The Legislation in Malaysia Governing Contracts

A contract is an agreement between two parties that enforced by law or an agreement which is legally binding between the parties. A valid contract is essential to protect the benefits of both parties. Lee Mei Pheng, in her book General Principles of Malaysian Law, stated that “The legislation in Malaysia governing contracts is the Contract Act 1959(Act 136) (Revised 1974)”. [1] The contract law is useful in our daily lives and we may enter into the contracts when we go to work, board a train and buy a newspaper. A valid contract requires elements to create a contract. The basic elements to form a contract are an agreement, an intention to create legal relations, and consideration.

The first element to form a contract is an agreement. An agreement consists of one party who make a proposal and another party must accept the offer. The person who makes the proposal is the offeror and the person who accepts the proposal is the offeree. The proposal must be a definite promise. If the offer is not definite, then it is not capable of being accepted. The offer must be clear and well communicated to each other. An offer must be contrasted with an option and advertisement. Lee Mei Pheng also explained that, “An option is merely an undertaking to keep the offer open for a certain period of time while an advertisement is an attempt to induce offers”. [2] The invitation to treat is a bilateral offer where a promise in exchange for a promise. For example, the goods are displayed on shelf of the shop and a public advertisement. The society has to know about the offer before they accept it. The people look the offer entirely because they want to fulfil the offers and reduce the possibilities of breaking the terms of the contract. In the case of  Carlill v. Carbolic Smoke Ball Co. Ltd, [3] the facts is the Carbolic Smoke Ball Company made a product called a smoke ball that it claimed could protect  the user from getting influenza (flu). The company advertised that they would offer £1000 to anyone who still succumbed to influenza after using a certain remedy for a fixed period. Mrs. Carlill bought one of the balls and used it in the manner specified, yet still managed to get influenza. When she asked for the reward the Carbolic Company claimed that there was no enforceable contract between it and the user of the smoke ball on the grounds that there was no acceptance of the offer because Mrs. Carlill had never notified the Company that she accepted its offer nor furnished any consideration. The court held that in unilateral offers, the advertisement is an offer which was accepted by Mrs Carlill. The Court of Appeal held that the plaintiff was entitled to the £1000 as she had accepted the offer made to the world in large. This is a binding contract when Mrs. Carlill purchased the smoke balls. [4] In my opinion, the court decision is accurate where the advertisement from Carbolic Company is a unilateral contract that held to be an offer. An unilateral agreement is made when a promisor makes a promise in exchange for an act or performance.

An acceptance incur when someone accept the offer and agree to be bound by the terms of the contract. When the proposal is accepted, it will become a promise in section 2(c) Contracts Act 1950. An acceptance must be made before it expires. The acceptance of proposal must be absolute and unqualified when the proposal converted into promise. For example, when I board a bus to our destination, I have to purchase a ticket. This shows that I have done something that I accept the terms of agreement. The bus takes me to my destination in a safe and secure way for the price of the ticket and I am bound to accept their conditions where I have find a place to sit in the bus. In an agreement, there must be a communication of acceptance. Lee Mei Pheng, in her book General Principles of Malaysian Law stated that “An acceptance will be only effective when it has been communicated”. [5] The example case of acceptance is Hyde v. Wrench. [6] In this case, “the defendant offered to sell his estate to the plaintiff on 6 June for £1000. On 8 June, the plaintiff made a counter-proposal to purchase at £950. When the defendant refused to accept this offer on 27 June, the plaintiff was prepared to pay the original sum demanded. The court held that there is no contract between them. This main reason is the plaintiff had rejected the original offer on 8 June. Therefore, he is not capable to accept it again”. [7] In an agreement, an acceptance must also be made within a reasonable time. There is a communication of acceptance and without a lapse of a reasonable time in the case of Hyde v. Wrench.

The second element of a valid contract is an intention to create legal relations. It is stated that: “One of the essential elements in the creation of a binding contract, this intention is implied by the fact that it is not expressly denied”. (Business Directory) [8] There are three types of agreement in second element. A domestic and social agreement presumes there is no intentions to create legal relations unless show the evidences to rebut the presumptions. For example, family relationships like husbands and wives do not have the intention to create legal relations. Lee Mei Pheng noted that: “Although the contracts Act 1950 is silent on the intention to create legal relations as one of the requirements of a valid contract, case law clearly dictates the necessity of this requirement”. [9] In the case of Phiong Khon v. Chonh Chai Fah, [10] “A Chinese lady who had a daughter and a son (respondent), lived together with the appellant after her first husband death. The respondent had carried out a document which the appellant alleged was a transfer of land to him. The respondent denied. The Federal Court held that the appellant has to prove that the transfer was on his name which he failed. The

Court further held the terms of the document create doubt that shows that there was no intention to create a legal relationship”. [11] The appellant does not have enough evidence to show that the land had transfer to him. The appellant think that the family of the Chinese lady is easy to cheat as the Chinese lady believes in him. The presumption for commercial agreement is there is no intention to create legal relations unless evidences are shown to rebut the presumptions. The example of case for domestic agreement is Esso Petroleum Co. Ltd. v. Customs & Exise Commisioner. [12] 13

The third element of a valid contract requires is consideration. Lee Mei Pheng explained that Section 26 of the Contract Act 1950 provides that, as a general rule, an agreement without consideration is void. [14] An agreement without consideration is considered as void if it is made out of love and affection, a promise of compensate for something done and promise to pay a debt barred by limitation law. Under Malaysian law, the consideration need not be adequate. The consideration must be clear and the courts are not interested in bargain. In Phang Swee Kim v. Beh I Hock [1964] M.L.J. 383 case, [15] the agreement is valid as the consent of promissory is freely given. The Federal Court held that by virtue of explanation 2 to section 26 of the Contracts Acts 1950, the inadequacy of the consideration was immaterial. [16] However, there is no evidence of elimination of value of the property and fraud. This is because the respondent has agreed to transfer the land to the appellant on payment of $500 when the land is subdivided. Consideration is the value receives from a promisor to a promisee. The land has values in the eye of law where it is money worth. In general rule, English law does not recognize past consideration. However, there are exceptions in Lampleigh v. Brathwait case. [17] Brathwait had promise to pay Lampleigh and this considered as an agreement between them. Although the consideration is already past, Brathwait still have to pay Lampleigh £100. The reasons are there is a request, there is an implied understanding that payment will be made and agreement must legalised. In Malaysia, Section 2(a) appear wide enough to cover past consideration provided is it was done at the desire of the promisor.

In conclusion, the requirement for a valid contract is fulfil if the elements stated above is included in a contract. These elements are important to the formation of a contract because contracts are part of our modern daily life. They are needed to purchase goods and services in the marketplace. The contract is needed to protect our property rights and company rights. There must be an offeror and an offeree in the formation of contract. Furthermore, a valid contract is important for any business dealings. In addition, a company or an individual would not sue by other people if they obey the terms and conditions in a contract. If an individual do not form a contract based on an agreement, intention to create legal relations and consideration, he or she might get into trouble.