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SUBTOPIC 4:
ILLEGAL AGREEMENT

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2.4

ILLEGAL CONTRACTS

S. 24 CA 1950 CA 1950 spells out the situations wherein the

consideration or object of an agreement is unlawful. The
consideration or object of an agreement is unlawful if:
a. it is forbidden by law
b. it is of such a nature that, if permitted, it would defeat
any law
c. it is fraudulent
d. it involves or implies injury to the person or property of another
or
e. the court regards it as immoral, or apposed to public
policy
If either the consideration or the object of the agreement comes
within any of the above situation, the whole agreement is VOID.

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Source: Lee Mei Pheng & Ivan Jeron Detta, Commercial law, Oxford Fajar, 2011; Contract Act 1950.

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CONTINUE
Unlawful consideration:
Manang Lim Native Sdn Bhd v. Manang Selaman [1986]
Facts: In this case a non native sought to deal in native
Land and Sarawak Land Code unless the dealing was
authorized by the Yang di-Pertua Negeri, Sarawak.
Held: An agreement made in contravention of a statute (that is
the Sarawak Land Code) was entered into for an illegal
consideration and was therefore a void agreement within the
meaning of section 2(g) of the Contract Act 1950.

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Source: Lee Mei this was against the Pheng & Ivan Jeron Detta, Commercial law, Oxford Fajar, 2011

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CONTINUE
Unlawful object:
Aroomoogam Chitty v. Lim Ah Hang (1894)
Facts: The plaintiff lent money to the defendant for the
purpose of running a brothel. The object of the contract was
therefore immoral. When the plaintiff sued for payment.
Held: Plaintiff could not recover his money as no action will
arise from a wrong done.

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Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005.

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AGREEMENTS FORBIDDEN BY LAW

Haji Hamid bin Ariffin v. Ahmad bin Mahmud [1976]
Facts: A Malay person sold his Malay Reservation land to a
Siamese lady. She took possession of the land and the title
deed, still registered in the name of the original vendor to the
land, was given to her. Subsequently she sold the land to the
appellants who were Malays. The original vendor and the
Siamese lady died and the appellants were appointed as
administrators of her estate. The appellants, as administrators
of the estate sued the administrators of the original vendors
estate, for specific performance.

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Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005.

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CONTINUE
Held: The sale to the Siamese lady was void from the very
beginning because s. 6(1) of the Kedah Malay Reservation
Enactment (No 63) provides that where any reservation is held
under a document of title by a Malay, no right or interest
therein shall vest, whether by transfer or otherwise, in any
person who is not a Malay.

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Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005.

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ATTEMPTS TO DEFEAT LAW

Hee Cheng v. Krishnan [1955]
Facts: By a sale and purchase agreement, the plaintiff sold his house built
upon a piece of land in respect of which he was the holder of a Temporary
Occupation License to the defendant. The defendant refused to perform the
agreement and the plaintiff claimed specific performance of the agreement
or alternatively, damages for the defendants breach of contract.
Held: The agreement entered into was an attempt to sell and to purchase
the plaintiffs rights under the Temporary Occupation License. This is
contrary to rule 41 of the Land Rules 1930 which states that No license
for the temporary occupation of state land shall be transferable. The
agreement was unlawful and void under S.24 of the Contracts Ordinance
as being of such a nature that, if permitted, would defeat the provisions of
any law.

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Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005.

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CONTRACTS INVOLVING FRAUD AND CAUSING

INJURY TO PERSON OR PROPERTY OF ANOTHER
Datuk Jagindar Singh v. Tara Rajaratnam [1983]
Facts: The 1st and 2nd appellants, advocates and solicitors in Johore and the
3rd appellant, an advocate and solicitor in Singapore, colluded to obtain
possession of the respondents property, some 5 acres of land in Kulai,
Johore by fraud. The respondents brother in law owed the Hongkong and
Shanghai Bank $121,819.80 in overdraft facilities, with Jagindar and
Suppiah, the 2nd appellant obtained the respondents land, paid the Chung
Khiaw Bank $ 92,000.00. The land was then transferred to Suppiah and 18
days later, Suppiah transferred it to Arul, the 3 rd appellant, in Singapore on
9th August 1975. Later, on instructions from Jagindar, Arul transferred it to
a land development company almost wholly owned by Jagindar. The land
was eventually subdivided into 70 lots and sold to the public.
Held: The appellants were guilty of fraud, breach of agreement and undue
influence and awarded damages to the respondent.
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Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005.

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AGREEMENTS THAT ARE IMMORAL

Oh Thevesa v. Sia Hok Chai [1992]
The plaintiff sued the defendant summarily for damages for
breach of promise to marry the plaintiff. The defendant denied
that he had promised to marry the plaintiff and even if he had,
she knew that he was a married man and thus the agreement is
immoral and against public policy.

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Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005.

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CONSEQUENCES OF ILLEGAL AGREEMENT

General rule under contracts Act 1950 is that the courts will
not enforce an illegal contract.
However, section 66 of the Contracts Act 1950 lays down
that when an agreement is discovered to be void or when a
contract becomes void, the person who received any
advantage under such an agreement or contract is bound to
restore it to the other party or to pay adequate compensation
for the same (Right of restitution).

LAW 243 COMMERCIAL LAW

Source: Lee Mei Pheng & Ivan Jeron Detta, Commercial law, Oxford Fajar, 2011.

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QUIZ
1.

Court will not enforce an illegal contract (True / False)

2.

Agreements are voidable if any part of their considerations

and objects are unlawful (True / False)

3.

When an agreement is discovered to be void or when a

contract becomes void, the person who received any
advantage under such an agreement or contract has right of
restitution (True / False)

4.

Section 24 of the Contract Act 1950 provides that an

agreement which is unlawful is void (True / False)

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5.

The object or consideration of an agreement is lawful

unless if it falls within any subsection of section 24 of
Contract Act 1950 (True / False)

6.

Section 66 of the Contract Act 1950 provides for right of

restitution (True / False)

7.

Court will enforce an immoral agreement (True / False)

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CONTINUE
8.

Below are grounds that make the consideration or object

of an agreement is unlawful except:
a. it is forbidden by law
b. it is of such a nature that, if permitted, it would defeat
any law
c. it is fraudulent
d. the court regards it as moral

9.

Every valid agreement must has lawful object or lawful

consideration (True / False)

10. Any agreement is voidable if is forbidden by law (True /

False)
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End of subtopic 4 under chapter 2: law of

contract.
Answer all the questions provided above and then
proceed with next subtopic under chapter 2.
Thank you!

LAW 243 COMMERCIAL LAW