Topic 5 Law of Contract (Free Consent To Contract)

Topic Law of
Contract (Free
5 Consent to
Contract)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Identify the importance of free consent to contract.
2. Describe the elements that affect the free consent of the
contracting parties;
3. Examine the effect of contracts made under coercion, undue
influence, fraud, misrepresentation and mistake;
4. Explain the circumstances under which a contract does not
become voidable by reason of lack of free consent; and
G 5. Discuss the principle on the burden of proof in contracts made
without free consent.
G
INTRODUCTION
Previous chapters have discussed the important elements to form a valid
contract. Apart from the elements, free consent of the parties to enter into
contract is also essential in determining the legality of the contract. As provided
by Section 10(1) of the Contracts Act, 1950 that all agreements are contracts if
they are made by the free consent of parties competent to contract..... There are
various factors which can affect an agreement once it has been formed. These
factors which affect the true consent of one or both parties may release the party
from contractual obligation. Under Section 13 of the Contracts Act, 1950, two or
TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT) ! 59
more persons are said to consent when they agree upon the same thing in the
same sense. Therefore, under Section 14, consent must be free and not caused by
Refer to Figure 5.1 :
Coercion (Section 15).
Undue influence (Section 16).
Fraud (Section 17).
Misrepresentation (Section 18).
Mistake (Section 21, 22 and 23).
Figure 5.1: Factors which affect consent
5.1 COERCION
Coercion under Section 15 of the Contracts Act 1950 means 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.
It means, if a person commits or threatens to commit any act forbidden under the
Penal Code 1950 (the criminal law of the country) with the intention to make the
other party enter into a contract with him, then he is said to have employed
coercion.
60 TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT)
According to Explanation to Section 15, it is immaterial whether the Penal Code

is or is not in force in the place where the coercion is employed. What is meant
by the explanation provision is illustrated below:
A, on board an English ship on the high seas, causes B to enter into an

agreement by an act amounting to criminal intimidation under the Penal
Code. A afterwards sues B for breach of contract at Taiping. A has employed
coercion, although section 506 of the Penal Code was not in force at the time
when or place where the act was done.
Coercion under Section 15 covers the common law duress which means actual
violence or threats of violence to the contracting party. In the case of:
Kesarmal s/o Letchman Das v. Valiappa Chettiar [1954] MLJ 119, the Court
held that: a transfer executed under the order of the Sultan, issued under
duress of two Japanese officers during the Japanese Occupation of Malaya
was invalid.
In the case, consent was not freely given and the transfer became voidable at the
will of the party whose consent was so caused.
In another case of Chin Nam Bee Development Sdn Bhd v. Tai Kim Choo
& 4 Ors. [1988] 2 MLJ 117, the respondents purchased houses to be
constructed by the appellants. Each respondent had signed a sale and
purchase agreement to purchase a house at Rm 29,500. The respondent was
then made to pay an additional amount of Rm 4,000. The issue was
whether the additional payment was made voluntarily or under threat by
the appellants to cancel the respondents booking.
The Court held that: The payment was not voluntary and had been made
under threat. There was coercion as defined in Section 15 of the Contracts
Act 1950.
5.1.1 Effect of Coercion

Where there is element of coercion in a contract, the contract will become
voidable at the option of the party whose consent was so caused. Section 19(1) of
the Contracts Act, 1950 provides that when consent to an agreement is caused
by coercion, ....., the agreement is a contract voidable at the option of the party
whose consent was so caused.
The term voidable refers to an agreement which gives one or more parties but
not the other, the choice of either affirming or rejecting it. Thus, the agreement is
valid and binding until the party entitled to avoid it chooses to do so.
5.2 UNDUE INFLUENCE

When a person enters into a contract under the influence exercised by another
person, the contract can be rescinded on the ground of undue influence.
According to Section 16(1) of the 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.
Based on the wording of Section 16(1), the two important aspects of undue
influence are :
(a) The domination of the will by one party over the other; and
(b) Obtaining an unfair advantage.
Further, in Section 16(2), a person is said to be in a position to dominate the will

of another where:
(a) He holds a real or apparent authority over the other; or
(b) He stands in a fiduciary relation to the other; or
(c) 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.
5.2.1 Real or Apparent Authority

A person holds a real or apparent authority over the other, for instance; parents
authority over a child and husbands authority over a wife. For example:
Illustration (a)
A, having advanced money to his son, B, during his minority, upon B's
coming of age, obtains, by misuse of parental influence, a bond from B for a
greater amount than the sum due in respect of the advance. A employs undue
influence.
5.2.2 A Fiduciary Relation

A person stands in a fiduciary relation to the other, for instance; the relationship
of a solicitor-client, a doctor-patient, a trustee-beneficiary and a religious adviser-
follower. For example:
Illustration (b)
A, a man enfeebled by disease or age, is induced, by B's influence over him as

his medical attendant, to agree to pay B an unreasonable sum for his
professional services. B employs undue influence.
Undue influence applies to every case where influence is acquired and abused, or
where confidence is reposed and betrayed.
In the case of Tate v. Williamson (1866) LR 2 Ch App 55,
T (an Oxford undergraduate), aged twenty three, was being pressed to pay his
college debts. He asked his great-uncle to advise him how he should find the
means to pay. The great-uncle was unable to advise in person, owing to ill
health, thus, he deputed the defendant (his nephew) to do so. Conversations
took place between T and the defendant in which T expressed the desire to
sell part of his estate. The defendant offered to buy it for 7000. Before the sale
was completed, the defendant obtained a report from a surveyor on the
property and it was valued at 20,000. The defendant did not disclose this fact
to T, but proceeded with the purchase.
It was held that: The purchase must be set aside. The defendant, having been
asked to give advice, stood in a confidential relationship to T. This prevented
him from becoming a purchaser of the property without the fullest
communication of all material information which he had obtained as to its
value.
Another example of a case where a confidential relationship arises is the case of:
Tufton v. Sperni [1952] 2 T.L.R. 516.
The plaintiff and defendant were fellow members of a committee formed to

establish a Moslem cultural centre in London. It was understood that the
plaintiff would provide the funds for the centre. The defendant induced the
plaintiff to buy his (defendants) own house for the purpose at a price which
grossly exceeded its market value.
The Court of Appeal set the contract aside.
5.2.3 Mental Capacity is Temporarily or Permanently

Affected by Reason of Age, Illness, or Mental;
or Bodily Distress
When a person makes a contract with another person whose mental capacity is
temporarily or permanently affected by reason of age, illness, or mental; or
bodily distress, the presumption is that the person will dominate another
persons will, to obtain advantage which is unfair to the other person. The other
person could be old or sick or suffering from certain illnesses or diseases or in a
state of unsound mind, that affect his mental capability and also physical
suffering.
In the case of Che Som bt Yip & Ors v. Maha Pte Ltd & Ors [1989] 3 MLJ 468,
the Court held that: the charge document that has been signed by the third
plaintiff who was unsound mind could be set aside at his option.
5.2.4 Burden of Proof

According to Section 16(3)(a) of the Contracts Act 1950, where a person who is
in a position to dominate the will of another, enters into a contract with him, and
the transaction appears, on the face of it or on the evidence adduced, to be
unconscionable, the burden of proving that the contract was not induced by
undue influence shall lie upon the person in a position to dominate the will of the
other. For example:
Illustration (c)
A, being in debt to B, the moneylender of his village, contracts a fresh loan on

terms which appear to be unconscionable. It lies on B to prove that the
contract was not induced by undue influence.
In case where undue influence is shown to exist, the presumption of its exercise
can be rebutted by proof that the party reposing the confidence has formed a free
judgement and independent of any kind of control. The way to establish this is
by showing that the person has received independent legal advice and took it.
However, a transaction will also be upheld despite the absence of independent

advice. The essential is to show that the transaction was the result of the free
exercise of independent will.
In the case of Lloyds Bank, Ltd. v. Bundy [1975] QB 326,
The defendant, an elderly farmer, and his only son, had been customers of
the plaintiff bank for many years. The son founded a company which banked
at the same bank. In 1966, the defendant guaranteed the companys overdraft
for 1,500 and charged his farm to the bank to secure that sum.
Subsequently, the overdraft was increased and the bank sought further
security. In May 1969, the defendant took legal advice and signed a further
guarantee in favour of the bank for 5,000 and a further charge for 6,000. In
December 1969, the bank manager visited the defendant and indicated to
him that the continuance of the companys overdraft facility was dependent
upon the defendant executing in favour of the bank a further guarantee for
11,000 and a further charge for 3,500. The bank manager did not advise the
defendant to seek independent advice, and the defendant signed the
required guarantee and charge without such advice.
The Court of Appeal held that: The last guarantee and charge should be set
aside for undue influence because a special relationship of confidence
existed between the defendant and the bank in the particular case.
Other important cases of undue influence are the case of:
Salwath Haneem v. Hadjee Abdullah (1894) 2 SSLR 57.
The plaintiffs husband executed a conveyance of property belonging to

himself and the plaintiff to his brothers, B and C. The plaintiff agreed to the
conveyance but after her husbands death, she brought an action seeking to set
aside the agreement and the conveyance.
The Court held that: A confidential relationship existed between the plaintiff
and B and C. The burden of proof therefore lay on B and C to show that the
plaintiff fully understood the transaction and executed the conveyance freely
and without being subject to undue influence. Since B and C failed to
discharge the burden, the transaction was set aside.
And the case of:
Datuk Jaginder Singh & Ors. v. Tara Rajaratnam [1983] 2 MLJ 196.
The respondent was the registered proprietor of a land. She claimed that she
was induced by the fraud and undue influence of the 1st and 2nd appellant to
transfer her land to the 2nd appellant.
The Federal Court held that: The appellants and respondent were in a
solicitor-client relationship and the transaction was unconscionable.
Therefore, the burden was on the appellants to rebut the presumption of
undue influence. In this case, the appellants had not discharged that burden
and thus the transaction was set aside.
5.2.5 Effect of Undue Influence

Where there is element of undue influence in a contract, the contract will become
voidable at the option of the party whose consent was so caused. Section 20 of
the Contracts Act 1950 provides that when consent to an agreement is caused by
undue influence, the agreement is a contract voidable at the option of the party
SELF-CHECK 5.1
(a) What is meant by coercion?
(b) What are the important ingredients to establish undue
influence?
(c) What is the legal effect of a contract made under coercion and
undue influence?
(d) Who must prove that a contract is not induced by undue
influence?
(e) In what type of relationship a person is said to be in a position
to dominate the will of another in a contract?
(f) What is the importance of an independent legal advice in
undue influence cases?
ACTIVITY 5.1
Discuss the following cases by applying the principle of law on free

consent of contracting parties:
(a) Mr Best lived with Mr Hard for many years in a house owned by
Mr Best. Mr Hard was a man given to violence. After he
threatened Mr Best, Mr Best sold the house to Mr Hard for
RM30,000. A year later, Mr Hard died and his widow claimed the
ownership of the house. However, Mr Best wanted to set aside the
sale of the house to Mr Hard on the ground of duress. Explain
whether he can succeed.
(b) One evening, Jack met Susan and told her that Adam would sue
him for his failure to pay the money he owed Adam, amounting
to RM100,000. After Jack revealed his problem to Susan, Susan
persuaded Jack to sell his bungalow to her at the price of
RM100,000, to enable Jack to pay up his debt to Adam. Jack
immediately agreed with Susans proposal because Susan was the
only one in his heart. Jack had always listened to Susan and
would fulfil Susans wishes. A contract to transfer the bungalow
to Susan was done and six months later, Susan left Jack to marry
her friend, Mark. Jack was frustrated and happened to know that
his bungalow worth RM300,000 at the time of the transfer. Now,
Jack decided to set aside the contract on the ground of undue
influence. Discuss.
5.3 FRAUD
Fraud refers to acts committed by a party to a contract with the intent to deceive
the other contracting party. According to Section 17 of the 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.
It means fraud will exist when the party to a contract is suggesting a fact
which is not true to another party, and he himself knows that the fact is not
true. In the case of:
Letchemy Arumugam v. Annamalay [1982] 2 MLJ 198,
The plaintiff, an illiterate Indian woman rubber tapper, claimed to

rescind the sale and purchase agreement made with the defendant on
the ground of fraudulent misrepresentation. According to the plaintiff,
she was induced to enter into the agreement whereby the defendant
had fraudulently represented to the plaintiff that she was signing for a
loan document and also other documents to free her land from a
charge. In actual fact, she was signing a sale agreement relating to her
land in Port Dickson.
The Court held: The evidence clearly showed that the defendant had
exercised fraud and therefore the plaintiff was entitled to rescind the
contract.
(b) The active concealment of a fact by one having knowledge of belief of the
fact.
An example of this act is provided in the following illustration in Section 19

of the Contracts Act 1950.
Illustration (c)
B, having discovered a vein of ore on the estate of A, adopts means to conceal,

and does conceal, the existence of the ore from A. Through As ignorance, B is
enabled to buy the estate at an undervalue. The contract is voidable at the
option of A.
(c) A promise made without any intention of performing it.

(d) Any other act fitted to deceive.
(e) Any such act or omission as the law specially declares to be fraudulent.
Notwithstanding the above principles, Explanation to Section 17 states that,

mere silence as to facts likely to affect the willingness of a person to enter into a
contract is not fraud.
Illustration (a), Section 17
A sells, by auction, to B, a horse which A knows to be unsound. A says

nothing to B about the horses unsoundness. This is not fraud in A.
Illustration (d), Section 17
A and B, being traders, enter upon a contract. A has private information of a

change in prices which would affect Bs willingness to proceed with the
contract. A is not bound to inform B.
An example of case to illustrate the principles:
In Keates v. Lord Cadogan (1851) 10 C.B. 591,
the plaintiff sued for damages arising from the defendants fraud in letting to
the plaintiff a house which he knew to be required for immediate occupation
(without disclosing that it was in a ruinous condition).
The Court rejected the claim and held that there was nothing amounting to
deceit (fraud).
However, the same Explanation (Section 17) continues to provide that,

......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."
The above statement means, there are circumstances in which failure by one
party to speak out may amount to fraud.
Firstly, where there is a legal duty to disclose the material facts (duty of
disclosure) to the other party in a contract. This duty arises where the
relationship between the contracting parties is in the nature of fiduciary
relationship, as in a solicitor-client relationship. For instance:
Illustration (b), Section 17
B is As daughter and has just come of age. Here, the relation between the
parties would make it As duty to tell B if the horse is sound.
Secondly, where silence is equivalent to speech. For instance:
Illustration (c), Section 17
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.
(Here, the act of A keeping silence means, approving Bs statement that the
horse is sound).
5.3.1 Effect of Fraud

Where there is element of fraud in a contract, the contract will become voidable
at the option of the party whose consent was so caused. Section 19(1) of the
Contracts Act 1950 provides that when consent to an agreement is caused by
......., fraud, ........, the agreement is a contract voidable at the option of the party
However, according to Exception to Section 19 of the 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.
This means, if the party who was deceived has the means or capable of
investigating the truth of the facts given by the other party, by taking reasonable
appropriate measures, then the untruth facts cannot render the contract void.
Thus, the contract cannot be rescinded. In the case of:
Tan Chye Chew & Anor v. Eastern Mining & Metals Co Ltd [1965] 1 MLJ
201,
The Court held that: The respondent had sufficient means to carry out his
own inspection or investigation in determining the truth of the facts in their
contract. Thus, there was no fraud on the appellants part.
Further, Explanation to Section 19 also provides that, a fraud or

misrepresentation which did not cause the consent to a contract of the party on
whom the fraud was practised; or to whom the misrepresentation was made,
does not render a contract voidable.
This means, the false statement does not give rise to a cause of action if it has not
induced or caused the other party to enter into the contract. The representee must
have relied on the statement of the representor. In the case of:
Mithoolal v. Life Insurance Corp of India AIR 1962 SC 814,
The Indian Supreme Court stated that: A false representation, whether

fraudulent or innocent, is irrelevant if it has not induced the party to whom
it is made to act upon it by entering into the contract.
The burden of proving fraud lies on the party making the claim.
5.4 MISREPRESENTATION
Misrepresentation refers to an untrue statement made by a representor and that
induces the other party to enter into a contract. Misrepresentation under Section
18 of the Contracts Act 1950 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.
(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 brief, misrepresentation is a representation of untrue or misleading

statement of fact, made by a party to the contract, to induce the other party
to enter into the contract. The difference between fraudulent
misrepresentation and misrepresentation under Section 18 is that,
misrepresentation under Section 18 is made without any intention to deceit.
In other words, a misrepresentation in which no element of fraud is
present. This is because the party making such a statement honestly
believes in the truth of the statement, or negligently or innocently makes
such statement which is untrue or causes another to make a mistake of fact.
It is important that the statement represented is a statement of fact and not

only a statement of opinion. In the case of:
Bisset v. Wilkinson [1927] AC 177,
The respondents agreed to purchase from the appellant certain lands

at Avondale, in the Southern Island of New Zealand, for the purpose
of sheep-farming. The respondents relied on the appellants statement
that he estimated the lands to carry two thousand sheep. The
appellant had not, and no other person had at any time, carried on
sheep-farming on the lands in question. When the appellant claimed
the balance of the purchase price, the respondents counter-claimed to
rescind the contract on the ground of misrepresentation.
The Court held that: The statement was merely of an opinion which
the appellant honestly held. The claim to rescind the contract failed.
5.4.1 Effect of Misrepresentation

Where there is element of misrepresentation in a contract, the contract will
become voidable at the option of the party whose consent was so caused. Section
19(1) of the Contracts Act 1950 provides that when consent to an agreement is
caused by ......., or misrepresentation, the agreement is a contract voidable at the
option of the party whose consent was so caused.
However, according to Exception to Section 19 of the Contracts Act, 1950, if

such consent was caused by misrepresentation or ......., the contract, nevertheless,
is not voidable, if the party whose consent was so caused had the means of
discovering the truth with ordinary diligence. For instance:
A, by a misrepresentation, leads B erroneously to believe that five hundred

gantangs of indigo are made annually at As factory. B examines the accounts
of the factory, which show that only four hundred gantangs of indigo have
been made. After this, B buys the factory. The contract is not voidable on
account of As misrepresentation.
Further, Explanation to Section 19 also provides that, a ...... misrepresentation

which did not cause the consent to a contract of the party ........; to whom the
misrepresentation was made, does not render a contract voidable.
This means, the act of misrepresentation does not give rise to a cause of action if
it has not induced or caused the other party to enter into the contract. The
representee must have relied on the statement of the representor.
SELF-CHECK 5.2
(a) What is meant by fraud and misrepresentation?
(b) What is the difference between fraudulent misrepresentation
and innocent misrepresentation?
(c) What is the legal effect of a contract made under fraud and
misrepresentation?
(d) What is meant by silence is no fraud?
(e) Is there any exception to the above principle?
(f) Under what circumstance a contract cannot become voidable by
reason of fraud and misrepresentation?
(g) What is the implication of not exercising ones ordinary
diligence to discover the truth of a statement made in a contract
under fraud and misrepresentation?
ACTIVITY 5.2
Discuss the following problems by applying the principles of law on
consent of the contracting parties:
(a) Tim is a mechanic who wishes to take a partner into his business.
During negotiations between Tim and Kyra, Tim states that the
income of the business is RM60,000 a year. The accounts which
Tim produces show that the income is not quite RM60,000 a year
and Kyra asks about the balance. Tim then produces further
accounts to show how the figure is made up. However, Kyra
does not examine the accounts in detail but agrees to become a
partner. Later, Kyra discovers the true position and seeks to
rescind the contract on the ground of fraud. Advise Tim.
(b) Jade was induced to lend money to a company by a
representation made by its directors that the money would be
used to improve the companys buildings and generally expand
the business. In fact, the directors intended to use the money to
pay off the companys existing debts because the creditors were
pressing hard for payment. Jade then discovered that she had
been misled and sought the legal advice to sue the directors for
damages for fraud and misrepresentation. Advise Jade.
5.5 MISTAKES
Mistake under the Contracts Act 1950 includes a mistake as to a matter of fact (by
one or both contracting parties) and mistake as to any law in force or not in force
in Malaysia. Sections 21 and 23 of the Contracts Act 1950 provide for the effect of
a contract entered into under a mistake of fact. Under Section 21, both parties to
the contract are under a mistake of fact, and under Section 23, only one of the
parties is under a mistake of fact which is essential to the contract made.
5.5.1 Mistake of Fact

According to Section 21, where both parties to an agreement are under a
mistake as to a matter of fact essential to the agreement, the agreement is void.
And according to Section 23, a contract is not voidable merely because it was
caused by one of the parties to it being under a mistake as to a matter of fact.
The above provisions provide that if the mistake of fact is done by both parties in
a contract, the contract will be void. But if the mistake is done by one of the
parties to a contract, then the contract will not be voidable. Examples of cases are
illustrated below:
Illustration (a), Section 21
A agrees to sell B a specific cargo of goods supposed to be on its way from

England to Kelang. It turns out that, before the day of the bargain, the ship
conveying the cargo had been cast away and the goods lost. Neither party was
aware of the facts. The agreement is void.
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.
Illustration (c), Section 21
A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead
at the time of the agreement, but both parties were ignorant of the fact. The
agreement is void.
Section 21 of the Contracts Act 1950 covers the English common law classification
of common mistake and mutual mistake. Common mistake occurs when both
parties make the same mistake as to the subject matter of the contract, while
mutual mistake occurs when both parties misunderstand each other. In the case
of:
Raffles v. Wichelhaus (1864) H&C 906,
Two parties agreed to a sale of a cargo of cotton arriving in London by a

ship called The Peerless, sailing from Bombay. But unknown to both
parties, there were two ships of the same name both leaving from Bombay
at different times. They were both negotiating under a mistake and had in
mind of different ships. Therefore, the contract of sale was ruled void for
mutual mistake.
Section 23 covers the unilateral mistake in English common law. The example of
case is:
Tamplin v. James (1898) 15 ChD 215,
B made a successful bid at an auction for the sale of a public house under
the mistaken belief that a certain field was included in the lot when in fact,
it was not. The contract was held to be valid by the English court.
5.5.2 Mistake of Law

Mistake of law is provided under Section 22 of the Contracs Act 1950. Section 22
states, 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.
For example:
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.
Thus, if the mistake is made by the contracting parties as to the law in force in
Malaysia, the contract is not voidable. But if the mistake is made as to the law not
in force in Malaysia, then the contract is void.
5.5.3 Mistake as to Document

A party who has made a mistake as to the nature of a document he has signed, is
bound by the terms of the contract.
In Subramaniam v. Retnam [1966] 1 MLJ 172,
The defendant had signed a written acknowledgment of a loan provided in

English language. Even if the defendant was ignorant of the language, he was
bound by the terms he had signed (provided there was no fraud or
misrepresentation).
However, there is an exception in English law that allows the defence of non est
factum, and the Malaysian courts applied the principle in the local cases. Non est
factum means it is not his deed. Thus, it is a plea that the agreement is not the
act of the person. In the case of:
Awang bin Omar v. Haji Omar & Anor [1949] MLJ Supp 28,
The plaintiff and the second defendant entered into a contract and the
performance was guaranteed by the first defendant (who was induced by the
second defendant, to sign a document). The first defendant did not know
English and he was persuaded to sign in the mistaken belief that he was
merely witnessing his brothers signature.
The High Court ruled: There was a mistake as to the nature of the document
signed and therefore, the first defendant was not liable.
5.5.4 Effect of Mistake

When a contract is void (for mistake), according to Section 66 of the Contracts
Act 1950, any person who has received any advantage under the agreement is
bound to restore it or to make compensation for it to the person from whom he
received it. An example is illustrated below:
Illustration (a)
A pays B $1,000 in consideration of Bs promise to marry C (As daughter). C

is dead at the time of the promise. The agreement is void, but B must repay A
the $1,000.
Section 30 of the Specific Relief Act, 1950 also provides remedy of rectification in
cases where the parties made a contract under a mistake and the contract does
not accurately record the true intention of the parties.
Section 30 states, when, through fraud or a mutual mistake of the parties, a

contract or other instrument in writing does not truly express their intention,
either party, or his representative in interest, may institute a suit to have the
instrument rectified..... the court may at its discretion rectify the instrument so as
to express that intention, so far as this can be done without prejudice to rights
acquired by third persons in good faith and for value.
It is also important that the order to rectify must not be prejudicial to the rights of
an innocent third party. An example is provided in the illustration below:
Illustration (a)
A, intending to sell to B his house and one of three godowns adjacent to it,
executes a conveyance prepared by B, in which, through Bs fraud, all three
godowns are included. Of the two godowns which were fraudulently
included, B gives one to C and lets the other to D for rent, neither C nor D
having any knowledge of the fraud. The conveyance may, as against B and C,
be rectified so as to exclude from it the godown given to C, but it cannot be
rectified so as to affect Ds lease.
Under the English common law, the remedy of rectification is available in equity.
The local case below is a case where rectification of a document was granted to
the claimant.
In Lim Hong Shin v. Leong Fong Yew (1918) 2 FMSLR 187,
The appellant, Lin Hong shin (and his predecessors) had always been
in possession of the middle lot. A third party and his predecessors had
always been in possession of the bottom lot. By mistake, the
predecessor of the appellant was registered as owner of the top lot, and
the predecessors of the claimant-respondent as owners of the middle
lot.
The High Court ruled: The mistake was common to all parties, so that
it could rectify the instrument so as to express the real intentions.
SELF-CHECK 5.3
(a) What is the effect of a contract made under a mistake of fact?

(b) What is the difference between common/mutual mistake and
unilateral mistake?
(c) What is the effect of a contract made under a mistake of law?
(d) What is the meaning of the rule of non est factum?
(e) Is the English common law rule of non est factum apply to the
Malaysian cases?
(f) Is the remedy of rectification available in mistake cases?
ACTIVITY 5.3
Discuss the following cases by applying the principles of law on free
consent of the contracting parties:
(a) Nadia agrees to buy a camera and Hans agrees to sell the same.
Explain how the mistakes in the following would affect the
contract:
(i) Nadia believes that she is obtaining credit over four months
whereas Hans believes that it is a cash sale.
(ii) Nadia believes that he is buying from Vince and not from
Hans.
(b) Mr Sam advertised his Durian Orchard for sale. Kamal was
one of those who was interested in the orchard because he had
seen Mr Sam using the adjacent field to graze cows. Kamal
always wanted to graze cows that would bring him profit apart
from maintaining the orchard. Later, Kamal obtained the details
of the sale advertisement which clearly stated that the field in
question was not part of the sale since it did not belong to Mr
Sam. Kamal did not read this statement and believed that the
field would be included in the sale. Kamal then bought the
orchard from Mr Sam. After the sale was completed, Kamal
discovered that the field was not included in the sale and
intended to set aside the contract. Advise Kamal.
Coercion is the act of committing or threatening to commit any act forbidden

by the Penal Code, with the intention to make the other party enter into a
contract.
The effect of a contract made under coercion is voidable.
To establish a contract made under undue influence requires the elements of
domination of will and obtaining unfair advantage.
The burden of proving that the contract is not induced by undue influence is
on the person dominating the will of another.
The presumption of undue influence can be rebutted by proving the other
party taking independent legal advice.
Contracts made under undue influence will become voidable.
Fraud covers an act committed by one contracting party with the intent to
deceive another.
Mere silence is no fraud.
Failure by one party to speak out will amount to fraud if there is a duty of
disclosure.
Element of fraud makes the contract voidable.
A contract under fraud is not voidable if the party being fraud had the means
of discovering the truth with ordinary diligence.
A false statement which does not induce or cause the party to enter into a
contract does not render the contract voidable.
Innocent misrepresentation in a contract is not made with the intention to
deceive but the contract is voidable.
Mistake of fact will render a contract void if it is a common or mutual
mistake.
Unilateral mistake does not render a contract voidable.
A contract made under a mistake of law in force in Malaysia is not voidable.
A contract which is void under a mistake of fact requires the party who has
received the advantage to restore it to the other party.
The defence of non est factum is accepted in mistake cases but in exceptional
circumstances.
Remedy of rectification is allowed in a contract made under mistake.
Coercion Mistake
Fiduciary relation Ordinary diligence
Fraud Real/apparent authority
Free consent Rectification
Mental capacity Undue influence
Misrepresentation Voidable contract
Text Books:
Guest, A. G. (1988). Ansons Law of Contract (26th ed.). Singapore: Oxford
University Press.
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Keenan, D. (2006). Smith and Keenans Law for Business (13th ed.). UK:
Pearson and Longman.
Wu, M. A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
Cases:
Awang bin Omar v. Haji Omar & Anor [1949] MLJ Supp 28.
Bisset v. Wilkinson [1927] AC 177.
Che Som bt Yip & Ors v. Maha Pte Ltd & Ors [1989] 3 MLJ 468.
Chin Nam Bee Development Sdn Bhd v. Tai Kim Choo & 4 Ors. [1988] 2 MLJ
117.
Datuk Jaginder Singh & Ors. v. Tara Rajaratnam [1983] 2 MLJ 196.
Keates v. Lord Cadogan (1851) 10 C.B. 591.
Kesarmal s/o Letchman Das v. Valiappa Chettiar [1954] MLJ 119.
Letchemy Arumugam v. Annamalay [1982] 2 MLJ 198.
Lim Hong Shin v. Leong Fong Yew (1918) 2 FMSLR 187.
Lloyds Bank, Ltd. v. Bundy [1975] QB 326.

Mithoolal v. Life Insurance Corp of India AIR 1962 SC 814.
Raffles v. Wichelhaus (1864) H&C 906.
Salwath Haneem v. Hadjee Abdullah (1894) 2 SSLR 57.
Subramaniam v. Retnam [1966] 1 MLJ 172.
Tamplin v. James (1898) 15 ChD 215.
Tan Chye Chew & Anor v. Eastern Mining & Metals Co Ltd [1965] 1 MLJ 201.
Tate v. Williamson (1866) LR 2 Ch App 55.
Tufton v. Sperni [1952] 2 T.L.R. 516.

Topic 5 Law of Contract (Free Consent To Contract)

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Topic Law of

Figure 5.1: Factors which affect consent

According to Explanation to Section 15, it is immaterial whether the Penal Code

A, on board an English ship on the high seas, causes B to enter into an

5.1.1 Effect of Coercion

5.2 UNDUE INFLUENCE

Further, in Section 16(2), a person is said to be in a position to dominate the will

5.2.1 Real or Apparent Authority

5.2.2 A Fiduciary Relation

A, a man enfeebled by disease or age, is induced, by B's influence over him as

In the case of Tate v. Williamson (1866) LR 2 Ch App 55,

Tufton v. Sperni [1952] 2 T.L.R. 516.

The plaintiff and defendant were fellow members of a committee formed to

The Court of Appeal set the contract aside.

5.2.3 Mental Capacity is Temporarily or Permanently

5.2.4 Burden of Proof

A, being in debt to B, the moneylender of his village, contracts a fresh loan on

However, a transaction will also be upheld despite the absence of independent

In the case of Lloyds Bank, Ltd. v. Bundy [1975] QB 326,

Other important cases of undue influence are the case of:

Salwath Haneem v. Hadjee Abdullah (1894) 2 SSLR 57.

The plaintiffs husband executed a conveyance of property belonging to

And the case of:

5.2.5 Effect of Undue Influence

Discuss the following cases by applying the principle of law on free

Letchemy Arumugam v. Annamalay [1982] 2 MLJ 198,

The plaintiff, an illiterate Indian woman rubber tapper, claimed to

An example of this act is provided in the following illustration in Section 19

B, having discovered a vein of ore on the estate of A, adopts means to conceal,

(c) A promise made without any intention of performing it.

Notwithstanding the above principles, Explanation to Section 17 states that,

Illustration (a), Section 17

A sells, by auction, to B, a horse which A knows to be unsound. A says

Illustration (d), Section 17

A and B, being traders, enter upon a contract. A has private information of a

An example of case to illustrate the principles:

In Keates v. Lord Cadogan (1851) 10 C.B. 591,

However, the same Explanation (Section 17) continues to provide that,

Illustration (b), Section 17

Secondly, where silence is equivalent to speech. For instance:

Illustration (c), Section 17

5.3.1 Effect of Fraud

However, according to Exception to Section 19 of the Contracts Act, 1950, if

Further, Explanation to Section 19 also provides that, a fraud or

Mithoolal v. Life Insurance Corp of India AIR 1962 SC 814,

The Indian Supreme Court stated that: A false representation, whether

(a) The positive assertion, in a manner not warranted by the information of

In brief, misrepresentation is a representation of untrue or misleading

It is important that the statement represented is a statement of fact and not

Bisset v. Wilkinson [1927] AC 177,

The respondents agreed to purchase from the appellant certain lands

5.4.1 Effect of Misrepresentation

However, according to Exception to Section 19 of the Contracts Act, 1950, if

Illustration (b), Section 19

A, by a misrepresentation, leads B erroneously to believe that five hundred

Further, Explanation to Section 19 also provides that, a ...... misrepresentation

5.5.1 Mistake of Fact

Illustration (a), Section 21

A agrees to sell B a specific cargo of goods supposed to be on its way from

Illustration (b), Section 21

Illustration (c), Section 21

Raffles v. Wichelhaus (1864) H&C 906,

Two parties agreed to a sale of a cargo of cotton arriving in London by a