Prepared by: Norazla Binti Abdul Wahab

Contract may be void :

Void illegality

However, Contract Act 1950 does not distinguish that.

Sect. 2 (d) of CA, 1950:

“ an agreement not enforceable by law is VOID”

Sect. 10 (1) of CA, 1950:

“contract must be made by a free consent of competent parties, for a lawful

consideration and with a lawful object.”

Sect. 24 of CA, 1950:

The consideration or object is lawful unless:

(a) forbidden by law (b) By nature; if permitted, it would defeat

any law (c ) fraudulent

(d) injury to person or property (e) Immoral or opposed to public policy

S. 25: consideration for 1 or more objects is in part unlawful

S. 26 : agreement without consideration S. 27 : agreement in restraint of marriage of a

person other than a minor S. 28 : agreement in restraint of trade,

profession or business S.29 : agreement in restraint of legal proceeding except contracts to a dispute

arbitration or award of scholarship S. 30: agreement that uncertain= void

S. 31

Void

There was a contract for the purchase of house built on a land which is temporary occupation license was issued.

This is contrary to rule 41 of Land Rules which states that no license for temporary occupation of land shall be transferrable”.

The court held :that the contract was void and unlawful.

• Menaka was a registered moneylender. She then by using her own name lent a money to the respondent on the security of a charge of certain land belonging to the respondent. However, there was a provision under Moneylender Ordinance which prohibit a moneylender from entering into contract and taking the security in her own name.

• The court held: that such a contract is void.

• An object and consideration of a contract is fraudulent.

• This is different with fraudulent misrepresentation where one is fraudulently

induced by another party to enter into contract

• For example:

Relationship between Principal & agent• if A (the agent) without knowledge of his Principal agrees to obtain money from B’s

lease of the land that belongs to his Principal.

• The agent is unlawfully receiving a secret profit.

• The object and consideration of a contract is unlawful if it will injure a person or damage

other person’s property for profit.

• Thus, of two parties conspire for profit to cause physical damage of a third person or

to cause him physical, the agreement is unlawful.

• where the defendant agreed to sell a property to the plaintiff in which an infant had an interest. The dealing was detrimental to the infant’s interest.

• Thus, it was struck down by the court.

• This subsection covers two aspects: immorality and public policy.

• Cases involving immorality includes sexual immorality.

• a contract to hire vehicle for the purpose of prostitution have been deemed immoral

and illegal by the court.

• court decided that money lent for the purpose of running a brothel was held not recoverable on the grounds of illegality.

• Contracts are said to be against public policy when they tend to bring about a state of

affairs which is regarded by law as harmful to society.

• The plaintiff had signed an agreement which

committed him to pay to his political party the allowance paid to him as a Member of Parliament.

• Later, he was elected to Parliament and honoured his agreement. Subsequently, he lost his seat in the Dewan Rakyat and sued to recover the money paid to his party.

The court held:• that such contractual arrangements as

void.

• Section 28 of the Contracts Act : • Every agreement by which anyone is

restrained from exercising a lawful profession, trade, or business of any kind, is

to that extend void.

• Thus, as a General Rule, all contracts restraining a person from carrying on a

lawful profession, trade or business of any kind is to that extent void.

• the defendant was restrained from practicing as an advocate and solicitor within Kota Bahru for the period of two

years from the termination of his services with his employer.

• The court ruled the restraint to be void.

• Exception 1- Agreement not to carry on business of

which goodwill is sold;

– A buyer may include a term restricting the seller from carrying on a similar business within

specified time and boundary limit. – It is to protect the buyer by prohibiting the seller

from taking away the old customer of the business sold.

– the court held that :if there was no restriction of trade on sale of goodwill it will cause loss to the purchaser of

business.

• Exception 2- Agreement between partners prior to

dissolution

a partner may agree that some or all of them will not carry on a same business similar to that

partnership within certain local limits

• Exception 3- During continuance of partnership.

a partner may agree that some or all of them will not carry on any business that not carried out by

the partnership during the continuance of the partnership.

– To prevent competition.

• Section 29: provides that every agreement, by which

any party to an agreement is restricted absolutely from enforcing his rights under

the contract, or any agreement which limits the time to enforce a party’s rights, is void.

• The Contracts Act 1950 provides three exceptions to this general rule:

– contracts to refer dispute which may arise to arbitration;

– contracts to refer any question which may have already arisen in arbitration;

– contracts in respect of an award of a Government scholarship wherein it is provided that the

discretion exercised by the Government under that contract shall be final and conclusive and

shall not be questioned by any court.

The plaintiff claimed that he was still a member of the union and sought a

declaration from the court.

The court then held that it has no jurisdiction to hear the matter as the trade

union rules provides that any dispute between a member and the union should be

decided by reference to arbitration.

General rule under the Contracts Act 1950 is that the court will not enforce an illegal

contract. According to legal maxim: Ex turpi causa non oritur Actio, neither party to an illegal

contract can enforce it. The parties may not be able to recover money or property transferred under the

illegal contract.

• The plaintiff bought about 40 acres of rubber land and in order to avoid certain regulations, he transferred this land to his son. The father retained the possession of the land, managed it and received all income from it. Later the son refused to re-transfer the land, the father brought this action.

• The plaintiff had practiced deceit on the public administration of the country ; to

make personal gained. So he has no right to re-transfer the land.

1) In seeking relief , the plaintiff need not rely on the illegal transaction but has an independent cause of action

(buat tuntutan atas alasan lain).

EG: If A lets his house to B used for a brothel (rumah pelacuran), he cannot

recover any arrears rent but he can sue for ejection and possession of the house.

• 2) Both parties to the contract has no knowledge with regard to the illegality of

the agreement that they entered into.

• Section 66: lays down that when agreement is discovered

to be void or when a contract becomes void, the person who received any advantage under

such agreement or contract is bound to restore it to the other party or pay adequate

compensation for the same.

• Menaka was a registered moneylender. She then by using her own name lent a money to the respondent on the security of a charge of certain land belonging to the respondent. However, there was a provision under Moneylender Ordinance which prohibit a moneylender from entering into contract and taking the security in her own name.

• The court held:

that such a contract is void because contravene with Moneylenders Ordinance but permitted RELIEF under

S. 66

Lord Fraser:” neither party aware of the illegality at the time of making the loan transaction and the

documents were prepared and executed on both sides in complete faith. The contract was discovered to be void only after the proceeding had been started”.

3) Where only 1 party is unaware of the illegality of the contract that party

will be able to recover it.

The court held that:The A who had innocently deposited money

with another carrying the business in contravention of Borrowing Companies Act

could recover the money under S.66.