Contract of Law

Contract can be defined as ‘an agreement enforceable by law’. In other words, a contract is an agreement made between two(2) parties or more which is legally binding between the parties. There are six (6) basic elements in the contract :

1. Offer refers to a proposal that is capable of being converted into an agreement by its acceptance. Section 2(a) of Contract Act 1950 provides that when a person signifies another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal. Case : Affin Credit (Malaysia) Sdn Bhd v Yap Yuen Fui(1984), where the purported agreement between the parties was declared as void ab initio, or void from the beginning by the Federal Court.

2. Acceptance, according to section 2(b) of the Contract Act 1950 refers to when the person to whom the proposal is made signifies his assent thereto, the proposal is said to have been accepted. Acceptance must be absolute and unqualified. Case : Lau Brothers & Co v China Pacific Navigation Co. Ltd(1965), where the court held that the parties were still negotiating, hence no agreement was formed yet.

3. Intention to create legal relations refers to cases where there is no intention to enter into legal relations can be imputed. Although the Contract Acts 1950 is silent on this element, case-law clearly dictates the necessity of this requirement. Cases : Choo Tiong Hin & Ors v Choo Hock Swee (1959), is a case where the agreements merely represent family arrangements.

4. Consideration according to section 2(d) of the Contract Acts 1950 state that, when at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. Case : Guthrie Waugh Bhd v Malaippan Muthucumaru (1972), a case where statement of claim based on deed was not a consideration.

5. Certainty refers to the terms of an agreement cannot be vague but must be certain. An agreement which is uncertain or is not capable of being made certain is void. Case : Karuppan Chetty v Suah Thian(1916) where the court held that the requirement of certainty was not met when the parties agreed upon the granting of a lease ‘at RM35.00 per month as long as he likes’.

Capacity refers to the ability of the parties to a contract to fully understand its terms and obligations. Section 11 of the Contract Acts 1950 state that 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. [ 1 ]. Section 2(h), Contracts Act 1950