7 AUG 2018

HOW THESE 4 MISTAKES CAN VOID A BUSINESS CONTRACT

According to a World Bank program that measures business regulations indicators, Malaysia is ranked third after China and South Korea for enforcing business contracts in Asia. This means that if a contract is sound, it is legitimate and enforceable in the courts.

Does that mean that contracts are never voided in Malaysia? Certainly not. Just because an agreement is written on paper and signed, does not ensure that it will not be a void contract. Business owners need to be aware on how to avoid being party to a void contract, or from making a proper and enforceable legal document voidable.

By avoiding common mistakes and consulting legal specialists, Malaysian entrepreneurs can be sure their paperwork is valid. Here are 4 common issues that can void a business contract.

1. The Contract is Against the Law

If a business contract contains stipulations that are illegal, it is sure to be a void contract and will never hold up in court. This kind of agreement is invalid from the start. For example, any agreement involving gambling in a country where wagering is illegal is void and will never be enforceable.

Remember that the opposite is not always true; just because an agreement is void does not mean it is illegal. There is no legal consequence to a void contract because it is invalid. On the other hand, agreements containing illegal details can have real consequences. Both parties can face legal repercussions.

This requires contract negotiators to have a decent handle on the law that governs their industry as well as general legalities in their country.

2. The Contract Restricts Protected Rights

The second reason that an agreement can result in a void contract is if the parties have agreed to activity that restricts protected rights.

Rights to marriage, rights to trade and civil rights are all examples of things that cannot be curtailed by private agreements and if attempted, results in a void contract.

3. One Party Wasn’t Legally Able to Enter Into a Contract

If one or both parties on the contract are not legally capable of entering into that contract, it results in a void contract. For example if one party is a minor or if one party is not legally allowed to conduct business.

In Yeep Mooi v Chu Chin Chua & Ors, a Malaysian court case from 1981, one party (A) deposited monies with another party (B) who was carrying on a money-lending business. It turns out that the latter was not registered as a public company nor possessed the license to borrow money. This meant that the transaction was illegal, void and unenforceable under Section 3 of the Borrowing Companies Act 1969 (“the Act”).

Even though A had deposited her monies in good faith, she was unaware that the contract was not recognised in the eyes of law. Upon B’s death, she filed a law suit against the estate when her demand of refund was refused; to her surprise, from B’s statement of defence, it was only then she found out that the transaction was void and thus unenforceable for the reason stated.

As illustrated, a void contract as such can result in many complications, because the party incurring loss may have to fork some money out to seek compensation or a refund; it also causes delay as lawsuits can be time-consuming. For entrepreneurs such scenarios are best avoided, especially where funds are limited and time is key.

4. The Contract Involves Fraud or Deceit

A void contract means that some stipulation therein or some aspect of the parties in the contract invalidates the contract from the outset.

A voidable contract means that the contract began as a proper and enforceable legal document but new activity or new information available after the contract was enacted is grounds for dissolution.

Legal contracts that involve fraud and deception are examples of voidable contracts. When evidence of deceit is presented in a court of law, the court can rule and allow one party to dissolve the contract. The term voidable contract refers to having an aspect sufficient enough to dissolve the contract if presented in court.

Do I Need a Lawyer?

Not everyone needs a lawyer to write a contract. With proper research, a small business owner can be an expert on their industry. Still, seeking legal advice is never a bad idea. For business owners with a limited budget however, there are options besides paying a retainer for an expensive business lawyer.

With ShakeUp!, business owners can start drafting business contracts easily through ShakeUp!’s DIY legal document service.

Browse ShakeUp!’s business document library to have a look at the available legal document templates.

Legal documents created can be submitted for a legal document review* which is provided on a limited engagement basis by legal professionals and subscribers can call for assistance when they have any queries or questions through a dedicated legal helpline* service.

If your company falls into the small-medium size category, there are convenient low-cost legal options for any budget.

Don’t fear voided or voidable contracts. By sidestepping common mistakes and pursuing a bit of legal guidance, entrepreneurs can be confident their business contracts are executed legally and will hold up in court.

Learn more about contracts and low-cost legal document services at ShakeUp!

Start creating legal documents for your business by signing up to a Free Trial today!

* Legal document review and legal helpline are only available on selected plans.

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