2.4 Effects of Contract

Karuppan Chetty v Suah Thian [1916]

Held: The court held that the requirement of certainty was not met when the parties agreed upon the granting of a lease ‘at RM35.00 per month for as long as he likes’.

2.4 EFFECTS OF CONTRACT

2.4.1 Valid Contract

 A valid contract is a written or expressed agreement between two parties to provide a product or service.  There are essentially six elements of a contract that make it a legal and binding document.  A contract is enforceable when both parties agree to something, back the promise up with money or something of value, both are in sound mind and intend to carry out their promise and what they promise to do is within the law.  Failure to comply with the terms and conditions stated in the contract will enable the injured party to discharge the contract.

Privity of Contract

 Only the person who are parties to the contract can acquire right and incur liabilities under it.  The issue of whether there was privity of contract between the appellant and third party arose in Andrew Christopher Chuah v Choong Eng Chuan (2007) 2

CLJ 405.  Apart from special circumstances a person who is not a part to a contract has no right to sue on the contract.  The position of third party is that obligations under a contract generally cannot transferred unless all the parties consent (novation).  If all the parties consent, liability may be transferred by way of novation.  This is a tripartite agreement where the original parties agree to rescind their contract in consideration of a new contract being entered into on the same terms between one of the original parties and third party.

2.4.2 Voidable Contract

 Section 10 of the Contracts Act 1950 provides inter alia that all agreements are contracts if they are made by the free consent of parties.  By virtue of Section 14, consent is said to be free when it is not caused by one or more of the following: o Coercion o Undue influence

o Fraud o Misrepresentation o Mistake  Section 19 of the Contracts Act 1950 stated that “when consent to an agreement is caused by coercion, undue influence, fraud, misrepresentation, or mistake, the agreement is a contract voidable at the option of the party whose consent was so caused” .  The effect of the contract is valid but the party, whose consent was caused by fraud or misrepresentation, may choose to performed the contract or terminate the contract.

Coercion

 The word ‘coercion’ is defined in Section 15 of the Contracts Act 1950 which refers to “the unlawful act done with intention of causing the person to enter into an agreement”.  It is the committing, or threatening to commit any act forbidden by the Penal

Code, 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.

Kesarmal s/o Letchman Das v Valiappa Chettiar [1954]

Facts: A transfer executed under the orders of the Sultan, issued in the ominous presence of two Japanese officers during the Japanese Occupation of Malaya, was invalid.

Held: The court held consent was not freely given and the agreement voidable at the will or option of the party whose consent was so caused.

Undue Influence

 Section 16 of the Contracts Act 1950 provides three matters to be dealt with undue influence: i. The relations between parties to each other must be such that one is in a position to dominate the will of the other; (Doctor and his patient) ii. Where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; (Parents and children) or iii. Where he makes a contract with person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress.

Kesarmal s/o Letchman Das v Valiappa Chettiar [1954]

Facts: An old and illiterate Malay woman executed a deed of gift of landed property in Singapore in favor of her nephew who had been managing her affairs. Before executing the deed the donor had independent advice from a lawyer who acted in good faith. However, he was unaware that the gift constituted practically the whole of her property and did not impress upon her that she could prudently, and equally effectively, have benefited the donee by bestowing the property upon him by a will.

Held: The gift should be set aside as the presumption of undue influence, which is raised by the relationship proved to have been in existence between the parties, was not rebutted.

Fraud

 Fraud is defined in Section 17 of the Contracts Act 1950, to include certain acts which are committed with intent to induce another party to enter into a contract.  As general rule, wherever a person causes another to act on false representation which the maker himself does not believe to be true, he is said to have committed a fraud.  E.g.: Tom told Jerry that his coat is made of pure wool, though he knows that it is untrue. Jerry purchased the coat believing Tom’s statement to be true.

This is a fraud by Tom and therefore contract is voidable at Jerry’s option.

Misrepresentation

 Section 18 of the Contracts Act 1950 defines misrepresentation as to ‘innocent misrepresentation’.  Innocent misrepresentation is an untrue statement that the speaker believes is accurate.  The basic difference between fraud and misrepresentation is that, in fraud, the person making the statement does not himself believe in its truth, whereas in cases of misrepresentation, the speaker may believe the statement to be true.  E.g.: Fred bought a mountain bike from Matt, an acquaintance at school. Matt said he believed the bike did not need any repairs. After a weekend ride, Fred discovered the back wheel was severely misaligned. Fred could cancel the deal and ask for his money back. He is not entitled to damages because Matt genuinely believed the bike was in good shape.

Mistake

 Various mistakes may occur in the negotiations leading to the formation of a contract and they are not all treated as the same.  Section 21 of the Contracts Act 1950 provides for cases where there is a mistake of fact.  The basis for rendering agreement void under Section 21 is that there has been no free consent between the parties. For a mistake to be operative under

Section 21, it must be a mistake ‘essential to the agreement’.  Section 22 provides for cases where there is a mistake as to law. It states that a contract is not voidable because it was caused by a mistake as to any law in force in Malaysia.  An agreement is valid as the mistake is made by only one of the parties. But if the mistake is made by both the parties, then the agreement is void.  E.g.: B agree to sell his car to Z for RM5000. But neither of them knows that the car was stolen last night. Therefore, the contracts can be voided by either party.

Chan Yoke Lain v Pacific & Orient Insurance Co Sdn Bhd [1997]

Facts: The plaintiff, as administrator of the estate of the decease, sued defendant (insurer) for the sum of money covered under the Personal Accident policy of the deceased. The defendant had rejected the plaintiff’s claim because the signature on the proposal form did not belong to the deceased as it had differed from the deceased’s signature on his motor insurance policy.

Held: The defendant alleged that the contract was void because the signature on the proposal form was not signed by the deceased.

2.4.3 Void Contract

 According to Section 2(g) of the Contracts Act 1950, a void contract is an agreement that is not enforceable by law.  Section 24 of the act provides that the consideration or object of an agreement is unlawful if it falls within any of the subsections of the section.  According to Section 24 of the Contracts Act 1950, the consideration or object of an agreement is lawful unless: o It is forbidden by law, o It is of such a nature that, if permitted, it would defeat any law, o It is fraudulent, o It involves or implies injury to the person or property of another, or o The court regards it is immoral, or opposed to public policy.