Illegality
- An agreement consist of unlawful consideration & object, the agreement is void
- The agreement is not enforceable by the law.
1. Definition
I. Provision on Illegality: Section 10 of CA 1950
- The consideration and object of the agreement must be lawful.
II. Section 24 of CA 1950
- Conditions where the consideration or object is unlawful:
- Forbidden by law
- If permitted, it would defeat any law
- Fraudulent
- Implies injuries to another party
- Courts considered it as immoral
2. Classification of Illegality
I. Unlawful consideration
- Examples: Illustration F
- Consideration against public policy
- Manang Lim Native Sdn Bhd v Manang Selaman
- Held: an agreement to transfer native land to a non-native is considered as an illegal
consideration
II. Unlawful object
- Examples: Illustration G
- Fraud by proprietor to his principal
- Arumugam v Somasundram
- D hired P to drive his car for private use or for hire. However the car was licensed for
private use only and used for hire is against the law.
- D failed to pay P wages and P claim for wages.
- Held: the arrangement was unlawful and the claimed by P failed.
3. Agreements affected by Illegality
I. Statutory directions
- Chung Khiaw Bank v Hotel Rasa Sayang Sdn Bhd.
- Court observe s.24 as explicit statutory directions and it express that the consideration
and object in the section are unlawful
- The agreement shall be unlawful and void.
II. Agreements forbidden by law
- Agreements against a statutes is unlawful
- Differences S.24 (a) and (b)
- S.24(a): deals w cases of direct prohibition
- S.24(b): deals w cases of indirect prohibition
- Haji Hamid bin Arifin v Ahmad bin Mahmud
- Dispute of a malay reservation land in Kedah
- Issue: Whether the between Mahmud and the siam lady enforceable?
- Held: it was void because it is against the law and the sale was void.
III. Attempts to defeat the law
- Hee Cheng v Krishnan
- S&P of temporary occupation licence (tol)
- Held: the contract is unlawful because:
- It is against the law (s.24 of the contracts ordinance)
- If permitted it would defeat the law
- The term law in Section 24(a) and (b) not restricted to statutory law only and may include
other law. For example: Principles of Islamic law
- Nafsiah v Abdul Majid
- Breach of contract of Marriage
- The contract between the parties was void ab initio
IV. Fraudulent and causing injury
- Section 24(c) covers the agreement that are fraudulent
- Section 24(d) covers agreement that cause injury to the person or property
- Datuk Jagindar Singh v Tara Rajaratnam
- The appellant make a contract w respondent to obtain possession of the respondent’s
property by fraud.
- Held: the appellant found guilty of fraud, breach of agreement and undue influence and
awarded damages to respondent
V. Agreements that are immoral / Opposed public policy
- Section 24(e) covers agreement the court considered as immoral
- Theresa Chong v Kin Khoon & Co
- Appellant and respondent enter into an agreement to engage appellant as a remisier w/o
being registered
- The agreement was void due to contrary to public policy
Consequences of Illegality
I. The contract is unenforceable
- Under the CA 1950, the courts will not assist to enforce an illegal contract
- Chung Kiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd
- Decided on the effect of a contract prohibited by statute held that:
- Any contract prohibited by a statute or law shall be void unless the statute itself saves the
contract
II. Remedy of restitution under Section 66 of CA
- Provides remedy of restitution to parties that discovered the contract to be void
2 conditions:
a. agreement is discovered to be void
- Ahmad Bin Udoh v Ng Aik Chong
- Appellant entered into an agreement to lease padi land w respondent at certain annual
rent and if the Appellant be prevented from cultivating the land, the respondent must
return the advance
- Held: it is proved that the parties were executing an illegal agreement, s.66 apply and
appellant entitled to the return of his advance.
b. other party has received an advantage
- Ng Siew San v Menaka
- The court ordered the return of balance of the principle sum in an unlawful and void loan.
Contracts not affected by Illegality
I. The statute itself saves the contract
- Foo Say Lee v Ooi Heng Wai
- Held: the enactment provides a method of executing a transfer of a reservation land from
a malay person to non-malay.
- And the transfer of such method is not null and void.
II. Severability
- Murugesan v Krishnasamy
- Held: a clause allowed the purchaser to enter the land occupy it pending the execution of
transfer clearly amount to an attempt to transfer to him
- The court may sever the unlawful part from the lawful part.
