The Law of Contract – Voidable Contract – Coercion

The word “contract” can be defined as a voluntary, deliberate, and legally binding agreement between two or more competent parties. Contracts are usually written but may be spoken or implied, and generally have to do with employment, sale or lease, or tenancy. A contractual relationship is evidenced by an offer, acceptance of the offer, intention to create legal relations, consideration, certainty and capacity. However, while all parties may expect a fair benefit from the contract or otherwise courts may set it aside as inequitable, it does not follow that each party will benefit to an equal extent.

Existence of contractual-relationship does not necessarily mean the contract is enforceable, or that it is not void or voidable. Contracts are normally enforceable whether or not in a written form, although a written contract protects all parties to it. Some contracts such as for sale of real property, instalment plans, or insurance policies must be in writing to be legally binding and enforceable. Other contracts are assumed in, and enforced by, law whether or not the involved parties desired to enter into a contract. Under the Law of Contracts, Voidable Contracts means a formal agreement between two parties that may be rendered unenforceable for a number of legal reasons.

A voidable contract can be legally rejected by one party and is said to have a defect. If the party with the power to reject the contract chooses not to reject the contract despite the defect, the contract becomes valid and enforceable. Reasons that can make a contract voidable are coercion, undue influence, fraud, misrepresentation and mistakes. Based on Contracts Act 1950, Section 15, Coercion can be defined as 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”.

Basically Coercion means the intimidation of a victim to compel the individual to do some act against his or her will in this case, signing a contract, by the use of psychological pressure, physical force or threats. Coercion can be illustrated ( Appended to Section 15) when 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 sue B for breach of contract in 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. Another example of illustration on coercion is when A threatens to shoot B, a friend of C if C does not let out his house to him. C agrees to do so because he or she is being intimidated by A. This agreement has been brought about by coercion. There are some cases in court that may explain coercion more easily. Coercion can be easily understandable by studying cases like S. P. M. Muthiah Chetti and Ors. VS Muthu K. R. A. R.

Karuppan Cchetti (1927) 53 MLJ 606. The plaintiffs are a firm of Nattukottai Chetties carrying-on banking business in Singapore and other places. They allege in the plaint that they are appointed the defendant as their agent to conduct business in Singapore for a period of 3 years and as his conduct was found not to be satisfactory, they sent another agent after the expiry of the 3 years period and wrote to the defendant to hand over the business with the account books, documents and cash in hand to the new agent.

The defendant refused to hand over charge of the business to the new agent unless the accounts between him and the plaintiffs were settled and the letter containing the terms of the agency written by him to the plaintiffs, called the Salary Chit, was returned to him and a release deed was executed in his favour releasing him from all claims against him with the reference to his agency that the defendant was obdurate.

The plaintiffs feared that they may suffer heavy loss by the stoppage of the business has consented to authorised their new agent to give a release to defendant after getting the release deed and the return of Salary Chit handed over the account book, vouchers and cash in hand to the new agent and that the release deed was obtained under coercion and is voidable at their instance. As a conclusion, the basic essence of this case is that the agent refused to hand over the account books, documents and cash in hand of the business to the new agent sent in his place, unless the plaintiffs released him from all liabilities.

Feared that their business may suffer a huge loss, the plaintiffs had to give a release deed as demanded. Held, that the release deed was voidable at the instance of the plaintiffs who was made to execute the release deed under coercion.

The plaintiffs won this case because they are forced to enter an agreement or contract by the defendant to release him from all liabilities and to hand in the account books, documents and cash in hand to the new agent sent by the plaintiffs. By threatening the plaintiffs, the defendant managed to get the released deed demanded by him which automatically make the contract voidable under coercion as it is clearly stated in Section 15, Contracts Act 1950 “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”.

Here the defendants is clearly threatened the plaintiffs to release him from all liabilities by inducing a psychological pressure that may lead the plaintiffs to agree with the demand demanded by the defendants with the fear of loss lingers in their thoughts. In result, the appeal is allowed and the plaintiff’s suit dismissed. Reference List ?HTTP://WWW. INVESTOPEDIA. COM/TERMS/V/VOIDABLE-CONTRACT. ASP. COM ?HTTP://WWW. LEGAL-DICTIONARY. THEFREEDISCTIONARY. COM/-/DICT. ASP/VOIDABLE ?HTTP://WWW. INDIAKANOON. ORG/DOC/1502516.