What constitute a voidable contract?

Thomas Sim PEA2066

Q.
What constitute a voidable contract?

A.
See valid contract, void contract and voidable contract here.

Section 2(i) of Contracts Act, 1950 states 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.

Voidable contracts can be agreements that are made without the free consent of a party to the agreement. Hence, the parties without free consent can choose to revoke the contract - therefore the agreement becomes voidable by that party or parties.

A voidable agreement occurs when the agreement was entered due to:

  1. Coercion
  2. Undue influence
  3. Fraud
  4. Misrepresentation

General

According to Section 19(1) of the Contracts Act, 1950 (hereafter CA 50), when a consent to an agreement is caused by coercion, undue influence, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

The effects of a voidable agreement are as follows:-

  1. According to Section 19(2) of the CA 50, the innocent party (the other party) whose consent was caused by fraud or misrepresentation may, if he thinks fit, insist that the contract be performed, and that he shall be put in the position in which he would have been if the representation made had been true.
  2. According to Section 65 of the CA 50 Act, the party rescinding a voidable contract shall, if he has received any benefit from the other party to such contract, restore the benefit to the person from whom it was received.
Coercion

Similar question was asked in:
MIA QE 2012/3 Q1 (b)(i) Coercion
MIA QE 2014/3 Q1 (c)(i) which render a contract voidable
What constitute a voidable contract?
Briefly explain 'coercion'
LPPEH 2012 D02 Q2

Definition of Coercion can be found in Section 15 of the CA 50 as follows:
"Coercion is the commiting, 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, with the intention of causing any person to enter into an agreement."
Undue Influence

MIA QE 2014/3 Q1 (c)(ii) undue influence
MIA QE 2012/3 Q1 (b)(ii) Undue influence
What constitute a voidable contract?
Explain "Undue Influence" as per Contract Act, 1950
Bad Contracts
2013 D02 Q3 inducement and undue influence

Definition of undue influence can be found in Section 16 of the CA 50. Elements of undue influence under section 16 are:
1) one is in position to dominate over the will of another,
a) where he holds a real or apparent authority over the other, or in fiduciary relation to the other;
b) where mental capacity is temporarily or permanently affected by reasons of age, illness, or mental or bodily distress.
2) the burden of proof lies on "position to dominate the will of another".
Fraud
Under Section 17 of the CA 50, fraud includes certain acts which are committed with the intention to induce another party to enter into a contract. There are 5 different acts:
  1. The suggestion, as to a fact, that which is not true by one who does not believe it to be true;
  2. The active concealment of fact by one having knowledge of belief of the fact;
  3. A promise made without any intention of performing it;
  4. Any other act fitted to deceive; and
  5. Any such act or omission as the law specifically declares to be fraudulent.

The general rule is that whenever 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.

Misrepresentation

Under Section 18 of CA 50, misrepresentation is confined to innocent misrepresentation, which is an untrue statement that the speaker believes is accurate.
[Although the information is unintentionally false, the contract is voidable. Of course, the parties to the contract can rescind the contract and ratify it under mutual agreement.]
As in case of fraud, silence in certain situations where there is duty imposed to disclose, may amount to a misrepresentation under Section 18 (b) of the CA 50.
The basic difference between fraud and misrepresentation is that in fraud, the maker does not believe in the truth of the statement made, whereas in misrepresentation, the maker believes that the statement is true.

Ref:
Nuraisyah Chua Abdullah. 2004. Question & Answers on Malaysian Courts, Statutes, Cases & Contract, Tort and Criminal Law. 2013 Edition. Chapter 6. Page 202-205
[x] Own account.