is not caused bya) Coercion, as defined in section 15;
b) Undue influence, as defined in section 16;
c) Fraud, as defined in section 17;
d) Misrepresentation, as defined in section 18; or
e) Mistake, subject to sections 21, 22 and 23.
Consent is said to be so caused when it would not have been given but for the existence of such
coercion, undue influence, fraud, misrepresentation, or mistake.

If one of the factors which are mentioned under section 14 of Contracts Act 1950 exists in the
agreement, the consent is said to have NOT been given freely and voluntarily. Therefore, the
contract may become void or voidable.

SITUATIONS WHERE CONSENT ARE NOT

GIVEN FREELY
1. COERCION
According to Section 15 of 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.
Section 15 of Contracts Act provides for two ways of committing coercion:
1. The commission, or the threat to commit, of any act forbidden by the Penal Code,
and
2. The unlawful detention or threatened detention of any property, to the prejudice of
any person.
In both of the situations above, the act or threat was done in order to make any person
enter into an agreement. Therefore, free consent is an important element to consider in coercion
when parties enter into an agreement. If both parties entered into an agreement willingly, then
there is free consent which makes the contract valid under section 10 of Contracts Act. However,
if there is no free consent by one party, then the contract becomes a voidable contract.
The commission or threat to commit any act forbidden by the Penal Code
The victim of coercion must prove to the court that the defendants act was against the
Penal Code, and which section in the Penal Code forbids it. If the victim or the complainant fails
to do so, then the court will not be able to decide whether the defendant had done what the
complainant had claimed.
In the case of Nuri Asia Sdn Bhd v Fosis Corp Sdn Bhd [2006] 3 MLJ 249, 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. The High Court held that the defendant was indeed
coerced into signing the written guarantee and the written guarantee was executed under certain
circumstances. 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. The court then dismissed the
plaintiffs claim against the defendant.

The unlawful detention or threatened detention of any property, to the prejudice of any
person.
This part of the definition in section 15 of Contracts Act 1950 need not be against the
Penal Code. Also, the property may not only be the property of the victim as it can also be
anybodys property as long as it was used to coerce the victim into entering an agreement.
When one party refuses to part with their property, the other party cannot claim this as
coercion. This can be seen in the case of Teck Guan Trading Sdn Bhd v Hydrotek
Engineering (S) Sdn Bhd [1996] 4 MLJ 331. In this case, the plaintiff and the first defendant
had an agreement where the plaintiff would supply round bars and the first defendant had given a
guarantee of payment. When the plaintiff delivered the supplies, the first defendant accepted the
delivery but was not able to pay, which then led the plaintiff to sue the other defendants for the
balance of payment. There was a dispute on the original price of the supplies, where the first
defendant claimed that the round bars costs RM1,180. However, the plaintiff produced a letter
stating that the first defendant agreed to pay the price of RM1,244. The first defendant then
argued that they initially refused the plaintiffs demand of a higher price, but eventually agreed
to pay due to the fact that the plaintiff refused to supply the bars. The defendants then claimed
that the plaintiffs refusal to supply the bars was an act of unlawful detention in order to get the
first defendant to agree to the higher price. However, the High Court rejected the defendants
argument because when the first defendant agreed to pay the higher price, he did so with his own
free will. Therefore, no coercion was involved. The plaintiffs refusal to provide the supplies was
also not unlawful as they were only exercising their rights over their own property.

2. UNDUE INFLUENCE
According to Section 16 (1) of Contracts Act 1950:
A contract is said to be induced by undue influence where the relations subsisting between the
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.

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.
A victim of undue influence will be able to set the contract aside if he is able to prove that the
offender did use undue influence on him in order to get the transaction. To do so, the victim must
prove that the wrongdoer indeed holds the dominant position in their relationship, and that the
transaction made was of unfair advantage.

In the case of Allcard v Skinner [1887] 36 Ch D 145, 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. 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.
The section above stated that the wrongdoer must hold a dominant authority over the
victim for it to be classified under undue influence. This means that one party has authority or
power over the other and that this power was abused in order to gain any kind of unfair
advantage. Next, the basis of a fiduciary relationship is that the fiduciary agrees to act on behalf
of the beneficiary, who is in a vulnerable position. Examples of fiduciary relationships include
doctor and patient, solicitor and client, and also partners and joint venturers.
Section 16(2)(b) on the other hand stated that a person is also classified to be in a
dominant position if he gets into an agreement of contract with a person whose mental capacity
is permanently of temporarily affected due to age, illness, or mental or bodily distress. This can
be seen in the case of Inche Noriah v Shaikh Allie bin Omar [1929] AC 127. In this case, the
plaintiff was an old lady who relied completely on her nephew, the defendant, which she
executed a land in Singapore to. However, the 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. 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.

3. 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.
In simpler words, section 17 of the Act stated that fraud includes certain acts that are done by
one of the parties to a contract, or with his connivance, or by his agent, with the motive to trick
the other party, or to persuade him to enter into the contract. In fraud, the deceiving party does
not believe in the statement made by them as it was made with the intention to deceive the other
party into entering the contract. In misrepresentation on the other hand, the deceiving party
believes that the statement made was true.
a) Representations as to a fact
Section 17 (a) of Contracts Act 1950 requires that the misled party received a false
representation of fact by the deceiving party. In the case of Kheng Chwee Lian v Wong Tak
Thong [1983] 2 MLJ 320, 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 of 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 owned. The
court held that this whole contract is fraudulent as it was acknowledged that there is one party
inducing the other on the face of untrue representations.

b) Active concealment of a fact

Section 17 (b) of Contracts Act 1950 stated that a contract is considered as a fraud when
one party actively conceals or hides certain information from the other party. However, active
concealment as stated under section 17 (b) must not be confused with silence does not amount to
fraud. The general rule of silence does not amount to fraud is that the alleged party does not do
anything active to conceal any information. Illustration of active concealment of a fact:
A is entitled a land at the death of B. When B dies, C hides the fact that B had died and induced
A to sell the land to C. This contract becomes voidable at the option of A.
c) Fraudulent promises
Section 17 (c) of Contracts Act 1950 speaks of a promise that is made without the
intention of keeping or performing it. This is either the person making the promise knows that he
is not able to keep the promise, or he intends to break the promise in the future. In the case of
MUI Plaza Sdn Bhd v Hong Leong Bank Bhd (No 2) [1998] 7 MLJ 122, the defendant made
a promise to the plaintiff claiming that he would be responsible for any loss or damage suffered
by the plaintiff while the bank remain on the plaintiffs premises. The plaintiff relied on the
defendants promise which then results in the plaintiff suffering loss and damage in terms of loss
of bargaining power and prospective tenants. The plaintiff sued the defendant under section 17(c)
of the Act for making promises without the intention of performing it.
d) Any other act fitted to deceive
Section 17 (d) of Contracts Act 1950 is made to prevent any type of fraud from happening, be
it a small case or a big one. There is no general rule on what act amounts to fraud, but it is up to
the courts to decide based on the acts and circumstances of the case. Fraud is said to be present
when the transaction made between the parties is to deprive one party of its existing right, or
where by a dishonest act a person loses an existing right. In the case of Datuk Jagindar Singh v
Tara Rajaratnam [1983] 2 MLJ 196, the respondent and the first appellant were client and
solicitor. The respondent claimed that she was induced by fraud and undue influence of the first
appellant to transfer her land to the second appellant. The High Court ruled that the appellants
were found guilty of fraud, undue influence, breach of contract and the respondent was awarded
damages.

e) Act or omission as the law specially declares as fraud

Where there are any law that specifies certain acts or omissions to be fraudulent, then those acts
or omissions amount to fraud under section 17 (e) of Contracts Act 1950.
f) Fraud by silence
The general rule states that silence does not constitute to fraud. Thus, a party to a contract is not
bound to disclose any information to the other party. This is a form of passive concealment of
information. However, there are cases where silence does constitute as 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.
There are two circumstances whereby silence may amount to fraud, which includes a
duty to speak and equivalent to speech. In duty to speak, the law provides a position of trust and
confidence upon a person to disclose all relevant information to the other person reposing the
trust and confidence in him in the transaction between them. Illustration (b) of section 17 of the
Act stated that:
B is As daughter and has just come of age. Here, the relation between the parties would make
it As duty to tell B is the horse is unsound.
Equivalent of speech on the other hand can be seen in illustration (c) of section 17 of the Act:
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.

4) MISREPRESENTATION
According to Section 18 of Contracts Act 1950:
Misrepresentation includes
(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, or to the
prejudice of anyone claiming under him; and
(c) causing, however innocently, a party to an agreement to make a mistake as to the substance
of the thing which is the subject of the agreement.

In simpler words, a misrepresentation is a false statement of fact or law which induces the
offeree to enter a contract. Where a statement made during the course of negotiations is classed
as a representation rather than a term an action for misrepresentation may be available where the
statement turns out to be untrue. A misrepresentation must relate to some existing fact, not
something of the future, thus generally excluding statements of intention or opinion.
Types of misrepresentation:
a)

Fraudulent misrepresentation

b)

Innocent misrepresentation

c)

Negligent misrepresentation

In which category a misrepresented statement belongs to depends on the state of mind of a maker
in relation to the untrue statement.
A fraudulent misrepresentation is made with the intent to deceive, while the maker of an innocent
misrepresentation honestly believes that the statement is true although it is untrue.

This can be referred to the case of Derry v Peek (1889) 5 T.L.R. 625 where in a company list
the defendant stated the company had the right to use steam powered trams as oppose to horse
powered trams. However, at the time the right to use steam powered trams was subject of
approval of the Board of Trade, which was later refused. The claimant bought shares in the
company in faith of the statement made and brought a claim based on the alleged fraudulent
representation of the defendant. The court held that the statement was not fraudulent but made in
the honest belief that approval was in the future.

Lord Herschell defined fraudulent misrepresentation as a statement which is made either:

i) knowing it to be false,
ii) without belief in its truth, or
iii) recklessly, careless as to whether it be true or false.
The defendants were not fraudulent in this case as they made a careless statement but they
honestly believed in its truth.
Essentially, it is a misrepresentation made by someone who had reasonable grounds for believing
that his false statement was true. In the recent case of Cleaver and another v Schyde
Investments Limited [2001] EWCA Civ 929, where the parties had bind to contract for the sale
of land. The purchaser secured the annulling of the contract for innocent misrepresentation. A
notice of a relevant planning application had not been passed on by the sellers solicitors. The
seller appealed saying that the judge had been wrong to find that condition 7.1.3 of the Standard
Conditions of sale failed under the 1977 Act.
The Court of Appeal upheld that There is nothing self-evidently offensive, in terms of rationality
and fairness, in a contractual term which restricts a purchasers right to cancel the contract in the
event of the sellers misrepresentation to cases of fraud or recklessness or where the property
differs considerably in quantity, quality or tenure from what the purchaser had been led to expect,
and to restrict the purchaser to damages in all other cases. That is a perfectly rational and
commercially justifiable sharing of risk in the interests of certainty and the avoidance of
litigation.

The last type of misrepresentation is negligent misrepresentation which is defined as a statement

made without reasonable grounds for belief in its truth. The burden of proof being on the
representor to demonstrate they had reasonable grounds for believing the statement to be true as
stated in Section 2(1) of Misrepresentation Act 1967.
This can be referred in the case of Howard Marine v Ogden [1978] QB 574 where the
defendants wished to hire two barges from the plaintiffs. The plaintiffs mentioned a price for the
hire in a letter. At a meeting, the defendants asked about the carrying capacity of the barges. The
plaintiffs' representative replied it was about 1,600 tonnes. The answer was given honestly but
was wrong. It was based on the representative's recollection of the deadweight figure given in
Lloyd's Register of 1,800 tonnes. The correct figure, 1,195 tonnes, appeared in shipping
documents which the representative had seen, but had forgotten.
Because of their limited carrying capacity, the defendant's work was held up. They refused to pay
the hire charges. The plaintiffs sued for the hire charges and the defendants counter-claimed
damages.
By a majority, the Court of Appeal found the plaintiffs liable under s2(1) as the evidence offered
by the plaintiffs was not sufficient to show that their representative had an objectively reasonable
ground for ignoring the carrying capacity figure given in the shipping document and preferring
the figure in Lloyd's Register.

There are few elements where misrepresentation may amounted to:

1.

FALSE STATEMENT OF FACT

An actionable misrepresentation must be a false statement of fact, not opinion or future intention
or law.
In the case of Esso Petroleum v Mardon [1976] QB 801 Court of Appeal, Mr Mardon entered a
rental agreement with Esso Petroleum in respect of a new Petrol station. Esso's experts had
estimated that the petrol station would sell 200,000 gallons of petrol. This estimate was based on
figures which were prepared prior to planning application. The planning permission changed the
prominence of the petrol station which would have an adverse effect on the sales rate. Esso made
no amendments to the estimate. The rent under the tenancy was also based on the wrong
estimate. Consequently it became impossible for Mr Mardon to run the petrol station profitably.
In fact, despite his best actions the petrol station only sold 78,000 gallons in the first year and
made a loss of 5,800.
The Court of Appeal held that there was no action for misrepresentation as the statement was an
estimate of future sales rather than a statement of fact. However, the claimant was entitled to
damages based on either negligent misstatement at common law or breach of warranty of a
collateral contract.

STATEMENTS OF OPINION
A false statement of opinion is not a misrepresentation of fact, some expressions of opinion are
mere puffs. However, where the person giving the statement was in a position to know the true
facts and it can be proved that he could not reasonably have held such a view as a result, then his
opinion will be treated as a statement of fact.
In the case of Smith v Land & House Property Corp (1884) 28 Ch D 7, the plaintiff put up his
hotel for sale stating that it was let to a 'most desirable tenant'. The defendants agreed to buy the
hotel. The tenant was bankrupt. As a result, the defendants refused to complete the contract and
were sued by the plaintiff for specific performance. The Court of Appeal held that the plaintiff's
statement was not mere opinion, but was one of fact.

STATEMENTS AS TO THE FUTURE

A false statement by a person as to what he will do in the future is not a misrepresentation and
will not be binding on a person unless the statement is incorporated into a contract. However, if a
person knows that his promise, which has induced another to enter into a contract, will not in fact
be carried out then he will be liable.
This can be seen in the case of Edgington v Fitzmaurice (1885) 29 Ch D 459 where the
plaintiff shareholder received an issued by the directors requesting loans to the amount of
25,000 with interest. The issue stated that the company had bought a lease of a valuable
property. Money was needed for changes of and additions to the property and to transport fish
from the coast for sale in London. The issue was challenged as being misleading in certain
respects. It was alleged, inter alia, that it was framed in such a way as to lead to the belief that the
debentures would be a charge on the property of the company, and that the whole object of the
issue was to pay off pressing liabilities of the company, not to complete the alterations, or else.
The plaintiff who had taken debentures, claimed repayment of his money on the ground that it
had been obtained from him by fraudulent mis-statements.
The Court of Appeal held that the statement of intention was a statement of fact and lead to a
misrepresentation and that the plaintiff was entitled to rescind the contract. Although the
statement was a promise of intent the court held that the defendants had no intention of keeping
to such intent at the time they made the statement.

STATEMENTS OF THE LAW

A false statement as to the law is not actionable misrepresentation because everyone is presumed
to know the law. However, the distinction between fact and law is not simple.
This can be referred to the case of Pankhania v LB Hackney [2002] EWHC 2441 where the
claimants purchased property encouraged by a representation that the current occupiers of the
property were contractual licensees, whose occupation could be terminated on giving 3 monthsnoticed. In fact the current occupant was in fact a tenant protected under the Landlord and Tenant
Act 1954. This was a misrepresentation as to law which had previously been presumed not to be
an actionable misrepresentation through analogy with case law based on restitutionary claims for
mistake of law. The rule barring recovery for mistake of law was abolished by the House of
Lords in Kleinwort Benson v Lincoln County council.
The High court held that actions based on misrepresentation of law could now be actionable
based upon that change of law. The claimant's action was therefore successful.

SILENCE
Generally, silence is not a misrepresentation. The other party has no obligation to disclose
problems voluntarily as the effect of the maxim caveat emptor. Thus if one party is labouring
under a misapprehension there is no duty on the other party to correct it.
Silence can be seen in the case of Smith v Hughes (1871) LR 6 QB 597 where the claimant had
purchased a quantity of what he thought was old oats having been shown a sample. In fact the
oats were new oats. The claimant wanted the oats for horse feed and new oats brought no use to
him. The seller was aware of the mistake of the claimant but said nothing. The claimant brought
an action against the seller based on mistake and misrepresentation.
The court held both actions failed. The action based on misrepresentation failed as you cannot
have silence as a misrepresentation. The defendant had not mislead the claimant to believe they
were old oats. As the mistake was not as to the fundamental terms of the contract but only a
mistake as to quality, the action based on mistake failed.

However, there are three exceptions to this rule:

(i) HALF TRUTHS
The representor must not misleadingly tell only part of the truth. Thus, a statement that does not
present the whole truth may be regarded as a misrepresentation.
(ii) STATEMENTS WHICH BECOME FALSE
Where a statement was true when made out but due to a change of conditions has become false
by the time it is acted upon, there is a duty to reveal the truth.
(iii) CONTRACTS UBERRIMAE FIDEI
Contracts uberrimae fidei (contracts of the utmost good faith) impose a duty of disclosure of all
material facts because one party is in a strong position to know the truth. Examples would
include contracts of insurance and family settlements.
A material fact is something which would influence a reasonable person in making the contract.
If one party fails to do this, the contract may be avoided
2.

INDUCEMENT/RELIANCE

The false statement must have induced the representee to enter into the contract. The
requirements here are that (a) the misrepresentation must be material and (b) it must have been
relied on.
MATERIALITY
The misrepresentation must be material, in the sense that it would have induced or persuaded a
reasonable person to enter into the contract. However, the rule is not strictly objective:
In Museprime Properties v Adhill Properties [1990] 36 EG 114, the judge referred, with
approval, to the view of Goff and Jones: Law of Restitution that, any misrepresentation which
induces a person to enter into a contract should be a ground for rescission of that contract. If the
misrepresentation would have induced a reasonable person to enter into the contract, then the
court will presume that the representee was so induced, and the burden will be on the representor
to show that the representee did not rely on the misrepresentation either wholly or in part. If,
however, the misrepresentation would not have induced a reasonable person to contract, the

burden will be on the misrepresentee to show that the misrepresentation induced him to act as he
did.
RELIANCE
The representee must have relied on the misrepresentation. There will be no reliance if the
misrepresentee was unaware of the misrepresentation.
There will be no reliance if the representee does not rely on the misrepresentation but on his own
judgment or investigations. There will be reliance even if the misrepresentee is given an
opportunity to discover the truth but does not take the offer up. The misrepresentation will still
be considered as an inducement. There will be reliance even if the misrepresentation was not the
only inducement for the representee to enter into the contract.
This can be seen in the case of Attwood v Small (1838) 6 CI&F 232 where the purchasers of a
mine were told exaggerated statements as to its earning capacity by the sellers. 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.

REMEDIES FOR MISREPRESENTATION

Once an actionable misrepresentation has been established, it is then necessary to consider the
remedies available to the misrepresentee.

(i) RESCISSION
Rescission, is known as setting away the contract, is possible in all cases of misrepresentation.
The aim of rescission is to put the parties back in their original position, as though the contract
had never existed.
The injured party may rescind the contract by giving notice to the representor. However, this is
not always necessary as any act indicating denial, for example; notifying the authorities, may
serve.

BARS TO RESCISSION:
Rescission is an equitable remedy and is awarded at the discretion of the court. The injured party
may lose the right to rescind in the following four circumstances:

(a) AFFIRMATION OF THE CONTRACT

The injured party will sustain the contract if, with full knowledge of the misrepresentation and of
their right to rescind, they expressly state that they really mean to continue with the contract, or
if they do an act from which the intention may be implied.
Note that in Peyman v Lanjani [1985] Ch 457, the Court of Appeal held that the plaintiff had not
lost his right to rescind because, knowing of the facts which gave this right, he proceeded with
the contract, unless he also knew of the right to rescind. The plaintiff here did not know he had
such right. As he did not know he had such right, he could not be said to have elected to affirm
the contract.

(b) LAPSE OF TIME

If the injured party does not take action to rescind within a reasonable time, the right will be lost.
Where the misrepresentation is fraudulent, time runs from the time when the fraud was, or with
reasonable diligence could have been discovered. In the case of non-fraudulent
misrepresentation, time runs from the date of the contract, not the date of discovery of the
misrepresentation.
(c) RESTITUTION IN INTEGRUM IMPOSSIBLE
The injured party will lose the right to rescind if substantial restoration is impossible, for
example if the parties cannot be restored to their original position.
Precise restoration is not required and the remedy is still available if substantial restoration is
possible. Thus, deterioration in the value or condition of property is not a bar to rescission
(d) THIRD PARTY ACQUIRES RIGHTS
If a third party acquires rights in property, in good faith and for value, the misrepresentee will
lose their right to rescind. Thus, if A obtains goods from B by misrepresentation and sells those
to C, who have good faith, B cannot later rescind when he discovers the misrepresentation in
order to recover the goods from C.

(ii) INDEMNITY
An order of rescission may be accompanied by the court ordering an indemnty or in simpler
word; protection. This is a money payment by the misrepresentor in respect of expenses
necessarily created in complying with the terms of the contract and is different from damages.
(iii) DAMAGES

Fraudulent misrepresentation

Where there has been a fraudulent misrepresentation, the innocent party is allowed to rescind the
contract and claim for damages. The damages that are awarded are not based on contractual
principles but the damages available in the tort of deceit.
This can be seen in the case of Doyle v Olby [1969] 2 QB 158 where the claimant, Doyle,
bought a business from the defendant, Olby, as a result of a several fraudulent misrepresentations
relating to the profitability and operations of the business. The trial judge assessed damages on
contractual principles as to what position the claimant would have been in had the statements
been true and awarded a sum of 1,500. However, the claimant had suffered loss to the extent of
5,500 as a result of entering the contract. The claimant appealed on the assessment of damages.

It was held that the contractual damages are not valid to misrepresentation since a representation
is not a term of a contract. Where there has been a fraudulent misrepresentation damages should
be assessed in the tort of deceit.

Negligent misrepresentation

Under Section 2(1) Misrepresentation Act 1967 states that the same remedies are available where
the statement was made negligently as if it were made fraudulently. Royscott v Rogerson
confirmed that the principle in fraudulent misrepresentation relating to tortious damages applied
also in negligent misrepresentation where the defendant, a car dealer, mis-stated the particulars
of a sale by hire purchase to the finance company, the claimant. The finance company operated a
rule whereby they would only advance money if a 20% deposit was paid by the company. The
defendant stated the price of the car was 8,000 and the deposit paid was 1,600 leaving the loan
advanced of 6,400. This was the amount the customer needed to borrow, although the price and

deposit values stated were false. The customer later defaulted on the hire purchase agreement and
sold the car on. The claimant brought an action against the defendant seeking damages of 3,625
representing the difference between 6,400 paid to the defendant minus the sum of 2,774 paid
by the customer before defaulting. The defendant argued that there was no loss since the
defendant acquired title to the car which was worth 6,400. The trial judge accepted neither
submission. He held that if the figures on the hire-purchase agreement had shown a deposit of
1200 and a cash price of 6,000, then the Finance Company would have paid 4,800 to the
Dealer and would have had no recourse against it since the deposit would have been correctly
shown as 1200. Because the Finance Company were induced to pay an extra 1600, that was
the relevant loss suffered by the Finance Company. Both parties appealed.
The court held that the damages under s. 2(1) Misrepresentation Act 1967 should be assessed on
the basis of damages available in the tort of deceit not general contractual principles. This applies
in the absence of fraud. The wording of section 2(1) was clear and not capable of an alternative
construction.

Innocent negligent

Under Section 2(2) Misrepresentation Act 1967 the remedies for an innocent misrepresentation
are rescission or damages in lieu of rescission. The claimant cannot claim both. Damages are
assessed on normal contractual principles.

5. 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 subjectmatter 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.
The English Contract Law had recognised three types of mistakes:
1. Common mistake
2. Mutual mistake
3. Unilateral mistake
Where the courts make a finding of mistake this will generally lead the contract to be void ab
initio (from the beginning) so, it is as if the contract never existed. This signifies an important
difference from voidable contracts. Where a contract is voidable, the contract exists and it is
valid until such time as the innocent party takes action to set the contract aside. Thus where there
is a voidable contract a person gaining goods under a contract will obtain good title to those
goods. If a contract is void, no title passes. People this days tend to misinterpret the meaning of
void and voidable contract, somehow affect their dealings relating contract.
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. This can be
referred to the case of Couturier v Hastie (1856) 5 HLC 673 where 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.
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.
The second category is Res sua which is defined as where the goods already belong to the
purchaser. This can be seen in the case of Cooper v Phibbs (1867) LR 2 HL 149 where 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. The lease was held to be voidable for mistake as the nephew was already
had a beneficial ownership right in the fishery. 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.
The third category is Mistake as to quality which only available in very limited matter. This can
be referred to the case of Bell v Lever bros [1932] AC 161 House of Lords where Lever bros
appointed Mr Bell and Mr Snelling (the two defendants) as Chairman and Vice Chairman to run
a subsidiary company called Niger. Under the contract of employment the appointments were to
run 5 years. However, due to poor performance of the Niger Company, Lever bros decided to
combine Niger with another subsidiary and make the defendants terminated from Niger. Lever
bros made a contract providing for substantial payments to each if they agreed to terminate their
employment. The defendants accepted the offer and received the payments. However, it later
revealed that the two defendants had committed serious breaches of duty which would have
permitted Lever bros to end their employment without notice and without compensation. Lever
bros brought an action based on mistake in that they entered the agreement thinking they were
under a legal obligation to pay compensation. The House of Lords held that this was only a
mistake as to quality and did not render the contract basically different from that which it was
believed to be. The action therefore failed.
The next type of mistake is Mutual mistake. 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. This can be seen in the case of Raffles v Wichelhaus (1864) 2 H & C 906 Court of
Exchequer where 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. 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).
The last type of mistake is Unilateral Mistake. 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. The case refer is Hartog v Colin &
Shields [1939] 3 All ER 566 where 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.
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.

This can be seen in the case of Kings Norton Metal co ltd v Edridge, Merrett & co ltd (1897) 14
TLR 98 where 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.
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 absentes can be seen in
the case of Cundy v Lindsey (1878) 3 App Cas 459 where a rogue, Blenkarn, hired a room at 37
Wood street, Cheapside. This was in the same street that a highly reputable firm called Blenkiron
& Son traded. The rogue ordered a quantity of handkerchiefs from claimant disguising the
signature to appear as Blenkiron. The goods were dispatched to Blenkiron & co 37, Wood street
but payment failed. Blenkarn sold a quantity the handkerchiefs on to the defendant who
purchased them in good faith and sold them on in the course of their trade. The claimants
brought an action based in the tort of conversion to recover the value of the handkerchiefs. The
success of the action depended upon the contract between the Blenkarn and the claimant being
void for mistake. If the contract was void, title in the goods would not pass to the rogue so he

would have no title to pass onto the defendants. Ownership of the goods would remain with the
claimant. It was held that the contract was void for unilateral mistake as the claimant was able to
demonstrate an identifiable existing business with whom they intended to contract with.
Inter praesentes is kmown 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

This can be referred in the case of Lewis v Avery [1971] 3 WLR 603 Court of Appeal where the
claimant sold his mini cooper to a rogue claiming to be the actor Richard Greene (who played
Robin Hood in a series at the time). The rogue showed the claimant a Pinewood studio pass
which had Richard Greene's name and an address on it. The claimant then let him take the car
with the log book in exchange for a cheque for 430 which was later dishonoured. The rogue
sold the car on to Mr Avery for 200 claiming to be the claimant. The claimant sought return of
the car on the grounds that the contract was void for mistake. Court held that the contract was not
void for mistake. The case of Ingram v Little was criticised by all of the judges although not
formally overruled. The presumption that the parties intend to deal with the person in front of
them was not displaced.

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.
This mistake can be seen in the case of Saunders v Anglia Building Society (Gallie v Lee) [1970]
AC 1004- House of Lords where 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. 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 eg blind, illiterate or incapacitated through age.

EFFECT OF VOIDABLE CONTRACT

(a) Undue Influence
Generally speaking, the innocent party has the option to rescind or affirm the
contract. 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. The effects of undue influence can be seen in the case of Singh v Budin
Bin Abdullah (1918) 1 FMSLR 348, a presumption of undue influence on the grounds of
unconscionable bargain was upheld when a moneylender sued a borrower on a loan at 36 per
cent interest. Furthermore, the defendant was an illiterate man. The courts judgement in favour
of the lender but reduced the interest to 18 per cent from the original claim for 36 per cent.
(b) Misrepresentation
There are distinction between innocent and fraudulent misrepresentation. The
agreement is voidable at the option of innocent party when there is consent to an agreement.
Section 19 of the Contracts Act 1950 provides as follows :
(1) when consent to an 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.
(2) A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he
thinks fit, insist that the contract shall be performed, and that he shall be put in the position in
which he would have been if the representations made had been true.
Following 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. The effects of misrepresentation can be seen
in the case of Sim Thong Realty Sdn Bhd v Teh Kim Dar @ Tee Kim [2003] 3 MLJ 460, CA.
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. 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.
(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. For instance, a mistake agreement can be
illustrated under Section 66 (a), where A pays B $1000 in consideration of Bs promising to
marry C who is As daughter. C is dead at the time of the promise. The agreement is void and B
must repay A the $1000.
The court may rescind the contract for mistake, but it is impossible to do it so under common law
because it may apply equitable principles to set it aside. However, the right to rescind is lost if
the other party cannot be restored to substantially the same position as if the contract had not
been made which shows that he cannot rescind if he has destroyed the subject matter of the
contract.
There is also another remedy that available. For example, when a mistake can be found in their
agreement which is made in writing and the remedy falls under this category is known as
rectification. Section 30 of Specific Relief Act 1950 states when, through fraud or a mutual
mistake of the parties, a contract or other document in writing does not truly express their
intention, either party, or his representative in interest, may institute a suit to have the instrument
rectified. In this case, the court may exercise its discretion to rectify the instrument to express
its real intention. This remedy can be illustrated in a case of Lim Hong Shin v. Leong Fong Yew
(1918) 2 F.M.S.L.R. 187

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).