Professional Documents
Culture Documents
Illegal Contracts PDF
Illegal Contracts PDF
Table of Contents
No Content Remarks
1.0 Introduction
2.0 Agreements affected by Illegality
a) Agreements forbidden by law
b) Agreements that defeat the law
c) Contracts involving fraud
d) and causing injury
e) Agreements that are immoral and
Opposed to public policy
3.0 Consequences of illegality
4.0 Contracts not affected by illegality
1.0 Introduction
Illegal contract
Definition: Illegal contract is a promise that is prohibited
due to its very nature. Such contracts are prohibited since
the performance, formation, or object of the
agreement is against the law.
Held: that the status of such a promise has not been fully settled
in law and that the D should not have adopted the summary
procedure and should have gone for a full trial.
5. Agreements that opposed public policy s.24 (e) CA
s. 24 (e) of the Act covers agreements that the court would
regard as opposed to public policy.
The principle of public policy is that no man can lawfully do that
which has a tendency to be injurious to the public welfare.
The origin of public policy is said to be obscure & its
boundaries vague.
these are agreements to defeat the revenue laws of the country; example
such as an agreement to avoid tax payable under Real Property Gains Tax Act
1976.
Case : Thong Foo Ching v Shigenori Ono
The Resp agreed to buy two pieces of land together with a
double-storey shop house erected thereon from the App for
RM6.5m. Since the sale of the property was over RM5 in value,
the Resp needed to obtain the prior approval of the Foreign
Investment Committee (FIC) under the guidelines issued by the
government. These guidelines are meant for the general well
being of the Malaysian citizen. It protects the general public
interest and safe guard the public welfare.
Held: Since the App bought the property in 1985 and sold it to the
Resp in 1990, they were selling the property during the fifth year
of acquisition and this attracted 5% tax under the Real Property
Gains Tax Act 1976. With the reduction in the purchase price from
RM6.5m to RM4.9m, the Government of Malaysia lost RM80,000
by way of real property gains tax payable by the App and
RM27,000 by way of stamp duty under the Stamp Act 1949
payable by the Resp. The transaction was unlawful and VOID
because clearly contrary to the public policy under S.24(e).
CONSEQUENCES
OF ILLEGAL
CONTRACTS
ANY ADVANTAGE
THE CONTRACT IS RECEIVED MUST
UNENFORCEABLE BE RESTORED OR
COMPENSATED
CONSEQUENCES OF ILLEGALITY:-
Case: Chung Khiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd
The appellants extended loans to the respondents and the loan was
secured by documents and guarantees. The documents evidencing the
loans showed that the hotel whose shares were being purchased by a
company had given financial assistance to that company for the
purpose of purchasing the share equity of the Hotel. By securing this
loan, the hotel is assisting the company in purchasing the Hotels
shares.
Held: This act contravened Section 67 of the Companies Act 1965. that
the bank with the benefit of legal advice had knowledge of and was
clearly implicated in the illegality. The bank was indeed a party to an
agreement to defeat the object of a statute. Accordingly, the bank
should be precluded from suing upon it.
B. Any advantage received must be restored or compensated
S.66 CA 1950 provides the remedy of restitution to parties that
discovered the agreement to be VOID and had given an
advantage to the another.
That the party seeking restitution under s. 66 must have given an
advantage under the void agreement to the other party. Once
proved, the other party must restore the advantage received or
compensate it to the party from whom he received it.