Essay: What is a contract?

1.0 Introduction
​According to Legal Information Institute, a contract is an agreement that creates obligations enforceable by law. Also known as ‘enforceable agreements’, a contract is also defined as a legally binding or valid agreement between two or more parties. Generally, contracts arise when a duty comes into existence because of a promise made by either one of the parties involved. The eight elements that make up contracts are offer, acceptance, intention to create legal relations, consideration being paid, certainty, capacity, consent and legality.
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​There are several types of contracts. The first is void contract, an illegitimate contract with no legal effect. It is not enforceable by law as it is lacking in one of the eight elements. Next is voidable contract. It is a formal agreement that may be rendered unenforceable if discovered to be having defects such as mistake or fraud, as stated in Investopedia. However, it could be enforceable if the parties involved do not mind the missing elements or the issue that exists with the contract. There is also unenforceable contract, which is a valid contract but any goods or money transferred cannot be recovered, even from the other party to the contract. As stated in Legal Information Institute, the law will not enforce the contract. Finally, valid contract. Valid contract is a written or expressed agreement between the parties involved. It is enforceable by law and fulfills all the elements required to make it valid.
​Contracts would be void or voidable when vitiating factors are present. The existence of these factors would cripple or invalidate the contract. Consent given to the contracts could also affect it. Consent is the voluntary agreement to another’s proposition. Based on Section 10 of the Contracts Act 1950, consent must be freely given for a contract to be valid. Section 14 of Contracts Act 1950 state that consent is free when it is not caused by coercion, undue influence, fraud, misrepresentation and mistake.
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2.0 Coercion
​Section 15 of the Contracts Act 1950 defines coercion as 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. Cases under this factor can be segregated into coercion towards a person, goods or economic duress.
The Privy Council in Kanhaya Lal v National Bank of India, Ltd (1913) explained that the definition of ‘coercion’ in Section 15 applies solely to the consideration whether there was free consent to an agreement so as to render it a contract. The case was held as coercion and the contract was voidable.
​In Kesarmal s/o Letchman Das v Valiappa Chettiar (1954), it was held that a transfer executed under the orders of the Sultan, issued in the threatening presence of two Japanese officers during the Japanese Occupation of Malaya, was invalid. The court held that consent was not freely given and the agreement was voidable at the will or option of the party whose consent was so caused.
In Astley v Reynolds (1731), the plaintiff had pledged his place for $10. When he went to take it back, he pledgee asked for another $10. The plaintiff then paid the additional $10, but sued to get this $10 back. The case was held as coercion.
Maskell v Horner (1915) falls under duress to goods. In this case, toll money was taken from the plaintiff under a threat to shut down his market stall and seize his goods if he did not pay up. These tolls were illegally demanded. The court held that the plaintiff was allowed to recover all the toll money that had been paid.
In the case Atlas Express v Kafco (1989), the court decided that because there was a threat made to a small business to breach the contract that was made, it was to be held as coercion. To be more specific, the case exhibited economic duress, which is the use of unlawful economic pressure to coerce a party to agree to a contract, which they would have not otherwise. Another case under economic duress is B & S Contractors v Victor Green Publications (1984). The court held that the payment was made in coercion and the plaintiff was entitled to claim it back.
​In comparison to the above cases, is Pau On v Lau Yiu Long (1979). In this case, the court held that commercial pressure does not constitute as duress if it constitutes reasonable business practice.
3.0 Undue Influence
​Section 16 of Contracts Act 1950 states that a contract is said to be induced by undue influence when the relations between the parties are such that one of the parties in a position to dominate the will of the other involved party and uses that position to obtain an unfair advantage over the other.
​Undue influence is exhibited in the case Inche Noriah v Shaik Allie bin Omar (1929). In this case, the plaintiff who is an old, illiterate woman gave a landed property in Singapore as a gift to her nephew who had been managing her affairs. This action was based on the advice of her lawyer who acted in good faith. It was held that the gift was set aside as there was undue influence from the lawyer.
​In Singapore, the High Court case of Che Som bte Yip & Ors v Maha Pte Ltd & Ors (Maha Pte Ltd & Anor, Third Parties) (1989) also found that undue influence was exercised. The case involved the relationship of brothers and a mortgage deed that was set aside that affected the plaintiff over whom undue influence was exercised.
​In Credit Lyonnais Bank Nederland NV v Burch (1997), it was held that the agreement of Miss Burch had been obtained in undue influence and the bank had noticed this as the transaction was to her disadvantage. The agreement was set aside.
​In contrary, there are situations when a confidential relationship between the involved parties raises a presumption that undue influence has been exercised. In these cases, proof has to be shown by the done that the transaction is ‘righteous and proper’. One example of this kind of case is Datuk Jagindar Singh & Ors v Tara Rajaratnam (1983). As there was a solicitor- client relationship, the Federal Court held the presumption of undue influence to be rebutted.
​Undue influence can also occur when one party places his or her trust in the other party. For example, in Allcard v Skinner (1887), there was a presumption of undue influence. The claimant failed to recover the assets.
4.0 Fraud
​According to Section 17 of the Contracts Act 1950, fraud includes certain acts, which are committed with intent to deceive other parties into entering a contract. Generally, whenever a party causes the other party to act based on a false representation in which the maker himself does not believe to be true, he is said to be committing a fraud.
​Wong Cheong Kong Sdn Bhd v Prudential Assurance Sdn Bhd (1998) is a case that involves and alleged fraudulent insurance claim. The High Court held that there was fraud and allowed the insurance claim by the plaintiff.
​In Derry v Peek (1889), the defendant’s tram company had advertised that it would employ steam power by the authority of the Board of Trade. The Board refused consent to steam power, thus causing the company to wound up. The investors brought an action, which ultimately failed in the House of Lords. This is because the case was held as no fraud being present as the directors of the company had honest belief and confidence in the statement issued.
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​In India, Ningawwa vs Byrappa (1968), the husband got his illiterate wife to sign papers that stated he was mortgaging her two lands but he actually mortgaged four of her lands. This act was held to be a fraud.
​5.0 Misrepresentation
​Based on Section 18 of the Contracts Act 1950, misrepresentation can be defined as an untrue statement of fact. Fraud and misrepresentation are often confused. The difference between these two factors is that in fraud, the person making the representation does not believe in it himself whereas in misrepresentation, he may believe the representation to be true. There are three types, which are fraudulent misrepresentation, negligent misrepresentation and innocent misrepresentation.
First is fraudulent misrepresentation, which is a statement known to be false, or made without belief or not caring whether it is true or false. In Malayan Miners Co (M) Ltd v Lian Hock & Co (1966), it was held that there was no fraudulent misrepresentation on the part of the plaintiff and agents.
​Next is negligent misrepresentation in which the defendant carelessly makes a representation while having no reasonable basis to believe its true. In Hedley Byrne v Heller (1964), the the agency sued for misrepresentation but the action failed. This is because there was a duty, but no liability of facts.
​Another similar case that is similar as above is Bisset v Wilkinson (1927). The claimant brought an action for misrepresentation to cancel the contract and get his deposit back. In this case, the defendant was not held liable, as the defendant had never used the land for sheep farming. Hence, the court held that any statement stated would merely be an assumption.
​Innocent misrepresentation occurs when a false statement is made in which the maker honestly believes in and had reasonable grounds for their belief. In Whittington v Seale- Hayne (1900), indemnity was awarded. Under the English law, indemnities can be claimed for any consequential costs due to innocent misrepresentation. In Leaf v International Galleries (1950), it was an innocent misrepresentation as both parties believed that the painting was by the artist Constable. However, the claimant lost the right to void the contract due to lapse of time.
6.0 Mistake
​Section 21 of the Contracts Act 1950 states that where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. There are several types of mistakes that render a contract as void, provided that the mistake actually induces the contract.
​One type of mistake is mistake to the existence of the subject matter. This mistake is exhibited in the Singapore case of Chop Ngoh Seng v Esmail & Ahmand Bros (1948-9) in which the contract was voided.
​Next, mistake as to the identity of the subject matter. In Scott v Coulson (1903), both parties had entered the contract for life insurance while believing that the person to be insured was living. In fact, the person was dead. Thus, the contract was void as it was a mistake to the existence of a subject matter. In comparison, in Leaf v International Galleries (1950), the claim was unsuccessful as the mistake was related to the quality of the painting, and not to the subject matter. This is because the claimant believed he was buying a painting, and he did get a painting.
​Mistakes can also exist as to the identity of the other involved party. For instance, in Chan Yoke Lain v Pacific & Orient Insurance Co Sdn Bhd (1997). The High Court in Malaysia held that a personal accident insurance contract was void under Section 21 of Contracts Act 1950. This is because the insurer was under mistake as to the identity of the proposer since the proposer did not sign the signature in the proposal form.
​Another type of mistake is to the terms of the contract of which the other party is aware. In Hartog v Collin & Shields (1939), the court held that the contract was void due to mistake. This is because the claimant had realized the mistake in the price.
​Also, mistakes can exist in written contracts. This is known as ‘non est factum’, which means ‘it is not my act’. This mistake is depicted in Saunders v Anglia BS (1970). The plaintiff transferred her house to her nephew but realized he was a fraud, and wanted to cancel the transfer. The court ruled that ‘non est factum’ defense would not stand. This is because she had signed the document transferring the ownership in full knowledge she was doing this.
7.0 Conclusion
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​A contract is more than just a mere agreement between the parties involved. Anyone could simply enter a contract, but this does not mean that it is enforceable or legal according to law. There must be offer, acceptance, intention to create a legal relation, consideration, certainty, capacity, consent and legality in a contract. Having any of these factors missing could cause a contract to be regarded as invalid.
Under consent, there are five vitiating factors which are coercion, undue influence, fraud, misrepresentation and mistake. If any of these factors were to be present, it shows that the party involved in the contract might not have voluntarily or willingly provided the consent. This could affect the validity of the contract as consent is one of the key elements in a contract. In conclusion, parties should enter a contract willingly and obey the eight key elements to ensure that it will be deemed as valid and enforceable by the law.