Introduction

 Where parties enter into an agreement wherein the

consideration of the agreement or the object of the
agreement is unlawful, the agreement is void and the
court will not enforce it.
 The agreement is unenforceable by reason of illegality.
  Sect. 2 (g) 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.”
Meaning, Effect of, and Relief for
Void Agreements
 The Contracts Act does not make a distinction that exists in common
law between contracts that are illegal and contracts that are void.
 Illegal contracts are treated more strictly, refuse to aid someone who
founds his cause of action on an illegal contract, while void contract is
treated of not having any legal effect.
 Under the Contract Act, the Act provides in s 2(g) that agreements not
enforceable by law are void. Section 24 provides that an agreement, the
consideration or object which is unlawful within the section, is a void
agreement.
Meaning of void agreement
 Section 2(g) of the Contract Acts provides that an agreement not
enforceable by law is said to be void.
 Section 10(1) of the Contracts Act provides that all agreements are
contract “if they are made by free consent of parties competent to
contract.”
 In Harnath Kaur v Indar Bahadur Singh (1922) 50 IA 75
“An agreement, therefore, discovered to be void is one discovered to
be not enforceable by law and, on the language of the section, would
include and agreement that was void in that sense from its inception
as distinct from a contract that becomes void.”
What agreements are void
 Section 24
 The main provision on void agreements.
 Section 26
 An agreement made without consideration is void unless it comes within the
three exceptions provided.
 Section 27
 Restraint of marriage
 Section 28
 Restraint of trade
 Section 29
 Restraint of legal proceedings as follows
 Section 30
 Agreements void for uncertainty
 Section 31
 Agreements by way of wager
Effect of, and Relief for
Void Agreements
 Relief under Section 66
When an agreement is discovered to be void, or when a contract becomes void, any
person who has received any advantage under the agreement or contract is bound
to restore it, or to make compensation for it, to the person from whom he received
it.

 Void agreements
 Contract becomes void

 In this two situations any person who has received an advantage under the
agreement or contract is bound to restore it.

 An important prerequisite to obtaining relief under s 66 is that a person

seeking relief must be a party of the illegality. The party seeking relief under s
66 must not be aware of the illegality at the time of the contract was entered
into and the illegality was only discovered subsequently.
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 Ng Siew San v Menaka (1973) 2 MLJ 154, FC
 In this case, the respondent, Menaka, was a registered
moneylender. The respondent had lent money to the
appellant, on the security of a charge of certain lands
belonging to the appellant. On the respondent’s application
for an order for the sale of the land to satisfy the principal
sum and interest, the appellant objected to the application.
 The Federal Court held that the agreement was void as it was
forbidden by Section 8(b) and (c) of the said ordinance. The
respondent not aware of the illegality, therefore section 66 of
the Contracts Act was applicable.
 The Privy Council dismissed the appeal and confirmed the
Federal Court decision on the application of section 66 to
void agreements.
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 Soh Eng Keng v Lim Chin Wah (1979) 2 MLJ 91
 The High Court held that s 66 of the Contracts Act was not applicable and distinguished
the facts in the instant case with Menaka’s case, as both parties were aware of the
illegality.
 …. The term ‘discover’ here clearly indicates something which the parties unaware of at the
time of making the agreement…. The term ‘becomes’ refer to something not present when
the contract was signed but came into being at a later stage…
 Yeep Mooi v Chu Chin Chua & Ors, the appellant deposited of RM5000.00 with a person
carrying on the business of a pawnshop bearing interest at the rate of 14.4% per annum. Upon
the death of the pawnbroker, the appellant commenced proceedings for the recovery of the
sum.
 The Federal Court held that the appellant had not acted as a money lender, as her main
profession was that of a seamstress and she had deposited the sum with the pawnbroker as
a means of saving.
 The appellant was entitled to restitution pursuant to Section 66 of the Contracts Act.
 Ahmad bin Udoh v Ng Aik Chong (1970) 1 MLJ 82
 … the parties entered into an agreement which was in contravention of the Padi
Cultivators (C0ntrol of Rent and Security of Tenure) Ordinance 1955. However the
respondent was ignorant of the illegality, Section 66 of the Contracts Ordinance 1950
applied and the respondent was enttled to the return of the deposit which he hd paid.
 Hashim bin Adam v Daya Utama Sdn Bhd (1980) 1 MLJ 125
Recovery of property transferred
 Under the common law, if one party has transferred their property to
another party based on illegal contract, then neither party can recover
what they had transferred.
 However, there is an exception and a plaintiff can recover the property
if he can establish a cause of action without having to rely on the illegal
transaction.
 In Sajan Singh v Sardara Ali (1960) 1 MLJ 52, the Privy council held that
although the transaction between the parties was illegal, nevertheless,
ithe crime of wrongful detention of goods or personal possessionst had
been fully executed and carried out and was capable of passing the
property in the lorry to the plaintiff.
 The plaintiff succeeded in his cause of action based on detinue (the
crime of wrongful detention of goods or personal possessions) to
recover his property.
 It was not founded on an illegal act.
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 Daniel s/o D William v Luhat Wan & Ors (1990) 2 MLJ 48
 The plaintiff claimed that he had found a lottery ticket crumpled up at
an Esso Station. Later he found a lottery ticket crumpled up at an Esso
Station. Later, he found that the ticket had won the third prize in the
Tenth Social and Welfare Services Lottery draw. The first Defendant,
however claimed that he had bought that lottery ticket and had given it
with other lottery tickets to his wife for safekeeping. While the first
defendant’s wife for the bundle of tickets in order for him to check
them. The driver retirn the bundle without the winning ticket. The first
defendant made a report..
 The High Court held that although the sale of the lottery ticket to the
first defendant was unauthorised and the seller had committed an
offence in selling it without authority.
 In this case, the illegal contract had been fully executed and the title
nor the right of possession to the winning ticket. The plaintiff had
neither the title nor the right of possession to the winning ticket.
Setting Aside Illegal Purpose
 Another exception to the non rule on non recovery of
property transferred under illegal contracts is the doctrine
of locus poenitentiae.
 Palaniappa Chettiar v Arunasalam Chettiar (1962) MLJ 143
 The respondent brought about 40 acre of rubber land in 1934.
At the time, he already owned 99 acres of rubber land so that,
with is new purchase, his total holding of rubber land
exceeded 100 acres.
 Under the Rubber Regulations 1934, for holdings of 100 acres
or more assessed by Assessment Committee and less than 100
acres, assessed by local District Officer.
 The respondent transferred to appellant, his son 40 acres.
 It was held that the doctrine was inapplicable and the court
would not lend its aid for an illegal act.
 Abdul Shukor v Hood Mohamed (1968) 1 MLJ 258
 An action for money had and received by the defendant to the
use of the defendant. The plaintiff alleged that he had given
the defendant sums of money based on the defendant’s
promise to send the whole of the money to him in India.
These arrangements were made to avoid the Indian exchange
control laws.
 …an action for money had and received lies for the recovery of
the money paid in pursuance of an illegal contract…. In the
presence case the illegal purpose had been substantially
performed before the action for money had and received was
brought…In my judgement, it was brought too late for the
plaintiff to have the assistance of the court…
Severance of illegal part from legal part
 Can the illegal part be severed from the legal part such that the legal
part can still be enforced?
Three provisions in the Contracts Act 1950 are relevant.
 Section 25
 If any part of a single consideration for one or more objects, or any one
or any part of any one of several considerations for a single object, is
unlawful, the agreement is void.
 ILLUSTRATION A promises to superintend, on behalf of B, a legal
manufacture of indigo, and an illegal traffic in other articles. B
promises to pay to A a salary of RM10,000 a year. The agreement is void,
the object of A’s promise and the consideration for B’s promise, being in
part unlawful.
 Under Section 25, there can be no severance where the agreement is for
one single consideration. In this situation, the agreement is void as the
single consideration is for both acts.
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 Section 58.
 Where persons reciprocally promise, firstly, to do certain things
which are legal, and, secondly, under specified circumstances, to do
certain other things which are illegal, the first set of promises is a
contract, but the second is a void agreement. (Two reciprocal
promise) (reciprocal, bearing on or binding each of two parties
equally)
 ILLUSTRATION
 A and B agree that A shall sell B a house for RM10,000, but that, if B
uses it as a gambling house, he shall pay A RM50,000 for it.
 The first set of reciprocal promises, namely, to sell the house and to
pay RM10,000 for it, is a contract.
 The second set is for an unlawful object, namely, that B may use the
house as a gambling house, and is a void agreement.
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 Section 25 can be distinguished from Section 58.
 Under Section 58 there are two reciprocal promises, one to do a
legal act and the second promise to do a certain things which are
illegal. In this situation, the first promise is a contract while the
second promise is a void agreement.

 Section 59
 In the case of an alternative promise, one branch of which is legal
and the other illegal, the legal branch alone can be enforced.
 ILLUSTRATION
 A and B agree that A shall pay B RM1,000 for which B shall afterwards
deliver to A either rice or smuggled opium. This is a valid contract to
deliver rice, and a void agreement as to the opium.
 In this situation, there is an alternative promise, a legal branch (B to
deliver rice) or an illegal branch (B to deliver opium). A contract to
deliver rice is not valid while an agreement to deliver opium is void.
Continue…
 The doctrine of severance was applied in Murugesan v Krishnasamy &
Anor (1958) MLJ 92.
 In this case, the defendants occupied several acres of land under
temporary occupation licences (TOL) and had applied for EMR titles in
respect of the land.
 The defendants entered into an agreement with the plaintiff which
recited that the defendant had applied for state land and for
consideration stated that the defendants would execute transfers to the
lands to the plaintiff as soon as titles were issued to them.
 In the mean time, the plaintiff was to enter upon the lands and enjoy
the proceed thereof.
 Subsequently, the defendants’ applications for EMR titles were rejected
and the plaintiff claimed for the money returned.
 The High Court held that the illegal promise in the agreement, namely,
permitting the plaintif to occupy the land, was severable from the
remainder of the contract. Thus the part of the contract dealing with
the transfer of the land was valid and enforceable.
Unlawful Consideration or Objects
 Section 10 of the Contract Act 1950, provides for an agreement to
be a contract, it must be the free consent of the parties to be
competent to contract and that the consideration and object
of the agreement must be lawful and are not expressly
declared to be void.
 Section 24 stated wherein the consideration or object of an
agreement is unlawful.
 It is forbidden by law
 It is of such nature that, if permitted, it would defeat any law
 It is fraudulent
 It involves or implies injury to the person or property of another; or
 The court regards it is immoral, or opposed to public policy.
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 The Supreme Court in Chung Khiaw Bank Ltd v Hotel Rasa Sayang Sdn
Bhd (1990) 1 MLJ 356, observed that the provisions of section 24 are
explicit statutory injuctions.
 The statute expressly provides that the consideration and object
referred to in subsection (a)(b) and (e) of section 24 shall be
unlawful and the agreement ensues shall be unlawful and void.
 A void agreement cannot be enforceable by law.
 These subsections must be read disjunctively.
 Forbidden by law and defeat any law:
Section24(a) and (b)
 Section 24(a) refers to express contravention of the law, most commonly
provided in statutes.
 Section 24(b) the consideration or object would if permitted, have the effect of
defeating the law. (Illustration (i))
 In Sababumi (Sandakan) Sdn Bhd v Datuk Yap Pak Leong (1997) 1 MLJ 587, CA;
[1998] 3 MLJ 151, FC
 On Appeal, The Federal Court held that the agreement is a contract or amounts
to a contract to do an act forbidden or prohibited under Section 21 of the Pool
Betting Act 1967, thus, offending s 24(a). Peh Swee Chin J:
 Section 24 appears to me to have been drafted after some fine tuning of the common
law on which it is based, At common law, contracts fitting in with tha said s 24(a) and
(b) for contravening any law would be illegal for being against public policy, but in our
Contract Act 1950, the same contracts are covered by s24(a) and (b), ie under two
separate subsections….
 …Laws in Section 24(a) refers to common law or any statute.
 Saldeck (Kuala Lumpur) Sdn Bhd v Onn Choon Koi @ Ng Ching Kwai (2008) 4
MLJ 438
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 Haji Hamid bin Ariffin v Ahmad Mahmud (1976) 2 MLJ 79
 The former Federal Court did not refer to section 24 of the
Contracts Act 1950 as the relevant statute, the Kedah Malay
Reservation Enactment provides that an agreement in
contravention of the statute is void.
 Upheld the lower court’s decision that the sale to the Siamese
lady was void from beginning because of Section 6(1) of the
Kedah Malay Reservation Enactment provides that where any
reservation land is held under a document of title by a
Malays, no right or interest therein whether by transfer or
otherwise, in any person who is not a Malay.
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 Sufficient nexus between statute and contract
 The Courts have held for a contract to be illegal for contravening
some statute provision, there must be a sufficient nexus between
the statutory requirement and the contract.
 Asia Television Ltd v Anor v Viwa Video Sdn Bhd (1984) 2 MLJ 304.
 Whether the contract in question is of such a nature that it would defeat
any law under Section 24(b) of the Contracts Act.
 Whether the Companies Act prohibits the making of a contract of the
type in question, and whether the Companies Act provides that one
parties must satisfy certain requirements before making such a contract?
 The nexus must be sufficiently strong.
 Ling Wah Press Sdn Bhd v Pustaka Utama Pelajaran Sdn Bhd. (1994) 3
CLJ 346
 The High Court held that the defence of illegality failed….whether the
contract was entered into with the object of committing an illegal act, in
which case the contract will be enforceable.
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Meaning of the word “law”
 The word “law” used in Section 24(a) and Section 24(b) is wide is
not restricted to statutory law. It covers bye-laws, rules,
regulations other subsidiary legislations and the Syariah Law.
 In Nafsiah v Abdul Majid (No 2) (1969) 2 MLJ 175, the Defendant,
a married man agreed to marry the plaintiff. The Plaintiff knew
that the defendant was already married. The Defendant seduced
the plaintiff and refused to marry her. She sued him for breach of
promise to marry and the Defendant contended that the promise
was void from the very beginning. The Court held that the
Plaintiff’s knowledge that the Defendant was already married did
not invalidate the contrat as the Defendant under the Muslim
law can marry more than one wife.
Continue..
 An example of illegality under s 24(b) is Hee Cheng Krishnan (1955)
MLJ 103.
 In this case, the Plaintiff and the Defendant entered into a contract
whereby the Defendant agreed to sell to the Plaintiff a house built
upon a piece of land in respect of which a Temporary Occupation
Licence (TOL) was issued. The Plaintiff claimed for specific
performance or, alternatively, for damages for breach of contract.
 The High Court held that the agreement entered into was an
attempt to sell and to purchase the plaintiff’s rights under the TOL.
This is contrary to rule 41 of the Land Rules 1930 which states that
‘No licence for the TOL shall be transferable. The agreement was
unlawful and void.
Continue…
 Types of statutory prohibitions
 Statute contains express prohibition
 Statute does not expressly prohibit but requires some
other act
 Statute contains express prohibition and saving
provision
 Statute contains express prohibition and saving
provision which also contains exception
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Statute contains an express prohibition
 Where a statute contains an express prohibition, the Court has to
gather the intention of the legislature with respect to the purpose of
the statute and interpret it accordingly.
 In Ismail v Hj Taib (1971) 2 MLJ 36, the issue arose in relation to a
tenancy agreement which was registered under the Padi Cultivators
(Control of Rent and Security and Tenure) Ordinance 1955. The
Federal Court held that although there was no memorandum in
writing or registered as required in the Ordinance, the Ordinance
did not render illegal.
Continue..
 Hashim bin Adam v Daya Utama Sdn Bhd (1980) 1 MLJ 125
 The plaintiff had been granted a forest license and the plaintiff then
entered into an agreement with the defendant. The licence in
question cannot be transferred under Rule 2 of the Terengganu
Forest Enactment.
 …. The agreement executed between the parties here is in effect a
purported transfer of the licence which is prohibited by the rules
and as such I hold it to be null and void.
 Statute does not expressly prohibition but requires
some other act
 Foo Say Lee v Ooi Heng Wai (1969) 1 MLJ 47
 The Plaintiff entered into an agreement with the defendant for
the purchase of a piece of land in Kota Bahru. The land was in
the Malay Reservation area and, as at the date of the
agreement, was held by a Malay. Condition 3 of the agreement
provided that the sale was subject to the approval of the
Kelantan Government and the Ruler in Council. At the date of
the writ, the land had been registered in the name of the
defendant.
 The Federal Court held that agreement was not void.
Statute does express prohibition and saving provision
 There are statutes while containing an express
prohibition also provides a saving provision that the
contravention will not affect the legality of any
contract entered into.
 Section 67 of the Companies Act 1967
 Chung Khiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd &
Anor (1990 1 MLJ 356
 Lori Malaysia Bhd v Arab-Malaysian Finance Bhd (1999)
2 CLJ 997
Statute contains express prohibition and saving provisions
which also contains exceptions
 In the case of Coramas Sdn Bhd v Rakyat First Merchant
Bankers Bhd & Anor (1994) 1 AMR 425, a consortium of
lenders had agreed to extend facilities to a company on the
security of a pledge of the shaes in a public listed company
registered in the name of second respondent.
 The Court concluded that the alleged agreement of
December 14, 1989, had contravened s 45(1) of the Act
(BAFIA) and being undertaken which was forbu=idden by
law in that it violated a prohibitory enactment of the
legislature, it was by reason of section 24 of the Contracts
Act 1950 void.
Fraudulent and involves or implies
injury: Section 24(c) and (d)
 Illustrations (e) and (g) show that the object of the agreement is
unlawful as both involve fraud as provided in Section 24 (c).
 Amman Singh v Vasudevan (1973) 1 MLJ 210.
 The High Court held that the agreement between the Plaintiff and
the Defendant was an attempt to defraud the other creditors for the
winding up petition. The Court referred to Section 24 and although
no reference was made to specific paragraphs, the agreement in this
case would have come within section 24(c) and (d).
Continue…
 In Palaniappa Chettiar v Arunasalam Chettiar (1962) MLJ 43, the Privy
Council held that the transaction was for a fraudulent purpose without
referring to section 24(c).
 Datuk Jaginder Singh v Tara Rajaratnam (1983) 2 MLJ 196
 The first, second appellants and third appellants colluded to obtain
possession of the respondent’s property, some five acres of land in
Kulai, Johor by fraud.
Immoral or opposed to public
policy: s 24(e)
Immoral agreements
 Illustration (j) and (k)
 There has been no decision on the definition of an immoral
contract and the exact ambit of the term.
 Oh Theresa v Sia Hok Chai (1992) 1 MLJ 215, the issue arose
whether the promise by a married man to marry a woman
who knew that he was already married, was immoral and
against public policy. The above issue remains undecided.
 Tengku Abdullah ibni Sultan Abu Bakar v Mohd Latiff bin
Shah Moh (1996) 2 MLJ 265, where the Court of Appeal
clearly stated that the standard of sexual morality in
Malaysia and in England is different.
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Opposed to public policy
 The principle of public policy is that man can lawfully do that
which has a tendency to be injurious to the public welfare.
 The public policy in one countries differs from that of another
country.
 In Banque Nasionale De Paris v Wuan Swee May (2000) 3 MLJ
587, the High Court expressed a cautious approach on the issue
of relying too much on decision of the courts in other countries
on public policy.
 The Aspinall Curzon Ltd v Khoo Teng Hock (1991) 2 MLJ 484, the
court protested against arguing too much upon public policy and
noted that it is never argued at all but only when other points
fail.
Agreements in Restraint of Trade
 An agreement in restraint of trade is an agreement
where a person’s liberty to carry on a profession, trade
or business is restricted.
 Two situation:
 An employee who upon leaving his employment agrees
not to compete with his employer by setting up a similar
business or joining a rival company.
 A seller of business with goodwill agrees not to carry on
a similar business to compete with the purchaser of the
business.
Restraint of trade under common
law
 Under the common law, all agreements in restrain of
trade are prima facie void unless it is shown that then
restraint is reasonable in the interests of the parties
and of the public.
 The authoritative case is Nordenfelt v Maxim
Nordenfelt Guns and Ammunition Co (1894) AC 535.
 The House of Lords held that the covenant in restraint
of trade was valid and enforceable.
 …but there are exceptions…restrain of trade and
interference of the individual liberty of action may be
justified by a special circumstances.
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 A contract in restraint of trade is one by which a party
restricts his future liberty to carry on his trade, business or
profession in such manner and with such person as he
chooses.
 There are four types of contracts dealt by the law where
these restraints may exist:
 Contract between employer and employee in contracts of
employment;
 Contracts between vendor and purchaser for the sale of the
goodwill of a business;
 Contracts between partners prior to dissolution of the
partnership and during the continuance of partnership; and
 Others commercial contracts
Continue….
 Section 28 of the Contract Act 1950 generally prohibits
any restraint of trade. It provides that every agreement
by which anyone is restraint rom exercising a lawful
profession trade or business of any kind is to extent
void.
 A strict interpretation of section 28 would render all
covenants in restraint of trade void even if the
covenants in question were reasonable.
Contracts between employer and employee.

 The employee may have covenanted with his present

employer that after leaving his present employment, he
shall not compete with his employee either:
 By setting up his own business; or
 Entering into the service of a rival trader.
 Wrigglesworth v Wilson Anthony (1964) MLJ 269
 Polygram Records Sdn Bhd v The Search(1994) 3 MLJ 127
 Worldwide Rota Dies Sdn Bhd v Ronald Ong Cheow Joon
(2010) 8 MLJ 297
Using the ex employer’s confidential information
 An ex employee is allowed to compere with his or her
ex employer by canvassing or doing business with the
latter’s former customers.
 General principle allowing competition
 However, the ex employee is permitted to wrongfully
use or disclose the confidential information belonging
to the ex employer.
 Schmidt Scientific Sdn Bhd v Ong Han Suan (1997) 5
MLJ 632
 Svenson Hair Center Sdn Bhd v Irene Chin Zee Ling
English Law
 The English law differs from Malaysia law on
covenants in restrain of trade in employment
contracts. All contracts in restraint of trade are prima
facie void under English law unless justiciable from the
point of view of the parties and the community.
 Nordenfelt v Maxim Nordenfelt Guns and
Ammunition Co Ltd. (1894) ACA 535
 Fitch v Dewes (1921) 2 AC 158
Exception 1 – Sale of the goodwill of a business
 Involves cases where the vendor of the goodwill of a business enters into a
covenant not to carry on a similar business in competition with the purchaser.
 The covenant against the vendor will not be in restraint of trade if it satisfies
the following condition:
 It prohibits the vendor from carrying on a similar business, in competition with
the business brought over by the buyer from the vendor;
 The area of restraint is within specified local limits;
 The buyer his successors carries on the same business and
 Such limits are reasonable regard being had to the nature of the business.
 Worldwide Rota Dies Sdn Bhd v Ronald Ong Chew Joon (2010) 8 MLJ 297
 The Court had expressed the view that when applying the test of reasonableness
(to the fact of the present case), it must also consider the reasonableness of the
restraint of trade in the context of the interest of the parties as well as the
public.
Exception 2, dissolution of the partnership
 There are three requirements that have to be complied
with under the said Exception:
 It applies only to an agreement made between partners.
The aprty in dispute must be a partner at the time of the
execution of the partnership agreement.
 The restrictive covenant must be made upon or in
anticipation of a dissolution of the partnership.
 The validity of the restraint clause is subject to the
reasonableness test as envisaged by the use of the words
“within such local limits as are referred to in Exception 1
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 In Wrigglesworth v Wilson Anthony (1964) MLJ 269
the plaintiff contended that the Exception 2 applied to
their contract because clause 9 of the contract
intended to make the defendant a partner of the
plaintiff’s firm. The High Court rejected the argument
and held that Exception 2 did not apply to this case as
the time of execution of the contract, the defendant
was not a partner of the plaintiff’s firm.
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Exception 3 Restraint during the partnership
 Exception 3 provides that the partners may agree that some or all
of them with not carry on any business, other than that of the
partnership. Such clauses are normally found in partnership.

Other commercial agreements

 In commercial agreements, parties may include negative
covenant that restrict their liberty in doing business or trade in a
certain manner during the period of the contract. These
covenants are not in restraint of trade.
 Hua Khiow Steamship Co Ltd v Chop Guan Him (1930) 1 MC 175,
the High Court in interpreting section 28 took a liberal attitude
that these covenants are not in restraint of trade.