(7) Unlawful Contract

7/25/2019 (7) Unlawful Contract

1/35

Prepared by:

Norazla Binti Abdul Wahab


2/35

Contract may be void :

Void illegality

However, Contract Act !"# doe$ notdi$tingui$h that%


3/35

Sect. 2 (d) of CA, 1950:

& an agreement not en'orceable by law i$V()*+

Sect. 10 (1) of CA, 1950:

&contract mu$t be made by a 'ree con$ent o'competent partie$, 'or a law'ul

con$ideration and with a law'ul obect%+


4/35

Sect. 24 of CA, 1950:

-he con$ideration or obect i$ lawfulunle$$:

.a/ 'orbidden by law .b/ By nature0 i' permitted, it would de'eat

any law .c / 'raudulent

.d/ inury to per$on or property

.e/ )mmoral or oppo$ed to public policy


5/35

1% 2": con$ideration 'or or more obect$ i$ inpart unlaw'ul

1% 23 : agreement without con$ideration 1% 24 : agreement in re$traint o' marriage o' a

per$on other than a minor 1% 25 : agreement in re$traint o' trade,

pro'e$$ion or bu$ine$$ 1%2! : agreement in re$traint o' legal

proceeding e6cept contract$ to a di$putearbitration or award o' $cholar$hip 1% 7#: agreement that uncertain8 void

1% 7


6/35

Void


7/35

-here wa$ a contract 'or the purcha$e o'hou$e built on a land which i$ temporaryoccupation licen$e wa$ i$$ued%

This is contrar to rule 41 of !and"ules which $tate$ that no licen$e 'ortemporary occupation o' land $hall betran$'errable+%

The court held :

that the contract was #oid and unlawful.


8/35

9enaa wa$ a regi$tered moneylender% 1hethen by u$ing her own name lent a money tothe re$pondent on the $ecurity o' a charge o'certain land belonging to the re$pondent%

However, there wa$ a provi$ion under$onelender %rdinance which prohibit amoneylender 'rom entering into contract andtaing the $ecurity in her own name%

The court held:

that such a contract is #oid.


9/35

An obect and con$ideration o' a contract i$'raudulent%

-hi$ i$ di;erent with 'raudulentmi$repre$entation where one i$ 'raudulently

induced by another party to enter intocontract


10/35

agent

i' A .the agent/ without nowledge o' hi$Principal agree$ to obtain money 'rom B?$lea$e o' the land that belong$ to hi$

Principal%

-he agent i$ unlaw'ully receiving a $ecretpro@t%


11/35

-he obect and con$ideration o' a contract i$unlaw'ul i' it will inure a per$on or damage

other per$on?$ property 'or pro@t%

-hu$, o' two partie$ con$pire 'or pro@t tocau$e phy$ical damage o' a third per$on or

to cau$e him phy$ical, the agreement i$unlaw'ul%


12/35

where the de'endant agreed to $ell aproperty to the plainti; in which an in'anthad an intere$t% -he dealing wa$

detrimental to the in'ant?$ intere$t%

Thus, it was struc& down ' the court.


13/35

-hi$ $ub$ection cover$ two a$pect$:ioralit and u'lic olic.

Ca$e$ involving immorality include$ $e6ualimmorality%


14/35

a contract to hire vehicle 'or the purpo$e o'pro$titution have been deemed immoral

and illegal by the court%


15/35

court decided that money lent 'or thepurpo$e o' running a brothel wa$ held notrecoverable on the ground$ o' illegality%


16/35

Contract$ are $aid to be again$t public policywhen they tend to bring about a $tate o'

a;air$ which i$ regarded by law a$ harm'ul to

$ociety%


17/35

-he plainti; had $igned an agreement which

committed him to pay to hi$ political party theallowance paid to him a$ a 9ember o'Parliament%

ater, he wa$ elected to Parliament andhonoured hi$ agreement% 1ub$euently, helo$t hi$ $eat in the *ewan =ayat and $ued torecover the money paid to hi$ party%

The court held: that such contractual arran*eents as

#oid%


18/35

1ection 25 o' the Contract$ Act :

Every agreement by which anyone is

restrained from exercising a lawfulprofession, trade, or business of any kind, isto that extend void.

-hu$, a$ a +eneral "ule, all contract$re$training a per$on 'rom carrying on a

law'ul pro'e$$ion, trade or bu$ine$$ o' anyind i$ to that e6tent void%


19/35

the de'endant wa$ re$trained 'rompracticing a$ an advocate and $olicitorwithin ota Bahru 'or the period o' two

year$ 'rom the termination o' hi$ $ervice$with hi$ employer%

The court ruled the restraint to 'e#oid%


20/35

Exception 1-

Agreement not to carry on business ofwhich goodwill is sold;

A buyer may include a term restricting the sellerfrom carrying on a similar business within

specied time and boundary limit.

It is to protect the buyer by prohibiting the sellerfrom taking away the old customer of the

business sold.


21/35

the court held that :

if there was no restriction of trade on sale ofgoodwill it will cause loss to the purchaser of

business.


22/35

D6ception 2E

Agreement between partner$ prior todi$$olution

a partner may agree that some or all of them will

not carry on a same business similar to thatpartnership within certain local limits


23/35

Exception 3

!uring continuance of partnership.

a partner may agree that some or all of them willnot carry on any business that not carried out by

the partnership during the continuance of thepartnership.

"o prevent competition.


24/35

Section 29:

provide$ that every agreement, by whichany party to an agreement i$ re$tricted

ab$olutely 'rom en'orcing hi$ right$ underthe contract, or any agreement which limit$the time to en'orce a party?$ right$, i$ void%


25/35

The Contracts Act 1950 provide$ threee6ception$ to thi$ general rule:

contract$ to re'er di$pute which may ari$e toarbitration0 contract$ to re'er any ue$tion which may have

already ari$en in arbitration0 contract$ in re$pect o' an award o' a Fovernment

$cholar$hip wherein it i$ provided that thedi$cretion e6erci$ed by the Fovernment underthat contract $hall be @nal and conclu$ive and

$hall not be ue$tioned by any court%


26/35

-he plainti; claimed that he wa$ $till amember o' the union and $ought a

declaration 'rom the court%

-he court then held that it ha$ nouri$diction to hear the matter a$ the trade

union rule$ provide$ that any di$putebetween a member and the union $hould be

decided by re'erence to arbitration%


27/35

Feneral rule under the Contract$ Act !"#i$ that the court will not en'orce an illegal

contract%According to legal maxim: Ex turpi causanon oritur Actio, neither party to an illegal

contract can enforce it. "he parties may not be able to recovermoney or property transferred under the

illegal contract.


28/35

-he plainti; bought about G# acre$ o' rubberland and in order to avoid certain regulation$,he tran$'erred thi$ land to hi$ $on% -he 'atherretained the po$$e$$ion o' the land, managed itand received all income 'rom it% ater the $onre'u$ed to reEtran$'er the land, the 'atherbrought thi$ action%

The lainti had racticed deceit on the

u'lic adinistration of the countr - toa&e ersonal *ained. So he has no ri*ht

to retransfer the land.


29/35

1) /n see&in* relief , the lainti neednot rel on the ille*al transaction 'uthas an indeendent cause of action

('uat tuntutan atas alasan lain).

DF: )' A let$ hi$ hou$e to B u$ed 'or abrothel .rumah pelacuran/, he cannot

recover any arrear$ rent but he can $ue 'oreection and po$$e$$ion o' the hou$e%


30/35

2) oth arties to the contract has no&nowled*e with re*ard to the ille*alit

of the a*reeent that the entered into.

Section :lay$ down that when agreement i$ di$covered

to be void or when a contract become$ void,the per$on who received any advantage under

$uch agreement or contract i$ bound tore$tore it to the other party or pay adeuate

compen$ation 'or the $ame%


31/35

9enaa wa$ a regi$tered moneylender% 1hethen by u$ing her own name lent a moneyto the re$pondent on the $ecurity o' acharge o' certain land belonging to the

re$pondent% However, there wa$ a provi$ionunder $onelender %rdinance whichprohibit a moneylender 'rom entering intocontract and taing the $ecurity in her own

name%


32/35

The court held:

that $uch a contract i$ void becau$e contravene with

9oneylender$ (rdinance but permitted =D)D< under1% 33

ord


33/35

) 3here onl 1 art is unaware ofthe ille*alit of the contract that art

will 'e a'le to reco#er it.


34/35

-he court held that:

-he A who had innocently depo$ited moneywith another carrying the bu$ine$$ in

contravention o' Borrowing Companie$ Actcould recover the money under 1%33%


35/35

Documents

(7) Unlawful Contract