BBUN 2103

OUM BUSINESS SCHOOL

SEMESTER MAY 2016

BBUN 2103

BUSINESS LAW

MATRICULATION NO:

941203115567001

IDENTITY CARD NO.

941203115567

TELEPHONE NO.

+6017 232 8024

E-MAIL

fireshuffler94@gmail.com

LEARNING CENTRE

Bangi Learning Centre

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TABLE OF CONTENT
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1.0
1.1
2.0
3.0
4.0
5.0

CONTENT
DEFINITION OF CONTRACT
VALID CONTRACT
VOIDABLE CONTRACT & ITS ELEMENT
RECOMMENDATION TO CONTRACT ACT
SUMMARY
BIBLIOGRAPHY

PAGE
2
3-5
6-10
11
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1.0

DEFINITION OF CONTRACT
The word contract may sounded extravagant to most of the people. The first thing

that came to their mind when hearing the word contract is it is a sophisticated document
with full of unfamiliar law terms and hard to form due to its elements that need to be
complied and only formally form whether in front of a Lawyer or a Witness.
In everyday reality, almost all person forms a contract unconsciously. As an example,
when we go to the mall to shop some clothe, we made a contract with the vendor or when we
drive our car into a parking lot, we made a contract with the operator.
There are 2 main source of Malaysian Contract Law, which is the Contract Act 1950
(CA 1950) which came from the Parliament and the Common Law that being practiced based
on Englishs Civil Law Act 1956. The CA 1950 were derived from Indian CA 1950 thus
resulting many similarities between them (Masita, Nurretina, Rohizan, Zahirah, & Liziana
(2016).
In the CA 1950, section 2(h), the word contract are defined as an agreement
enforceable by law (MALAYSIA, 2004). An agreement is common approval from 2 or more
parties regarding an issue or transaction. The vast difference that make an agreement apart
from a contract is that a contract are more specific whereas an agreement is more general.
Only an agreement that has the certain element can be a legal contract under the eye of the
law (Kontrak, 2010).
As an example, a man made a promised to his wife to take her shopping tomorrow on
2 p. m. and did not appear on the promised day and time. In general, his wife cannot sue him
for not fulfilling the promise to take her out shopping. In another situation, a shopkeeper told
his supplier that he want to buy 230 pair of jeans and will make the payment after the jeans
were sent to his shop. If the shopkeeper doesnt want to pay the amount dealt after the jeans
were sent to his shop, the supplier can sue to shop keeper.

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1.1

VALID CONTRACT
In case of the occurrence of any damages, parties involved wont get redressed by the

court if there is not a valid enforceable agreement. Section 2(g) of the CA 1950 states that an
agreement not enforceable by law is said to be void while Section 10(1) provide us with the
elements need to turn an agreement into a law-enforceable contract which states that all
agreements are contract if they were made by the free consent of parties competent to
contract, for a lawful consideration and with a lawful object, and are not hereby expressly
declared to be void.
6 elements needed in forming a valid and enforceable contract (Nani, 2014) as per
below:
1. Offer
2. Acceptance
3. Consideration
4. Capacity
5. Intention
6. Certainty
In the above list, the first element of a valid contract is offer. Section 2(a) CA 1950
defined the term offer as: When one person signifies to another his willingness to do or to
abstain from doing anything, with a view to obtain the assent of that other person from the act
of abstinence, he is said to make a proposal. This can be simplified by assuming an offer
exist only when a party, by act or words, state his willingness to be bound by a certain
contract as soon as the other party being proposed accept the proposal.
As an example, David tell Goliath that he is willing to sell his books to Goliath for RM 20
in cash term. In this situation, David has made an offer to Goliath. Offers can be made to:
1. An individual: One to One offer.
2. A class of person: The specific group stated by the proposer.
3. The public at large: accepted by anyone who performed condition as stated in offer.

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The next element of a valid contract is acceptance, which is the act of accepting
something or someone (Merriam-Webster, 2015). Acceptance also is defined in the CA 1950,
Section 2(b) as: When the person to whom the proposal is made signifies his assent thereto,
the proposal is said to be accepted: a proposal, when accepted, becomes a promise.
According to CA 1950 S7, acceptance have 2 conditions. The first one is absolute and
qualified. Acceptance did not happens if the promise only agreed a part of the terms while
rejecting the others. The other one is acceptance must be expressed in a usual and reasonable
manner.
The third element of a valid contract is consideration. Consideration is defined as:
When, at the desire of the promisor, the promise 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 as
stated in the CA 1950, Section 2(d).
Consideration existed in 3 types; executory, executed and past. Executory
consideration is a promise that will be fulfilled only after another party fulfilled their
promise. As an example, X promised to repair Ys car and Y promised to pay X as soon as his
car done repaired.

Ys promise to pay is the consideration to Xs promise to repair his car.

Executed consideration happens when a person has done his/her part according to a
contract. This person is said to execute an executed consideration and therefore the other
party is obliged to fulfil their part of the promise. Meanwhile, past consideration refers to a
subsequent promise to past acts or previous consideration made. As an example, Ah Seng
found Muthus lost phone and returned it to him. Muthu then promised Ah Seng to reward
him a plate of Roti Canai. The promise done by Muthu is an act responding to Ah Sengs past
act and this situation is termed as past consideration.

The next element that need to exist in a valid contract is capacity. CA 1950 Section 11
states that there are 3 group of person that have the capacity to enter a contract. The first one
is the party must be of the age of majority which is 18 years old and above according to Age
of Majority Act 1971 except for 5 purposes as below:
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1. Insurance Contract
2. Scholarship Agreement
3. Contract of service or Apprenticeship
4. Contract for necessaries
5. Marriage contract.
Anyone who want to be involved in a valid contract must be sound minded, which
described by the Section 12 of the CA 1950 as: A person is said to be sound mind for the
purpose of making a contract if, at the time when he makes it, he is capable of understanding
it and of forming a rational judgement as to its effect upon his interest. A person who
casually of sound mind or unsound mind only able to make a contract when he is of sound
mind.
In order to engage in a valid contract, a person must not be disqualified to make a
contract according to any law that he is subjected to. In a simpler manner, a person will lost
the capacity to enter a contract if there is another law that made him incapable of entering
into any contract. As an example, although Siva is above the general age and have a sound
mind, if he declared bankruptcy, subjected to the Bankruptcy Act that he cannot enter into a
contract.
A legal contract also have to contain the element of intention, which is the intention of
involved parties to enter a legal relationship under the law. A contract are divided into 2 type
which is domestic & commercial. Generally, the law assumes that there would be no intention
of creating legal relation in domestic agreement except when there is evidence, in written or
verbal. It is the opposite when it comes to commercial agreements where the court normally
presumes both party intended to make a legal contract. But, when there is evidence
supporting the fact that no legal relation intended, the presumption can be rebutted.
The final element of a valid contract is certainty. Every condition stated in a contract
must have a clear meaning or it can be defective because of the court inable to determine the
exact term agreed by the parties involved. In Karuppan Chetty v. Suah Thian (1916), the
contract were determined as void by the court as the contracting parties agreed to a land lease
at RM 35/month for as long as you like. This obey Section 30 of CA 1950, Agreement, the
meaning of which is not certain, or capable of being made certain, are void.
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2.0

VOIDABLE CONTRACTS
CA 1950, Section 2(i) states, An agreement which enforceable by law at the option

of one or more of the parties thereto, but not at the option of the other or others, is voidable
contract. This means if a contract contains any element that can void it, innocent party have
the right to disobey his duties stated in a contract while in the guilty party didnt get such
rights and if the innocent party did not revoke the contract, both parties are still bounded by
such particular contract.
2.0.1

ELEMENTS OF A VOIDABLE CONTRACT

A part of Section 10 in CA 1950 provides that ...agreements are contracts if

they are made by the free consent of parties competent to contract....In a simpler way, a
contract is voidable when it is out of consent. According to CA 1950 Section 14, consent is
said to be free when it is not caused by five elements which is:
1. Coercion
2. Fraud
3. Misrepresentation
4. Undue Influence
5. Mistake

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2.1

COERCION
The element of coercion were clearly defined in the early part of the CA 1950, Section

15 that generally define coerce as any violence or threats to violate someone or his family or
his property in order to get him to involve in a contract. Coercion come from the word
coerce, which means to make someone do something by using force or threats (MerriamWebster, 2015).
As an example, during a business trip in Manhattan, Ali threatened Abu that if he
refused to sell his company to Ali for a certain price, he might get himself killed. In case Abu
bring his case into Malaysian court stating that there were element of coercion which leads
him to give unfree consent, Malaysian court could decide that there coercion occured as
stated in Section 15 of CA 1950 eventhough the threat act which is forbidden by the Penal
Code were commited outside from Malaysia.
We can refer to the case Chin Nam Bee Development Sdn Bhd vs. Tai Kim Choo &
Ors (1988). Thai Kim Choo (respondent) purchased a house to be constructed by Chin Nam
Bee Development Sdn Bhd (appellants) and signed the sale & purchase agreement for RM
29,500.00 . Later, the appellants instructed respondend to pay additional sum of RM 4000
and threaten to cancel the booking if failure to do so.
Result: The court decides the additional payment was involuntarily as it made under a threat
and ordered the appellant to refund the respondents for the additional payments made.

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2.2

FRAUD
According to CA 1950, Fraud is defined as any acts committed by a party or his

agent with the intention to deceive another party or his agent into entering the contract.
There are 5 acts that were considered frauds according to Section 17 of CA 1950 which
is:
1. Suggesting a fact which is not true by the party those already acknowledge or
believe it isnt true.
In Kheng Chwee Lian v. Wong Tak Thong (1983), respondent was allowed to set
aside a signed agreement by court because of undue influence. Responded signed an
agreement based on the appellants statement which is the size of the land that want to
be transferred under a second contract was similar with the one bought in the first
contract, which is later found smaller that he believed.
2. Actively concealing of a fact by a person who knew or belief in the fact.
Example, Ahmad discovers a gold mine in the estate of Basha and conceals the
existence of the gold mine from Basha. Later on Ahmad persuaded Basha to sell his
estate and succeed to buy the estate at a price so much cheaper than its value. The
selling contract can be voidable in the hand of Ahmad.
3. Making a promise without any intention of fulfilling it. As an example, X
promised to repair Ys car if Y lent him some money. When the agreement was
being made, A has no intention to do it. Hence, Y can rescind the contract for
fraud.
4. Doing any other act fitted to deceive. This can be decided by the court, whether
a connivance/act that did not come under any other clause in the Section 17 could
be a fraud or not.
5. Doing any act or Omission that are specially declared to be fraudulent by the
law.
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2.3

INNOCENT MISREPRESENTATION
In the Section 18 of CA 1950, innocent misrepresentation refers to any

misrepresentation made by someone without any intention to deceive and he believed to

be true.
As an example, Kadir who want to sell his car to Budi, told him it had never been
involved in any accident. Kadirs son, Juragan once hit a car while driving the car and
repaired it himself without Kadirs knowledge. Kadir had made an innocent
misrepresentation that he did not have any intention to deceive Budi and believe himself
to be true.
In Nottingham Brick & Tile Co V Butler (1889), the buyer of land asked the
sellers solicitor whether the land had any restrictive covenants and the solicitor said he
did not know of any. But he did not say that he had not bothered to read the documents.
The court held that there were restrictive covenant and. contract could be rescinded as it
was a misrepresentation even though the statement true.
2.4

UNDUE INFLUENCE
According to Section 16 of the CA 1950, a contract can be categorized as undue

influence with the present of 2 elements which is:

A) The existence of a close relationship between the parties and in that relationship,
one of the parties was in a dominant position.
B) The party who is in the dominant position made use of his position to obtain
advantages over the other party.

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In Letchemy Arumugan v. Annamalay (1982), a contract were made between a blind

women with a housing developer and the court presumed that it is tainted by undue
influence. The court held that the contract was voidable at her option and was rescinded.
However, if the innocent party want to rescind the contract has receive any benefit
under the contract, the court may set aside terms and condition as it seem just as in Chait
Singh v. Budin bin Abdullah (1918), the court held that there was the element of undue
influence when a moneylender lent money to an illiterate man at a very high interest rate
of 36 percent. The interest rate reduced into half, from 36 to 18 percent by the court.
2.5

MISTAKE
Mistake is to have a wrong judgments or understanding (Merriam-Webster, 2015).

There are 3 types of mistakes which is

1. Mistake of essential fact by both parties
2. Mistake as to law
3. Mistake of fact by one party.
A contract can be held voidable where the mistake of fact by one party occurred, as
in the Section 23 of CA 1950 under 2 conditions .First is if a person is mistaken over the
identity of the person he is contracting with as in Cundy v. Lindsay (1878) where the
plaintiff received handkerchiefs from Blankern whose signed his name to make it look
like a respectable firm, Blenkiron & Co. The deceived respondent then sent the goods
order and after realized on what happened, claimed for the returns of the goods or their
value. Courts held that the contract was void due to mistake as identity. Second condition
is the mistake of fact as to the type of instrument.

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3.0

RECOMMENDATIONS FOR AMENDMENT

3.1

Adding a new provision that control the content and terms of a contract.
Contract Act 1950 receive huge amount of issue regarding its uncomprehensive

scope as it is clear that the provision did not discuss on the content of contract
(Sinnadurai & Koh, 1987). The CA 1950 did not contain or mention any specific
provision regarding the content of a contract. There is no specific term inside a contract
that can be categorized into its sole meaning.
This act also silent on whether the parties involved bonded into the plain term of a
contract or can be implicated. So, my first suggestion is that we add a new provision
that control the content limit and meaning under specific terms of a contract so that
everybody understand and view it in the same one view thus giving equal justice towards
all voluntary parties involved in a contract. By doing this, we prevent the element of
mistake and involuntary misrepresentation exists in a contract.
3.2

Review back the CA 1950 as a medium to create trust value.

If we view CA 1950 in a holistic way, we can see that this act contains limited

covers to the consumer. Nowadays, there are many type/format of written contract thanks
to the advancement of technologies, resulting to many practices by commercial parties to
exploit consumer using the CA 1950.
My suggestion in this issue is the responsible law body should review back the
main function of the CA 1950 that should be a platform to expand relation amongst
society that values trust instead as a tool for short term profit. It would be better if
the CA 1950 would lead to collective solution instead of the current individualistic
manner. By doing that , we also can minimize the element of fraud that can exist a
contract.

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SUMMARY
The contract law practice in Malaysia is based on the Contract act 1950. A

contract is only valid in the eye of the law if it contains all element of a valid contract
which is Offer, Acceptance, Consideration, Capacity, Intention and Certainty.
If a contract fail to submit to all 6 element of a valid contract, it cannot be viewed
as a valid contract in the eye of the law. Not all valid contract are eternally valid as it can
became void. This is called voidable contract, where a contract contains any voidable
element that can lead innocent party have the right to rescind his contract.
A contract is voidable when it contained the element of Coercion, Fraud,
Innocent Misrepresentation, Undue Influence and Mistake. Coercion happens when a
party threats another in order to get them into a contract. Fraud can happen when
someone deceive another party into getting in a contract. Innocent misrepresentation is a
situation where a party misrepresented something unintentionally and he believe that fact.
If a party used his dominant position to gain advantage of another party in a contract, the
contract is said to contain element of undue influence thus can be voided at will. Finally,
a valid contract also is voidable if one of the parties engaged were to be mistaken of a
fact.
We still cannot said that the CA 1950 is a holy grail as there still are amendments
that can be done to improve its reliability purposes. The most important is, all party
engage into a contract with the intention to commit to a collective agreement in a peace
unified way, not solely based on short term profit purposes.

(Total Amount of Words: 3270 words excluding references)

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BIBLIOGRAPHY

REFERENCES
Masita, Nurretina, Rohizan, Zahirah, & Liziana (2016). BBUN 2103 Business Law (2nd
ed.)Open University Malaysia.
Kontrak (2010). . In Wikipedia. Retrieved from https://ms.wikipedia.org/wiki/Kontrak
MALAYSIA (2004). Akta Kontrak 1950 (Akta 136) & Akta Kontrak Kerajaan 1949
(Akta 120) (hingga April 2004). Ulu Kelang, Kuala Lumpur: MDC Publishers.
Nani Mohd Salleh. (2014, September 1). 7 Elemen Penting Dalam Kontrak Perjanjian
Retrieved from http://www.majalahniaga.com/7-elemen-penting-dalam-kontrak.html
Merriam-Webster. (2015). ACCEPTANCE. Retrieved July 13, 2016, from Merriam
Webster Online, http://www.merriam-webster.com/dictionary/acceptance
Merriam-Webster. (2015). COERCE. Retrieved July 14, 2016, from Merriam-Webster
Online, http://www.merriam-webster.com/dictionary/coerce
Merriam-Webster. (2015). MISTAKE. Retrieved July 14, 2016, from Merriam-Webster
Online, http://www.merriam-webster.com/dictionary/mistake
Sinnadurai, V., & Koh, T. N. P. (1987). Law of contract in Malaysia and Singapore: Cases
and commentary (2nd ed.). Butterworth, Malaysia: Butterworth & Co.

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