Illegality in Contract Law Malaysia: What You Need to Know

Contract law is an important aspect of business in Malaysia, as it sets out the rules and regulations governing the legal relationship between parties. In general, a contract is a legally binding agreement between two or more parties, where each party agrees to perform certain duties and obligations in exchange for something of value. However, not all contracts are enforceable under the law. In this article, we will be discussing the issue of illegality in contract law Malaysia and how it affects the validity of a contract.

Illegality in Contract Law Malaysia

Illegality refers to any act that is contrary to the law, public policy or morality. When an agreement involves an illegal act, it automatically becomes void and unenforceable. This is because the law does not recognize any contractual agreement that contravenes the law. The illegality can occur within the contract itself or in the object or consideration of the contract. In Malaysia, illegality can arise from various sources, including statutory provisions, common law principles, and public policy.

Illegality can take different forms, such as gambling, prostitution, drug dealing, human trafficking, and bribery, to name a few. For instance, a contract to sell illegal drugs or to engage in a corrupt practice is deemed illegal and unenforceable. Similarly, a contract that violates public policy, such as an agreement that seeks to limit an employee`s rights to join a union, is considered void. In Malaysia, certain contracts that are prohibited by law or public policy include contracts for restraint of trade, contracts that seek to evade tax obligations, and contracts that involve usury.

Consequences of Illegality in Contract Law Malaysia

The effect of illegality on a contract depends on the severity and nature of the illegality. If the contract is entirely illegal or is formed for an illegal purpose, then it is unenforceable from the outset, and the parties cannot sue each other for its breach. In such cases, the law does not recognize the contract as having any legal effect. This means that no party can enforce any rights or seek remedies for any losses incurred as a result of the contract.

On the other hand, if the contract has a legal object but involves an illegal element, then only the illegal part of the contract is void, and the rest of the contract is enforceable. This is known as severance. For example, in a contract to sell illegal goods, the payment terms of the contract may still be valid even if the sale itself is illegal. This means that the seller can still sue the buyer for payment of the sale proceeds.

Conclusion

Illegality is a serious issue in contract law Malaysia, and parties must ensure that their agreements comply with legal and moral standards. Any agreement that involves an illegal act or contravenes public policy is deemed void and unenforceable. It is important for parties to seek legal advice before entering into any contractual relationship to avoid any legal repercussions. Contract law is complex, and it requires a thorough understanding of the legal requirements and obligations of the parties involved. When in doubt, always seek legal advice to ensure compliance with the law.