Capacity Notes PDF - Contracts Act 1950 - Malaysia

capacity notes Comprehensive Notes on Capacity to Contract Introduction Under the Contracts Act 1950, capacity refers to the ability of a person to enter into a legally binding contract. It is a fundamental element of contract law as it en...

capacity notes Comprehensive Notes on Capacity to Contract Introduction Under the Contracts Act 1950, capacity refers to the ability of a person to enter into a legally binding contract. It is a fundamental element of contract law as it ensures that only those who possess the necessary understanding and legal authority can create obligations enforceable by law. Section 10 of the Act states: "All agreements are contracts if they are made by parties competent to contract." The criteria for competency are outlined in Section 11, which states that a person is competent to contract if they: 1. Are of the age of majority according to the law they are subject to, 2. Are of sound mind, and 3. Are not disqualified from contracting by any law to which they are subject. 1. Age of Majority The Age of Majority Act 1971, Section 2, establishes: the age of majority in Malaysia as 18 years. Below this age, a person is considered a minor. General Rule: Contracts entered into by a minor are void ab initio (void from the beginning) under Sections 10 and 11 of the Contracts Act 1950. Exceptions: capacity notes 1  1. Marriage Contracts: Section 4(a) of the Age of Majority Act 1971 states that the general rule about being 18 years old to have legal capacity (age of majority) does not apply to marriage contracts. Law Reform (Marriage and Divorce) Act 1976, Section 10: A marriage in Malaysia is invalid if either person is under 18 years old. However, the Chief Minister can allow a girl aged 16 to 18 to marry with special permission (a license) under Section 21(2). Case: Rajeswary and Anor v Balakrishnan & Ors 3 MC 178: What happened in the case? Two families arranged a marriage for their children. They had a formal engagement ceremony and planned the wedding. The groom (the defendant) changed his mind and broke his promise to marry. The bride's family (the plaintiff) sued him for breaking his promise. What did the court say? The court said that marriage contracts are special and not like other contracts that minors (people under 18) cannot make. Marriage contracts are based on customs and traditions, so the promise to marry could still be enforced. The court upheld that a marriage contract entered into by a minor is valid. 2. Scholarship Contracts: Section 4(a) of the Contracts (Amendment) Act 1976 clearly states a scholarship agreement cannot be considered invalid just because the person signing it is a minor (under 18 years old). capacity notes 2  Case: Government of Malaysia v Gurcharan Singh & Ors MLJ 211: happened before the amendment High Court ruled that the scholarship agreement with a minor was void, but education expenses were recoverable under Section 69, as education is considered a necessity. Thus the amendment was made; Later, in 1976, the Contracts (Amendment) Act added Section 4(a), which says scholarship agreements with minors are valid. 3. Employment Contracts: Governed by the Children and Young Persons (Employment) Act 1966. Definitions per section 1 A of Children and Young Persons (Employment) Act 1966: Child: Below 15 years. Young Person: Between 15 and 18 years. Permissible employment for children (Section 2(2)): 1. Light work that is suitable for their ability, within a business run by their family. 2. Work in public entertainment, but only if it follows the terms and conditions of a license under this Act. 3. Work that is approved or sponsored by the Federal or State Government, done in a school, training institution, or on a training vessel. 4. As an apprentice, under a written apprenticeship contract approved by the Director-General, with a copy of the contract filed with them. Permissible employment for young persons (Section 2(3)): 1. All employment permissible for children. 2. Domestic servant. 3. Work in offices, hotels, factories, or similar undertakings. capacity notes 3  4. Industrial work suitable to his capacity. 5. Work on vessels under parental supervision. Also provided that: A female young person (15-18 years old) cannot work in hotels, bars, restaurants, boarding houses, or clubs unless her parent or guardian manages the business. She can work in a club not managed by her parent/guardian, but only if she gets approval from the Director-General (DG). Section 13 of the Children and Young Persons (Employment) Act 1966 ensures minors can enforce their rights under employment contracts. AND— no damages or compensation (indemnity) under Section 13 of the Employment Act 1955 can be claimed from a child or young person if they break a contract of service. 2. Sound Mind Section 12 of the Contracts Act 1950 defines soundness of mind: A person is of sound mind if, at the time of contracting, they can: 1. Understand the contract. 2. Form a rational judgment about its effect on their interests. Rules: A person usually of unsound mind can contract when heis of sound mind A person usually of sound mind cannot contract when he is unsound mind. 3. Remedies for Contracts Involving Minors or Persons of Unsound Mind capacity notes 4  General Rule: Contracts by minors or unsound persons are void ab initio. However, remedies may be available under specific provisions. Provisions: 1. Section 40, Specific Relief Act 1950: If a court voids an agreement or contract, it has the power to ask the person benefiting (usually the minor) to compensate the other party if the court believes it is fair to do so. For example, if the other party suffered a significant loss due to the cancellation, the court may ask the minor to make a payment to balance things out. Case: Tan Hee Juan v Teh Boon Keat MLJ 96: A fiduciary relationship is required to order compensation. What happened? A minor (P) sold a piece of land to the defendant (D) and received the money for it. Later, the minor wanted to cancel the transaction and get the land back. What did the court decide? The court said the transaction was void because minors cannot enter into valid contracts (based on Sections 10 and 11 of the Contracts Act 1950 and the case of Mohori Bibee). The minor was allowed to cancel the transaction and get the land back. What about the money the minor received? capacity notes 5  The court said it has the discretion (choice) to require the minor to return the money if it’s fair and necessary. However, this discretion is only used in very rare cases where there is a fiduciary relationship (a relationship of trust and responsibility, like parent-child). What was the outcome? In this case, there was no fiduciary relationship between the minor and the defendant. So, the court did not require the minor to return the money to the defendant. 2. Section 66, Contracts Act 1950: "When a contract is discovered to be void, any person who has received any advantage under the contract is bound to restore it." Key Points: This section assumes that there was originally a valid agreement or contract made between parties who were legally capable of entering into it. Privy Council: It does not apply to cases where there was no valid contract from the beginning or where a valid contract was never possible. Application to Minors: Section 66 cannot be applied to contracts with minors because contracts with minors are void ab initio (void from the start). Since there was never a valid contract to begin with, the rule in Section 66 about restoring benefits does not apply to contracts involving minors. Case: Mohori Bibee v Dharmodas Ghose 30 LR IA 114: Facts: Dharmodas Ghose, a minor, mortgaged his property to a moneylender, Brahmo Dutt, in exchange for a loan of 20,000 rupees. capacity notes 6  Later, Dharmodas, represented by his mother and guardian, filed a case to have the mortgage declared void on the basis that he was a minor at the time of the agreement. The moneylender argued that he should either be allowed to enforce the mortgage or be reimbursed (restitution) for the money he had lent to Dharmodas. Held: A minor’s contract was ruled void ab initio, and Section 66 did not apply as no valid contract existed. Case: Leha bte Jusoh v Awang Johari bin Hashim 1 MLJ 202: Federal Court ordered repayment of the purchase price to the minor upon vacating the land. 3. Necessaries under Section 69, Contracts Act 1950 Purpose of Section 69: Section 69 allows a person who supplies necessaries (essential goods or services) to someone incapable of making a contract (e.g., a minor) to claim reimbursement for those supplies. This ensures that minors or other incapable persons receive necessary support without causing unfair losses to the supplier. Provision: "If someone who cannot make a contract, or anyone whom he is legally bound to support, is supplied by another person with necessaries suited to his condition in life, the person who provided these goods or services has the right to be paid back from the property of the incapable person." Conditions for Applying Section 69: The goods or services must be: Necessaries (essential for life or well-being). capacity notes 7  Suited to the minor’s condition in life (appropriate for their social and economic background). NECESSARIES Cases: 1. (before amendment ) Government of Malaysia v Gurcharan Singh MLJ 211: Facts: A minor breached a scholarship agreement. The contract was void ab initio. Held: The court ruled that education and training provided to the minor were necessaries, so the Government could recover the costs under Section 69. Key Principle: The court emphasized that whether something is a “necessary” depends on the circumstances and facts of the case. 2. Chapple v Cooper: Held: Burial expenses for a widow who was a minor were considered necessaries because they were essential. 3. Nash v Inman 2 KB 1: Facts: A minor undergraduate purchased fancy waistcoats. His father proved he already had sufficient clothing. Held: The waistcoats were not necessaries because the minor was adequately supplied with clothing. Thus, section 69 was not applied. 4. Ryder v Wombwell (1868): Held: Ornamental items (like jewelry) are not considered necessaries, as they are not essential for life or well-being. Thus, section 69 cannnot be applied. Suited to His Condition in Life 1. The minor’s life circumstances must be considered: capacity notes 8  Fine or coarse clothing based on their social rank. Education appropriate to the position they are expected to hold. Medicines depending on their health and financial condition. Important Notes: Condition of the Minor: Always assess the minor’s specific situation to determine if goods or services are necessaries. Luxurious Items: Items considered luxurious for the minor are not necessaries. Necessities vs. Necessaries: Necessities are items essential for survival. Necessaries are broader and can include goods or services essential for the minor’s well-being, as determined by the minor’s condition in life. Other Issue— Misrepresentation of Age Section 115, Evidence Act 1950: If someone intentionally causes another person to believe something false and that person acts on it (e.g., entering a contract), they cannot later deny the truth of what they said. Example: Person A lies to Person B, saying the car they’re selling is new. Based on this lie, B buys the car. Later, B finds out the car was damaged before. Under Section 115, A cannot deny the lie in court and must stick to their original statement. Exception for Minors: However, minors are an exception to section 115 Evidence Act. capacity notes 9  Even if a minor misrepresented their age to enter into a contract, they are still allowed to declare their true age in court and use it as a defense to avoid the contract. This means minors are not bound by their lie because the law prioritizes protecting them over holding them accountable for such misrepresentation. Case Law: Case: Mahomed Syedol Ariffin v Yeoh Ooi Gark 2 AC 575: A minor cannot be sued for misrepresentation of age to induce a contract. Case: Natesan v Than Letchumi & Anor MLJ 1: A minor may declare their minority to avoid a contract despite prior misrepresentation. capacity notes 10