Lecture 5 - Contract Capacity and Consideration PDF

Lecture 5 Capacity and Consideration 1  2 1. Characteristics of a Contract There will be a promise or promises. 2. They will be made by “parties to the contract”. 3. They will create an obligation. 4. That obligation will be enforc...

Lecture 5 Capacity and Consideration 1  2 1. Characteristics of a Contract There will be a promise or promises. 2. They will be made by “parties to the contract”. 3. They will create an obligation. 4. That obligation will be enforceable at law. 5. Contracts may be oral or written. 3  4 Capacity The parties entering into a contract should also be competent to contract i.e they must have the legal capacity to do so. s.10(1) All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. s.11 Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.  5 S10 – requirement of competence in contract S11 – elements of competence - age of majority - sound mind - not disqualified by law  6 Capacity: Age of Majority  General rule: the age of majority is 18 years (S2 Age of Majority Act 1971) and contracts made by infants/ minors are void.  The general rule under Malaysian law is that a contract entered into by a minor is void 1. Mohori Bibee –v- Dharmodas Ghose (1903) 30 Cal. 539 2. This principle was further adopted in the case of Tan Hee Juan –v- Teh Boon Keat MLJ 96  7 Tan Hee Juan v Teh Boon Keat MLJ 96 Facts: Held: The plaintiff was an The transactions infant when he were void and executed transfers of properties were land in favour of the restored to the minor. defendant. He applied to the court for an order to set aside the transfers  8 Void Void - not valid or legally binding S2(g) – a void contract is an agreement not enforceable by law  9 Void Agreement – S66 When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.”  10 Leha Bte Jusoh v Awang Johari bin Hashim 1 MLJ 202 (Federal Court) Held: Facts: The judge applied An agreement by a S66 to order refund of minor to purchase purchase price to the land. minor in exchange for the minor to vacate the land which he had occupied and purchased under the void contract.  11 Capacity: Exceptions 1.Contracts for necessaries – Necessaries - things which are essential to the existence and reasonable comfort of the infant, e.g. food and clothes. See. Section 69 Contracts Act -‘if a person incapable of entering into a contract (eg minor)… -is supplied by another person with necessaries suited to his condition in life, - the person who has furnished such supplies(supplier) is entitled to be reimbursed from the property of such incapable person (minor).  12 Nash v Inman 2 KB 1, p. 8 a tailor sued a minor to whom he had supplied clothes including fancy waistcoats which worth £22). the court held that : although the clothes were suitable according to the minor’s life, they were not necessary as he already had sufficient clothing.  13 Capacity: Exceptions 2.Contracts for scholarship — by virtue of s.4 (a) of the Contracts (Amendment) Act 1976, a scholarship agreement entered into by an infant is valid when the scholarship, award, bursary, loan or scholarship is granted by the Federal or State government, a statutory authority or an educational institution such as a university approved by the Minister  14 Government of Malaysia –v- Gurcharan Singh & Ors (1971) 1 MLJ 211 Facts: Gurcharan received a Held: scholarship from the government to attend The court held that training as a teacher and education is a for that he was to serve necessity to a minor. with government for 5 years after graduation. S69 – contract valid. Unfortunately, Gurcharan Thus, Gurcharan is in left before full term. When breach of contract. sued, he claims that the contract is void and he lacked capacity at that time.  15 Capacity: Exceptions 3. Contracts for insurance - under the Financial Services Act 2013, an infant over the age of ten may enter into a contract of insurance. - However, if he is below the age of sixteen, he can only do so with the written consent of his parents or guardian. 16  17 Consideration  Considerationis the benefit that each party receives, or expects to receive, when entering into a contract.  Eg:Brittney agrees to sell her car to Bill for RM1,000. Bill’s payment serves as consideration for Brittney’s promise to sell the car to him. Brittney’s consideration is her promise to sell him the car.  18 Consideration S.2(d) CA defines ‘consideration’ as follows: when at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. 19  20 General Rule s.26 CA provides that as a general rule: an agreement without consideration is void.  21 Consideration: Exceptions  22 i. S26(a)  -an agreement in writing and registered under the law (if applicable) for the time being in force for the registration of such documents,  -and is made on account of natural love and affection  -between parties standing in a near relation to each other.  Eg: A father’s gift of a house to his son 23  24 ii. S26(b)Past Consideration it is an agreement to compensate a person who has already voluntarily done something for the promisor – past consideration  25 Past consideration Eg. Ally decides to wash Catherine’s extremely dirty car. Catherine saw it, was impressed and promises to pay Ally RM50 for the effort. She forgets about the promise. Is there a legally binding contract which Ally can sue on? In English law, past consideration does not constitute valid consideration although in Malaysia, pursuant to the Contracts Act 1950, past consideration is valid/good consideration. S2(d).. has done or abstained from doing –( in the definition of consideration) S26(b)  26 Past consideration Malaysia – Past consideration is good consideration UK – Past consideration is no consideration  27 iii. S26(c) it is an agreement to pay statute barred debt - refers to debt which cannot be recovered through legal action because of lapse of time fixed by law (6 years from the time the cause of action arises). If the debtor makes a fresh promise to pay the statute-barred debt and the promise is in writing and signed by the person charged or his authorised agent in that behalf, it is valid.  28  Eg:Ali owes Baba RM5000 which he borrowed eight years ago. This loan is statued barred and cannot be recovered by Ali  But if Baba makes a new promise to repay, in writing and signed, then this consideration is valid and can be enforced by Ali.  29 Adequacy of Consideration  UnderMalaysian law, consideration need not be adequate.  S.26Explanation 2 provides that an agreement is not void merely because the consideration is inadequate provided that consent is free (willingly enter into contract)  30 Adequacy of Consideration Example: ‘Ali agrees to sell a horse worth $1,000 for $10... the agreement is a contract notwithstanding the inadequacy of the consideration.  31 Phang Swee Kim v Beh I Hock (1964) MLJ 383  Facts:  The respondent agreed to sell to the appellant a land for RM500 although the land was worth much more. The respondent later refused to honour the promise.  Held: the agreement was valid even though consideration was inadequate  32 Consideration may move from the promisee/offeree or a third party ▪ Consideration need not move from the promisee. ▪ Eg: Cindy went to Mazda showroom and placed an order for Mazda 5. Later in the day, Cindy’s uncle went to the showroom and paid for the car. Cindy’s uncle(3rd party) provided the consideration for the contract between Cindy and Mazda.  33 Venkata Chinnaya v Verikatara Ma’ya (1881) 1 LR 4 137 mother provided consideration for sons – good consideration.  34 Accord and Satisfaction – Section 64 ▪ Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. ▪ Kerpa Singh v Bariam Singh (1966) 1 MLJ 38  35 Ifcreditors accepted the lesser payment made by debtors as full payment, he is said to barred from seeking the balance of debt. Once the payment of the debt has been made, even with smaller amount, the creditors no longer have the right to ask for the balance.