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.