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Intro to voidable contracts
What is voidable contract? Contract that the…
Intro to voidable contracts
What is voidable contract? Contract that the aggrieved party can affirm/reject due to specific legal reasons. Remains legal and valid until voided by the aggrieved.
Stat. basis:
2(i)- agreement enforceable at the option of one or more parties but not at the option of the other(s) is voidable
10- agreements are only contracts if made by the free consent of competent parties for lawful consideration with lawful object and not expressly declared to be void
(consent) 13- two or more parties said to consent when they agree upon the same thing in the same sense
(free consent) 14- consent is said to be free when not caused by (coercion s15), (undue influence s16), (fraud s17), (misrepresentation s18), (mistake s21/22/23
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Mistake
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22- contract not voidable because caused by mistake of law in force in malaysia. But mistake of foreign law treated as mistake of fact
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Rescinding contract = termination of contract by innocent. Meant to restore parties to their original position before the contract was made2(i)- voidable ...enforceable by law at option of one or more... not the other'Enforceable'- contract can be enforced/ rejected by innocent party
'Option' of innocent party= their choiceInnocent party may: 1. Rescind
- Affirm
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Key Principles:
- contract doesn't terminate automatically
- right to rescind belongs to innocent party
- contract valid and binding until rescinded
- Contract void ab initio after recission; s.34(1) Specific Relief Act 1950
Need to sue to rescind, up to judge's disretion only if contract voidable/ terminable
Effect of recission between lack of free consent and breach of terms:
If due to lack of free consent (s.19&20)
If due to breach of contract- recission operates from date of communication; not from beginning
When party rescinds voidable contract, the other party:-
Discharge of contract obligations;
-Released from further performance and not required to continue performing contractual promises
-Restitution of benefits recieved under contract to other party ASAP
s.65
Restitution when contract becomes void- any party that recieved advantage under the contract to be restored back/ made compensation for to person whom recieved from s.66Cover two situations:
- Agreements discovered to be void
- Contracts that become void
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Privity of contract to s.66 for returning of money/ benefit received under contract
s.66's 'any person' in restitution claims limited to contractual parties, does not include strangers to the agreement- because extending so would violate the fundamental principle of privity of contract. Only contractual parties bound by it's obligations.
The restitution remedy in 66 is discretionary, must operate within principles of contract law
Badiaddin bin Mohd Mahidin v Arab Malaysian Finance BHD [1998]
Compensation AFTER Recission (termination) s.76
Rightful recission of contract allows for claim of compensation for any damage suffered due to non-fulfilment of the contract.
This makes sure innocent parties are fully protected
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Affirming contract, continuing contract despite the defect. Contract remains valid and binding. Innocent party may:
- continue performing contract
- accept contract's benefits
- indicate intention to continue w contract (right to rescind lost)
s19(2)- even after affirming contract, can still claim that he should be put in the position he would have been if the representation was true
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