Business Law: Void and Voidable Contracts

Prepared by: Abigail C. Chong

Void Contracts

Definition

• Section 2(g) of Contract Act 1950:
  • A void contract is an agreement that is NOT enforceable by law.

Unlawful Consideration/Object

• Section 24 of Contract Act 1950:
  • Consideration or object of an agreement is unlawful if:
    • Forbidden by law.
    • Defeats any law if permitted.
    • Fraudulent.
    • Involves injury to a person or property.
    • Considered immoral or against public policy by the court.
• Every agreement with unlawful consideration or object is VOID.

Case Study

• Manang Lim Native Sdn Bhd v Manang Selaman [1986] 1 MLJ 379:
  • Agreement made in contravention of Sarawak Land Code was void due to illegal consideration.

Consequences

• Courts will not enforce an illegal contract.
• Section 66 of CA 1950:
  • Obligation to restore any advantage gained under a void agreement.

Voidable Contracts

Definition

• Section 2(i) of CA 1950:
  • An agreement enforceable at the option of one or more parties but not others.

Validity

• Section 10 of CA 1950:
  • An agreement is a contract if:
    • Made with free consent of competent parties.
    • Has lawful consideration and object.
    • Not expressly declared void.

Free Consent

• Section 14 of CA 1950:
  • Consent is free if not caused by coercion, undue influence, fraud, misrepresentation, or mistake.

Voidability Due to Lack of Free Consent

• Section 19(1) of CA 1950:
  • Agreement is voidable if consent is caused by coercion, fraud, or misrepresentation.
• Section 19(2) of CA 1950:
  • Aggrieved party may insist on contract performance.

Exceptions

• If misrepresentation or silence caused consent:
  • Contract is not voidable if the party had means to discover the truth.

Key Elements in Voidable Contracts

Coercion

• Section 15 of CA 1950:
  • Coercion involves committing or threatening an unlawful act.

Undue Influence

• Section 16(1) of CA 1950:
  • Occurs when one party dominates another's will for unfair advantage.

Fraud

• Section 17 of CA 1950:
  • Includes deceitful acts to induce another into a contract.

Misrepresentation

• Section 18 of CA 1950:
  • Involves false statements inducing contract entry.
• Differences between misrepresentation and fraud are based on belief in the truth of the statement.

Mistake

• Section 21 of CA 1950:
  • Agreement is void if both parties are under a factual mistake.

Illustrative Case Studies

• Kesarmal s/o Letchman Das v Valiappa Chettiar: Agreement voidable due to coercion.
• Inche Noriah v Shaik Allie Bin Omar: Gift set aside due to undue influence.
• Kheng Chwee Lian v Wong Tak Thong: Contract voidable due to fraudulent misrepresentation.
• Caparo Industries Plc v Dickman: No duty of care for negligent misrepresentation.
• Raffles v Wichelhaus: No binding contract due to mistake in understanding.

References

• Lee Mei Pheng, Ivan Jeron Detta (2022), Business Law, 3rd Edition, Oxford University Press.
• Dr Loganathan Krishnan, Parimaladevi Rajoo, Anne Chrishanthani Vergis (2022), Principles of Business and Corporate Law, Malaysia, 4th Edition, CCH Malaysia.
• Contracts Act 1950 (Act 136)
• Federal Constitution
• Civil Law Act 1965 (Act 67)
• Subordinate Courts Act 1948 (Act 92), Subordinate Courts (Amendment) Act 2010
• Courts of Judicature Act 1964 (Act 91)