Introduction of Malaysian Contract Act 1950

Introduction of Malaysian Contract Act 1950

Contract is a voluntary, deliberate, and legally binding agreement between two or more competent parties. Contracts are usually written but may be spoken or implied and generally have to do with employment, sale or lease, or tenancy. Contracts are an integral part of our daily lives. Contracts and agreements come into play in almost every aspect of life. They are constantly being entered into by individuals with other individuals or businesses as well as businesses with other businesses, to sell or transfer property, to provide and receive services and other rights and obligations created. A contractual relationship is evidenced by an offer, acceptance of the offer and a valid consideration. Each party to a contract acquires rights and duties relative to the rights and duties of the other parties. On the other hand, while all parties may expect a fair benefit from the contract it does not follow that each party will benefit to an equal extent. Existence of contractual relationship does not necessarily mean the contract is enforceable or that it is not void or voidable. Contracts are normally enforceable whether or not in a written form, although a written contract protects all parties to it. In addition, some contracts such as for sale of real property, instalment or insurance policies must be in writing to be legally binding and enforceable. Other contracts are assumed in and enforced by law whether or not the involved parties desired to enter into a contract. Besides that, contract is an agreement, which the law will enforce. Contract can also be formed orally.

There are six elements of a contract. The first element of a contract is Offer. An offer or proposal is necessary for the formation of an agreement. According to Section 2(a) of the Contracts Act 1950, a proposal is an act or utterance signifying the willingness of the person to be bound by his promises implied in the act or utterance and with a view to obtaining the assent of the other person to the act or utterance. Furthermore, an offer must signify the willingness of the proposer to fulfil his promises if accepted by the offeree that mean offer must be certain and also must be differentiated from an enquiry. It is also must be differentiated from intent to trade. During the build up to an agreement there is often a period of negotiation, which differentiates an offer from negotiations. The concept of intent to trade is one of the most important and must be thoroughly understood. Besides that, advertisements, catalogues and circulars are not usually an offer.  

The second element is Acceptance of the offer. According to Section 2(b) of the Contracts Act specifies that when a person to whom an offer is made signifies his assent thereto, the offer is said to be accepted. Acceptance may be expressed, that is oral or written and implied from the conduct of the offeree. An acceptance must also comply with certain rules before it becomes valid and enforceable. Where an offer specifies the form of acceptance, failure to accept in the specified form unless the proposer does not object invalidates the acceptance. According to Section 7(a), the acceptance must be absolute and unqualified it means that the offeree’s intention to accept must be clearly understood without any doubt from his conduct. There are numerous circumstances in the commercial environment where the conduct of certain parties appears to be acceptance but the law does not recognise such conduct as acceptance.

The third element is Intention to Create Legal Relations. The Contracts Act 1950 does not contain any provision relating to intention of the parties to a contract to be bound in law. Nevertheless, intention is an essential element of an enforceable contract. In this respect, based on the Civil Law Act 1956, English law may be applied. In law, agreements are categorised into two, which is family and social contracts or agreements and commercial contracts or agreements.

The fourth element is Consideration. According to Section 2(d) of the Contracts Act 1950, consideration is an act done or abstention from doing an act or a promise to do or a promise to abstain from doing something. There are three forms of considerations, which is executed consideration, executor consideration and past consideration.

The fifth element in the Contracts Act 1950 is Certainty. According to Section 30 CA 1950, every term of an agreement must be certain or capable of being ascertained. Where the terms of an agreement are not certain, the contract may be void. For example, if Ali agrees to sell to Marry a hundred crates of toys without specifying what kind they are, such an agreement is void on the grounds of uncertainty.

The last element is Capacity. Capacity refers to the ability of the parties to a contract to fully understand its terms and obligations. According to Section 11 of the Contracts Act 1950, every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by any law to which he is subject. Furthermore, according to the Age of Majority Act 1971, for every individual person, the age of majority is 18 years old. However, there are three exceptions to this rule which is contracts for necessaries, contracts for scholarship and contracts for insurance. According to Section 69, if a person incapable of entering into a contract or anyone whom he is legally bound to support is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person. The Contracts Act 1950 provides that, every person is competency to contract that is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by any law to which he is subject. In Malaysia, the age of majority is recognized as above eighteen years of age as stated in the Age of Majority Act 1971, “The majority of all males and females at the age of eighteen years and every such male attaining that age shall be of the age of majority.

        Business cannot exist without enforceable contract. The definition of a contract is an agreement between two or more parties, which is legally binding between them. According to Section 2(g) of the Malaysian Contracts Act 1950, a contract is an agreement that is enforceable by law. Section 2(j) of the Contracts Act additionally denoted that a contract becomes void the minute it ceases to be enforceable, which in other words, an agreement that is not enforceable by law is automatically invalid.