INTRODUCTION

Introduction

 The Contracts Act 1950 (Revised 1974) (CA) is the principal

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legislation governing contracts in Malaysia and is modelled after the
Indian Contract Act 1872 .
 The Indian Contract Act 1872 is largely a codification of the then
existing English common law and rules of equity.
 Another relevant statute is the Specific Relief Act 1950 ( Revised
1974), which is modelled after the Indian Specific Act 1877.
 The Contracts Act is unique in drawing a distinction between an
agreement and a contract. The Contracts Act 1950 (Revised 1974)
contains provisions on offer, acceptance, consideration and capacity
necessary for the formation of valid contracts.
 Some other key concepts within the structure and framework of the
Contracts Act are provisions on voidable contract, void agreement
and contract becomes void.
 AGREEMENT AND CONTRACT
 The approach taken by the Contracts Act to distinguish between
agreement and a contract was noted by the Supreme Court in Beca

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(Malaysia) Sdn Bhd v Tan Choong Kuang & Anor (1986] 1 MLJ 390 .
 There is a distinction between an agreement and a contract. The
word "contract" has at times been loosely used in the past.
 We are used to the English common law which does not make the
distinction between the two terms as our section 2 of the Contracts
Act.
 An agreement is defined in s 2(e) as "every promise and every set
promises, forming the consideration for each other,“ i.e., when the
parties have made mutual promises to each other, there is an
agreement.
 However, not all agreements are enforceable. Section 2(g)
provides "an agreement not enforceable by law is said to be void."
 While s2 (h) provides that "an agreement enforceable by law" is a
contract.
 The distinction between an agreement and a valid,
binding enforceable contract is provided for in s 10 of
the Contracts Act.
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“All agreements are contracts if they are made by
the free consent of competent to contract, for a
lawful consideration and with a lawful object and
are not hereby expressly declared to be void.”

 Thus, the requirements for a legally enforceable

contract are: (i) free consent; (ii) competency/capacity to
contract; and (iii) lawfulness of consideration and
object.
 Lawful consideration and purpose
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 An agreement is only enforceable if the consideration
for it is lawful and for a lawful purpose.
 The law does not recognise illegal transactions and s
2(g) defines a void agreement as "an agree not
enforceable by law“; s24 is the main provision on
agreements, setting out what considerations and
objects are lawful what are not.
 Free Consent

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 It is foundational to contractual obligations, giving rise to the
concepts of freedom and sanctity of contract.
 Freedom of contract means that a person is free to enter into
contracts with any party and agree to the terms of any bargain.
 Sanctity of a contract binds both parties to the contract freely
entered into.
 S 13 provides that "two or more persons are said to consent
when they agree upon the same thing in the same sense".
 The factors invalidating consent are coercion, undue influence,
fraud and misrepresentation (ss15,16.17,18) and mistake
(ss21,22,23).
 When consent to an agreement is caused by any of these factors,
the agreement is a contract voidable at the option of the party
whose consent was so caused.
 A voidable contract is defined in s 2(i) as "an agreement which is
enforceable by law at the option of one or more of the parties thereto, but
not at the option of the other or others". The innocent party is given an

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option whether to terminate/rescind or to continue/affirm the contract.

 Competency to contract
 The competency of parties to enter into contracts is another
important element to the enforceability of contracts.
 S11 provides 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 (s12), is not disqualified from
contracting by any law to which he is subject".
 The age of majority is 18 years (Section 2 Age of Majority Act
1971, Act 21), and the soundness of mind for the purposes of
contracting is provided in s12. The law ensures persons of full
capacity are responsible for and are bound by law their actions.