Law Of Contract Notes (C1 (iii)) - Certainty, Legal Capacity PDF

LAW OF CONTRACT (5) CERTAINTY 1  Section 30 provides that “agreements, the meaning of which is not certain or capable of being certain, are void” Terms of an agreement must be certain and cannot be vague See illustrations (a), (b), (e) and (f) to Section 30 Illustrat...

LAW OF CONTRACT (5) CERTAINTY 1  Section 30 provides that “agreements, the meaning of which is not certain or capable of being certain, are void” Terms of an agreement must be certain and cannot be vague See illustrations (a), (b), (e) and (f) to Section 30 Illustration (a) to Section 30: A agrees to sell to B a hundred tons of oil. So, what kind of oil? Other examples: ✓ Ali agrees to sell to Siti a box of toys. What kind of toys? ✓ Ali agrees to sell Siti all the birds in the sky Case: Karuppan Chetty v Suah Thian (1916) 1 FMSLR 300 ✓ A requirement of certainty was not met when the parties agreed upon granting of a lease at “RM35.00 per month for as long as he likes”. ✓ Court held that the word of “as long as he likes” is uncertain. So, the contract was void 2 3 4 Capacity of parties refers to competency of parties to enter into contract. Each party must be competent to make a contract Section 10 (1): “All agreements are contracts if they are made by…parties competent to contract” Section 11: Every person is competent to contract who is the age of majority…sound mind, and not disqualified from contracting by any law” 5  According to Section 11, a person is competent to contract if he is: a) Adult; b) Sound mind; and c) Not disqualified from contracting by any law Thus, the following persons are not competent to enter into a contract: a) Minors, infants or children b) Insane or drunken persons c) Bankrupts or insolvents 6  i. MINOR According to the Age of Majority Act 1971, the age of majority is 18 Years AND above. The person is called a major Those who are below 18 years old are minor GENERAL RULE: Contracts made by minors are VOID A contract cannot be enforced against the minor. The other party of the contract cannot sue the minor for breach of contract Similarly, a minor cannot sue the other party for any contractual rights 7  Cases CASE: MOHARI BIBEE V DHURMODAS (1903) Respondent, who was an infant entered into a contract to get a loan of Rs20,000 from the appellant. Later, the infant commenced an action through his mother for a declaration that the contract was void for lack of capacity The court held that the contract was void because a party to the contract was an infant CASE: TAN HEE JUAN V TEH BOON KEAT MLJ 96 It involved a transfer of land. Plaintiff, who was a minor executed transfer of land in favour of the defendant. Then, the plaintiff by his friend applied to court an order setting aside the transfer Court held that the contract was void on the ground that the party to the contract was a minor 8  EXCEPTIONS TO THE GENERAL RULE: Under these exceptions, the contracts become valid and binding even though the contracting parties are minors As such, minors can sue and be sued under this situation The exceptions are: a) Contracts for necessaries; b) Beneficial contracts or contracts of apprenticeship; c) Contracts for scholarships d) Contracts for insurance; e) Contracts made under the Age of Majority Act 1971 9  a) Contract for necessaries Section 69: “If a person, incapable of entering into 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 has furnished such supplies is entitled to be reimbursed from the property of such incapable person” By virtue of this section, if a minor is supplied with necessaries by another person, the supplier is entitled to be reimbursed from the property of the minor Meaning, the minor himself has to pay the supplier from his own money or property 10  However, a minor is only liable to pay reasonable sum for the necessaries supplied Whether goods or services are “necessaries” depends on: i)The nature of the goods or services supplied ii)The minor’s actual needs; and iii)The minor’s condition of life As such, what are “necessaries” may differ according to the facts and circumstances of the case 11 CASE: NASH v INMAN (1908) 2 KB 1 The defendant was a minor. He ordered certain clothes from the plaintiff including 11 fancy waistcoats. The plaintiff sued the defendant to recover the cost of the clothes supplied. According to the evidence given by the minor’s father, the minor already had adequate supply of clothes suitable and necessary for his condition in life Court held that since the clothes supplied by the plaintiff were not “necessaries”, the minor should not be liable for the clothes CASE: GOVERNMENT of MALAYSIA v GUCHARAN SINGH & Ors (1971) 1 MLJ 211 The defendant was sued for the amount of RM11,500 alleged to be the sum actually spent by the government in educating the defendant. The defendant argued that at the time of the contract, the defendant was a minor Court held that since the education was necessaries, the defendant was LIABLE for the repayment of reasonable sum spent on him 12  b) Beneficial contracts or contracts of apprenticeship A minor is bound by beneficial contracts under which a minor obtains education or training for a trade or profession OR beneficial experience in a trade or profession to fit him to earn his living These contracts are binding since it is beneficial to the minor Case: Doyle v White City Stadium Ltd 1 KB 110 ✓ Doyle, an infant professional boxer made a contract with the British Boxing Board of Control in consideration of his receiving a license from the Board. Under the contract, if Doyle were disqualified, he would lose his “purse” (payment for the fight). Doyle later was disqualified. Doyle sued to recover the money and claimed that due to his infancy, he was not bound to such contract ✓ Court held that the contract was for his benefit. The license was essential to enable him to become proficient in his profession. Thus, the contract was binding on him 13  A contract of service or apprenticeship can be enforced by and against the minor UNLESS the contract appear to be unfair and unreasonable Case: De Francesco v Barnum (1890) 45 ChD 430 ✓ Plaintiff entered into a contract of apprenticeship with a minor. The minor became an apprentice dancer for the plaintiff for 7 Years. The contract contained some terms such as she could not marry and could not dance professionally for other person without the plaintiff’s consent. Subsequently, the minor dance for the defendant ✓ Court held that the contract was unreasonably harsh and therefore cannot be enforced against the minor 14  c) Contracts for scholarships Section 4 (a) of the Contracts (Amendment) Act 1976 provides that no scholarship agreement should be invalidated on the ground that the person entering the contract is a minor Thus, any scholarship contract is binding on the minor. They are bound to whatever specified under the contract 15  d) Contracts for insurance Under the Insurance Act 1963 (Revised 1972), a minor over the age of 10 may enter into a contract of insurance However, if the minor is under 16 year, then the written consent of the parents or guardians is needed Thus, a minor is bound by all the terms in the insurance policy. For example: Entitled to compensation promised by the insurance policy 16 e) Contracts made under the Age of Majority Act 1971 Section 4 (a) of the Act provides that: “Nothing in this Act shall affect the capacity of any person to act in the following matters, namely; marriage, divorce, dower and adoption...” For example, a promise of marriage entered into by minors or by their parents on their behalf is valid and binding. The minor may sue and be sued for breach of promise of marriage However, it is important to take note here that a minor cannot get married if he/she is under the age of 18 (for non-Muslims). As for Muslims, the man is under 18 and woman under 16 17 CASE: RAJESWARY & ANOR V BALAKRISHNAN & Ors (1958) 3 MC 178 A promise of marriage was entered into on behalf of the minors by their fathers. The agreement entered into with provision for dowry and penalty for breach. Then, the promise to marry was repudiated by the defendant. The plaintiff sued for breach of promise to marry. The defendant claimed that since the plaintiff was a minor, then the agreement was void Court held that the contract entered into by the minors was valid. Since one of the parties breach of the contract, the other party has the right to sue 18  ii. Insane or Drunken Person Section 12 (1) of the Contracts Act 1950: “A person is said to be of sound mind for the purpose of making a contract if at the time of making a contract, he is capable of understanding it and forming a rational judgment as to its effect upon his interest” The person who is unsound mind refers to person who is mentally disorder AND ALSO those who is incapacitated through sickness, alcohol or drug Effect of a contract made by insane or drunken person: By virtue of Section 10 (1) and Section 11, the contract is VOID. This is because an insane or drunken person is incompetent to make a valid contract However, the person must prove that he was of unsound at the time of contracting and the other party was aware of the fact 19 20  Section 10 (1) - “All agreements are contracts if they are made by the free consent of parties competent to contract…” Section 13 - Meaning of consent “Two or more persons are said to consent when they agree upon the same thing in the same sense” Section 14 - Definition of free consent Consent is said to be free when it is not caused by: i. Coercion; ii. Undue influence; iii. Fraud; iv. Misrepresentation; and v. Mistake 21  i. COERCION Section 15 of the Contracts Act 1950: “Coercion is committing or threatening to commit any act forbidden by the Penal Code or the unlawful detaining or threatening to detain any property, to the prejudice of person whatever, with the intention of causing any person to enter into an agreement” Elements of coercion: i. One party committing or threatening to commit ii. Any criminal act or unlawful detention of someone’s property iii. With the intention to make or force the other party to enter into a contract Effect: Section 19 (1) – The contract is voidable at the option of the victim. The victim can choose to continue or discontinue with the contract 22 CASE: CHIN NAM BEE DEV. SDN BHD v TAI KIM CHOO & ORS. 2 MLJ 117 Respondents purchased houses to be constructed by the appellant. The respondents had signed a sale and purchase agreement at $29,500. Subsequently, the respondents were forced to pay additional $4000 under the threat by the appellant to cancel the respondents’ booking HELD: There was coercion in the agreement of paying the additional $4000. It was not made voluntarily 23  Section 16 (1) - Undue influence exists where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other AND uses that position to obtain an unfair advantage over the other 2 elements of undue influence: i. One party is in a dominant position (able to dominate the will the other) over the other; and ii. He uses that position to obtain an unfair benefit 24 Section 16 (2) - the following persons are deemed to be in a position to dominate the will of another person: i. One person holds a real or apparent authority over the other (ex: father and son, husband and wife, elder brother and younger brother) ii. One party stands in fiduciary relation to the other (ex: lawyer and client, doctor and patient, employer and employee) iii. One person makes a contract with a person whose mental capacity (temporary or permanent) is affected by reason of age, illness, and mental or bodily distress (ex: contract made with someone who is too old or too ill) 25  BURDEN OF PROOF Lies upon the one who dominating the will of another i.e. he must prove that the contract was not induced by undue influence EFFECT OF THE CONTRACT Section 20: An agreement caused by undue influence is a contract voidable at the option of the victim 26  DATUK JAGINDER SINGH v TARA RAJARATNAM (1983) 2 MLJ 196 The respondent was the registered proprietor of land, claimed that she was induced by the fraud and undue influence of the appellant to transfer her land to the appellant HELD: The appellant and the respondent were in solicitor-client relationship, the transaction was unconscionable and therefore the burden was on the appellant to rebut the presumption of undue influence. Since the appellant had not discharged the burden, the contract was set aside SALWATH HANEEM V HADJEE ABDULLAH The plaintiff’s husband executed a conveyance of property belonging to himself and the plaintiff to B and C, his brothers. After her husband’s death, she brought an action seeking to set aside the agreement and the conveyance on the ground of undue influence HELD: There was a confidential relationship existed between the plaintiff and B & C. The burden of proof therefore lay on B & C to show that the plaintiff fully understood the transaction and executed the conveyance freely without being subject to undue influence. Since B & C failed to discharge the burden, the transaction was set aside 27  iii. FRAUD Section 17: Meaning: Various acts committed by a party to a contract with intent to deceive the other contracting party Fraud includes: a) Making an untrue statement which the maker does not believe the truth of it b) Concealment of fact by one having knowledge of belief of fact c) A promise made without any intention of performing it d) Any act fitted to deceive e) Any act or omission declared by law as fraudulent 28 Important Elements: i. There must be false representation or statement; ii. It was given by one party to another with intention to deceive; and iii. The other party relied on the representation. Effect of the contract: Section 19 (1) - Voidable in the option of the party who has been defrauded 29  CASE: Weber v Brown (1908) 1 FMSLR 12 Plaintiff-respondent sued the defendant-appellant for damages in respect of an alleged false and fraudulent representation relating to the number of rubber trees where the number of trees represented was in excess of the number, which actually existed on the estate HELD: Defendant had made the alleged misrepresentation falsely and fraudulently and such act had caused the plaintiff to acquire and subsequently to exercise the right of purchase CASE: Letchemy Arumugam v Annamalay (1982) 2 MLJ 198 Defendant had asked the plaintiff to sign a document for a loan. Actually, the document was a sale agreement HELD: The agreement was voidable in the option of the plaintiff. The initial agreement and further agreement relating to a purchase of the three unapproved sub-lots could be rescinded and the court awarded damages for the loss suffered by the plaintiff due to the defendant’s fraudulent representation 30  CASE: KHENG CHWEE LIAN v WONG TAK THONG 2 MLJ 320 Respondent has been induced to enter into a second contract on the false representation that the area of land to be transferred was on the same size as the land which the respondent has agreed to buy under the first agreement HELD: Respondent was right in repudiating an agreement with the appellant on the ground that it was induced by fraudulent misrepresentation within the meaning of Section 17 (a) 31  iv. MISREPRESENTATION Section 18 of Contracts Act 1950 - Misrepresentation are false statement made by the representor and which induce the other party to enter the contract. It includes: ✓ A person making a statement which he believes it to be true but it is not true; ✓ Representation made by a person which gives advantage to him even though he has no intention to deceive; ✓ Causing the person who receives the representation to make a mistake as to the substance of the thing which is the subject matter of the agreement 32  Elements: i) There must be a false representation; ii) The representor was innocent; iii) The representation must be one of fact, not mere opinion; iv) The statement was addressed to the misled party; v) The representation must induce the misled party to enter into the contract Effect: Section 19 (1) – Voidable at the option of the misled party 33  Section 21: Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void Elements: i) The mistake must be made by both parties; ii) The mistake is relating to a matter of fact essential to the agreement (mistake of fact) Mistake of fact may occur in the following circumstances: i) Mistake as to the existence of subject matter of the contract; ii) Mistake as to the identity of the subject matter; iii) Mistake as to the possibility of performing the contract 34 i) Mistake as to the existence of subject matter of the contract Example is given under Illustration (a) and (b) to Section 21 Illustration (b): A agrees to buy from B a certain horse. It turn out that the horse was dead at the time of the bargain. Neither party was aware of the fact. The agreement is void 35 ii) Mistake as to the identity of the subject matter Raffles v Wichelhaus (1864) 2 Hurl & C 906 Facts: 2 parties contracted for a sale of cargo of cotton arriving in London by a ship called “The Peerless” sailing from Bombay. But unknown to both parties, there were ships of the same name leaving Bombay at different times. They were both negotiating under a mistake and had in mind different ships Held: The contract was void 36 iii) Mistake as to the possibility of performing the contract Sheikh Brothers Ltd v Ochsner AC 136 Facts: The appellant granted to the respondent, a license and authority to cut and manufacture all sisal growing on 5000 acres of land in Kenya and to deliver to the appellant 50 tons per month of sisal fiber for sale. Respondent then was unable to do so as the leaf potential of the sisal was not sufficient to produce that much Held: It was a mistake as to the possibility of performing the contract. The contract was void 37  Section 23 of the Contracts Act 1950: A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact This section covers mistake by one party only (unilateral mistake) Unilateral mistake does not affect the validity of a contract. A person is expected to take reasonable care to ascertain what he is contracting about 38