Asril A. Zakariah

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Commercial LawCapacity to Contract

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Capacity

Section 10 CA – ‘All agreements are contracts if they are made by free consent of the parties competent to contract for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.’

Section 11 CA – ‘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.’

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Who is competent?A person who is at the age of majority

Authority: Age of Majority Act 1971, Section 2 provides that all person in Malaysia attain the age of majority at 18.

Below 18, a person will be considered as a minor or an infant.

History: Muslim at 18 and Non-Muslim at 21. But law has been repealed.

Therefore a person of 18 years old can enter into a valid contract.

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What if the agreement is entered by a minor?

Answer: The agreement will not be considered as a contract and it will be void. The effect will be that the agreement cannot be enforced under the law.

Authority: Section 2(g) CA – ‘an agreement not enforceable by law is said to be void’

Case: Tan Hee Juan v The Boon Keat [1934] FMSLR 96. In this case the court held that a transfer of land executed by an infant is void.

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Contract by Minor: Exception 1Contract of necessities/necessaries.Section 69 CA – ‘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.’

ILLUSTRATIONS(a) A supplies B, a mentally disordered person, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B’s property.(b) A supplies the wife and children of B, a mentally disordered person, with necessaries suitable to their condition in life. A is entitled to be reimbursed from B’s property.

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What are ‘necessaries’?

Not defined but the necessaries supplied must be suited to his condition in life.

What is necessary differs in each and every case – as mentioned in the judgment of Government of Malaysia v Gurcharan Singh [1971] 1 MLJ 211

How to determine that a ‘thing’ contracted is necessary?

Answer: Apply the ‘test’ as to whether it is necessary.

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The Test

It depends on 2 factors:1. Condition of the life on an infant2. His actual requirements at the time of the sale and delivery.

It is necessary when, the ‘thing’ is inevitable to the infant’s life condition AND the ‘thing’ is so much required (but not desired) by the infant.

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Cases:Nash v Inman [1908] 2 KB 1 – a tailor sued for the price of clothes supplied to an infant who is an undergraduate at Cambridge. The court held that the action must fail because the tailor had not adduced any evidence that the clothes were suitable to the condition in life of the undergraduate and he was not already adequately supplied with clothes.

Elkington v Amery [1936] 2 All ER 86 – It was held that a holiday is a necessary if it were for recovery after an illness or the minor’s condition of life is such that holidays spent in hotels were the inevitable part of it.

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Contract by Minor: Exception 2

Is ‘education’ a necessary?YES as was decided in the case of Government of Malaysia v Gurcharan Singh [1971] 1 MLJ 211

Facts: The Government sued the first defendant as the promisor and the second and third defendants as sureties for breach of agreement in writing entered into by them with the plaintiff for providing a course of training at a Malayan Teacher's Training Institution. The claim was for $11,500 alleged to be actually spent by the Government for educating the first defendant. At the time of the contract being entered into the first defendant was an infant and the defence was essentially that the contract entered into by the first defendant was void and that consequently the second and third defendants were not liable.

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There are two issues in this case:1. Whether there is a breach of contract?2. Whether the minor is liable to the claimed sum?Answer:1. There is no breach of contract because the agreement is void due to lack of capacity. He was after all a minor.2. He is liable to the claimed sum. This is because the scholarship is for education and education is considered a necessity.

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Effect: amendment of the law under section 4(a) of the Contracts (Amendment) Act 1976. Now a scholarship agreement entered into by an infant is valid when it is granted by the government, a statutory authority or an educational institution.

This can be seen applied in University of Malaya v Lee Ming Chong [1986] 2 MLJ 148.

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Contract by Minor: Exception 3

Contracts of Insurance – section 153(1) and (2) of Insurance Act 1996 provides: an infant over the age of 10 years old may enter into such contract.

HOWEVER, if he is below 16, he can do so with the written consent of his parents or guardian.

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Contract by Minor: Exception 4

Contract of service/apprenticeship

The Employment Act 1955 and the Children and Young Person (Employment) Act 1966

However neither damages nor indemnity can be recovered from a child or young person for the breach of any contract of service.

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Person of Unsound MindAny contract made by a person of unsound mind is void.

Who is ‘that’ unsound mind person?

Answer: Section 12(1) CA - A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.

Case: Sim Kong Sang Peter v Datin Shim Tok Keng [1994] 2 MLJ 517

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Can a person who is ‘sometimes’ unsound enter into a contract?

YES, if at the point he entered into the contract he is sound.

Section 12(2) CA - A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.

Section 12(3) CA - A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind

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ILLUSTRATIONS

(a) A patient in a mental hospital, who is at intervals of sound mind, may contract during those intervals.

(b) A sane man, who is delirious from fever, or who is so drunk that he cannot understand the terms of a contract, or form a rational judgment as to its effect on his interests, cannot contract whilst such delirium or drunkenness lasts.