An Analysis of Contract Law and Discharge Principles in Malaysia

The report offers an extensive analysis of contract law in Malaysia, examining how it has evolved from its inception under the Contract Act 1950 to the present day. It underscores crucial elements such as consent, capacity, consideration, and legality that are foundational for forming a valid contract. Furthermore, it delves into methods of discharging contractual obligations through agreement, frustration due to unforeseen circumstances, and breach by defaulting parties. The study also references significant cases like Taylor v Caldwell (1863) and Ban Hong Joo Mines Ltd v Chen & Yap Ltd (1969), which illustrate the practical application of these principles. In conclusion, understanding these fundamental aspects is vital for anyone engaging with Malaysian contract law.

Running head: Contract Act, 1950
Introductory Law of Contract

Contract Act, 1950 1
Contents
Introduction to Contractual Law............................................................................................................1
Features of a Legal Contract..................................................................................................................2
Offer /Proposal..................................................................................................................................2
Acceptance /Approval.......................................................................................................................2
Consideration /Price..........................................................................................................................2
Intention to create legal relations.......................................................................................................2
Capacity to contract...........................................................................................................................3
Certainty............................................................................................................................................3
Free consent.......................................................................................................................................3
Recommendations for amendment to the Contract Act, 1950 regard to features of a legal contract......3
Discharge of a contract..........................................................................................................................5
Introduction.......................................................................................................................................5
Modes of Discharge of the contract...................................................................................................5
 Discharge of contract by performance...................................................................................5
 Discharge of contract by agreement.......................................................................................5
 Discharge of contract by frustration.......................................................................................5
 Discharge by breach...............................................................................................................6
Conclusion.............................................................................................................................................6
References.............................................................................................................................................6

Contract Act, 1950 2
Introduction to Contractual Law
Contract in its general term defines as a legal agreement enforceable by law intentionally to
create legal binding effect over two or more parties on a lawful consideration or price
(Dunham, 2011). In the words of Pollock, a contract term as a “promise or set of promises by
law put into effect”
Features of a Legal Contract
To constitute a legal or valid contract, it is significant to observe seven major components of
contract. These are as following:
Offer /Proposal (a first step of valid contract)
An offer or proposal is made by a one party (promisor) to another party (promisee). It is to be
noted that an offer can be made to any person or to any particular person with a readiness to
do or refrain from doing anything (McKendrick, 2014). A case which is habitually cites-
Carlill v Carbolic Smoke Ball Company (1892) EWCA Civ 1 where particulars of unilateral
contract is specified. In order to remove an ambiguity, the case provides that an offer must be
certain and communicated.
Acceptance /Approval
Acceptance is an assurance by a party that such party is ready to accept the proposal of
promisor. It is to be noted that proposal and acceptance must be communicated between each
other as per section 3 of Act (Poole, 2016). A case, Hyde v Wrench (1840) EWHC Ch J90 is a
leading one where a counter offer and acceptance are two different entities of a contract
where court held that counter offer terminates the original proposal.
Consideration /Price
As per section 2(d) of Act, defines consideration “as an action or restraint or assurance done
by one party for the action or restraint or assurance of another party”. Chappell & Co Ltd v
Nestle Co Ltd (1959) UKHL 1 is a most leading case, where the court established the doctrine
of consideration must be something valuable in the eyes of law and does not require being
adequate. In this case, court held that chocolate packages were also connoting as an essential
requisites of a lawful consideration.

Contract Act, 1950 3
Intention to create legal relations
Creation of legal relations is a most significant step to form any contract. In an absence of
intention, no valid contact can be enforced according to law (Tillotson, 2007). Illustration-
contract between husband and wife does not establish any lawful bindings of contract unless
they provide legal relations inbuilt in it- Balfour v Balfour (1919) 2 KB 571 (where
agreement was of nature in domestic and it did not create any lawful binding of contract)
Capacity to contract
Capacity to contract means a contract provides competency criteria for parties. Such criteria
have been provided in section 10- 12 of an Act. It includes that parties should be sound mind,
major and shall not be subjected to any disqualification by any law. A landmark case on
competency to contract is Mohori Bibee v. Dharmodas Ghose (1903) 30 Cal. 539. The case
laid down a universal rule tht minor agreements are void. Similarly held in a decision of Tan
Hee Juan v. Teh Boon Keat (1934) 1 MLJ 96 where universal rule is established reaffirmed.
Certainty
Certainty, another component of a contract refer as a terms and regulations should be definite.
There must be a clear and understanding of every conditions of a contract (Williston & Lewis,
2007). Thus, certainty must be precise, particular and absolute in order to raise a contract
stated by section 30 of Contract Act, 1950. Karuppan Chetty v Suah Thian (1916) lease
agreement was uncertain in its conditions.
Free consent
Free consent states that parties must enter into contract without any coercion, undue
influence, fraud, misrepresentation and mistake. Their consent for entering into contract must
be at liberty. Free consent has been specified in section 14 of an Act. An illustration of a case,
Kheng Chwee Lian v Wong Tak Thong (1983) 2 MLJ 320 states that where defaulting party to
contract made any promise without any clear intention to perform such promise amounts to
fraud under section 17 (a) and (b) of an Act.
Recommendations for amendment to the Contract Act, 1950 regard to features
of a legal contract
Despite of many attempts of Malaysian law commission, the basic elements of a contract are
not answered properly. Some recommendations are as following which need to change
immediately to enact a proper procedure of contractual law. These are stated below:

Contract Act, 1950 4
 Unfair provision of procedural or substantive terms – the contract creates imbalance
rights and obligations of contracting parties. The procedural unfair provision deals
under section 24 C under Consumer Protection Act 1999 which states an unjust
advantage or conduct of proposer. The substantive unfair provision includes such
provision which is in nature of unjust or oppressive.
 Improper justification of an element like acceptance- the basic element of acceptance
often results into trap of consent by parties to a contract. The rule of acceptance
always creates vagueness in context of receiving proper consent to each other. Such
Vagueness in consent often results into illegitimate creation of any contract (Solan,
2007).
 Uncertainty in applying proper awareness in characteristics of consent- the
contracting party regularly fails due to inappropriate knowledge of consent features.
Generally parties are require to operate any contract with complete knowledge or
awareness of inbuilt characteristics of free consent which parties often fails due want
of proper diligence (Arjunan, 2008).
 Several others recommendation is that contract terms should be free from any non-
disclosure clause inserted in any agreement before making a choice in entering into
contract. Such non-disclosure clause must base on clarity and plain language. Further,
it is require spreading consciousness and complete awareness among contracting
parties while entering into any contract.
 Malaysian government is required to eliminate any prejudicial and misleading
practices in contractual law. Legislator are suggested to make certain norms to
regulate such unfair practices in contractual law and also an awareness policy must be
implemented among people to understand the significance of just or impartial contract
law (Alsagoff, 2010).
 As Malaysian Consumer Protection Amendment Act, 2010 provide a safeguard to
control unfair contract terms, such amendment still require some more provision to be
inserted especially in case of electronic contracts where meeting of minds of
contracting party is not complied according to Contract Act, 1950. Such meeting of
mind regulated by proper offer and acceptance and its communication of such offer
and acceptance into both contracting parties (Anson et. al., 2010).
 Test of reasonableness must be implemented to monitor or check any unfair or
deceptive practices of contractual law. Such reasonableness test includes a fair check
of element of a contract specified under section 11 that is competency to contract.

Contract Act, 1950 5
Contracting party often come into position of incompetency that is parties enter into
contact without any proper competency or basic qualification to enter into contract.
 Lastly, there must be insertion of provision for uniform contractual regulation in
private international law in respect to adopt a competent jurisdiction globally.
Discharge of a contract
Generally, the discharge of contract means “releasing or termination from a relationship of
contractual liability” between parties to a contract (Helewitz, 2010).
Introduction
The general rule of contract is that every contracting party is liable to perform its obligation
of contractual terms and conditions.
Modes of Discharge of the contract
 Discharge of contract by performance: generally, parties to a contract are bound to
obey or comply with all the terms and conditions of a contract and thereby perform all
obligations or liabilities of a contract according to section 38 of an Act. In support of
this mode, a case set as an illustration that is Sim Chio Huat V Wrong Teo Fiu (1983)
1 MLJ 151 where court held that “ time is an essence of a contract” in case of default
of time, a parties to a contract does not discharge by their obligations even there is a
lapse of time.
 Discharge of contract by agreement: a contract can be terminated by agreement when
both contracting parties agree to novation, rescission or alteration of their contractual
liabilities as provided in section 63 and 64 of an Act. Section 63 states the position of
novation agreement (a formation of new contract instead of old contract), rescission
(ending of a contract) and alteration (varying of a contract terms) and section 64 states
that contracting party can discharge their obligation by dispensing a contract by way
of satisfaction or accord of their respective obligations of parties (Furmston et.al.,
2012).
 Discharge of contract by frustration: A frustration results by an unforeseeable factor
to influence impossible or unmanageable task to perform a contractual liability under
section 57 of an Act (Mellors, 2017). A doctrine of frustration deals with four main
factors that are destruction of subject matter of a contract, purpose of consideration
fail due to unforeseeable events, death or incapacity of a contracting party and

Contract Act, 1950 6
modification in law. The frustration is well defined in a most leading case Taylor v
Caldwell (1863) EWHC QB J1 is known for the main purpose of frustration of a
contract due to burn of hired hall for musical instrument. Another illustration of a case
is Seng Djit Hin v Nagurdas Purshotumdas (1923) AC 444 where court held that a
contract was frustrated due to war in a country took place.
 Discharge by breach: a contract is discharged in this case due to default made by one
of the party to a contract (Beale and Bishop, 2007). In such circumstance, an
aggrieved party may elect to an option of discharge of the contract. Such breach
condition is provided in section 40 of an Act. An illustration for discharge of breach is
Ban Hong Joo Mines Ltd v Chen & Yap Ltd (1969) 2 MLJ 83 where a discharge of
breach on a condition of non-payment for mining works.
Conclusion
At the end, the report on introduction of a contractual law concludes that every contract need
a proper compliance of its basic components specifies in a contract act, 1950. No person can
enter into a contract without fulfilling its basic norms. Further every contracting party must
develop a basic understanding of a contractual law’s fundamental nature.
In case of discharge of a contract, a suspension should not consist of mere half understanding
to terminate any contractual relations as it may lead to severe loss to an innocent party to a
contract.

Contract Act, 1950 7
References
Dunham, B.W. (2011). Introduction to Law. New York: Cengage Learning.
Tillotson, J. (2007). Contract Law in Perspective. Cavendish.
Williston, S., & Lewis, C. M. (2007). The law of contracts. Baker, Voorhis &
Company.
McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University
Press.
Solan, L. M. (2007). Contract as Agreement. Notre Dame L. Rev., 83, 353.
Anson, W. R., Beatson, J., Burrows, A. S., & Cartwright, J. (2010). Anson's law of
contract. Oxford University Press.
Furmston, M. P., Cheshire, G. C., & Fifoot, C. H. S. (2012). Cheshire, Fifoot and
Furmston's law of contract. Oxford university press.
Beale, H. G., & Bishop, W. D (2007). Contract. Oxford University Press.
Poole, J. (2016). Textbook on Contract Law. Oxford University Press.
Alsagoff, A.S.A. (2010). Principles of the Law of Contract in Malaysia. LexisNexis.
Arjunan, K. (2008). Contract Law in Malaysia. LexisNexis.
Helewitz, J.A. (2010). Basic Contract Law for Paralegals. Aspen Publishers Online.
Mellors, A.S. (2017). Contract Law Concentrate: Law Revision and Study Guide.
Oxford University Press.