Contracts Act 1950

Contracts Act 1950 · Act 136
Akta Kontrak 1950
Applies to: Federal (whole of Malaysia) · Official text ↗

Key points

A contract is an agreement enforceable by law. It needs free consent, parties who are competent to contract, lawful consideration and a lawful object (s 10).
You must have reached the age of majority, 18 under the Age of Majority Act 1971, to be competent to contract (s 11). Scholarship agreements are a special exception.
Consent obtained by coercion, undue influence, fraud or misrepresentation makes a contract voidable: the victim can choose to cancel it (ss 14 to 19).
Malaysia has a strict rule on restraint of trade: any agreement restraining a lawful profession, trade or business is void to that extent, except for three narrow exceptions (s 28). Reform to a reasonableness test was proposed in 2026 but is not law yet.
Damages compensate for loss that arises naturally from the breach or that both sides knew was likely (s 74). A fixed sum in the contract is capped at reasonable compensation (s 75).
A guarantor (penjamin) is generally liable to the same extent as the borrower (s 81).

What this law covers

The Contracts Act 1950 (Akta Kontrak 1950) sets out the general rules for all contracts in Malaysia: sale of goods, tenancies, loans, services, employment and so on. Specific Acts add extra rules for particular contracts, for example the Sale of Goods Act 1957, the Consumer Protection Act 1999, the Hire-Purchase Act 1967, the Housing Development (Control and Licensing) Act 1966 and the Employment Act 1955. Where those Acts say something different, they generally take priority for their subject.

The Act is based on the Indian Contract Act 1872, so its numbering and illustrations look old-fashioned, but it is still in force. Malaysian courts interpret it alongside English common law principles where the Act is silent. See Civil Law Act 1956.

Forming a contract

A contract is formed through proposal (cadangan) and acceptance (penerimaan) (ss 2 to 9). Acceptance must be absolute and unqualified. A counter-offer is not acceptance. Communication of acceptance is complete for the proposer when it is put in the course of transmission to them (s 4). Proposals and acceptances can generally be revoked before they are complete (s 5).

Under s 10, an agreement is a contract if it is made with the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and is not expressly declared void. Most contracts do not need to be in writing. Writing is required where a specific law says so, for example for some land dealings and for a promise without consideration under s 26.

Consideration (balasan) is something given, done or promised in return. Under s 26, an agreement without consideration is void, except: (a) a written and registered promise made out of natural love and affection between close relatives; (b) a promise to compensate someone for something they voluntarily did in the past; and (c) a written, signed promise to pay a debt that has become time-barred. Electronic contracts are recognised under the Electronic Commerce Act 2006.

Capacity: minors and the age of majority

Under s 11, every person is competent to contract if they are of the age of majority, of sound mind, and not disqualified by law. The Age of Majority Act 1971 sets the age of majority at 18 (s 2). That Act does not affect capacity in marriage, divorce, dower and adoption, or religious matters (s 4).

The general rule is that an agreement with a minor (under 18) is void. Important exceptions include:

Necessaries: a person who supplies goods or services suited to the minor's condition in life can be reimbursed out of the minor's property (s 69).
Scholarships: the Contracts (Amendment) Act 1976 makes scholarship agreements binding on a scholar even if they were under 18 when signing.

A person of unsound mind cannot contract while of unsound mind (s 12).

Consent is not free if caused by coercion (paksaan) (s 15), undue influence (pengaruh tak berpatutan) (s 16), fraud (fraud) (s 17) or misrepresentation (salah nyataan) (s 18). Such a contract is voidable (boleh batal) at the option of the victim (ss 19 and 20). The victim can cancel it, or keep it and claim. If both parties made a mistake about a fact essential to the agreement, it is void (s 21).

The Act declares several kinds of agreement void, including:

agreements with an unlawful consideration or object, such as one that is forbidden by law, fraudulent, or against public policy (s 24);
agreements in restraint of marriage (s 27);
agreements in restraint of trade (s 28): every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind is void to that extent. The only exceptions are (1) a seller of the goodwill of a business agreeing not to carry on a similar business within specified local limits; (2) partners on or in anticipation of dissolution; and (3) partners during the partnership. Malaysian courts do not apply a general "reasonableness" test, so post-employment non-compete clauses are generally unenforceable;
agreements in restraint of legal proceedings, subject to exceptions for arbitration (s 29);
agreements whose meaning is uncertain (s 30) and wagers (s 31).

If an agreement is void, or a voidable contract is cancelled, anyone who received an advantage under it must return it or pay for it (ss 65 and 66).

Performance, breach and remedies

Each party must perform their promises (s 38). If one party refuses to perform or disables themselves from performing, the other may end the contract (s 40). Where time is of the essence and is missed, the contract becomes voidable; otherwise the innocent party claims compensation for the delay (s 56). If performance becomes impossible or unlawful after the contract is made through no fault of either side, the contract becomes void: this is frustration (s 57). Money paid can then be dealt with under s 66 and the Civil Law Act 1956, s 15.

Damages (s 74). The innocent party can claim compensation for loss or damage that arose naturally in the usual course of things from the breach, or which both parties knew, when they made the contract, was likely to result. Remote and indirect loss is not recoverable. The innocent party must take reasonable steps to reduce their loss.

Penalty and liquidated damages clauses (s 75). If the contract names a sum to be paid on breach, or contains a penalty, the innocent party can recover reasonable compensation not exceeding that sum, whether or not actual loss is proved. In Cubic Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd [2019] 6 MLJ 15, the Federal Court held that the innocent party need not prove actual loss. Once breach and the clause are shown, it is for the party in breach to prove the sum is unreasonable. Deposits are also subject to s 75. A sum that is extravagant compared with the greatest loss that could be expected is unreasonable.

Other remedies, such as specific performance and injunctions, are in the Specific Relief Act 1950. Time limits are in the Limitation Act 1953 (generally six years from breach).

Guarantees and indemnities

A contract of guarantee (kontrak jaminan) is a promise to perform the promise, or pay the debt, of a third person if they default. The person giving the guarantee is the surety (penjamin), the borrower is the principal debtor and the lender is the creditor (s 79). A guarantee may be oral or written, but banks always use written ones.

The surety's liability is co-extensive with that of the principal debtor, unless the contract says otherwise (s 81). The bank can usually demand payment from the guarantor without first suing the borrower, if the guarantee says so.
A change to the terms of the loan made without the surety's consent discharges the surety as to later transactions (s 86).
A surety who pays is entitled to the creditor's rights against the principal debtor.

Read every guarantee carefully. Many bank guarantees contain clauses in which the guarantor agrees in advance to variations, waives rights, or agrees to be treated as a principal debtor. A contract of indemnity, a promise to save someone from loss, is dealt with separately (s 77).

Proposed reform (2026)

In June 2026 the Committee for the Review and Reform of Contract Law published its Final Report, recommending targeted amendments to the Contracts Act. Reported proposals include replacing the strict s 28 rule with a reasonableness test for restraints of trade, and clarifying the damages rule in s 74. As of October 2026 these are proposals only; no amending Act was in force. This page describes the law as it currently stands.

Laws cited on this page

Act 21	Age of Majority Act 1971 · Akta Umur Dewasa 1971	Official text
Act 67	Civil Law Act 1956 · Akta Undang-Undang Sivil 1956	Official text
Act 118	Housing Development (Control and Licensing) Act 1966 · Akta Pemajuan Perumahan (Kawalan dan Pelesenan) 1966	Official text
Act 136	Contracts Act 1950 · Akta Kontrak 1950	Official text
Act 137	Specific Relief Act 1950 · Akta Relif Spesifik 1950	Official text
Act 212	Hire-Purchase Act 1967 · Akta Sewa Beli 1967	Official text
Act 254	Limitation Act 1953 · Akta Had Masa 1953	Official text
Act 265	Employment Act 1955 · Akta Kerja 1955	Official text
Act 382	Sale of Goods Act 1957 · Akta Jualan Barang 1957	Official text
Act 599	Consumer Protection Act 1999 · Akta Perlindungan Pengguna 1999	Official text
Act 658	Electronic Commerce Act 2006 · Akta Perdagangan Elektronik 2006	Official text

Listed automatically from the federal Acts named on this page. All laws of Malaysia →

Key sections

Provision	What it says, in plain words
s 2	Definitions: proposal, acceptance, promise, consideration, agreement, contract, void and voidable.
s 10	An agreement is a contract if made with free consent by competent parties, for lawful consideration and object, and not expressly void.
s 11	Competent parties: of the age of majority (18), of sound mind, not disqualified by law.
ss 14 to 19	Free consent; coercion, undue influence, fraud and misrepresentation make a contract voidable.
s 24	Agreements with an unlawful consideration or object are void.
s 26	No consideration means void, except love and affection (written, registered), past voluntary service, and written promise to pay a time-barred debt.
s 28	Restraint of trade void to that extent; only three exceptions (sale of goodwill, partners).
s 40	Where a party refuses to perform, the other may end the contract.
s 56	Effect of failing to perform on time; time of the essence.
s 57	Frustration: a contract becomes void when performance becomes impossible or unlawful.
s 66	Restitution of benefits under a void agreement.
s 69	Necessaries supplied to a person incapable of contracting may be reimbursed from their property.
s 74	Compensation for loss that arises naturally from breach or was in the parties' contemplation.
s 75	Named sum or penalty: reasonable compensation up to that sum; no need to prove actual loss (Cubic Electronics, 2019).
ss 79, 81, 86	Guarantees: definitions; surety's liability co-extensive with the debtor's; variance without consent discharges the surety.

Worked examples

Example 1: Non-compete clause after resigning

Facts. Siti, a sales executive, signed an employment contract saying she would not work for any competitor in Malaysia for two years after leaving. She resigns and joins a rival.

The law. Under s 28, any agreement restraining a person from exercising a lawful profession, trade or business is void to that extent. Her case does not fit any of the three exceptions. A Malaysian court does not ask whether the restriction is reasonable.

Outcome. The non-compete clause is very likely void, so it cannot be enforced against her. She must still respect confidentiality: using her old employer's confidential information or trade secrets can be restrained separately. The 2026 reform proposal would change this if enacted.

Example 2: Developer keeps the deposit

Facts. Mr Tan agrees to buy a commercial unit (not covered by the housing laws) and pays a 10% deposit of RM80,000. He fails to complete. The seller forfeits the whole deposit under the contract.

The law. Under s 75 and Cubic Electronics (2019), a deposit is subject to the reasonable compensation rule. The seller does not need to prove actual loss. If Mr Tan disputes it, he must prove the forfeited sum is unreasonable, for example extravagant compared with the seller's possible loss.

Outcome. Unless Mr Tan can show the forfeiture is unreasonable, the seller can keep the deposit. He should get advice before deciding whether to challenge it.

Example 3: Signing as guarantor for a friend's car loan

Facts. Ravi signs a guarantee for his friend's hire-purchase loan. The friend stops paying and disappears. The bank demands the full balance from Ravi.

The law. As surety, Ravi's liability is co-extensive with the borrower's (s 81), and the guarantee usually lets the bank claim from him directly. If the bank changed the loan terms without his consent, s 86 may discharge him for later transactions, but many guarantees contain consent-in-advance clauses.

Outcome. Ravi is likely liable. He should read the guarantee, ask for a statement of account, negotiate, and remember that once he pays he can claim against the borrower.

Example 4: Contract with a 17-year-old

Facts. A phone shop sells a RM5,000 phone on instalments to a 17-year-old, who later stops paying.

The law. Under s 11 and the Age of Majority Act 1971, the buyer was not competent to contract, so the agreement is generally void. The necessaries exception in s 69 is unlikely to cover an expensive phone.

Outcome. The shop will probably not be able to enforce the instalment agreement against the minor. Sellers should check age before offering credit.

Examples are simplified illustrations with invented names; real cases turn on their own facts.

Questions & answers

Does a contract have to be in writing?

Usually not. An oral agreement can be a binding contract if it meets s 10. But some contracts must be in writing under specific laws, such as many land dealings, and a promise without consideration is only valid in the cases in s 26, most of which need writing. Writing is always better evidence.

Can my employer stop me working for a competitor after I leave?

Generally no. Under s 28, restraints on exercising a lawful profession, trade or business are void, except in the three narrow cases in the section, none of which covers ordinary employment. You must still not misuse confidential information. A 2026 reform proposal would introduce a reasonableness test, but it is not yet law.

The contract says I must pay RM10,000 if I cancel. Is that enforceable?

Under s 75, the other party can recover reasonable compensation up to that sum, without proving actual loss. Following Cubic Electronics (2019), if you say the sum is unreasonable, you must prove it, for example by showing it is extravagant compared with any loss they could suffer.

I was pressured into signing. Can I get out of the contract?

If your consent was caused by coercion, undue influence, fraud or misrepresentation, the contract is voidable at your option (ss 15 to 19). Act promptly: delay or continuing to take benefits under the contract can make it harder to cancel. You may need to return what you received (s 65).

At what age can I sign a contract?

At 18, the age of majority under the Age of Majority Act 1971. Contracts with minors are generally void, but suppliers of necessaries can be reimbursed (s 69), and scholarship agreements bind the scholar even if signed before 18.

What if something unexpected makes the contract impossible?

If performance becomes impossible or unlawful after the contract was made, and it is not one party's fault, the contract becomes void under s 57 (frustration). Money paid can usually be recovered under s 66 and the Civil Law Act 1956, s 15. Check the contract first: many contracts have force majeure clauses that deal with this.

How long do I have to sue for breach of contract?

Generally six years from the date of the breach, under s 6(1)(a) of the Limitation Act 1953 (Peninsular Malaysia). See the Limitation Act 1953 page for Sabah and Sarawak.

All questions & answers → · Ask your own →

This page explains the general position in Malaysia (last reviewed October 2026). It is not legal advice — check the current law and get advice on your own facts.

Sources

Specific Relief Act 1950 Limitation Act 1953 Civil Law Act 1956 Consumer Protection Act 1999 Employment Act 1955 Housing Development (Control and Licensing) Act 1966 Consumer rights Small claims (RM5,000 and below)Glossary of legal terms