ELEMENTS OF

CONTRACT
(cont)
INTRODUCTION TO COMMERCIAL LAW
LAW 446

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 7. FREE CONSENT

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▪ General Rule : Free consent is the basis of a contractual
relationship.

▪ Section 10 (1) CA
All agreement are contracts if they are made by the free
consent of parties competent to contract.

▪ The consent of the parties must be given freely and

voluntarily.

▪ Q: What constitutes consent?

Section 13 CA – Two or more person are said to consent
when they agree upon the same thing.

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▪ S. 14 - Consent is said to be free when it is
not caused by-
a)Coercion – S. 15
b)Undue influence – S.16
c) Fraud – S.17
d)Misrepresentation – S.18
e)Mistake – S. 21, 22, and 23

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 VOID CONTRACT VOIDABLE CONTRACT
⚫when the contract becomes ⚫When a contract is voidable and
void, there is no option to the party who is entitled to
proceed with the contract – The rescind the contract exercises his
contract must come to an end option to rescind/ discontinue
and whatever benefits received the contract, the consequence
therefrom must be restored/ (S. 65)
returned to the party from
⚫Party can insist that the contract
whom it was received (S.66)
shall be performed and he shall
⚫Section 21 of CA – mistake of be put in a position in which he
fact essential to agreement would have been if the
representation made had been
true (S 19(2))
⚫Section 19 and 20 of Contract Act
– coercion, fraud or
misrepresentation and undue
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 2. UNDUE
1. COERCION
INFLUENCE

VOIDABLE CONTRACT
-to terminate or continue with contract

3. FRAUD 4.
MISREPRESENTATIO
N

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1. COERCION
Coercion as defined in Section 15:-
-- committing, or
- threaten to commit any act forbidden by the
Penal Code, or
- 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.

▪ Coercion refers to an unlawful act done with the

intention of causing the person to enter into an
agreement
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 Example…
You went to Gaya Street for a window shopping. You see a
fake Gucci watch. You asked the seller for the price. Gaya
street seller said that watch cost about RM50.00. You
didn’t want to buy the watch because it is expensive. The
seller threaten you with a knife and ask you to buy the
watch. You then pay for the price and take the watch.

Q: WHETHER YOUR CONSENT IS FREE?

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NO BECAUSE THERE IS A
COERCION BY WATCH
SELLER.

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CASE: CHIN NAM BEE DEVELOPMENT SDN BHD V
TAT KIM CHOO & 4 ORS

Respondents purchased houses to be constructed by

the appellant. Each of the respondents had signed a
contract to purchase a house at $29500.

however, the respondents were forced later to pay

additional $4000 under a threat by the appellant to
cancel the respondents booking for their houses.

It was held that, the payment was not voluntary but

had been made under threat. Thus, there was
coercion in the agreement of paying the additional
$4000 to the appellant.
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 2. UNDUE INFLUENCE

▪ A party may rescind (terminate) a

transaction on the ground that he was
pressured to enter into the contract by the
influence of the other party.

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▪ As defined in Section 16:-
“A contract is said to be induced by
undue influence where the relations
subsisting between the parties are such
one of the parties is in a position to
dominate the will of the other and uses
that position to obtain unfair advantage
over the other.”

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▪ There are 2 important ingredients:-

i. The domination of the will of the other

ii. the person in position of domination has use that
position to obtain unfair advantage for himself and
causing loss or injury to other party.

▪ Section 16 (2) provides 3 such circumstances:-

1) When one party holds a real authority over another .
✔ For example: a parent’s authority over a child
S.16- Illustration (a)

2) Where one party stands in a fiduciary relation to the

other.
✔ Eg: in the case of the confidential relationship
between a solicitor & client, trustee and beneficiary,
religious advisor & follower
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3) Where a party makes a contract with a person whose
mental capacity is temporarily or permanently affected
by reason of age, illness or mental or bodily distress.
Section 16- Ilustration (b)

(In this circumstances, there is a rebuttable presumption

of undue influence.)
▪ If the domination party claims that there is no
domination of will, the burden to rebut the
presumption of domination lies on him by giving
evidence to the court.

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 EXAMPLE:- CAREGIVER FINANCIAL ABUSE IN CALIFORNIA

▪ In California Law, they concern on the old people.

▪ Caregiver = care custodian (the person who take care of the elder
people)
▪ As the caregiver has more authority and control over the elder,
these relationships have the potential to become very dangerous
for the elder.
▪ any financial transfers, gifts to caregivers, or actions to influence
the estate plan of the elder are presumed to be undue influence.
This means that in a court of law, the caregiver has the burden of
proof - they must prove why the gift was not a result of undue
influence.
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 Case: Salwath Haneem v Hadjee Abdullah
⚫The P’s husband made a conveyance of property
belonging to himself and the P, to his brothers (B and
C).
⚫the P initially agreed to the conveyance but after her
husband’s death, she brought an action seeking to set
aside the agreement on the ground of undue influence.

⚫It was held that confidential relationship existed

between the P and B and C. therefore the burden of
proof was on B and C to show that the P fully
understood the agreement and had agreed to the
conveyance freely and without being subject to undue
influence. Since both B and C failed to discharge the
burden, the contract of conveyance was set aside.

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3. FRAUD

▪ As a general rule, it may be stated that wherever a

person causes another to act on a false representation
which the maker himself does not believe to be true, he
is said to have committed a fraud.

▪ Section 17 of the Contract Act

Fraud within the meaning of this section requires the
doing of an act by a party to a contract with the
necessary intention to deceive the other contracting
party.

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 CASE: DERRY V PEEK
It was held that ‘Fraud’ is proven when it is
shown that false representation has been
made either,

i.Knowingly;

i.Without belief in its truth, or

i.Recklessly, careless whether it be true or

false.

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▪ Elements of fraud:
(a) There must be a false representation/ statement
(b) It was given by one party to another with intention to
deceive (cause someone to believe something which is not
true)
(c) The representee must have relied on the representation.

▪ Merely making a false statement which is not relied on the

other party does not amount to fraud.

▪ Explanation of S. 19 Contracts Act 1950:

a) False representation does not per se give rise to a cause of
action
b)Representee must have relied on the statement – if with open
eyes, he cannot repudiate the contract.

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CASE: LETCHEMY ARUMUGAM V ANNAMALAY

⚫D had made a fraudulent misrepresentation to the P, an

illiterate Indian women rubber-tapper, and induced her
to enter into a sale & purchase agreement.
⚫D had fraudulently represented to P that the document
she was required to sign was for a loan that she had
taken and to free the land from the charge.
⚫In fact, the documents she signed included a sale
agreement of the land.
It was held that the agreement was voidable at the option
of P.

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Whether silence constitutes fraud.
⚫Explanation to S. 17
⚫The GR is silence does not constitute a
fraud.
⚫Only in certain circumstances where a
duty is placed on the person keeping
quiet to speak up/ if his silence amounts
to affirming certain facts, such silence
would constitute fraud.

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4. MISREPRESENTATION

▪ Section 18 CA – refers to certain false statement

made by a representor and which induces the
other party to enter into contract.

▪ Misrepresentation under section 18 is confined to

innocent misrepresentation.

▪ The basic difference between misrepresentation

and fraud is that in fraud, the person making the
representation does not himself believe in its
truth whereas, in cases of misrepresentation, he
may believe the representation to be true.
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 VOID CONTRACT

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 MISTAKE

▪ Section 21 CA – For a mistake to be operative

under this section, it must be a mistake of both
parties and it is as to ‘a matter of fact essential to
the agreement.’
▪ The basis for rendering agreements void under S.
21 is that there has been no free consent between
parties.
⚫In Malaysian Law, mistake can either be mutual
mistake or unilateral mistake.

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⚫S. 21 covers mutual mistake: ‘…both
parties to an agreement are under a
mistake..’
⚫Unilateral mistake is where only one
party is under a mistake and it is covered
under S. 23.
⚫Unilateral mistake does not affect the
validity of a contract because a person is
expected to take reasonable care to
ascertain what he is contracting about.
Therefore, the contract is valid.
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1. Mistake of fact essential to agreement (Section 21)

⚫ When both parties to an agreement are under a

mistake as to a matter of fact essential to the
agreement, the agreement is void.
⚫ EXAMPLE:
Didi owns two hotels. He offers to sell one of them
to Jojo. Didi thinks he is selling the hotel situated in
Johor Bahru while Jojo thought that he is
purchasing the hotel situated in Melaka. Both
parties make a mutual mistake to an important
fact i.e identity of the hotel.
⚫ Therefore, either party will be able to terminate
the contract.
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CASE: FREEMAN V KIAMESHA CONCORD INC
(1974)
Facts: A guest at a resort hotel misread an advertisement
concerning memorial day weekend entertainment and so
believed that a popular entertainer would be performing
for three nights during the weekend rather than one.

Upon learning the truth, he sought to cancel part of his

three days reservation.

The court held that his mistake was a mere mistake of fact
and it was unilateral (Section 23). Therefore, although he
departed the resort before the end of three days weekend,
he remained obliged to pay his hotel bill in full.
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2. Mistake as to document.
⚫GR: a person is bound by the terms of the contract
that he signs as laid down in an English case
L’ Estrange v F. Grancols
⚫This was followed in a local case Subramaniam v
Reknam
The D had signed a written acknowledgement in the
English language of a loan when he was ignorant of
the language.

The court applied the general rule that he is bound by

what he signed, seeing that there was no
fraud/misrepresentation.

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 Exception:
⚫The English Law allows the Plea of
‘non est factum’ – where a person
signs or executes a contract under a
mistaken belief as to the character
and class of document and the
mistake was caused by either the
illiteracy, blindness or sensibility of
the person or the fraudulent
conduct of the other party.
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CASE: AWANG B. OMAR V HJ OMAR &
ANOR
Defendants wanted to enter contract with P.

The 1st D was induced by 2nd D, his brother to sign a

document, a contract in which 2nd D guarantees the
performance of contract. 1st D did not know English
and was persuaded to sign in the mistaken belief that
he was merely witnessing his brother’s signature.

It was held that there was a mistake as to the nature

of the document signed and the 1st D was not liable.

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DISCHARGE
OF
CONTRACT

31
 1. By
Performance

2. By consent
How to between
parties
discharge a
contract? 3.
- Itsmean how Frustration
to terminate a
contract.
4. Breach of
Contract 32
 1) DISCHARGE BY
PERFORMANCE

• A contract is said to be discharged by

performance when the parties to
contract has performed what they
have agreed to do in the contract.

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 2) DISCHARGE BY AGREEMENT-
CONSENT BOTH PARTIES

• A contract is said to be discharged by agreement if the

Parties to contract agrees/consent that the contract
will be discharged.
▪ This agreement can be made during the contract or after
the contract has been made.
▪ EXAMPLE:
You entered into contract with Siti. In the contract both
of you agree that the contract will be put to an end if the
profit of your business is less than RM1 million a year. If
the profit is less, then the contract is said to be
discharged by agreement.

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3) DISCHARGE BY
FRUSTRATION
a) A contract is terminated if the things that
the parties agreed to do is impossible to
perform.

It can either be at the time the contract was

made or when the contract has been made
that the obligation became impossible
to perform.

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TAYLOR V CALDWELL (1863)

• Fact: The Plaintiff hired the Defendant’s

hall for the purpose of performing of
concerts. Nevertheless, the hall was
accidentally burnt down before the date
of concert.

• The court held that the contract may be

discharged by frustration.

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• b) Declaration of war would as general rule
frustrate all contracts with enemy aliens.

Iraq v US
Korea v japan

Consequences of frustrations
• Frustration terminate the contract automatically
and the contract is void.

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 4) DISCHARGE BY BREACH OF
CONTRACT
▪ A contract can be put to an end if a party to the
contract did not do what they have promised to do
in the contract.

▪ Section 40 of the Contract Act:-

▪ When a party to a contract has refused to perform
or disabled himself from performing his promise
in its entirely, the promise may put to an end to
the contract unless he has signified, by word or
conduct, his acquiescence in its continuance.

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The party who is not in breach of the
contract has 2 options:-
• 1) to continue with the contract and claim
damages or
2) repudiate the contract

• Effect:- Contract is voidable

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Effect of breach of contract
❖Section 65 of the Contract Act:-
❖If the party who is not in breach terminated the
contract, he must restore any benefits which he may
have received from the other party.

EXAMPLE:
❖Mah Wi, a singer enter into contract with Ajai
(manager of Planet Hollywood) to sing at his Planet
Hollywood for two nights in every weeks during the
next two months.
❖Ajai agrees to pay Mah Wi RM10,000.00 for each night.
On the sixth night, Mahwi willfully absent himself
from the show.
❖Consequently, Ajai rescinds the contract. Ajai must pay
Mah Wi for the five nights on which he had sing.
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REMEDIES FOR BREACH
OF CONTRACTS

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REMEDIES FOR BREACH OF CONTRACT

• When there is a breach of contract, the

injured party may claim one or more of
these remedies:-
1.Damages
2.Specific performance
3.Injunction

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1. DAMAGES
• Damages are granted to a party as
compensation for the damage, loss or injury he
has suffered through a breach.

• Law relating to damages arising from the breach

of contract is found in Section 74 to 76 of the
Contract Act.

• The award of damages aims to put the Plaintiff in

the position he would have been if the contract
had been performed. 43
BROWN V HILTON HOTELS CORP (1974)

Facts:
▪ The Hotel failed to honour Plaintiff’s
confirmed reservations.
▪ The Plaintiff were unable to find other
accommodations and so were forced
to fly home.
▪ The Plaintiff received damages for
breach of contract.
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2. SPECIFIC PERFORMANCE
• This is when the court directs the
party to the contract to do exactly
what he has promised in the terms of
contract.
• It is given at the discretion of the
court.
• It is governed by the Specific Relief Act
1950. 45
3. INJUNCTIONS

❖ Court order to retrain the doing,

continuance or repetition of some
wrongful conduct which is againts the
contract.
❖ Section 50 CA
❖ It is granted based on court discretion.
❖ Two types of injunctions:-
(1) Temporary/Interlocutory-S.51 (1)
(2) Perpetual or permanent -s. 51(2)
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PERTAMA CABARET NITE CLUB SDN BHD V
ROMAN TAM (1981) 1 MLJ 149

• A singer has signed a contract to appear and sing

at the Appellant’s night club for a number of
days.

• The contract provided that in the event of

breach, the respondent should not perform in
Kuala Lumpur during the fixed period of the
contract.

• The Respondent declined to honour the contract

and attempted to sing in a rival club.

• Federal Court granted an interlocutory injunction.

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