When is an agreement legally binding?

Proposal, acceptance and something in return

When you signal to someone that you are willing to do something, or not to do it, so as to get their agreement, you make a proposal. When they signal their agreement, the proposal is accepted and becomes a promise.

Contracts Act s 2(a), (b)

What is done, not done or promised in return, at the request of the person making the promise, is the consideration for that promise. It can come from the person the promise is made to or from any other person.

Contracts Act s 2(d)

An agreement the law will enforce is a contract. An agreement it will not enforce is void. A contract that can be enforced at the option of one side but not the other is voidable.

Contracts Act s 2(g), (h), (i)

Promises made for nothing

An agreement made without consideration is void, except in these cases:

• It is in writing, registered, and made out of natural love and affection between people in a near relation to each other
• It is a promise to compensate someone who has already voluntarily done something for the person promising
• It is a written, signed promise to pay all or part of a debt that can no longer be enforced because of the law on time limits

Contracts Act s 26

An agreement to which consent was freely given is not void just because what was given in return is worth less. The court can take that into account in deciding whether consent was freely given.

Contracts Act s 26, Explanation 2

Who can make a contract

A person can make a contract if they are of the age of majority under the law that applies to them, are of sound mind, and are not disqualified from contracting by any law that applies to them.

Contracts Act s 11

When consent was not free

Consent is not free when it is caused by coercion, undue influence, fraud or misrepresentation, or by mistake as sections 21 to 23 provide. Consent is caused by these when it would not have been given without them.

Contracts Act s 14

If your consent was caused by coercion, fraud or misrepresentation, the contract is voidable at your option.

Contracts Act s 19(1)

If your consent was caused by fraud or misrepresentation, you can instead insist that the contract is performed and that you are put in the position you would have been in if what you were told had been true.

Contracts Act s 19(2)

A contract is not voidable because of a misrepresentation, or a fraudulent silence, if the person misled had the means of discovering the truth with ordinary diligence.

Contracts Act s 19, Exception

If both sides were mistaken about a fact essential to the agreement, the agreement is void.

Contracts Act s 21

A contract is not voidable merely because it was caused by one side being mistaken about a fact.

Contracts Act s 23

Agreements the law strikes down

An agreement is void if its consideration or object is forbidden by law, would defeat a law if permitted, is fraudulent, involves injury to another person or their property, or is regarded by the court as immoral or against public policy.

Contracts Act s 24

An agreement that restrains anyone from carrying on a lawful profession, trade or business is void to that extent. There are three exceptions:

• A person who sells the goodwill of a business can agree with the buyer not to carry on a similar business within specified local limits, for as long as the buyer, or anyone who takes the goodwill from the buyer, carries on a like business there, if the court finds the limits reasonable given the nature of the business
• Partners can agree, on or in anticipation of the partnership's dissolution, that some or all of them will not carry on a similar business within such limits
• Partners can agree that some or all of them will not carry on any other business while the partnership continues

Contracts Act s 28

An agreement that absolutely stops a party from enforcing their rights under a contract through the usual legal proceedings, or that limits the time for doing so, is void to that extent. Two kinds of arbitration agreement are exceptions: an agreement to refer disputes that may arise to arbitration, where only the amount awarded can be recovered, and a written agreement to refer to arbitration a question that has already arisen.

Contracts Act s 29

If the contract is broken

The party who suffers from a breach is entitled to compensation for loss or damage that arose naturally in the usual course of things from the breach, or that both parties knew, when they made the contract, was likely to result from a breach.

Contracts Act s 74(1)

No compensation is given for remote and indirect loss or damage.

Contracts Act s 74(2)

If the contract names a sum to be paid on a breach, or contains another penalty, the party complaining of the breach is entitled to reasonable compensation up to that sum, whether or not actual loss is proved.

Contracts Act s 75

An action founded on a contract cannot be brought after 6 years from the date the cause of action accrued.

Limitation Act s 6(1)(a)

The Limitation Act applies to Peninsular Malaysia only.

Limitation Act s 1(2)

If you are in Sabah or Sarawak, check which law applies there.