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 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.
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.
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, 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 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:
- 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 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. 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).
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 ChioHuat 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 (Furmstonal., 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 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 isBan 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.
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.
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