VOID AND ILLEGAL CONTRACT

Sec 2 (g) – a void contract is agreement not enforceable by law.

Unlawful Considerations / Objects

Sec 24 –Contract with unlawful consideration / object is void if it falls within any of these:

a- forbidden by law - HEE CHENG v KRISHNAN           

b- of such nature as to defeat the law -TAN BING HOCK  

c- fraudulent - PALANIAPPA CHETTIAR

d-involves / implies injury to person / property. - SYED AHAMED ALHABSHEE v PUTEH

e- immoral / against public policy - PEARCE v BROOKS

HEE CHENG V. KRISHNAN (1955) MLJ 103

The plaintiff and the defendant entered into an agreement for the sale and purchase of the plaintiff’s house built upon a land in respect of which the defendant was the holder of a temporary occupation license. The plaintiff claimed specific performance of the agreement or alternatively damages for the defendant’s breach of contract. The court held that the contract entered into was an attempt to sell and to purchase the defendant’s rights under the TOL license which is contrary to Rule 41 of the Land Rules 1930 which stated that “No license for the temporary occupation of State land shall be transferable”. As such the contract was unlawful as it being of such nature to defeat the provision of any law (Section 24 of Contract Act) and therefore is void.

TAN BING HOCK v. ABU SAMAH (1968) 2 MLJ 221.

The defendant held a logging license in Pahang under the Forest Rules 1935 which prohibited transfer without prior approval in writing of the District Forest Officer. The defendant agreed to assign his rights under the license to extract timber to the plaintiff. The High Court found that the contract on which the action was instituted was illegal as what the parties attempted to do amount to defeating the provision of the Forest Rules 1935.

PALANIAPPA CHETTIAR V. ARUNASALAM CHETTIAR (1962) AC 294; MLJ 143

The plaintiff bought about 40 acres of rubber land and in order to avoid certain regulations that prohibits a person from owning more than 100 acres of rubber land  transferred the land to his son as the absolute owner although the funds for the purchase comes from the plaintiff.. The sole purpose of doing so was to defraud the relevant authority. Subsequently, the father sought to recover the property from the son, who resisted the claim. The claim failed. The Privy Council held that upon the transfer of the property by the father to the son, a presumption of advancement arose in favour of the son. In seeking to recover the property from the son, the father had to rebut that presumption and in so doing, he had to show that his true intent was not to benefit his son but to defraud the relevant authority. Since he had to rely on an illegality, the court would not assist him in enforcing the resulting trust.

SYED AHAMED ALHABSHEE V. PUTEH (1922) 5 FMSLR 243

The defendant agreed to sell a property of the plaintiff in which an infant had an interest. The dealing was detrimental to the infant’s interest and was consequently struck down by the court.

PEARCE V.  BROOKS (1861] All ER Rep. 102

This case involves a contract of hire of vehicle for purposes of prostitution and in general way, in the words of Lord Wright, those involving an immoral promise, such as a promise between a man and a woman to live together without being married, or to pay a sum of money or give some other consideration in return for personal association.

There are also Sec 25 to Sec 31 which provides for other instances that renders a contract void in law.

Sec 25 - any part of a single consideration / any part of several consideration unlawful

CHUNG KHIAW BANK LTD

Sec 26 - agreement made without consideration.

Sec 27 - agreement in restraint of marriage.

Restraint Of Trade and Legal Proceeding

Sec 28 - agreement in restraint of trade

WRIGGLESWORTH V. ANTHONY WILSON (1964) MLJ 269

The defendant, an advocate and solicitor, entered into an agreement of service with the plaintiff’s legal firm. Clause 8 of the said agreement stipulated that the defendant would not for a period of two years after the termination of his engagement by the plaintiff practise as or carry on the business or profession of an advocate and solicitor within a radius of five miles from Kota Bharu town without first obtaining the written consent of the plaintiff. Such written consent was not given by plaintiff. On 7 December 1963 the plaintiff agreed to discharge the defendant from the terms and obligations of the said agreement with effect from 31 December 1963. The plaintiff claimed an njuction to restrain the defendant from practicing or carrying business or profession of an advocate and solicitor within a radius of five miles from Kota Bharu, Kelantan until 31 December 1965.

Held - that the agreement was void under Section 28 of the Contract Act and the distance and place of the restraint are irrelevant.

Sec 29 - agreement to restraint legal proceeding

CORPORATION ROYAL EXCHANGE V. TECK GUAN (1912) 2 FMSLR 92

A clause in a fire insurance policy stated that “If the claim be made and rejected, an such action or suit not commenced within three months after such rejection, all benefits under this policy shall be forfeited’. The court concluded that this clause reduced the period within which an assured might bring a suit for compensation to a period less than that sanctioned by the limitation statute. As such the clause infringed Section 28 of the Contracts Enactment (now Contract Act) and was therefore to that extent, void.

Sec 30 - agreement void for uncertainty.

Sec 31 - agreement by way of wager.

Consequence of Void And Illegal Contract.

General rule under CA - ex turpi causa non oritur actio - no action will arise from a wrong done.

Contracts under sec 27, 28 and 29 - not void in toto - severable.

Sec 66 - Right of restitution - doctrine of unjust enrichment

AHMAD B. UDOH v. NG AIK CHONG (1970) 1 MLJ 82

The respondent had entered into an agreement with the appellants for a lease of paddy land for a period of six years and $1500 was paid in pursuant to the agreement. The agreement was in fact illegal, contravening section 3(1) of the Padi Cultivators Ordinance. The appellants subsequently refused to allow the respondent to till the land and in an action by the respondent for the recovery of the sum paid, the former pleaded illegality of the agreement. The Federal Court held that since the parties were ignorant of the fact that they were executing an illegal agreement, section 66 would apply and accordingly, the respondent was entitled to recover the deposit paid.

YEEP MOOI v. CHU CHIN CHUA – money deposited with a company carrying unlicensed business is recoverable

YEEP MOOI V. CHU CHIN CHUA (1981) 1 MLJ 14

The Federal Court held that the appellant who had innocently deposited money with another carrying on business in contravention of the Borrowing Companies Act 1969 could recover such deposit under Section 66 of the Contract Act. Thus where only one party is unaware of the illegality of the contract, that party will be able to recover.