Legal Definition of a Contract
As far as the term “Contract” is concerned, it is defined in Malaysian Companies Act 2016. Here, a Contract is an agreement that is binding between 2 parties. Hence, a contract turns out to be a legal obligation for both these parties. A contract can either be in written or oral form in accordance with the settlement of parties to the contract.
In Malaysia, contracts are governed under the rules and regulations provided in Contracts Act 1950. Furthermore, the Companies Act 2016 shall also be used as a reference when companies face a dispute.
Company Contract (Post-Incorporation)-Under Section 64 Companies Act 2016
Let’s discuss how a company can make a contract.
- A company can enter into a contract:
- By writing the contents of a contract and affixing the company’s common seal
- A contract can be made by a person on behalf of the company (The person must be exercising such right after being authorized by a company by either express or implied authority) or
- A contract can be orally made by a person on behalf of the company (The person must be exercising such right after being authorized by a company by either express or implied authority)
Person- The term “Person” refers to the company’s officers, i.e CEO, Managing Director, etc.
Express Authority- This type of authority is generally based on the terms of appointment. (S-140 Contracts Act 1950)
Implied Authority- It is usually based on the position that a person holds in the company as well as from the recent conduct of the parties to the contract. (S-140 & 141 Contracts Act 1950)
- All the legal formalities of a contract require to be fulfilled by a company or a person acting on the behalf of such a company.
Under Section-3 of Evidence Act 1950, the term “Document” includes a wide range of written as well as electronic materials. A company can execute a document:
- By Affixing its common seal-Section-66(1)(a) or
- Through the signatures of at least two of the authorized officers ( one of these should be the director of the company)-Section-66(2)(a) or
- By sole director’s signature (Witnessed is required for attestation)-Section 66(2)(a).
Company Contract (Pre-Incorporation)-Under Section 65 Companies Act 2016
- A transaction or contract that appears to be made by the company or on its behalf where the company isn’t formed yet, the person acting as the agent of the company is liable on the contract.
- The company can ratify such a transaction or contract once it is incorporated. Hence, the company is now bound by the act as if it was existed at the time of making such a contract.
Companies Act 2016-S65(2)
Under the section mentioned above, a company can choose to take the following actions.
- Ratify the transaction/contract or refuse to ratify the contract/transaction after its incorporation
- A pre-incorporation contract isn’t binding on the company, as the person acting on behalf of a company is liable to such contract or transaction.