Contracts Act 1950 - Capacity Overview

Capacity

• Agreements made by competent parties are contracts (Contracts Act 1950, s.10)
• Competency to contract requires being of the age of majority and of sound mind (Contracts Act 1950, s.11)
• Majority is 18 years old in Malaysia (subject to section 4)

Age of Majority

• Minority ceases at 18 years old in Malaysia (subject to section 4)

Sound Mind

• At the time of contract, a person must be able to understand the contract and form a rational judgment (Contracts Act 1950, s.12)
• A person usually of unsound mind can make a contract when of sound mind
• A person usually of sound mind cannot make a contract when of unsound mind

General Rule for Minority

• A contract entered into by a minor is void ab initio.
• Exceptions to the rule include:
  • Marriage contracts
  • Scholarship contracts
  • Employment contracts (including insurance)

Exceptions

• Nothing in the Age of Majority Act (applicable for Malaysia) affects the capacity of any person to act in matters like marriage, divorce, dower and adoption.

Marriage Contracts

• Any marriage purported to be solemnised in Malaysia is void if either party is under 18 on the date of marriage (Law Reform (Marriage and Divorce) Act 1976, s.10)

Scholarships

• Scholarship agreements are not invalidated if the scholar is not of the age of majority (Contracts (Amendment) Act 1976, s.4(a))

Employment Contracts

• "Child" is anyone under 15 years old
• "Young person" is anyone over 15 and under 18
• Children may only be employed in suitable light work (s.2(2) Employment Act 1966)
• Young persons can hold jobs suitable for their capacity under section s.2(3) of Employment Act 1966
• Female young persons cannot work in hotels, bars, restaurants, boarding houses, or clubs unless under the management or control of their parent/guardian.
• A child or young person can be an employer or be a party to a contract of service under the law. This means they can enter into employment contracts. (Employment Act 1955, s.13)

Remedies

• If a contract is entered into by a person who is not of age (minor), the contract is void ab initio.
• Exceptions include marriage, scholarship, and employment contracts.
• A minor can still make a claim for a remedy, despite the contract being void.
• The court has the discretion to direct a minor to make a payment for a remedy. (s.40 Specific Relief Act)
• A fiduciary relationship is needed in some cases (Tan Hee Juan v Teh Boon Keat [1934] MLJ 96)

S.66 Contracts Act 1950

• If an agreement or contract is found to be void, any party receiving an advantage must restore it or compensate the other party.

Mohori Bibee v DharmodasGhose

• Contract entered into by a minor is void ab initio.
• Section 65 of the Indian Contracts Act is similar to section 66 of the Contracts Act.

Leha bte Jusoh v Awang Johari bin Hashim

• A minor's contract is void ab initio.

S.69 Contracts Act 1950

• If a person incapable of making a contract receives necessaries suitable for their condition in life, the person providing those necessaries can be reimbursed from the property of the incapable person

Necessaries

• What constitutes "necessaries" is determined by the minor's particular circumstances, life, and needs. (Government of Malaysia v Gurcharan Singh)

Suited to his condition in life

• "Necessaries" are dependent upon the minor's life and circumstances and are determined on their particular facts. Factors like clothing, education, and healthcare are significant in determining the kinds of things suitable for their life. (Chapple v Cooper)

Other Issues

• Contracts entered into on behalf of a minor: A guardian with the legal capacity can enter into a contract on the minor's behalf if the contract benefits the minor. (Sri Kakulam Subramanyam v Rurra Subba Rao AIR [1948] PC 95)
• Effect of a minor misrepresenting his age: Whether a minor is estopped from declaring their true age if they misled others (s.115 Evidence Act 1950). While generally a minor is not barred from proving their age, misrepresentation doesn't always prevent a minor from disavowing the contract (Natesan v Than Letchumi & Anor [1953] MLJ 1).