1.

INTRODUCTION
Although Malaysia now has its own contract law, namely the Contracts Act 1950 (Act

136), but basically the principle of English law that was used. However, it has been renovated or
modified to suit local conditions.
Contracts Act is based on the Indian Contract Act, 1872, which also represents a
codification of English common-law. Act 136 is the most important legislation for commercial
matters in Malaysia.
Apart from the Contracts Act 1950, the court will also refer to the results of the case or
judicial precedent. However, the use of 'case law' is subject to the conditions set out in Section 5
of the Civil Law Act 1956.
Refer to the previous article under the heading: Sources Act in Malaysia.
As in common-law, contract law in Malaysia also outlines the requirements that must be
present in a contract. The basic principle in the law of contract is for a contract to exist, it is
necessary to form an agreement valid and enforceable by law in advance.
For a contract to be valid and enforceable laws, certain elements must be met. These
elements are:

2.0

Offers
Acceptance
Free Consent
Intention
Consideration
Certainty
Capacity
The absence of these elements will result in a contract is void and unenforceable.
ELEMENTS OF A VALID CONTRACTS
The contract is essentially enforced by the Contracts Act 1950. The contract is an

agreement entered into by two or more individuals, both of whom will be bound by the
agreement. For example, contract of sale of goods, contract hire and much more.
In summary, there are seven (7) key elements to be taken into account by each individual
before agreeing to any agreement to offer.

This article will discuss briefly associated with the seven key elements, which must be
reviewed by individuals before agreeing a legally binding agreement. Keep in mind that all these
elements must be satisfied simultaneously.
2.1

Offer
As we all know, before the Contracts Act 1950, we refer to English Law. The term

'offer' is used in English law, whereas the term 'reserves' is used for the Contracts Act
1950.
Section 2 (h) of the Contracts Act 1950 had defined the contract as an agreement,
which can be enforced by law in which this contract will be binding on the parties
involved legally.
Conditions of an offer is an offer that it must be clear, and communicated to the
other party will make acceptance of the offer.
If the offer is not clear, or not communicated to the parties concerned, it is
canceled.
Therefore, the 'offer' or offer is very important to make the contract valid, and
binding on both parties. Without bids, there will be no joint legal contract between both.
2.2

Acceptance
If referred to in Section 2 (b) of the 1950 contract, the acceptance is defined as the

approval or acceptance of the offer that has been offered previously.

Agreed this means that the offered will also agree with the conditions and terms
set. With the acceptance of the offer, then a contract is established.
2.3

Free Consent
All parties involved must have the consent freely. This is because the validity of

this contract can be disputed, if the consent of the parties involved in the contract is
accepted by force and without consent.
Finally, all parties involved in any agreement or contract must take cognizance of
the importance of the seven elements of the legality of this contract. If one element is
missing, the contract can be disputed and may be revoked later.
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2.4

Intension
Intent or the will is divided into two for contracts involving business agreements

and domestic agreements, family and social.

Assumptions made, where the contract involves business dealings, the parties
involved are said to have the intention to enter into an agreement, and bind them legally.
However they may be denied if the evidence is clear and strong.
To deal involving domestic, family and social assumptions also said that the
parties involved are not intended to be binding and parties are legally binding in law.
For example, if the husband and the wife promised verbally to present holiday
packages wife, but the husband fails to do so, the wife is not entitled to claim the law.
However, if the appointment was recorded or written on a piece of paper, the
agreement can be enforced because the two sides are said to intend to produce an
agreement that binds both legally.
2.5

Consideration
The contract is a contract that is valid in law, three elements are equally

important. Without consideration, the agreements made are canceled. Consideration is

meant here is the price paid by the promise to the makers promise.
In the Contracts Act 1950, Section 2 (d) mentions the reward promise. Therefore,
the parties entered into the contract must have their reward.
2.6

Certainty
Certainty is one important element in a contract. Agreements which have an

element of uncertainty, fuzzy, vague, or confusing is canceled and will not bind any of the
parties involved.
If the contract is an element that cannot be ascertained whether the terms of the
agreement reached major agreements or not, the contract may also be canceled as
specified in Section 30 of the Contracts Act 1950.

2.7

Capacity
In the Contracts Act 1950, section 11 also touch on matters related to the ability or

qualifications. In fact, only those who are mature, of sound mind and is not restricted by
any law are entitled to enter into contracts.
A person is defined as an adult when they reach adult age of 18 years. Therefore,
those aged under 18 years are not eligible to enter into contracts, except in certain cases
only.
For example, a contract for insurance purposes or scholarships are valid and if the
children who carry out the contract.
Put simply, for the bankruptcy, no sane or insane or under the age of majority are
not eligible and no right at all to engage in any business contract.

3.0

CONTRACT

INVOLVING

THREE

CONTRACT ACT 1950

FACTORS

UNDER

S.14

OF

THE

Free volition is said to exist when there was no such elements as specified in Section 14
of the Contracts Act 1950 which states that "the willingness of so-called free when it is not
caused by a":

coercion, as defined in Section 15 of this Ordinance; or

Undue influence as defined in Section 16 of this Ordinance.
The scam (fraud), as defined in Section 17 of this Ordinance.
A real one, as defined in Section 18 of this Ordinance.
Error, subject to the provisions of Sections 21, 22 and 23 of this Ordinance.

In this paper we will discuss three (3) elements of five (5) of the above in more detail and
depth of "Compulsion, Effect Not Fairness and Fraud".
3.1

Compulsion
Coercion refers to any form of violence or threats of violence or other acts

prohibited by the penal code against a party, or family property, with the aim of forcing
the parties to enter into contracts.
Section 15 of the Contracts Act 1950 defines that 'coercion' is "doing any act or
threaten to do any act that is prohibited by the penal code, or illegally detained or
threatened to detain, any property, and harm anyone nevertheless, with the intention to
cause a person to enter into an agreement ".
Characteristics of Coercion
There are several features that can be identified to understand the concept of
coercion namely: 1) Violence or threats of violence
Acts of violence or threats of violence intended for use under such coercion is a
criminal act which is contrary to the Penal Code only. Penal Code is written law
governing criminal law in Malaysia. If an act is against the law except the penal code, the
act is not subject to the threat of coercion for the purpose of Section 15 of the Contracts
Act 1950. See the example case, "A British ship on the high seas, causing B to conclude
an agreement, with criminally intimidating B according to the Penal Code. Then A sues B
in Taiping for breach of contract. A committed force, although it does not act an offense
5

under English law, and although Section 506 of the Penal Code is not in force at the time
or place of the act is done.
2) The act of Force
The act of forcing contains two (2) elements that need to be proven. The first
element (1) is to use pressure or coercion to affect someone's willingness to make the
consent is not free. The second element (2) is pressure or coercion shall be contrary to the
law.
Effects and Consequences 'Compulsion'
The effect of a contract that contains an element of coercion is, the contract can be
canceled at the option or the will of the parties be forced to enter into such contracts.
According to the 19th Session of the Contracts Act 1950, "In the event of force on an
agreement, then the agreement is a contract which may be canceled at the option of the
forced". Therefore, the element of coercion could exist in a contract where one party has
been induced to enter into an agreement without the free consent. The party was forced
right-hand side of the law to apply to the court for canceling the contract he had entered
the grounds that there was coercion, and the contract is null and void.
3.2

Effect Not Fairness

A person can set aside a transaction or transactions on the grounds that he had

committed such transactions as affected by someone else on it. Refer to Section 16 of the
Contracts Act 1950 states that a contract has been made, said to have been driven by
undue influence if the relationship between the two parties that make such contracts in
which one party has the ability to dominate the will of others and use position to obtain
unfair advantages (not just) the other party or an authority that allows him to take
advantage of others.
A person can be considered to be in the situation to dominate the will of another
person when: a)

He holds the real power or apparent power over the other person, or where he is in
a relationship of trust with others. Here is an example to explain the meaning of
"true power or apparent authority". A has lent money to his son while his son B
was a teenager, and later when B minor, A had abused his influence as a parent to
6

obtain a bond from B to a larger amount of money to be paid on the loan, then A
b)

is deemed to have used his influence with undue.

On the one hand there is a trust relationship with another person as his client's

c)

solicitors, trustees and beneficiaries, advisors and religion of others.

When he contracts with people who are disabled or mentally impaired, whether
due to age factor, disease, suffering mind or body permanently or temporarily. For
example, a person weakened by illness or advanced age and was encouraged by
B, medical assistants and to agree to pay the unreasonable sum of money for his
services. B is already using the 'Inappropriate Influence'.
In law, the existence of influence alone is not sufficient to cancel an agreement.
The existence of an undue influence that has been done by people who have the power to
be proven. In circumstances where the responsibility for proving the absence of undue
influence is based on the desire to dominate the other person. For example to Section 16
of the Contracts Act 1950, a member banker loans to customers with interest rates
extraordinarily high. On the surface, its desire to capture customers and managing it
seems unreasonable. Responsibility in proving the absence of undue influence is located
on the banker. He may do so by proving that at the time the loan was given, the situation
in the money market is tight and interest rates high.
Effects And Consequences 'Influence Inappropriate'
The impact of undue influence refers to Section 20 of the Contracts Act 1950, any
agreement executed on undue influence, will make this agreement can be canceled by the
will of the parties that have been affected. People who 'influenced' can get lost again
refers to Section 66 of the Contracts Act 1950, which requires a person who has received
any benefit from the contract, before the canceled return and compensate the people who
received the benefit. But if the parties to cancel had been any interest from other parties
in the contract, he was obliged to return the interest is "on terms and conditions as the
court thinks fit. Sample case: Chait Singh vs Budin Bin Abdullah, the Court decided to
support the decision to the lender, but reduce the interest rate to 18 percent from 36
percent who initially claimed. Refer to Section 20 (b) of the Contracts Act 1950: A man
who lent money lenders $ 100 to B, and with undue influence induces B to implement the

$ 200 bond with an interest rate of 6 percent per month. The court may revoke the bond
and ordered B to pay the $ 100 it back with interest that the Court deems fit.
3.3

Fraud
Defined in Section 17 of the 1950 contract as "any act done with intent to deceive

or encourage other parties or their agents to enter into contracts". Section 17 AK 1950
clearly sets out some specific actions that are included in the category Fraud such as:
a) Suggest a fact which is not true by a person who does not believe something as
true;
b) A person who actively or vigorously hide the fact from someone else;
c) Make an appointment without any intent to keep that promise;
d) Perform any other act for the purpose of deceiving and misleading the Court
considers being appropriate to be declared as a hoax;
e) Perform any error or omission is one that is clearly defined by law as a hoax.
According to Section 17 of the Contracts Act 1950, a person is said to deceive the
other party if he commits an act with intent to induce another person to enter into
contracts with it. The important word to remember is, to determine whether the contract
contains an element of fraud or deceit, someone's intent to deceive another party in order
to enter into such contracts shall be taken into account. An agreement voidable at the
option of the person who was cheated if it can be proved the existence of fraud.
The Difference Between 'Misrepresentation' The Hokey Pokey And 'Fraud'
i) When a person makes a statement and a fact in reality it is wrong, then he has
made a misstatement.
ii) When a contract has elements of misrepresentation, it will be a contract
voidable.
iii) In English law, misstatement divided into two (2) of misstatement elements of
intrigue and outright misstatement. Meanwhile, the Malaysian Contracts Act 1950 defines
a misstatement as a fraud or deceit deception refers to Section 17 of the Contracts Act
1950, and misstatements sincere as in Section 18 of the Contracts Act 1950.
iv) According to English law, in order to prove misrepresentation by guile things
considered is whether 'making a statement' there is knowledge that the statement is true

or false. If he knew that the statement was incorrect, it means it has made a material
misstatement in intrigue.
v) If on the contrary he really believes the statements he made were true but in
reality it is a fact, then it is said to make sincere misstatement.
vi) The Contracts Act 1950 also demonstrated the circumstances that could be
categorized as fraud where it comprises a ruse misstatement under English law. Category
fraud under the Contracts Act 1950 is wider than the UK law.
vii) Among the things that should be given is that under English law, to prove
misrepresentation by guile, knowledge of the truth of a statement to be identified.
Meanwhile, the Contracts Act 1950 put an intention to deceive as an important factor that
4.0

must be proved in the case of fraud or deception.

RECOMMENDATION FOR AMENDMENT OF MALAYSIA LAW
4.1
Limitations of the Contracts Act 1950 The Managing
Users Contract
This Act provides less protection for consumers and a bit limited. The situation
gets worse with the emergence of various contractual methods that affect the extent of
spread of the use of technology in the course of the present contract.
Contract law in Malaysia can be said to function as a single license for each party
to exploit the weaknesses of others.
Suggestion that this act is reviewed, especially concerning the function of the
Contracts Act itself which should serve as a platform for developing relationships built on
trust, rather than short-term gains to confirm. Proper law should strengthen contacts and
cooperation envisions a rather individualistic ethics as applied today.
4.2

Contracts Act indicates its scope is not exhaustive

This has raised some questions. This Act clearly visible flaws in its provisions not

affecting the content of a contract. This case was raised in writing 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.

The Act is silent on whether the parties are strictly bound by the express terms of
the contract or whether certain terms may be implied. There are no special provisions
governing the content or terms of the contract.
Amended proposal and added that the special provisions governing the content or
terms of the contract are made so that it is clear and fair to all parties voluntarily
contracted.
4.3
Pressure By The Phenomenon Of Globalization
There is no doubt the law of contracts Malaysia currently being sued by the
pressures of globalization. He gave huge implications in particular the world of
commerce.
In an age of sophisticated, with the conquest of digital technology in the world
and international trade coupled with the sophistication of computer systems,
telecommunications and information technology, we see a new electronic market and is
evolving worldwide.
General contract law, in its present state, it is still not ready to face the challenges
that are being and will be overcome. Especially in business or providing protection and
care for the interests of consumers in the contract. The drafting of the Electronic
Commerce Act is still not sufficient and cannot solve the problem of protection required
by the user in cyberspace.

5.0

CONCLUSION

10

As already discussed, the law of contract in Malaysia is based on the Contracts Act 1950
(Act 136). A contract is valid and enforceable in law will only be formed if it contains the
necessary elements such as offer, acceptance, consideration, intention, willingness, ability and
conditions.
When one of these elements do not exist, the contract may only exist as a contract
voidable (voidable contract) or the agreement void (void the agreement). Section 14 of the
Contracts Act 1950 defines what a "willingness Independent". Free volition is said to be free
when it is not due to coercion, undue influence, deception, and error Misstatement. For further
information Section 14 of the Contracts Act 1950 should be read in conjunction with Section 15,
16, 17, 18,19,20,21, 22 and 23 of the Contracts Act 1950.
Coercion refers to any form of violence or threat of violence to do something. If a
compulsion successfully proven in court, the parties may be forced to make a choice whether or
not to cancel the contract or not.
Inappropriate means influence a person in a position of power to enable it to dominate
over the other. Fraud or fraudulent means party has fraudulently fact contract to the other party.
While misrepresentation refers to the fact that incorrect or misleading. Contract law in Malaysia
has many shortcomings, particularly in the application of contract law legislation in the context
of the user. It becomes more complicated with the evolution of trade and technology in the affairs
of a contract. Thus, the limited scope of application of contract law in the context of Malaysia
should be reviewed to ensure that there is protection for consumers in the course of the contract.

REFERENCES

Akta Kontrak 1950 (Akta 136), International Law Book Services.

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Buang. S & Torji, N (1992). Undang-Undang Kontrak Di Malaysia.

David Kershaw, Company Law in Context (OUP, Oxford 2009).

Major, W. T. (1997). Undang-undang kontrak, Kuala Lumpur : International Law Book Services.

Mohamed A et. al (2009), Business Law, (6th ed.). Selangor : Open University Malaysia.

Paul L. Davies QC, Gower and Davies' Principles of Modern Company Law, 8th Edition, 2008,
London Sweet & Maxwell, Chapter 1.

Reiner Kraakman, Henry Hansmann, Paul L. Davies, Klaus Hopt, Gerard Hertig, Hideki
Kanda, The Anatomy of Corporate Law (OUP 2004).

Robbins, S.F., Judge, T.A. (2007). Organizational Behaviour. 12th edition. Pearson Education
Inc., p. 551-557.

Yusoff S.S & Aziz A.A (2003), Mengenali Undang-Undang Kontrak Malaysia.

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