Coercion

INTRO

The law requires that parties enter into contracts with their full and free consent. If some form of pressure improperly applied to the victim caused his consent to the contract, the contract is void.

Section 10 of the Contracts Act 1950- All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

Section 14(a) of the Contracts Act 1950- Consent is said to be free when it is not caused by coercion

DEFINITION

Section 15 of the Contracts Act 1950-  "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.

The above definition provides for two ways of committing coercion:

1) Committing or  threatening to commit an act forbidden by the Penal Code

2) Unlawfully detaining or threatening to detain property or the threat thereof to the prejudice of any person

ELEMENTS

a) Coercion must be the committing of an act prohibited by the penal code.

b) The coercion must be the unlawful detention of any property or the threat to detain it.

c) The act of coercion must be carried out in order to allow an agreement to be entered into by any party.

Kesarmal s/o Letchman Das v Valiappa Chettiar [1954] MLJ 119

Facts: A transfer of property was made under ‘the orders of the Sultan, issued in the presence of 2 Japanese officers during the Japanese occupation of Malaysia.

Held: The transfer of the land contract was not valid as the consent given was under a threat and not free.

Chikkam Ammiraju vs. Chikkam Seshama (1918) 32 MLJ 494

Facts: A man threatened to commit suicide in the course of persuading his son and wife to released a deed of a particular property in favor of his brother. 

Held: A threat to commit suicide could be deliberated to be an act prohibited by the Indian Penal Code and considered to be coercion under the Indian Contract Act. The release of deeds can be set aside as it is voidable.

Teck Guan Trading Sdn Bhd v Hydrotek Engineering (S) Sdn Bhd

Facts: The Plaintiff is the vendor of round bars whilst the defendant is the Purchasers. They entered an agreement for the sale of round bars at a purchase price of RM1,180. Before the agreement was drawn up and following discussions between both parties, the defendant had confirmed the order for the goods by letter, with the price stated at RM1,244. By several exchanges of the letter, the plaintiff maintained that there was an error in the price appearing in the agreement, while the defendant insisted that the plaintiffs were bound by the price of RM1,180. The defendant paid a 15% deposit pursuant to the agreement but the plaintiff refused to supply the bar unless the 1st defendant agreed to the price of RM1244.

Held: There are two ways of committing coercion as defined by s. 15 of the Contracts Act 1950, one of which is the threatening of an act forbidden by the Penal Code  (FIRST LIMB), while the other is the unlawful detention or the threatening of such to the prejudice of any person (SECOND LIMB, with the intention of causing any person to enter into an agreement. 

First Limb- The defendants failed to show the court any of the act s of the plaintiff is a threat to commit any act forbidden by the Penal code.  The reason given was commercial pressure/economic blackmail does not amount to coercion because the agreement to the price was an exercise of free will.

Second Limb- The argument by the defendant that the plaintiff’s refusal to supply the bars at the lower price amounted to unlawful detention of property in order to get the defendant to agree to the higher price.

The plaintiff’s refusal did not amount to unlawful detention of property. Because plaintiff was exercising his legal right of its own property.

RELATIONSHIP BETWEEN SECTION 15 AND SECTION 73

Section 73 of the Contracts Act 1950- A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.

*Meaning a person to whom money has been paid or delivered by mistake or under coercion must repay or return it.

Illustration (b) to S. 73- A railway company refuses to deliver up certain goods to the consignee, except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.

Illustration (b) has the element of coercion: relating to unlawful detaining of property to the prejudice of any person.

Kanhaya Lal v. National Bank of India (1913) 40 Cal. 598 

Lord Moulton: on the definition of 'coercion' under s.72 of the Indian Contracts' Act 1899 (which is pari materia with s. 73 of the CA 1950):

"The word 'coercion' must therefore be there used in its general and ordinary sense as an English word, and its meaning is not controlled by the definition in section 15".

Chin Nam Bee Development Sdn. Bhd. V. Tai Kim Choo [1988] 2 M.L.J. 117

The Plaintiffs purchased certain houses to be constructed by the defendant and alleged that they have to pay an additional sum of RM4,000  each to the defendant under the threat by the defendant to cancel bookings for their houses. The defence was that the money was paid voluntarily and not under coercion. The plaintiffs claimed a refund under Section 73 and succeeded.

Eusoff Chin J.: It would be difficult to give effect to s. 73 illustration (b) if the word 'coercion' is to be given the meaning as defined in s. 15 of the Act. They appear to be in conflict with each other. Therefore the word 'coercion' in the context of s. 73 of the Act should be given its ordinary and general meaning since there is nothing under s. 15 which says that the word 'coercion' should apply throughout the Act. The definition of 'coercion' in s. 15 should only apply for the purpose contained in s. 14, as s. 14 of the Act specifically says so.

SECTION 15 AND ECONOMIC COERCION: A DEBATE- FACTORS ON ECONOMIC COERCION  IN MALAYSIA

The English common law on 'economic duress' does not apply in Malaysia. It can be illustrated in the case of; -

Perlis Plantations Bhd v Mohammad Abdullah Ang (1988)

English common law relating to economic coercion does not apply in Malaysia as our Contracts Act does not provide for any form of coercion other than as defined by Section 15.

“For duress to amount to defence the defendant should be able to show that his consent to the agreement he had entered into was not free in that such consent was caused by coercion as defined by section 15 of the Act…

THE EFFECT OF COERCION AND ITS REMEDIES

Rescission

Section 19 of the Contracts Act 1950-  When consent to an agreement is caused by coercion, fraud, or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

It means that the party has a choice:

1)  He may affirm the contract and continue with it. Both parties must fulfil their obligations under the contract.

2) He may ask the court to rescind the contract. Both parties do not have to perform their obligations under the contract.

Remedies

Section 65 of the Contracts Act-  When consent to an agreement is caused by coercion, fraud, or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

Thus, the victim must restore the benefit received from the guilty party.