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Contract Law
Contracts Act 1950 · Specific Relief Act 1950

Think of the times when you had to click "Agree" to Terms and Conditions — even when making an online account. As the world moves towards a more digitalised structure, we are constantly entering into smaller, not-so-consequential contracts in our daily lives.

This resource focuses on Contracts in Malaysia and the governing statutes — the Contracts Act 1950 and the Specific Relief Act 1950 — for the CLP exams. References to the Contracts Act will be abbreviated as CA throughout.

📋 The Emily Scenario ▼
📖 Practical Scenario

You are a newly qualified Legal Associate, sipping your first cup of coffee on a Tuesday morning. Your supervisor, Sima, calls you to attend a client consultation. Sima informs you that you will be handling the primary consultation while she observes, chiming in with further information if needed.


The client is Emily, a young woman sitting nervously in her seat.


Emily believes she has been scammed. An avid Pokémon collector, on 22.03.2026, she paid RM10,000 in advance via WhatsApp to a Kuala Lumpur-based seller, Jonah, for 50 boxes of the new "Mega Evolution" Japanese sets. Although the sets were released last week, Jonah has failed to deliver them — claiming instead that he was also scammed after his own source went MIA. Emily has since attempted to rectify the situation through multiple follow-ups, but Jonah continues to stall, insisting he is "doing his best" and will provide an update soon.


Emily has come to your firm to seek initial advice on how she should proceed, as she wants her monies of RM10,000 back.


How would you advise Emily?

Practical Considerations

  1. Limitation Period — Is the claim within time?
  2. Courts of Judicature Act 1964 — Which court has jurisdiction?
  3. Is there a Valid Contract? If yes, has the contract been compromised?
  4. What are the Remedies available?
The full advised answer to Emily is at the end — work through the notes first, then reveal it in Section 09.
📝 What Makes a Valid Contract? ▼

A proper, valid contract requires a series of elements to be satisfied:

📤 Proposal (Offer)
🤝 Promise (Acceptance)
💱 Consideration
⚖️ Legality
🧠 Capacity
✅ Free Consent
🎯 Intention to Create Legal Relations

Once all conditions above have been met, a contract or agreement will be formed.

Quick tip — Promisor vs Promisee:
PromiSOR gives. PromiSEE receives. In short: "-or gives, -ee receives."

However, circumstances may arise which render a contract invalid — whereby the Promisor is unable to perform or abstains from performing, and the Promisee suffers a loss as a result. This raises the question: what is preventing the Promisor from performing? Are there Vitiating Factors?

A contract can be Void or Voidable. Refer to s.2 CA for further details.

Oral Agreements

Oral agreements can be legally binding, provided they contain the essential elements of a valid contract. However, they are substantially harder to prove than written contracts. See s.10 CA.
▶ Ahmad Zaini bin Jappar v TL Offshore Sdn Bhd [2001]
Held that an oral agreement was valid as it fulfilled the essential elements of a contract, and the Plaintiff's services constituted valid consideration under s.2(d) CA.
▶ Bukit Kiara Resort v Dato Bandar Kuala Lumpur [2012]
The court considered the conduct of the parties, documentary evidence, and surrounding circumstances in determining the existence of an oral agreement.
🚫 Void Contracts ▼

A void contract is an agreement that is not enforceable by law. Refer to s.2(g) and s.2(j) CA.

Grounds for Voidness

  • s.21 CA — Mistake as to facts. Note: this differs from simply having different values or opinions about a fact.
  • s.24 CA — Contracts expressly forbidden by law.

Remedy for Void Contracts

s.66 CA When a void agreement has been discovered, the party who received a benefit under it must Restore the Benefit (ROB) to the other party — returning the parties to their original position as if the contract never happened.
⚠️ Voidable Contracts ▼

Voidable contracts arise when Vitiating Factors are present. See s.14 CA (Free Consent). The relevant vitiating factors are:

👊 Coercion s.15
🎭 Undue Influence s.16
🃏 Fraud s.17
🌀 Misrepresentation s.18
Note: Be mindful of new developments in Economic Duress as it relates to coercion under s.15.

Capacity to Contract

For a contract to be valid, a competent person under s.11 CA must:

  • Be of legal age — as per Age of Majority Act 1971, s.2
  • Be of sound mind — s.12 CA
  • Not be disqualified from contracting by law (e.g., declared bankrupt)

In essence, the person must be mentally sound and a consenting adult who is not legally disqualified.

s.19 CA — contracts invalidated by coercion, fraud, or misrepresentation are voidable.
s.20 CA — contracts where undue influence is involved are voidable.
✂️ Rescission — Breach & Ab Initio ▼
Pick Your Brain Apply your knowledge

In the case of Lim Swee Choo v Ong Koh Hou [2025], the Federal Court overruled the Total Failure of Consideration in Berjaya Times Square v M-Concept [2010] and further classified the following:

⚡ Rescission on Breach

Contract is breached due to non-performance of a Condition. Determine what terms are Conditions or Warranties. What is the landmark case?

🔁 Rescission Ab Initio

"From the beginning" — the contract is treated as never having existed due to vitiating factors. Refer to s.15–s.18, s.21, s.22, s.23 CA.

Key Statute References

s.40 CA If a party refuses to perform wholly, the other party may rescind the contract.
s.56(1) CA When time is of the essence, the Promisee is entitled to rescind the contract or affirm it. Rescission must be communicated and performed within a reasonable time.
s.56(2) CA When time is not of the essence, the contract is not automatically voidable, but the Promisee may claim compensation.
s.65 CA Where the contract is voidable, the rescinding party must Return the Benefit (Restitution).
s.66 CA Same principle as s.65 but for void contracts — to restore parties to their original position.
s.74(1)&(2) CA Party entitled to receive compensation for loss or damage naturally arising (reliance loss). The loss must not be too remote.
s.76 CA A party rightfully rescinding a contract is entitled to compensation.

Key Cases

▶ Lim Swee Choo v Ong Koh Hou [2025] (Federal Court)
A landmark 2025 Federal Court decision that overruled the Total Failure of Consideration principle in Berjaya Times Square v M-Concept [2010]. Classified two distinct forms of rescission: Rescission on Breach (non-performance of a Condition) and Rescission Ab Initio (vitiating factors). Partial performance of a contract leads to a remedy of seeking damages for breach of contract only.
▶ Ching Yik Development Sdn Bhd v Setapak Heights Development Sdn Bhd [1993]
Landmark case on the distinction between Conditions and Warranties in determining the right to rescind. Key authority for classifying contractual terms.
▶ Associated Metal Smelters v Tham Cheow Toh [1972]
Breach of warranty does not entitle rescission but results in an entitlement to compensation.
Practical thinking: Is the breach a Condition or Warranty? Is the rescission on Breach or Ab Initio? What vitiating factor applies? Once established — what remedies should the parties seek: returning to original position, or enforcing the agreement?
🔄 Restitution & Unjust Enrichment ▼
Pick Your Brain
Important distinction: Restitution and Unjust Enrichment are not the same concept.

Restitution — to restore the parties to their original position as if the contract never took place.

Key Statute References

s.71 CA How does this section relate to the concept of Unjust Enrichment? Consider this carefully.
s.73 CA Relating to coercion and mistake — restoration of benefit.
Whereas s.19 CA and s.20 CA dictate that contracts involving misrepresentation, fraud, coercion, or undue influence are voidable — s.20 CA specifically refers to undue influence.

Lim Swee Choo [2025] — Key Clarifications

The Federal Court corrected contract law and the laws of unjust enrichment:

  • Stricter threshold for Restitution — Total Failure of Consideration has been rejected. Partial performance is now considered by courts.
  • Prevents the abuse seen in Berjaya Times Square v M-Concept [2010], which conflated contractual termination with restitution requirements.
  • Affirmed Stocznia Gdanska SA v Latvian Shipping Co [2002] — whether the promisor has performed any part of the contractual duties in respect of which payment is due.

The FC further clarified:

  1. Dream Property v Atlas Housing [2015] — recognised unjust enrichment, "absence of basis"
  2. Lim Swee Choo v Ong Koh Hou [2025] — overruled Berjaya Times Square v M-Concept [2010] on total failure of consideration

Key Cases

▶ Dream Property Sdn Bhd v Atlas Housing [2015] (Federal Court)
The Federal Court recognised Unjust Enrichment as a separate and independent cause of action and clarified the 4-stage test: (1) Was the party enriched? (2) Was the enrichment gained at the claimant's expense? (3) Was the retention of the benefit unjust? (4) Was there no defence available to extinguish or reduce the defendant's restitutionary liability? The FC adopted the civilian concept of "Absence of Basis" rather than "Unjust Factors."
▶ Detik Ria v Prudential Corporation Holdings Limited & Anor [2025]
Noted that parties must not know of the illegality at first — courts need to consider the seriousness and nature of the illegality under s.22. Referred to s.66 for a void contract and restitution — applies to restore the parties to their original position.
▶ Lipkin Gorman v Karpnale [1991] (for reading purposes)
A solicitor stole money from his law firm and gambled a significant portion away at a club named Playbot Ltd, under Karpnale's name. The House of Lords held that the club was unjustly enriched but could also claim restitution of the money.
As of now, there is a dual regime in Malaysia for restitution — the CA and the English common law concept of unjust enrichment coexist. The Federal Court did not clarify whether s.71 was rejected, nor did it explain why s.71 cannot be interpreted to reflect the principles of unjust enrichment. This area remains open for further development.
💰 Remedies ▼

Contractual disputes are civil matters tried in court, whether by writ or originating summons. Contractual remedies are concerned with terminating the contract so that parties no longer have ongoing contractual obligations.

Key Statute References

s.19 CAContracts invalidated by coercion, fraud, or misrepresentation are voidable.
s.20 CARescind a contract affected by undue influence.
s.40 CARefusal to perform wholly — the other party may rescind.
s.56(1) & (2) CATime of the essence vs. time not of the essence.
s.65 CAReturn of Benefit (ROB) for Voidable contracts — Restitution.
s.66 CAReturn of Benefit (ROB) for Void contracts.
s.73 CAROB for Coercion and Mistake.
s.74(1) & (2) CAReliance loss — the loss must not be too remote.
s.76 CAParty rightfully rescinding a contract is entitled to compensation.

Principles for Claiming Damages

To claim damages or compensation (applicable also in Tort law):

  1. Causation
  2. Remoteness
  3. Mitigation
▶ Hadley v Baxendale [1854]
Established the remoteness test: loss must either arise naturally from the breach, or be within the reasonable contemplation of both parties at the time of contracting. Reaffirmed in Teoh Kee Keong v Tambun Mining [1968].
▶ British Westinghouse Electric v Underground Electric Railways Co of London [1912]
Established the principle of mitigation — the innocent party must take reasonable steps to mitigate their loss. Reaffirmed in Kabatasan Timber Extraction Co v Chong Foh Sing [1969].

Types of Damages

💵 Pecuniary Losses

Either Expectation Loss or Reliance Loss. Note: these two cannot be claimed simultaneously.

🎭 Non-Pecuniary Losses

Courts generally do not award these. See Addis v Gramophones [1909]. Exceptions apply.

Exceptions — Non-Pecuniary Losses

▶ Jarvis v Swan Tours [1972] — Pleasure
Non-pecuniary damages awarded for loss of pleasure or enjoyment where a holiday failed to meet its contractual promise.
▶ James Yu v Raffles Hotel [1988] — Loss of Reputation
Non-pecuniary damages awarded for loss of reputation arising from the breach.
When monetary compensation is insufficient, consider Specific Performance or Injunctions under the Specific Relief Act 1950.
⚖️ Specific Relief Act 1950 ▼

Specific Relief is governed by the Specific Relief Act 1950 (SRA 1950). It provides discretionary remedies when monetary compensation is not sufficient, following English equitable principles. (There is a real material risk that a defendant may relocate assets while legal proceedings are ongoing.)

Specific Relief orders are only granted at the court's discretion.

Situations for Specific Performance — s.11(1) SRA

s.11(a) SRA The act agreed to be done is in the performance, wholly or partly, of a trust.
s.11(b) SRA There is no standard to ascertain the actual damage caused by non-performance.
s.11(c) SRA Monetary compensation is inadequate.
▶ Gan Realty Sdn Bhd & Ors v Nicholas & Ors [1969]
Relevant to s.11(b) SRA — no standard to ascertain damage. See also H.A. Securities Sdn Bhd v Ng Kong Yeam [1993].
▶ Lim Sin Oo & Ors v Cheah Tjeng Siong [1989]
s.11(c) SRA — monetary compensation was inadequate. The Plaintiff had agreed to sell landed property and subsequently terminated three existing tenancies, paid compensation to the tenants, and cancelled a business carried out at the premises. The court held that mere compensation alone was not sufficient as a remedy.

Further SRA Provisions

s.13 SRA Partial performance of a contractual agreement.
s.14 SRA Where part of the agreement left unperformed is too large, the court may, at the suit of the other party, direct the party in default to perform specifically so much of his part as he can perform — provided the plaintiff relinquishes all claim to further performance and all right to compensation for the deficiency or loss caused by the defendant's default.
s.15 SRA Read in conjunction with City Investment Sdn Bhd v Kooperasi Serbaguna Cuepacs Tanggungan Bhd [1987].
s.20(1)(c) SRA The uncertainty must be so serious that the court is unable to determine what the defendant must specifically do.
s.20(1)(g) SRA Contracts requiring continuous duties for more than 3 years will not be enforced.
▶ Wong Siew Chong Sdn Bhd v Anvest Corp Sdn Bhd No. 2
Relevant to s.13 SRA — partial performance of a contract agreement.
▶ Marble Terrazzo Industries Sdn Bhd v Anggaran Enterprise Sdn Bhd [1991]
Relevant to s.20(1)(g) SRA — contracts requiring continuous duties for more than 3 years will not be specifically enforced.

Interim Remedies & Court Orders

Mareva Injunction A court order preventing a defendant from moving their assets out of jurisdiction or dissipating them within jurisdiction. See Bank Bumiputera Malaysia Bhd & Ors v Lorrain Osman & Ors [1985].
Attachment Order Under the Debtors Act 1957, a court can order the seizure or attachment of property until trial and satisfaction of any judgement against the defendant.
Anton Piller Order A court order allowing a plaintiff to enter the defendant's premises without notice to search and seize evidence crucial to the case. See Anton Piller KG v Manufacturing Process Ltd & Ors [1976] for the strict conditions required.
Interlocutory Prohibitory Injunction Court orders granted during legal proceedings before a final judgement, prohibiting a party from taking certain actions.
🧠 Self-Check — Let's Take a Breather ▼

Great job making it this far! You have now covered the fundamental basics of Contract Law in Malaysia and the governing statute, the Contracts Act 1950. Click each question when you can answer it confidently.

1
What are the elements of a valid, binding contract?
2
How can revocation of a proposal or acceptance be made? What is the relevant statute?
3
Who are the "Promisor" and "Promisee"?
4
Please explain what are "Void" and "Voidable" contracts.
5
What makes a contract Void?
6
Similarly, what makes a contract Voidable?
7
What are the relevant statutes for remedying a Void contract?
8
What are the relevant statutes for remedying a Voidable contract?
9
Distinguish between Rescission on Breach and Rescission Ab Initio.
10
Off the top of your head, can you name some of the landmark cases covered?
0 / 10 completed
⭐ Advising Emily — Sample Answer ▼
📖 Recall the Scenario

Emily paid RM10,000 on 22.03.2026 to Jonah for 50 boxes of Pokémon "Mega Evolution" sets via WhatsApp. Jonah has failed to deliver and continues to stall. Emily wants her RM10,000 back.


Note: As a practising lawyer, you must confirm the basic facts — how much was paid, when delivery was due, and obtain WhatsApp screenshots/exported chat logs. This is not exam-relevant but standard practice.


For CLP exam purposes: do not focus on contract formation — instead, focus on the vitiating factors and available remedies.

★ Sample Answer

Based on Emily's recount of events, all elements forming a valid agreement have been established. Emily is the Plaintiff and Jonah is the Defendant.

Emily paid RM10,000 in advance on 22.03.2026 for the Pokémon box sets. Jonah has not performed his part of the contract — he has not delivered the sets and continues to dismiss Emily's follow-up attempts.

What are the vitiating factors that compromised the contract?

Jonah has not performed his part of the contract after receiving Emily's advance payment. Emily will be able to sue for breach of contract under s.40 CA, as Jonah has failed to perform his obligations. The condition at the root of this contract is the physical delivery of the Pokémon box sets.
Is this agreement Void or Voidable?

Void — If Jonah never intended to supply Emily with the cards from the beginning, this constitutes Fraud under s.17 CA, which requires intent to deceive. Should also consider s.19 CA making the contract voidable. Emily may rescind the contract under s.40 CA, and under s.76 CA, a party rightfully rescinding is entitled to claim damages. Under s.66 CA, Jonah — having gained the advantage — must return the benefit of RM10,000 to Emily.

Voidable — If misrepresentation under s.18 CA is involved, Emily can still apply for restitution of the RM10,000 under s.65 CA.
However, it is better to sue for breach of contract:

Under s.40 CA — Jonah wholly refused to perform / did not perform.
Therefore, Emily can claim under s.74(1) CA for reliance loss, and s.74(2) CA where damages must not be too remote.
Relevant case law: Ching Yik Development Sdn Bhd v Setapak Heights Development Sdn Bhd [1993].
What remedies can Emily claim?

s.65 CA / s.66 CA (depending on void or voidable) — restitution of RM10,000, and rescission of the contract under s.40 CA.

It is unlikely that Emily can apply for specific performance as long as Jonah reverts the advance payment of RM10,000.