Void Agreements Explained: When Is a Contract Unenforceable in Malaysia?

Not every agreement becomes legally enforceable simply because both parties signed it.

A contract may be treated as void where it involves an unlawful purpose, lacks an essential legal requirement or requires something impossible to be done. When this happens, neither party can generally insist that the agreement be performed.

However, “void” has a specific legal meaning. It should not be confused with a contract that has merely been breached or one that can be cancelled by only one party.

What Is a Void Agreement?

Section 2(g) of the Contracts Act 1950 defines a void agreement as an agreement that is not enforceable by law.

In practical terms, the court will not compel either party to carry out the agreement. A party also cannot ordinarily claim damages based on the other party’s failure to perform a void agreement.

For example, imagine that two people agree to start a business that is prohibited by law. Even if they record the arrangement in writing and sign it voluntarily, the court will not enforce their agreement.

A contract may be:

• void from the beginning; or
• valid when made but subsequently become void.

The reason the agreement is void will affect the legal consequences and whether either party can recover money or property already transferred.

What Is the Difference Between a Void and Voidable Contract?

A void agreement has no legal enforceability. Neither party can generally choose to enforce it.

A voidable contract, however, remains valid unless the party entitled to avoid it decides to cancel it.

For example, where a person entered into a contract because of fraud, coercion, misrepresentation or undue influence, the contract may be voidable at that person’s option. The innocent party may choose to rescind the contract or, in some circumstances, continue with it.

By contrast, if the agreement is void because its purpose is prohibited by law, neither party can make it enforceable merely by agreeing to continue.

Read more: Void vs Voidable Contracts in Malaysia: What’s the Difference?

What Types of Agreements Are Void in Malaysia?

The Contracts Act 1950 identifies several situations in which an agreement may be void.

1. Agreements With an Unlawful Object or Consideration

Section 24 provides that the object or consideration of an agreement is unlawful if it:

• is forbidden by law;
• would defeat the operation of a law;
• is fraudulent;
• involves injury to another person or their property; or
• is regarded by the court as immoral or opposed to public policy.

An agreement involving an unlawful object or consideration is void.

For example, an agreement to pay someone to falsify company records would be void. The agreement does not become valid merely because the service was performed or the parties described the payment as a “consultancy fee”.

Courts will look at the substance of the arrangement and not merely the label used by the parties.

2. Agreements Without Consideration

As a general rule, an agreement without consideration is void under section 26 of the Contracts Act 1950.

Consideration is what one party gives, does or promises in exchange for the other party’s promise.

For example, a bare promise to give someone RM50,000 without receiving anything in return may not amount to an enforceable contract.

Section 26 nevertheless recognises limited exceptions, including certain agreements:

• made out of natural love and affection between parties standing in a near relationship, provided the agreement is written and registered where required;
• to compensate someone for an act voluntarily performed; and
• to pay a debt that has become time-barred, provided the promise is written and signed.

In Port Kelang Authority v Kuala Dimensi Sdn Bhd [2025] 2 MLJ 238, the Federal Court reaffirmed that a contractual variation requires consideration. An intention to vary an existing contract does not, by itself, remove this requirement.

3. Agreements in Restraint of Trade

Section 28 generally makes an agreement void to the extent that it prevents a person from carrying on a lawful profession, trade or business.

This commonly affects post-employment non-compete clauses. A clause preventing a former employee from working for any competitor after leaving employment will generally be void unless it falls within one of the limited statutory exceptions.

The recognised exceptions principally concern:

• the sale of a business’s goodwill;
• agreements between partners upon or in anticipation of dissolving a partnership; and
• restrictions between partners during the continuation of the partnership.

This does not mean that former employees are free to misuse confidential information or intellectual property. Confidentiality and non-solicitation obligations raise separate legal questions.

4. Agreements Restricting Access to the Courts

Section 29 provides that an agreement is void to the extent that it:

• absolutely prevents a party from enforcing contractual rights through the ordinary courts; or
• improperly limits the time within which those rights may be enforced.

In CIMB Bank Bhd v Anthony Lawrence Bourke & Anor, the Federal Court held that an exclusion clause which effectively prevented the purchasers from claiming any meaningful remedy for the bank’s breach was void under section 29.

Parties may, however, validly agree to refer their disputes to arbitration. Section 29 contains express exceptions for arbitration agreements and certain government scholarship agreements.

5. Agreements That Are Too Uncertain

Section 30 states that an agreement is void where its meaning is not certain or capable of being made certain.

Consider an agreement stating:

“I will supply you with some products at a suitable price whenever you need them.”

Without further details, it may be impossible to determine:

• which products must be supplied;
• the quantity;
• the price;
• the delivery date; or
• how those matters are to be decided.

A court will interpret a contract where possible, but it will not create an agreement that the parties themselves never completed.

Business owners should therefore ensure that important terms such as the scope of work, price, payment schedule, duration and responsibilities are sufficiently clear.

6. Agreements to Perform an Impossible Act

Section 57(1) provides that an agreement to perform an act that is impossible in itself is void.

For example, an agreement to sell a specific item that had already been destroyed before the agreement was made may be void if neither party knew about the destruction.

Section 57(2) deals with a different situation: a contract that was capable of performance when made but later becomes impossible or unlawful because of an event the promisor could not prevent. The contract becomes void when the act becomes impossible or unlawful.

This is commonly known as frustration of contract.

However, difficulty, inconvenience or increased expense will not automatically make a contract impossible. In Ramli bin Zakaria & Ors v Government of Malaysia [1982] 2 MLJ 257, the Federal Court explained that performance must become fundamentally different from what the parties originally agreed—not merely more burdensome.

7. Agreements Made by Minors

Section 11 provides that a person is competent to contract if they have reached the age of majority, are of sound mind and are not otherwise disqualified by law.

The age of majority in Malaysia is generally 18. As a general rule, an agreement entered into by a minor is void. This principle was applied in Tan Hee Juan v Teh Boon Keat [1934] MLJ 96.

There are important exceptions and qualifications, including:

• necessaries supplied to a minor;
• scholarship agreements;
• certain insurance arrangements; and
• contracts authorised by specific legislation.

Under section 69, a person who supplies necessaries suited to a minor’s condition in life may seek reimbursement from the minor’s property. This does not necessarily make the minor personally liable as though they were an adult contracting party.

8. Agreements Based on a Mutual Mistake

Section 21 provides that an agreement is void where both parties are mistaken about a matter of fact essential to the agreement.

For example, a buyer agrees to purchase a specific machine from a seller. Unknown to both parties, the machine had already been destroyed before they entered into the agreement.

Because both parties were mistaken about the existence of the subject matter, the agreement may be void.

A mere mistake about the value of an item is generally insufficient. A unilateral mistake by only one party also does not automatically make the contract void.

Is a Void Agreement the Same as an Illegal Agreement?

Not necessarily.

A void agreement is simply one that cannot be legally enforced. It may be void for reasons that do not involve unlawful conduct, such as uncertainty, lack of consideration or mutual mistake.

An illegal agreement involves an unlawful purpose or consideration.

The distinction is commonly expressed this way:

All illegal agreements are void, but not all void agreements are illegal.

This matters because illegality may also affect transactions connected with the main agreement. Restitution can also become more complicated where a party knowingly participated in unlawful conduct.

What Happens to Money Paid Under a Void Agreement?

A void agreement cannot ordinarily be enforced according to its terms. However, this does not always mean that one party may retain everything received under it.

Section 66 of the Contracts Act 1950 provides that where an agreement is discovered to be void, or a contract subsequently becomes void, a person who received an advantage under it must generally restore that advantage or compensate the other party.

For example, if a buyer paid a deposit under a contract that later became impossible to perform, the seller may be required to return the deposit.

In Detik Ria Sdn Bhd v Prudential Corporation Holdings Ltd & Anor [2025] 3 MLJ 22, the Federal Court considered agreements performed without the regulatory approval required by law. The Court held that section 66 applied and that the parties were required to restore the benefits received under the void arrangements.

Restitution is nevertheless fact-sensitive, particularly where illegality is involved. The court will consider why the agreement is void, the parties’ conduct and the nature of the benefit received.

Can a Void Clause Be Removed Without Invalidating the Whole Contract?

Sometimes only part of a contract is void.

Whether the remaining provisions can survive depends on matters such as:

• whether the invalid clause can be separated from the rest;
• whether the remaining terms still form a workable agreement;
• whether removing the clause would change the contract’s fundamental nature; and
• the reason the clause is invalid.

A properly drafted severability clause may support an argument that the remaining provisions should continue. However, it cannot automatically save a contract whose entire purpose is unlawful.

What Should You Do If You Suspect a Contract Is Void?

Do not assume that the contract has no consequences and simply ignore it.

The first step is to identify:

1. why the agreement may be void;
2. whether the entire contract or only one clause is affected;
3. whether any money, property or benefit has been transferred;
4. whether restitution is available;
5. whether another valid agreement exists between the parties; and
6. whether any notice or court application is required.

The distinction between a void, voidable, illegal and merely breached contract can significantly affect the available remedies.

Conclusion

A signed agreement may still be unenforceable under Malaysian law if it lacks an essential legal requirement, involves an unlawful purpose, is too uncertain or requires something impossible to be done.

However, a void agreement can still produce practical and financial consequences. The parties may need to return benefits already received, and the invalidity of one provision does not always invalidate the entire contract.

The correct outcome depends on why the agreement is void and how the parties have acted under it.