The law of contract in Malaysia is codified under the Contracts Act 1950 wherein it sets out the ways in which one may enter into a contract in Malaysia and how such contract can be legally binding. The Act also sets out the elements that limit the ways in which a contract may be entered and carried out. If the said contract is breached, the said Act sets out how the said contact can be enforced in the court of law and the remedies available to the aggrieved party. Pursuant to the Contract Act, the following words and expressions are used in the following senses, unless a contrary intention appears from the context:
- When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;
- 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;
- The person making the proposal is called the “promisor” and the person accepting the proposal is called the “promise”;
- When, at the desire of the promisor, the promisee or any other person has clone 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 ;
- Every promise and every set of promises, forming the consideration for each other, is an agreement;
- Promises, which form the consideration or part, of the. Considerations for each other are called reciprocal promises;
- An agreement not enforceable by law is said to be void;
- An agreement enforceable by law is a contract;
- 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, is a a voidable contract;
- A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.
Following from the above, the essential ingredients of a contract in Malaysia are inter alia as follows:-
- There exists an offer/proposal and there is a clear and unequivocal acceptance of the said offer/acceptance (henceforth referred to as “the said agreement”);
- Reciprocal and mutual consideration for entering the said agreement;
- The parties to the contract are of a legal age and legally competent to enter the agreement and there exists free consent amongst them;
- The objects of the agreement are legal and it should have not been declared as void under the Contract Act or any other law.