The Importance of the Law of Contract

Essay, 2018

15 Pages, Grade: A



1.0 Introduction

2.0 Law of contract
2.1 Offer
2.2 Acceptance of the offer
2.3 Intention to create legal relationship
2.4 Consideration
2.5 Certainty
2.6 Capacity
2.7 Free Consent
2.7.1 Importance of free consent
2.7.2 Coercion
2.7.3 under influence
2.7.4 Fraud
2.7.5 Misrepresentation
2.7.6 Mistake

3.0 Conclusion

4.0 References

1.0 Introduction

Since the beginning of human civilization, there was certain rules and regulations that people used to follow. This rules and regulations are called Law which is created or established by the authorized organization and governed or enforced by controlling authority. Law is one of the most essential and interesting frames of life itself (Lee Detta , 2009). During the Barter Exchange Age when people started exchanging products among others in order to fulfill the necessity, it brought the idea to start doing business. Nowadays rapid economic growth of the world accelerates by the business transaction and commercial performances. In order to operate a business, Contract between two or more parties is very crucial. Although contract can take place in here and there; in a business concern, it is important for both parties to enter into a contract for further operation and to protect each other’s rights and interests. There are some specific Law needed to be followed by both parties which is called Law of Contract.

2.0 Law of contract

The word “contract” means ‘an enforceable agreement’. Contract plays an integral role in our regular life. Generally, the contract may consistently being done between two different individuals or between two different organizations by exchanging promises. “Contract is an agreement between two parties which, on the first impression, appears to fulfill all the mandatory of a valid contract (Dobson, 1997). The term contract and agreement might be applied to refer a similar theme; as under general rule the term ‘contract’ can be different from the term ‘agreement’. All the contract will be agreement however not all agreement are decreased by the law. At some point, the gathering of agreement may not make legitimate relations because of the absence of thought of illicit motivation behind the understanding.

The contract Act 1950 govern by the law of contract, in Malaysia. As section 2(b) of the contract act 1950 defined “The word contract can be destined as an agreement which legally binds the parties- known as enforceable agreement” (Laws of Malaysia , 2006).

One of the most important things about the contract which people often misunderstand that in order to be a legal binding contract it should be in written complexion. Even an oral promise can be a legal or valid contract if fulfilled the following requisite.

The fundamentals of a contract are:

- Offer
- Acceptance of the offer
- Intention to create legal relations
- Consideration
- Certainty
- Capacity
- Free Consent

2.1 Offer

Almost all the contracts are done through the process of the offer. Offer is the first requirement of a valid contract. Offer is essential for the foundation of an agreement (Lee Detta , 2009). Offer can be two types and they are (1) Bilateral offer; which is an offer to a specific number of people. (2) Unilateral offer; which can be an offer to the entire world.

2.2 Acceptance of the offer

When an offer is accepted by both parties, an agreement comes into existence and they are legally involved with the contract (Maclutyre, 2008) In order to be complete agreement, acceptance must be absolute and unqualified.

2.3 Intention to create legal relationship

As the contract act 1950 state that in a contract, both parties must have the intention to enter into the contract. It not necessary what they had in their mind but whether they would draw a complete agreement by their words and action that they want to bound legally.

2.4 Consideration

As Paul Dobson (1997) said, ‘Consideration refers some advantage received by a parties who promised some detriment suffered by a parties who received the promise (p, 61)’.

2.5 Certainty

Certainty defines the contract cannot be vague but must be free from doubts. The uncertain agreement is considered the void contract.

2.6 Capacity

Capacity illustrates both of the parties’ ability to totally understand the responsibilities of the contract.

The rest of this report will explain in detail about the free consent and the elements of an avoidable contract.

2.7 Free Consent

Free consent is another fundamental element of a legal contract. It refers there must be the mental satisfaction of both parties when they intend to enter into a contract. According to, Section 10 of Contract Act (CA) 1950 states ‘inter alia’ which is “Agreements are contracts when they are made by the free consent of both parties (Lee Detta , 2009).” Section 13 illustrates, “Two or more individuals are said to consent if they reach a decision upon the same object in same sense”.

Overall, it shows that in order to be a valid contract both parties must enter into the contract freely. Later on if one of them claim that the contract was not obtained freely, the court may decide as void or voidable contract.

Void Contract : Void refer the contract is entirely invalid or illegal from the first day.

Voidable Contract : Voidable contract is legal until it is avoided by the parties after fetching to the court.

2.7.1 Importance of free consent

Free consent is one of the most essential elements of a legal contract. The term free consent mentions to meeting of free and fresh minds of two parties or more of an agreement when two parties take and understand, purpose, subject matter and terms and conditions of the agreement in the same sense it is free consent. Both of them must take things in the same way.

If the purpose is considered to be illegal or against section 14 of Contract Act (CA) 1950, the contract is not enforceable it will be recognized as a voidable contract. Section 14 of CA 1950 states that consent is free when it is not caused by any of these elements:

illustration not visible in this excerpt

(East Asiatic Co. Ltd v. Othman) [1966] 2 MLJ 38 , the held was Wang can certify for the loss of wage and pay in light of Ngan was not prepared to pick her as the agent executive or head of the organization. "The pay compensation lost is imperative and it is a rapid damage to Wang". Along these place, it is claimable. For the long last, Wang can emphasize up to RM1 million as in the contract when Ngan couldn't bump into the terms of the assertion (Lee Detta , 2009).

2.7.2 Coercion

Section 15 of the Contract Act 1950 demonstrated that ‘Coercion is the committing or threatening to commit any performance prohibited by the Penal Code, or illicit detaining or threatening to detain, any property, to the prejudice of the anybody whatever, with the purpose of causing any person to enter into a contract. This defines including the economic pressure.

The case of Allied Granite Marble Industries Sdn Bhd vs. Chin Foong Holdings Sdn Bhd and Ors. (2000) [5 CLJ 71], when deciding it was held that there was no duress at all on the vent of the case. As one of the judges mention that in the law the party is held a contract if he is not a free agent (Lee Detta , 2009).

In another case, Chikkam Ammiraju vs. Chikkam Seshama (1918) [ 32 MLJ 494] the situation arise before the Madras High Court was whether coercion could be involved by a threat to commit suicide. According to this case, Hindu by a threat of suicide persuaded his son and wife to conduct a released deed in favor of his brother in respect of particular properties demanded as their own by the son and the wife. In that case, the question was for the court whether a threat to commit suicide could be deliberated to be an act prohibited by the Indian Penal Code. It was held by Wallis, C.J. Seshagiri Ayyar, J. that a threat to commit suicide considered to coercion as the meaning of Section 15 of the Indian Contract Act and therefore the discharge action was avoidable (Chikkam Ammiraju Vs. Chikkam Seshamma, 1917).

In another case of Perlis Plantations Bhd vs. Mohammad Abdullah Ang (1988) [1CLJ 670 ] gave a restricted meaning. The court there held that the English common law of ‘economic coercion’ was not acceptable in the case of the express provision in the contract Act 1950, as the judge stated that in Malaysian contract law the section definition of duress is the only one to be applicable (Lee Detta , 2009).

Besides all the cases in, Kesarmal s/o Letcchman Das vs Valiappa Chettiar (1954) [20 MLJ 119] it was declared that a transmission executed under the order of the sultan, issued in the portentous presence of two Japanese officers during the Japanese colony in Malaya, was illegal. The court decided that due to the absence of free consent the agreement was voidable at the will of the party whose consent was so caused (Lee Detta , 2009).

To sum up, it is conspicuous that coercion is basically stood for the physical or mentally violent or threaten to damage the person according to Section 15 of The Contract Act 1950. It is done to get consent but not the nature of the goods itself. In Malaysia, the definition is given by (VC George J. Judge). As it is happening is the case of (Perlis Plantations Bhd v Mohammad Abdullah) [1988], was held that the English common law of economic coercion was not applicable.


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The Importance of the Law of Contract
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Business Law, Consent, Coercion, Undue Influence, Fraud, Misrepresentation, Mistake, Basic Law, Law, Section 14, The Contracts Act 1950, Malaysian Contract Act 1950, Brick and Mortar Retail, Business Models, Business Networking, Business Owner, Business Plans, Business Relationships, Business Strategy, Business-To-Business, Companies, Digital Agencies, Ecommerce, Entrepreneurs, Entrepreneurship, Human Resources, Import/Export, Industrial Design, Leaders, Leadership, Local Businesses, Local Marketing, Management, Management Consulting, Organizational Behavior, Organizational Culture, Organization Design, Project Management, Retail, Small and Medium Enterprise (SME), Small Business, Small Business Advice, Small Business Marketing, Strategic Management, Social Entrepreneurship, Strategy, Strategic, Customer Relationship Management, Consumer Products, Product Management, Product Managers, Product Launches, Product Market Fit, PMF, Product Marketing, Profitability, Prototyping, Revenue, Sales Commissions, Strategies, Tactics, User Acquisition, Pricing, Product Design
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Md Moniruzzaman Kiron (Author), 2018, The Importance of the Law of Contract, Munich, GRIN Verlag,


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