A contract is a legally binding agreement which governs the rights and duties of each party in the contractual relationship. To form a valid contract, there are four elements to be fulfilled under the Contracts Act 1950:-
where a party proposes to another party to do or not to do something
The party(s) whom the proposal is directed to must accept all the terms without any modification.
Something of value must be given in return for the promise.
● Intention to Create Legal Relations:
Intention for the promise to have legal consequences.
In addition to the above, the parties to the contract must be of sound mind and have attained the age of majority. Furthermore, the subject matter of the contract must be valid and legally enforceable.
As there is no requirement for contracts to be in writing, it is common for parties to rely upon trust to enter into some kind of arrangement or understanding in the absence of any written agreement. These oral promises are particularly prevalent amongst friends or family members, where it is thought that having a written contract in preparation for a dispute per se would lead to the breakdown of their relationship.
Whilst these promises are morally binding, some of them could also potentially be legally binding by means of an oral agreement. A few common scenarios where the terms of the oral agreements are often in dispute include where an employee accepted a job offer without signing any written contract, landlord and tenant decided on the terms of the tenancy verbally without a written agreement or where a contractor agreed to perform a work assignment based on orally agreed terms.
In the event of a breach, the trial judge will consider the oral testimonies together with any contemporaneous documents produced by the parties such as receipts and emails in determining the terms of any oral agreement alleged to have existed between the parties.
For instance, in the case of Sang Lee Co Sdn Bhd v Subramaniam a/l Mayawan & Ors, the facts of the case were that the plaintiffs who were partners of a partnership firm were approached by the defendant company to carry out rubber tapping and latex collection on the rubber estate belonging to the defendant company. In return, the first plaintiff agreed and paid a sum of RM10,000.00 per month to the defendant. Subsequently, the defendant decided to fell the rubber trees and plant in their place oil palm trees. The defendant has allegedly entered into an oral contract with the plaintiff for oil palm replanting, weeding, manuring and maintenance of the oil palm trees for a period of ten years. Despite several reminders from the plaintiff requesting for a written agreement of the terms from the defendant, which was allegedly promised by the defendant, the defendant still failed to prepare as such. As a result of the said failure, the plaintiff stopped all replanting work and claimed for reimbursement of expenses incurred in carrying out works on the estate pursuant to the oral agreement. The defendant denied the existence of the said oral contract and in support, tendered various vouchers to show that the works done on the estate were carried out by other contractors and not the plaintiff. The trial judge found in the plaintiff’s favour and held that there was an oral contract between the parties and a breach of contract by the defendant.
The defendant then appealed to the Court of Appeal and the Court of Appeal overturned the decision of the High Court. The Court of Appeal, in the majority, held that there was no oral contract between the parties due to the absence of documents to support the plaintiff’s version of events and the plaintiff’s failure to call for the relevant witness.
Notwithstanding the above, there are some contracts which are specifically required to be in writing in order for them to be enforceable in court, such as a promise to pay a debt which was barred by limitation period.
It is difficult to prove the existence of the terms of an oral contract in the event of a breach. The law still favours written contracts as they provide more clarity. Moreover, this is also to prevent opening the floodgates to trivial and transient claims in private dealings. Therefore, it is strongly advisable for an oral contract to be reduced into writing to avoid any form of miscommunication or confusion between the parties in the foreseeable future.
 Section 11 Contracts Act 1950  Tan Kok Siang v Kemuning Setia Sdn Bhd  6 MLJ 652  Lee Guan Par v Hotel Universal SDN BHD  4 MLJ 589  Sang Lee Co Sdn Bhd v Subramaniam a/l Mayawan & Ors  5 MLJ 374  Dr ST Singam v Lee Siew Leong  1 MLJ 1  Thiagrajen a/l Veluchamy v Suraish Naidu a/l RE Naidu & Anor  9 MLJ 68   5 MLJ 374 at para   Section 26(c) Contracts Act 1950
Authored by Tiffany Ding and Caylene On
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