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In Malaysia you can get out of a contract if both sides made a mistake

8 months ago Juhn Tao

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This article is for general informational purposes only and is not meant to be used or construed as legal advice in any manner whatsoever. All articles have been scrutinized by a practicing lawyer to ensure accuracy.

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People inevitably make mistakes every day. After all, nobody’s perfect, right?

But when it comes to contracts, ‘mistakes’ are a whole different ball game. Just to be clear, not reading or understanding a contract before you signed it is a mistake on your part, but NOT in the eyes of the law – you’ll still be bound by the contract and will have to follow through with whatever horrible terms you agreed to.  You can read this for further information.

The ‘mistake’ we’re talking about is a genuine error in regards to the item or subject in the contract. Here’s an example – Someone puts an iPhone 5s up for sale, and you signed a contract to pay for the phone by instalment even though you don’t actually know what an iPhone 5s looks like. But as you’re showing off your brand new iPhone 5s to your friends, one of them points out that it’s actually an iPhone 5. You immediately scream “SCAM!” but as it turns out, the seller is an old uncle who also can’t tell the difference. 

So does that mean you can cancel the contract? Well, there’s a pretty high chance that you can, since it’s a...

 

Mistake made by both parties

While you might think that something as important as a contract should be mistake-free, they will inevitably pop up from time to time. This is why Section 21 of the Contracts Act 1950 allows agreements to be voided (cancelled) if both parties made a mistake related to a fact essential to the agreement – which is basically the reason why you’re signing the contract in the first place. Here’s how Section 21 is worded:

Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.

In order to come within the scope of this provision, two requirements have to be fulfilled:

  1. The mistake must be made by both parties of the contract where both parties are wrong about the subject of the contract.
  2. The mistake must be related to something (fact) that’s important for the agreement to happen. For example, if you’ve entered a contract to buy a double-story house house for RM2 million, the fact that it’s a double story house and the fact that RM2 million will be given in exchange for the house are both important. The contract cannot happen if neither of these elements exist.  

There are generally TWO categories of mistakes that can be made by both parties, which we’ll look at below:

1. When both parties made a mistake about the existence of the subject

This applies when both parties do not know that the subject of the agreement has ceased to exist or has never existed when the contract was signed.

For example, you entered a contract to buy a puppy poodle from someone who’s poodle had just given birth. However, as you and the seller are signing the agreement at the kopitiam, the puppy poodle unexpectedly dies. Since both you and the seller were unaware of the puppy poodle’s death when the contract was signed, the contract will no longer be valid.

2. When both parties made a mistake on the identity of the subject

For this situation, we’re gonna use our earlier “iPhone example”.

As a recap, the seller has an iPhone 5 he wants to sell, but he thinks it’s an iPhone 5s. When you bought it from him, you thought you were buying a 5s too. 

Because BOTH the parties here made a mistake on the “identity” of the subject matter, the contract would be covered by Section 21 of the Contracts Act 1950 – making the contract invalid.

 

There’s no mistake, if…..

1. Only one fella makes a mistake a.k.a unilateral mistake

 

 

If you noticed our earlier examples when mistakes are made, they’re mistakes made by both parties. However, if the mistake is made by only one person, the contract wouldn’t be void. In such situations, Section 23 Contracts Act 1950 provides that the contract still stands:

A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.

So if we were to revisit the iPhone example. If the iPhone seller knows that he’s selling you an iPhone 5 but you thought you were buying an iPhone 5s, there will be no mistake and the contract will still be valid

2. You both make a mistake as to the law

We have covered situations where mistakes were made and the mistakes had to with facts, basically people getting their facts wrong. However when people get the law wrong, there’s no such a thing as a mistake.

In the case of Seck v. Wong & Lee (1940), Mr. Seck asked Mr. Wong (who was an architect) for some architectural drawings. After being given the drawings, he paid Mr. Wong RM500 for it, because he thought he was legally bound to do so, when in fact he was not. So he tried to sue Mr. Wong for the money back, because they made a mistake as to law. Unfortunately for Mr. Seck, the court said that he can’t get his money back because a mistake as to the law wouldn’t make a contract void.

But weirdly enough, this ruling would apply to mistakes people make on Malaysian law. So that means if a mistake is made on foreign law, the contract would still be valid.

 

You get back what you’ve given, and you return what you received

We’ve been talking about how a contract becomes void if there’s a mistake. But we realise you’re probably going “Okay la contract void, but so what?”.

Well, the contract will no longer exist, and the Contracts Act 1950 will allow you to get your money back! Woohoo! 

But before you celebrate you can’t keep the item you’ve received and get your money back, you must return back the item you’ve received. This is basically how the courts try to put you guys back to the position as if the sale didn’t happen. 

Tags:
contracts act 1950
contract
mistakes
rectification
restitution
unilateral mistake
seck v wong & lee
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Juhn Tao

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