Contract are an integral part of our daily lives. They are constantly being entered into by individual with other individual or businesses , as well as businesses with other businesses, to sell or transfers property, to provide and receive services and other rights and obligations created. To sale and purchase of goods is based on sale contract, the hiring of employees is based on employment contracts; the lease of property or house is based on a rental or lease contract; and so the list goes on.
Business cannot exist without enforceable contracts. Although the terms ‘contract’ and ‘ agreement’ are often used to mean the same thing, actually the term ‘contract’ can be distinguished from the term ‘agreement’. Every contract involes an element of agreement but not every agreement will result in a contract recognizable by law. This is because sometimes the parties to an agreement may not intend to create legal relations; for example, agreements on social arrangement.
Some agreement also do not result in contract because one or more of the principle governing contractual relations may not have been satisfied; for example, when the purpose of the agreement is illegal, or there is a lack of consideration. The word ‘contract’ may be defined as ‘an agreement’ enforceable by law’. In other words, a contract is an agreement which is legally binding between the parties. The legislation in Malaysia governing contract is the contract act 1950 (act 136) (revised 1974).
However, when there are no provisions in the contract act 1950 to deal with a particular subject concerning the law of contract or if a particular subject is covered by the act but the provision relating to that subject are not exhaustive, English law applies by virtue of the civil law act 1956.
The basic elements of a contract are the following:
- Acceptance of the offer
- Intention to create legal relations
- Offer Proposal is necessary for the formation of an agreement.
Section 2(a) of the contract act 1950 provides that ‘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 the act or abstinence, he is said to make a proposal. The first limb of section 2(c) of the contract act 1950 calls the person making the proposal the ‘promisor’ . Under the contract act 1950 and English law, a proposal or offer is something which is capable of being converted into an agreement by its acceptance. A proposal must be definite promise to be bound provided certain specified terms are accepted.
The promisor (sometimes also known as the ‘offeror’) must have declared his readiness to undertake an obligation upon certains terms, leaving the option to its acceptance or refusal to the offeree, the person to whom the offer is made. In the federal court case of affin credit (Malaysia )sdnbhd v yap yuenfui where there was a lack of offer and acceptance, the purported hire-purchace agreement was declared void ab initio , or void from the beginning. The communication of a proposal as complete when it comes to the knowledges of the person to whom it is made section 4(1) of the contract act 1950.
This means that an offer or proposal is effective once it is communicated to the offeree by the offeror. The communication of an offer or a proposal is deemed to have been made by any act or omission of the party proposing by which he intends to communicate the proposal or which has the effect of coomunicating it—section 3 of the contract act 1950. A proposal made in words (oral or written), it is said to be implied (see section 9 of the contract act 1950).