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 Bs
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 persons 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
property to
had
an
detrimental

defendant agreed to sell a

the plaintiff in which an infant
interest.
The
dealing
was
to the infants 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 1Agreement 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 2Agreement 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 3During 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 partys 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.