Introduction of Malaysian Contract Act 1950

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There are two types of contracts; bilateral and unilateral. A bilateral contract is where a promise is exchanged by one party for a promise by the other party. These promises are enough to render them both enforceable by law. On the other hand, unilateral contract is a legal agreement in which only on party makes promise to pay in exchange for performance.

The constitutions of contracts in Malaysia are governed under the Malaysian Contracts Act 1950. Any business cannot exist without an enforceable contract. Enforceable contract is a contract which is done with the acceptance with both parties. In order to bind the two parties under an official contract that is enforceable by law, it must first satisfy the essential constituents of the Contracts Act that are known as the elements of contracts. The element of a contract consists of offer, acceptance of the offer, intention to create legal relations, considerations, certainty, and capacity. If these elements are not being fulfilled, the agreement will not be legally binding.

The first essential element that is necessary to form a binding contract is an offer, also known as a proposal. Every person that is of the age of majority according to the law is competent to be an offeree or an offeror.

Statement of a willingness to enter into a contract on stated terms by one party is an offer. As stated respectively in Section 2(a) of the Contracts Act 1950, offer is “when one person signifies to another about his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act of abstinence, he is said to make a proposal”. An offer must be definite and clearly stated offer to do something. In the case of Tan Geok Khoon & Gerard Robless v Paya Terubong Estate Sdn.Bhd, the offer was definite and there was unequivocal statement of willingness to be bound.

Section 2(e) denoted that every promise and set of promises that lead to forming the consideration of each other is an agreement. The option whether to accept or refuse is given to the “offeree” (the person to whom the offer is made), while the “offeror” (sometimes known as the “promisor” as the first limb of Section 2(c) of the Contracts Act 1950 has indicated) must declared his willingness to oblige upon certain terms. For example, in the case of Affin Credit (Malaysia) Sdn.Bhd v Yap Yuen Fui, the hire-purchase agreement was declared void and invalid from the beginning, or void ab initio, because there was a lack of offer and acceptance between the two parties.

An offer has to be communicated to the offeree by the offeror, or by someone authorized by the offeror for the offer to be valid. The offer may be made in writing, by words or conduct. As stated in Section 9 of the Contracts Act 1950 respectively, an offer that is made in words, the promise is said to be expressed. If the offer is made other than in words (conduct), the offer is said to be implied. Section 4(1) of the Contracts Act 1950 stated that communication of a proposal is complete when it comes to the knowledge of the person to whom it is made to. In other words, when an offer has been communicated to the offeror by the offeree, only then that said offer is considered valid and effective. According to Section 3 of the Contracts Act 1950, “the communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting, or revoking, by which he intends to communicated the proposal, acceptance, or revocation, or which has the effect of communicating it”.

Furthermore, an offer has to be clearly identified as an offer, option, or merely an invitation to treat. An option is keeping the offer open for a certain period of time by the offeror, often given to the offeree for them to consider whether they wish to accept the item under consideration or not. The standing offer may be revoked at any time before acceptance by the offeree. An option, however, cannot be withdrawn if the offeree provides consideration, which is usually a money deposit.

Next, an invitation to treat is a mere declaration of willingness to enter into negotiations, which may lead to a binding contract. It is a beginning stage of negotiations and is not capable of being accepted as enforceable by law. Display of goods, advertisements, auctions, tenders, catalogues, price lists, and so forth are common types of invitation to treat. The distinction between an offer and an invitation to treat, such as an advertisement, is mainly depending on the intention of the parties in each situation. If the maker of the statement only intends to be part of the negotiation process, then it is merely an invitation to treat. In other words, an invitation to treat is not an offer, but rather is an offer to consider offers.

For example, in the English case of Partridge v Crittenden, the issue was whether the advertisement was an invitation to treat or an offer when Partridge advertised live wild birds for sale in a periodical bird magazine. The House of Lord held that Partridge’s advertisement in the magazine saying ‘… Bramblefinch cocks, Bramblefinch hens, 25/- each’ was an invitation to treat because any indication of an expression of intention to be bound was nowhere to be found and was only made for advertising purposes and mean nothing. Moreover, invitations to treat such as auctions and tenders are not an offer but simply a declaration of intention or an invitation to treat.

Section 5(1) of the Contracts Act 1950 provides that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, not afterwards. Withdrawal of a proposal is only possible in any of the following ways such as communicating the notice of revocation by the proposer to the party to whom the proposal was made, the time prescribed in the proposal for its acceptance elapses or if no time is prescribe for acceptance by the lapse of a reasonable time, the failure of the acceptor to fulfill a condition precedent to acceptance, and the death or mental disorder of the proposer before acceptance.

The second essential element that is necessary to form a binding contract is acceptance. In order to legally bind two parties in a contract, an acceptance is a vital part in the element of a contract. Acceptance is a promise or act on the part of an offeree indicating a willingness to be bound by the terms and conditions contained in an offer. In simple words, acceptance converts an offer into a binding contract. Furthermore, an acceptance must match the offer.

Section 2(b) of the Contracts Act 1950 indicates that when the person to whom the proposal is made