1.

0 Introduction
Law of contract in Malaysia is governed by the Contracts Act 1950 (AK 1950) that contains
provisions on the formation of the contract, its execution and the provisions relating to the
agency, however it does not cover all aspects of contract law. Contract are always around us.
Contract is an agreement that will be binding on the contracting parties but if there are not
conform to the agreement, the other party has the right to take legal action. Contract are
formed within two ways, a written contract or verbal contract. The process to form a contract
begins with an agreement. Each contract involves at least two parties, a person who make an
offers (offeror) are parties to bid and to create a contract and a person who has been offered
(offeree) is a party against whom a contract was offered. In the process, the offeror promises
to do or provide something to the offeree. The offeree then has the power to create the
contract, whether to accept or decline the offer. The contract is created when the offeree is
agree to accept the offer.

Example 1: Simple formation of contract

Dina sell text book to Ayu for RM20. Ayu agrees to purchase and pay that amount.
Therefore there is a contract between Dina and Ayu.

Example 2: Complex formation of contract

Rahim sell his car to Joy for RM30,000 and ask a deposit for RM5,000. Joy agrees to
purchase and pay RM5,000 for a deposit. This shows that Joy agrees to the agreement in
buying Rahims car.

Not all agreements are contracts, but all contracts are agreements. The agreement will be a
contract if it meets the elements of the contract specified which will be discuss further later.
2.0 Element of Contract
All agreements are contracts if they were made by the free consent of parties competent to
contract, for a lawful consideration and with a lawful object, and are not hereby expressly
declared to be void. 1

For a contract to be valid, the essential elements of a contract must be present. The common
requirements to be present in an enforceable contract are offer, acceptance, consideration,
capacity, intention and certainty. If one of these elements do not exist, the contract is void and
unenforceable by law and the agreement may be revoked. Hence, further explanation on the
above elements will be discuss to ensure the contract is enforceable and valid.

2.1 Offer
When a person has a strong willingness to enter to an agreement, there is an offer. An
offer is an expression of willingness to contract on certain terms. When one person
signifies to another his willingness to do or to abstain from doing anything, with a
view to obtaining the assent of that other person to the act or abstinence, he is said to
make a proposal.2 Through this section, it show that the bid or proposal is an
undertaking by one party to other party and both commit with the agreement that has
been agreed and accepted. For example, Joy rent his car to Epit for 5 months that
cost Epit for RM200 per month. Joy promise not to rent the car to others within 5
months. This promise made by Joy to Epit create a binding relationship in law when
the agreement is accepted by Epit. For all contracts to exist in law, there must been
an offer which is accepted. The offer can be made to a specific person or to a class of
persons or to the public at large. Meanwhile, an offer is not so call an invitation to
treat because, invitation to treat does not have any legal recognition in contract law
and just wanted to negotiate but not willing to be bound by the terms of the
agreement.

1 Section 10(1) CA 1950

2 Section 2(a) CA 1950

 Example of case: Coelho v. Public Service Commission (1964)
Coelho applied for a post as Assistant Passport Officer advertised in Malay Mail and
have been accepted by Public Service Commission. Later, he was dismissed while
still in probation. The court claimed the dismissal was not valid because the
acceptance upon his application, is not stated that Coelho would be on probation.

2.2 Acceptance
There will be no valid contract if the offer made is not accepted. Acceptance must be
made while the offer is still valid. It is clearly defined in Section 2(b) CA 1950.
Hence, as second important requirements, there are few elements to take count as
acceptance.
2.2.1 Form of Acceptance
Acceptance must be communicated to the offeror. Acceptance begins once
the offer is accepted via communication. The offeree must inform to the
offeror whether to accept or reject the offer by making an action, not stay
in silence.

Example of case: Felthouse v. Bindley (1862)

Felthouse wrote to his nephew offering to buy a horse but there is no reply
from his nephew upon his offer. His nephew told B (Auctioneer) not to
sell the horse but B sold it by mistake. Felthouse sue B for committing
fraud. The court claimed there is no acceptance made by the nephew as he
had kept silent.

2.2.2 The time limit for an Acceptance

By referring Section 6(b) CA 1950, the offeror can revoke the offer before
the time period lapses provided that the offer has not been accepted.

Example of case: Ramsgte Victoria Hotel Co. v. Montefiore (1866)

 Defendant making an offer to plantiff company on 8 th June but failed to
receive any acceptance until 23rd November. When the offer have been
accepted, defendant refused to accept. The court claimed the plaintiff
lapse of an offer.

2.2.3 Revocation of Acceptance

Acceptance can be revoke at any time before the acceptance comes to the
knowledge of the offeror. However, if offeree uses instantaneous mode of
communication, offeree will have no opportunity to revoke the acceptance
as it is only effective after the offeror received it.

Example: A made an offer to B via letter dated 1st January and gave two
weeks to B to respond. On 10th January, B send a letter of acceptance but
only come to knowledge of A on 20th January. B may use faster
communication if he wish to revoke the offer before 20th January.

2.3 Consideration
The existence of offer and acceptance does not make a contract except there is a
consideration involve such as some right, profit or benefit, interest, etc. There are 3
types of consideration:

2.3.1 Executory Consideration

The offeror shall have their reward or counter-promise with every offer
given by him to the other party.

Example: A sell a house to B and promise to paint the house once B pay
the deposit. As promise (to paint) is the consideration to Bs promise (pay
the deposit).

2.3.2 Executed Consideration

 The other party already fulfill according contract and therefore, the offeror
have to fulfill his promise.

Example: A promise to reward RM200 to those who can help her in

assignment. B helped A to do the assignment. B is an executed
consideration as B fulfill according contract and therefore, A must give
reward to B.

2.3.3 Past Consideration

Is a promise made to respond to an act that has been done by other party
toward others.

Example: Zara found her fathers phone under the sofa and give it to him.
Her father then promised to reward her with new Barbie doll. Her fathers
promise is a past consideration upon Zaras previous act.

2.4 Capacity
To establish a valid contract, the person who want to create a contract shall have the
capability to do a contract. 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. 3 This
enlighten 3 groups of persons who is entitled to do a contract:

i. Age of majority
In Malaysia, individuals who have reached the age of 18 are categorized as
adult and mature so have the ability to enter into a contract.
ii. Be of sound mind
All contracts entered by unsound mind person may be canceled provided that
the other party knew about the disability of the person.
iii. Not disqualified from contracting such as bankruptcy.

3 Section 11 CA 1950
2.5 Intention to create legal relations
An agreement between two parties to create a valid contract can be prove if there is
an intention to create legal relation in binding law. The parties intend that the
agreement will be binding with recourse to some external negotiator for its
enforceability. The necessity for intention is divided into two:

i. Domestic agreement
An offer made by one party and has been accepted by another party and
supported by consideration but their agreement do not intend to create legal
action.

Example of case: Balfour v. Balfour (1919)

Husband and wife came to England for a holiday but upon return, his wife
stayed as per doctors advice. The husband promise to give an allowance until
she is recover but failed to do so and the wife sue him. The court claimed this
case did not intend of the agreement to result in legal action.

ii. Commercial agreement

An agreement made by two parties is accepted and intended that the
agreement would be legally enforceable.

2.6 Certainty
A valid contract must contain provisions that clear and deterministic (not vague).
Uncertainties is referred such as the language used was vague, failing to get the main
terms of subject matter of an agreement. An agreement remains incomplete if it does
not exist an element of certainty in the contract.
3.0 Section 14 of the Contracts Act 1950
Generally, a contact will only be valid if it is made on the free consent of the contracting
parties. Therefore, to make a contract binds the contracting parties, it shall be made with the
consent of sincerity and free from the parties involved as explained in the section below:

.agreements are contracts if they are made by the free consent of parties competent to
contract4

Two or more persons are said to consent when they agree upon the same thing in the same
sense5

There are five elements that show consent are not freely given:
i. Coercion (Section 15)
ii. Fraud (Section 17)
iii. Mistake (Section 21,22 & 23)
iv. Undue Influence (Section 16)
v. Misrepresentation (Section 18)

We will discuss three elements of the above in details that are coercion, undue influence and
misrepresentation. In the other hand, fraud is committed by a party who enters into a
contract with the intent to deceive other or would like to encourage others to enter a
contract.6 Mistake is divided into 3, contract is void if both parties to a contract made an

4 Section 10 CA 1950

5 Section 13 CA 1950

6 Section 17 CA 1950
 error on the fact of agreement7 , mistake as to foreign law has the same effect as a mistake of
fact8 and the contract does not become void because of a mistake made by one party of facts9.

3.1 Coercion
Coercion refers to any form of violence or threats or other prohibited action by the
Penal Code against individual, family or property with the purpose of forcing the
parties to enter into contracts. Furthermore, the wrongful detention or threats against
a person also considered as coercion. This is what I can understand from the phrase
Section 15 CA 1950.

Example of case: Kesarmal s/o Letchman Das v. Valiappa Chettiar (1954)

The property transaction was made on the orders of Sultan which the command itself
is made forcibly by two Japanese officers. Therefore, the court claimed that the
transfer are voidable due to coercion.

There is an effect on the contract if there are elements of coercion in the contract.
Contract can be revoked upon option or the will of the parties who have been forced
to enter into such contract. Therefore, the parties who been forced have a right to
apply to the court for nullify the contract due to coercion.10

3.2 Undue Influence

A person who is in situation that would dominate the will of others to enter a contract
may lead the contract contains an element of undue influence11. A person may set

7 Section 21 CA 1950

8 Section 22 CA 1950

9 Section 23 CA 1950

10 Section 19 CA 1950

11 Section 16 CA 1950
 aside any business or transaction with the reason that he has done such transactions as
influenced by others.

Example of case: Salwath Haneem v. Hadjee Abdullah (1894)i

Plaintiffs husband has implemented the transfer of his property to his brother, B and
C and agreed by the Plaintiff. After her husband died, Plaintiff claimed to set aside
the agreement but B and C failed to prove that Plaintiff do it with free consent.
Therefore, the court claimed the agreement is invalid.

The effect of undue influence are, any agreement executed on undue influence will
lead this agreement voidable at the instance of the party who have been affected.
Since agreement depends on consent, it should follow that agreement obtained by
threats or undue persuasion is insufficient.

3.3 Misrepresentation
A false statement of fact made by A to B which influence B into entry the contract.
During pre-contractual negotiations, one party makes a statement with other party to
enter a contract but the consent of the statement was uncertain.

Example of case: Chuah Tong Yeong v. Kuala Lumpur Golf & Country Club
(KLGCC)(2003)
The plaintiff paid a sum RM90k as a member with KLGG. Then, he claimed that he
didnt get the facilities as stated in a brochure. The High Court held that the brochure
was to attract buyers and this was a case of misrepresentation under Section 18, CA
1950.

The statement does not acquire contractual status at all. This might be because the
statement is not sufficiently promissory in nature. The effect for misrepresentation,
an innocent party has the option to rescind or affirm the contract. If the guilty party is
not claimed under coercion, fraud or misrepresentation, the contract therefore cannot
be made voidable.
4.0 Amendment of Malaysian law
Law of contract can be obtained through the court decision or from the statue. Referring to
the contents of the Contract Act 1950, there is a question of whether the act is complete and
suitable for law of contract. Here some suggestions to improve the Contract Act 1950.

4.1 Limitations of the contracts Acts 1950

This Act provide less protection for consumers also limited. The situation gets worse
with the emergence of various contractual manner that affects through the use of
technology in the course of the contract. Contract law in Malaysia can be said to
function as a license for each party to exploit the weaknesses of others.

Recommended that this act to be revise especially on the function of the contracts act
itself which should act as a platform for developing relations based on trust rather
than for short-term gains. Furthermore, contract law should strengthen the
cooperation rather than individualistic ethics as applied today.

4.2 An Incomplete Characteristic of Contract Act 1950

This act clearly visible its provisions does not include the content of a contract. This
case was raised by Visu Sinnadurai (1987) ; this act does not have or contain any
provision specifying in particular about the contents of a contract. Provision was not
made on the classification of the terms in the contract. Furthermore, the parties are
strictly bound by the actual term of the contract. There are no special provisions to
observe the content or term of a contract.

Amendments must be made by adding a specific provision to observe the content or

terms of contract so that it is clear and fair to all parties willingly to enter a contract.

4.3 Pressure by the Globalization Phenomenon

There is no doubt the law of contracts Malaysia currently challenged by the pressures
of globalization. A huge implications especially in world of trade. In the era of IT,
 the worlds domestic and international trade in subdued by digital technology along
with computer systems technology, telecommunications and information technology,
we see a new electronic market is evolving worldwide. Generally, the contract law is
still not ready to face the current challenges so do the future. This should be
reinforced especially in the effort to protect the consumer interest in the contract.
Formulation of the Electronic Commerce Act is still not sufficient and cannot solve
the problem of protection required by the user in cyberspace.

5.0 Summary
As discussed, the law of contract in Malaysia is based on the Contracts Act 1950. A contract
is valid and enforceable in law will only be formed if it contains the necessary elements such
as offer, acceptance, consideration, intention, capacity and certainty. If one of this elements
do not exist, the contract may only exist as voidable contract or the agreement is void.
Section 14 of the Contracts Act 1950 was defines about free consent. What can we
understand on free consent? A willingness made by the contracting parties freely without
the elements of

a. Coercion - refers to any form of threat to commit violence. If a coercive successfully

proven in court, the parties may be forced to make a choice whether to cancel or
proceed the contract.
b. Undue Influence - means that people have more power to dominate others.
c. Fraud one party has fraudulently inflated the fact of contract to other party.
d. Misrepresentation refers to the fact that incorrect or misleading.
e. Mistakes -

When a consent given by the contracting parties involves the said elements, the contract
made voidable at the option of the parties who been imposed towards the elements.

Law of contract in Malaysia have some disadvantages especially in the use of contract
law and regulations for users. It becomes more complicated with the technology and
trade evolution in the business. Thus, the limited scope should be reviewed to ensure that
there is protection for consumer in the matters of contract.
i Contract Law in Malaysia by Cheong May Fong 2010