Contract Act 1950 Summary

The word ‘contract’ in legal field is an agreement enforceable by law according to Section 2(b), Contract Act 1956. It is an agreement between two or more parties that are legally binding between them. All contracts are form from an agreement but not all agreement is a contract. This is because some agreement they are lack of certain elements. Those elements are;

• Offer or proposal
• Acceptance
• Intention to create legal relation
• Consideration
• Certainty
• Capacity
• Free consent

However, when there is no provision in Contract Act 1950 (Act 136) (Revised 1974) to deal with particular subject or the subject is covered by the act but the provision relating to the subject are not exhaustive, English law applies virtue of the Civil Law Act 1956. [2]

An offer is one of the elements in Law of Contract. It is also known as proposal. According to Section 2(a) of Contracts Act, an offer is defined as an expression of willingness to contract on certain conditions, made with intention that it shall become binding after it is accepted by the offeror.

An acceptance is an agreement to receive something which is has been offered. The act that deals with acceptance is Section 2(b) of Contract Act 1950 states that when the person; the one who the proposal is made to has signifies his assent, the offer is said to be accepted and become a promise. It can be expressed in some usual or reasonable manner, unless the proposal describes the way it is to be accepted.

The third element of Contact Act 1950 is intention to create legal relation. It is not an agreement that create a binding contract but it just a nearly agreement only. There are two presumptions to determine the intention;

Business agreements

Social, Domestics or family agreements

Example of the cases made under business negotiations Yap Eng Thong & Anor. v Faber Union Ltd [3] where is the parties made an intention to create legal binding. For social, domestic or family agreement there is the case of Choo Tiong Hin & Ors. v. Choo Hock Swee and Phiong Khon v. Chonh Chai Fah. [4] These agreements between families are not enter into legal relations so, there is no intention to create legal binding.

For the fourth element is consideration. Refer to Section 26 of Contract Act 1950 states that agreement without consideration is void. Consideration is something value to either promise or promisor that is usually cash or property which is will be exchange between the promise and the promisor as the performance. For the contract to be legally binding, the consideration must be something that the promise is giving up or something that give benefits to the promise.

Capacity is the next element of Contract Act 1950. Section 11 of Contract Act states that; ‘Every person is competent to contract who is of the age of majority and who is of sound of mind and is not disqualified from contracting by any law’. The age of majority in Malaysia is 18 years old.

Besides that, certainty is also one of the elements of Contract Act 1950. Certainty is the understood of a clear and distinct statement of the fact which is constitute the cause of an action. The terms of an agreement must be certain so an agreement that is unclear and vague cannot be legally binding by referring to Section 30 of Contract Act 1950 states that an agreement which is uncertain or is not capable of being made certain is void. Sample case is Karuppan Chetty v. Suah Thian. [5]

Last but not least, free consent. Consent of both parties must be free. The word ‘consent’ defined by Section 13 Contract Act 1950 as ‘two or more persons are said to consent when they agreed upon the same thing in the same sense’. [6] Section 10 Contract Act 1950 states that ‘All agreements are contracts if they are made by the free consent of the parties’. Hence, both parties must be willing to respond to the agreement made in order to make an agreement as a legally binding contract.