Voidable Contracts

(Meaning, Effect and Relief)

Introduction
▪ While a contract is valid and binding if it is properly
formed, a party to the contract may avoid the contract if
it has not been entered into freely.
▪ The principle of freedom of contract rests on the free
choice of parties as to whom they wish to contract with
and the terms of the contract entered into.
▪ The element of free consent is vital and a contract which
bears any of the vitiating factors of coercion, undue
influence, fraud and misrepresentation may be
rescinded by the party whose consent was not freely
obtained.
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 REQUIREMENT OF FREE CONSENT
Section 10

Section 13

Section 14
 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.
 Section 19
 Section 20
 Explanation Section 19 3
What agreements are contracts
“10. (1) 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.”

“Consent”
“13. Two or more persons are said to consent when they
agree upon the same thing in the same sense.”

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“Free consent”
“14. Consent is said to be free when it is not caused by—
(a)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.”

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MEANING OF "VOIDABLE
CONTRACT"
▪ Section 2(i) of the Contracts Act 1950 stipulates that:
“an agreement which is enforceable by law at the
option of one or more of the parties thereto, but not
at the option of the other or others, is a voidable
contract;…”
▪ Thus, while a contract is valid and binding having
satisfied the requirements on formation of contract,
where a contract is voidable, one of the parties to the
contract has the option to avoid the contract. He has the
choice whether to carry on (affirm) the contract or to
terminate (rescind) the contract.
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 WHEN CONTRACTS ARE VOIDABLE
▪ There are two main situations when a contract is
rendered voidable.
▪ First, there is a lack of free consent in entering into the
agreement. When an innocent party rescinds due to any
vitiating factor, it is known as "rescission ab initio“.
▪ Second, a contract is also voidable when there is a
serious breach of the terms of the contract under ss 40,
54 and 56 of the Contracts Act. This is known as
"rescission for breach“.

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▪ In both situations, the innocent party may rescind the
contract although there are some differences in the
effects of the rescission.
▪ In relation to voidable contracts due to lack of free
consent, ss 19 and 20 of the Contracts Act provide as
follows:
▪ Section 19(1) of the Contracts Act provides:
“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.”

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▪ Section 20 of the Contracts Act provides:
“When consent to an agreement is caused by undue
influence, the agreement is a contract voidable at the
option of the party whose consent was so caused.
Any such contract may be set aside absolutely or, if
the party who was entitled to avoid it has received
any benefit thereunder, upon such terms and
conditions as to court may seem just.”
▪ The definition of coercion, undue influence, fraud and
misrepresentation are provided in ss 15, 16, 17 and 18
of the Contracts Act respectively.

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EFFECT OF, AND RELIEF FOR VOIDABLE CONTRACTS

▪ As set out in ss 19(1) and 20 of the Contracts Act above,

agreements entered into due to coercion, fraud,
misrepresentation and undue influence are voidable.
▪ The innocent party has the option, to avoid the contract
by terminating/rescinding it. He also has the option if he
so wishes, to affirm or carry on with the contract.
▪ For fraud and misrepresentation, the option to affirm
the contract is specifically provided in s 19(2) of the
Contracts Act as follows:

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▪ Section 19(2) of the Contracts Act provides:
“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.
Exception—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.
Explanation—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.”
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▪ This exception applies to misrepresentation under s 18 and fraud
by silence under s 17. (Note: It does not applied to active fraud.)
Rescission of voidable contracts
▪ There are two modes in which a voidable contract may be
rescinded.
▫ First, an innocent party wishing to rescind the contract may
communicate his intention to rescind to the other party.
Section 67 of the Contracts Act provides that the rules
governing the communication or revocation of a proposal
will apply for the communication of rescission of a voidable
contract.
▫ The second avenue is to make an application to the court
under s 34(1)(a) of the Specific Relief Act to have the
contract rescinded. 12
▪ Section 67 of the Contracts Act provides:
“The rescission of a voidable contract may be
communicated or revoked in the same manner, and
subject to the same rules, as apply to the
communication or revocation of a proposal.”
▪ Section 34 of the Specific Relief Act provides that:
“(1) Any person interested in a contract in writing may
sue to have it rescinded, and such rescission may be
adjudged by the court in any of the following cases,
namely:
(a) where the contract is voidable or terminable by
the plaintiff;”
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▪ Under the Contracts Act, three sections apply when a
voidable contract is rescinded, that is, ss 65, 66 and 76
of the Contracts Act:
▪ Section 65 of the Contracts Act provides:
“When a person at whose option a contract is
voidable rescinds it, the other party thereto need
not perform any promise therein contained in which
he is promisor. The party rescinding the voidable
contract shall, if he has received any benefit
thereunder from another party to such contract,
restore the benefit, so far as may be, to the person
from whom it was received.”
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▪ Section 66 of the Contracts Act provides that:
“When an agreement is discovered to be void, or
when a contract becomes void, any person who has
received any advantage under the agreement or
contract is bound to restore it, or to make
compensation for it, to the person from whom he
received it.”

 When a contract becomes void, any person who has

received advantage to restore (See: Satgur Prasad v Har
Narain Das 1932 59 IA 147 (PC India))

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 The words “when a contract becomes void” cover the
case of a voidable contract which has been avoided.
(See: Yong Mok Hin v United Malay States Sugar
Industries Ltd [1967] 2 MLJ 9(FC))

▪ Section 76 of the Contracts Act provides:

“A person who rightly rescinds a contract is entitled to
compensation for any damage which he has sustained
through the non-fulfilment of the contract.”
(See: Haji Ahmad v Abdul Gani AIR 1937 Nag 270 (HC))

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▪ It is however inapplicable to rescission on grounds of
fraud or misrepresentation such as in the cases of
Tengku Abdullah ibni Sultan Abu Bakar & Ors v Mohd
Latiff bin Shah Mohd & Ors and other appeals [1996] 2
MLJ 265 (CA), and Abdul Razak bin Datuk Samah v Shah
Alam Properties Sdn Bhd and another appeal [1999] 2
MLJ 500 (CA),

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▪ As stated earlier, there are two main situations where
contracts are voidable resulting in two types of rescission:
(i) rescission ab initio which is applicable to contracts
voidable for lack of consent (ss 19 and 20 of the
Contracts Act). In this case, when the contract is
rescinded, it is annulled retrospectively from the date
on which it was made. The effect of the rescission is as
if no contract was entered into. Thus, the remedy is
restitutionary in nature. This is because of the lack of
free consent which is fundamental to the concept of a
contract (as shown in s 10 of the Contracts Act).

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(ii) rescission for breach which is applicable to rescinding
for breach of contract (ss 40, 54 and 56 of the Contracts
Act). In this case, the rescission takes effect from the
date the rescission is communicated to the other party.
All rights and obligations under the contract which
came into existence prior to that date survive allowing
a claim in damages.

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▪ On “Effect of refusal of party to perform promise wholly”,
section 40 CA states:
“When a party to a contract has refused to perform, or disabled
himself from performing, his promise in its entirety, the promisee
may put an end to the contract, unless he has signified, by words
or conduct, his acquiescence in its continuance.
ILLUSTRATIONS
(a) A, a singer, enters into a contract with B, the manager of a
theatre, to sing at his theatre two nights in every week during
the next two months, and B engages to pay her RM100 for each
night’s performance. On the sixth night A wilfully absents herself
from the theatre. B is at liberty to put an end to the contract.
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(b) A, a singer, enters into a contract with B, the manager of
a theatre, to sing at his theatre two nights in every week
during the next two months, and B engages to pay her at
the rate of RM100 for each night. On the sixth night A
wilfully absents herself. With the assent of B, A sings on the
seventh night. B has signified his acquiescence in the
continuance of the contract, and cannot now put an end to
it, but is entitled to compensation for the damage sustained
by him through A’s failure to sing on the sixth night.

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▪ S 54 CA provides on “Liability of party preventing event on
which contract is to take effect”:
“When a contract contains reciprocal promises, and one party
to the contract prevents the other from performing his promise,
the contract becomes voidable at the option of the party so
prevented; and he is entitled to compensation from the other
party for any loss which he may sustain in consequence of the
non-performance of the contract.
ILLUSTRATION
A and B contract that B shall execute certain work for A for RM1,000.
B is ready and willing to execute the work accordingly, but A prevents
him from doing so. The contract is voidable at the option of B; and, if
he elects to rescind it, he is entitled to recover from A compensation
for any loss which he has incurred22by its non-performance.”
Section 56 Contracts Act states:
Effect of failure to perform at fixed time, in contract in which
time is essential
“(1) When a party to a contract promises to do a certain thing
at or before a specified time, or certain things at or before
specified times, and fails to do any such thing at or before the
specified time, the contract, or so much of it as has not been
performed, becomes voidable at the option of the promisee, if
the intention of the parties was that time should be of the
essence of the contract.

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Effect of failure when time is not essential
(2) If it was not the intention of the parties that time should be of
the essence of the contract, the contract does not become
voidable by the failure to do the thing at or before the specified
time; but the promisee is entitled to compensation from the
promisor for any loss occasioned to him by the failure.

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Effect of acceptance of performance at time other than that
agreed upon
(3) If, in case of a contract voidable on account of the promisor’s
failure to perform his promise at the time agreed, the promisee
accepts performance of the promise at any time other than that
agreed, the promisee cannot claim compensation for any loss
occasioned by the non-performance of the promise at the time
agreed, unless, at the time of the acceptance, he gives notice to
the promisor of his intention to do so.

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