Exception to section 19

The Exception to section 19 of the Contracts Act declares: -

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.

Illustration (b) in section 19 provides an example of the application of this Exception: -

A, by a misrepresentation, leads B erroneously to believe that five hundred gantangs of indigo are made annually at A’s factory. B examines the accounts of the factory, which show that only four hundred gantangs of indigo have been made. After this B buys the factory. The contracts is not voidable on account of A’s misrepresentation.

The Exception and Illustration (b) taken together suggest that a party whose consent is caused by misrepresentation or by silence amounting to fraud cannot avoid the contract if he has the means of discovering the truth with ordinary diligence. This appears to be a departure from English common law where it is not a defence that the representee was negligent or foolish or had the opportunity to verify the statement.⁴⁵

45Boscaini Investment Pty Ltd v. Petrides [1982] 103 LSJS 250; Aaron’s Reefs Ltd v. Twiss [1986]

AC 273; Vohrah, B. & Wu, Min Aun, “The Commercial Law of Malaysia.” (Malaysia: Longman, 2004), pp. 100.

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This section 19 defence has not been specifically invoked in the current pool of local authorities.⁴⁶ The only local reference to this Exception is in Weber v.

Brown⁴⁷where the court rejected the defendant’s attempt to rely on the defence on the ground that it could not be used by the defendant who had been guilty of a false and fraudulent misrepresentation.

2.5 Coercion

Since a contract will only be binding if the parties voluntarily consent to it, it is obvious that where one party is forced to consent by threats or undue persuasion by the other, that consent should be invalid.⁴⁸One form of such threats is ‘coercion’

and has been defined in section 15 of the Contracts Act for the purposes of section 14 (as discussed in para 2.1) which, among others, require ‘free consent’ of contracting parties. The latter section goes on to provide that consent is free when it is not caused by ‘coercion’ as defined by section 15, or others such as ‘undue influence, fraud, misrepresentation and mistake’. The relevant part of section 15 reads as follows: -

‘Coercion’ is the committing, 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 whatever, with the intention of causing any person to enter into an agreement.

Lord Moulton in Kanhaya Lal v. National Bank of India Ltd⁴⁹, an appeal to the Privy Council from India on a provision in pari materia with the local Act, opined that the definition of ‘coercion’ was solely a definition which applied ‘to the

46Vohrah, B. & Wu, Min Aun, “The Commercial Law of Malaysia.” (Malaysia: Longman, 2004), pp.

100.

47 [1908] 1 FMSLR 12.

48 Elliott, C. & Quinn, F., “Contract Law.” 4^th Edition. (London: Longman, 2003), pp. 197.

49 [1913] 40 Cal 598.

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consideration whether there has been ‘free consent’ to an agreement so as to render it a contract’. This means that the definition of ‘coercion’ under section 15 applies solely to the consideration whether there has been free consent to an agreement so as to render it a contract under section 10 of the Contracts Act.⁵⁰

The definition of ‘coercion’ seems covers duress at common law which has traditionally meant actual violence or threats of violence to the person of the contracting party or someone close to that person.⁵¹ The common law of duress relating to the unlawful threat to detain goods is a little unclear although it has been held that money paid to release goods unlawfully detained is recoverable.⁵² In any case, its importance is greatly diminished light of the wide definition of coercion under the Contracts Act which includes ‘the unlawful detaining or threatening to detain any property, to the prejudice of any person whatever’⁵³.

In Kanhaya Lal case, the Privy Council ruled that the plaintiff was entitled to recover money paid as a consequence of coercion caused by the wrongful interference of the defendant bank with property. It followed the precedent established by an earlier case, Dulichand v. Ram Kishen Singh⁵⁴, in circumstances which were almost similar and wherein the Privy Council held that money paid by the true owner to prevent the sale of his property under an execution could be recovered. In the latter case, their Lordships went on to say obiter that: -

“If the goods of a third person are seized by the sheriff and are about to be sold as the goods of the defendant, and the true owner pays money to protect his goods and prevent the sale, he may bring an action to recover back the money he has so paid; it is the compulsion under which they are about to be sold that makes the payment involuntary.”

50Lee, Mei Pheng, “General Principles of Malaysian Law.” (Malaysia: Penerbit Fajar Bakti Sdn.

Bhd., 2001), pp. 121.

51Barton v. Armstrong [1976] AC 104; Kaufman v. Gerson [1904] 1 KB 591.

52Maskell v. Horner [1915] 3 KB 106.

53 Section 15 of the Contracts Act.

54 [1881] ILR 7 Cal 648.

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The first limb of the statutory definition of ‘coercion’ limits the ‘committing, or threatening to commit any act forbidden under the Penal Code’. The Penal Code is the criminal law of the country and it would appear that tortious wrong or threats thereof are excluded.⁵⁵ The Explanation to section 15 further explains that in determining coercion it is ‘immaterial whether the Penal Code is or is not in force in the place where the coercion is employed’. This is followed by the Illustration which reads:

-A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Penal Code.

A afterwards sues B for breach of contract at Taiping.

A has employed coercion, although his act is not an offence by the law of England, and although section 506 of the Penal Code was not in force at the time when or place where the act was done.

The criminal law is also found in statutes other than the Penal Code, and it is conceivable that considerable difficulties may arise on the question of coercion involving offences outside the Penal Code since the definition makes no mention of other statutes. An appropriate amendment would clear any doubt and extend the scope of section 15.⁵⁶

However, in light of the fact that the Contracts Act is not an exhaustive code, the common law will in all probability continue to apply.⁵⁷‘Duress’ was applied in Kesarmal s/o Letchman Das v. Valiappa Chettiar⁵⁸where the court held invalid a transfer executed under the orders of the Sultan, issued in the ominous presence of two Japanese officers during the Japanese Occupation of Malaysia. In the instant

55Vohrah, B. & Wu, Min Aun, “The Commercial Law of Malaysia.” (Malaysia: Longman, 2004), pp.

103.

56Ibid, pp. 104.

57Ibid.

58 [1954] MLJ 119.

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case, consent was not free and, therefore, the transfer became voidable at the will of the party whose consent was so caused. Similar judgement was also held in Chung Peng Chee v. Cho Yew Fai & Ors⁵⁹.

In Chin Nam Bee Development Sdn. Bhd. v. Tai Kim Choo & 4 Ors⁶⁰, the respondents purchased homes off the plan to be constructed by the appellants. Each of the respondents had signed a sale and purchase agreement to purchase a house at

$29,500. Subsequently, the respondent was made to pay an additional $4,000. The court was asked to determine if the additional payment was made voluntarily or under threat by the appellants to cancel the respondents’ booking for their houses.

The lower court had found that payment was not voluntary but had been made under threat. The appeal was dismissed by the High Court which ruled that there was coercion as defined in section 15 of the Contracts Act. It further added that the definition in section 15 should only apply for the purpose contained in section 14⁶¹, and not for the entire Act. Given this interpretation, the word ‘coercion’ in section 73⁶²is not restricted to the meaning in section 15, and should be given its ordinary and general meaning.⁶³