Section 26 of the Contracts Act 1950 is a crucial legal provision that governs the enforceability of contracts. It specifies the conditions that must be met for a contract to be considered legally binding and enforceable in a court of law. This article aims to provide an overview of Section 26 of the Contracts Act 1950 and its significance in the context of Malaysian law.
Section 26 of the Contracts Act 1950 states that an agreement in restraint of trade is void. In other words, a contract that restricts an individual`s freedom to trade or carry on a lawful profession, trade, or business is considered null and void. This provision is intended to ensure that individuals have the freedom to engage in commercial activities as they see fit, without being unreasonably constrained by contractual obligations.
The main objective of Section 26 is to protect the fundamental right of individuals to pursue their livelihood or business interests. This provision ensures that no one is deprived of their right to earn a living by the terms of a contract. However, it is important to note that not all agreements that restrict trade are void under Section 26. Agreements that are reasonable and necessary to protect legitimate business interests of the parties to the contract may be upheld by the court.
In practice, the courts have applied Section 26 in a variety of cases. For example, in the case of Kok Hoong v Lee Kim Yew [1987] 2 MLJ 311, the court ruled that a clause in a partnership agreement that prevented one partner from competing against the other after the termination of the partnership was void under Section 26. The court held that the restriction was too wide and unreasonable, and therefore, could not be enforced.
Similarly, in the case of Supercomal Technologies Bhd v Asia Pacific Broadband Wireless Communications Inc [2009] 3 MLJ 564, the court held that a non-compete clause in an employment contract was void under Section 26 as it was too wide and prevented the employee from carrying on a lawful profession.
In conclusion, Section 26 of the Contracts Act 1950 is a crucial provision that regulates the enforceability of contracts in Malaysia. It protects the fundamental right of individuals to pursue their livelihood and ensures that they are not unreasonably constrained by contractual obligations. As a professional, it is important to understand the legal implications of Section 26 when reviewing contracts for clients engaged in commercial activities in Malaysia.