Many of these common FAQs about contracts have already been answered, but we have put together a list so you can easily get answers to your questions.
1. Must contracts be in writing?
Section 2(h) of the Contracts Act, 1950 provides “an agreement enforceable by law is a contract”. A contract does not need to be in writing; however, having a signed agreement is helpful if there is a dispute later and you want to present your case in court. The court will look at all evidence and consider contemporary documents and oral testimony.
2. Who can sign a contract?
The person who signs the document for a contracting party must be an individual. When an organization, for example, a company, enterprise or society, is a contracting party, the contract may require one or more representatives to sign for and on behalf of the organization. This requirement depends on what mandate was granted for executing the contract. The signature(s) of persons authorized to act may be specified by a resolution from the organization’s Board of Directors, stating that those individuals are allowed to sign contracts on behalf of the organization.
3. Must a legal document be signed in the presence of a witness?
The validity and enforceability of legal documents depend on the nature of the document. Any document that the law prescribes to be attested or witnessed by a specific category of person will not be valid or enforceable if such a requirement is not met.
Examples of documents where witnesses are required to attest the signing of the documents are:
- the Wills Act, 1959, allows two or more witnesses to be present when the maker signs the will. A beneficiary cannot be a witness of that will;
- statutory documents under the Companies Act, 2016;
- statutory documents under the National Land Code (Revised, 2020).
However, if it is a commercial contract, it is valid when all parties sign it. It does not matter if a witness does not sign the document or if a witness does not witness the document being signed.
4. Who can be a witness to your legal documents?
Generally, it is considered best practice for the witness to be someone who is not related to the parties involved in signing a legal document. An employee can also witness their employer’s signature if they have no conflict of interest with that company.
5. When does a contract start?
The effective date of a contract is the date on which the contract takes effect. It is often different from the signing date—the latter is when all parties agree to be bound by the terms of a contract, while an effective date marks when legal obligations start to kick in. Contract terms can be drafted according to the contract negotiation between the parties in the manner that seems fit. Of course, any such clause must be within the ambit of the Malaysian Contracts Act, 1950.
For example, a two-year tenancy might not take effect until after it has been signed; however, once signed and delivered, you are bound by its terms even though you don’t move into your apartment until months later. This practice ensures that the parties have a vested interest in sticking with the agreement after it has been signed.
6. How and when a contract ends?
Contracts may be brought to an end in several ways. For example, one party may terminate the contract for breach by the other party (known as termination for breach of contract), or rescission may be available if one party is misrepresented or subjected to undue influence or duress, voiding the original contract. One or both parties may also discharge their obligations through mutual agreement. In addition, contracts in which force majeure has occurred may be brought to an end. You should read your contract carefully to ensure you know how to end your relationship with the other party.
7. What happens if one party breaches a contract?
When one party breaches a contract, the non-breaching party may terminate the contract. A properly drafted contract will ensure that the breaching party makes good on his obligations and that he has no lawful excuse for not performing his contractual obligations. There are multiple complex factors to process and understand before commencing legal action. You must consult a law firm when facing a legal issue such as a breach of contract.
8. Who is responsible for paying stamp duty?
The person responsible for paying stamp duty is set out in the Third Schedule of the Stamp Act, 1949. For example, the party executing an agreement first is responsible for paying the stamp duty; if it is a lease or tenancy, it is the lessee or tenant, and if it is a deed of conveyance, assignment, or transfer, then it is the grantee or transferee who is responsible for paying the stamp duty.
9. When should you have your instrument stamped?
Any unstamped instrument drawn or made in Malaysia must be presented with the payment of the unpaid duty for stamping within thirty days of its execution if it was executed within Malaysia or within thirty days after it has been first received in Malaysia if it was executed outside of Malaysia.
10. What happens if the instrument is not stamped within the legally required time?
If the instrument is not stamped within the specified period, it may be stamped on payment of the unpaid duty together with a penalty of:
- RM25.00 or 5% of the deficient duty, whichever is the greater, if stamped within 3 months after the time for stamping;
- RM50.00 or 10% of the deficient duty, whichever is the greater, if stamped after 3 months but not later than 6 months after the time for stamping;
- RM100.00 or 20% of the deficient duty, whichever is the greater, if stamped after 6 months from the time for stamping.
11. Is an instrument valid if it is not stamped?
Yes, an instrument signed in Malaysia and not stamped is still valid unless it is a forgery or fraudulent. The legal position concerning the validity of unstamped instruments can be found in Malayan Banking Bhd v Agencies Service Bureau Sdn Bhd & Ors (1982) 1 MLJ 198. The Federal Court held that an unstamped instrument affects only the admissibility of the document in evidence, but it does not invalidate the document. This means the instrument is valid but inadmissible as evidence in court.
12. How can an unstamped instrument be used as evidence in court?
Section 52 of the Stamp Act, 1949 stipulates that an instrument connected with the payment of duty must be stamped before admission as evidence in any court. No person—such as those who have authority to receive evidence or public officials—can act upon, register, or authenticate such an instrument unless it is duly stamped.
Hopefully, this list of common FAQs has answered any questions you may have about contracts in Malaysia. The information is not intended to constitute legal advice and should not be relied upon as such. Hire a contract lawyer and get professional legal services for the benefit of your business.