LAW OF CONTRACT: ELEMENTS OF CONTRACT (CAPACITY)

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LAW OF CONTRACTELEMENTS OF CONTRACT(CAPACITY)

• Prepared by
• NURUL NASIHIN ARIFFINKPMBP

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Definition

• Un general rule, Section 10- in order to enter
  into legally binding contract, parties to the
  contract must have the full capacity to do so. He
  must be competent or capable person
• If lack capacity the contracts may be invalid
  or void.
• Under section 11, person is competent as long as
  
• age of majority,
• sound mind
• is not disqualified from contracting by any
  law.

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Cont..

• Under Majority Act 1971, majority age is those of
  age 18 and above.
• Under sec 12, sound mind is a person who is
  capable of forming a rational judgment as to
  effect of the agreement upon his interests.

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Effects of contract entered by minor

• Agreements entered into by minor are generally
  void and a minor cannot be sued under such void
  contracts.
• case Mohori Bibee v Dharmodas Ghose
• The A lent the infant (R) the sum of 20000
  rupees at 12 interest and secured the loan by
  way of mortgage executed by the infant in favour
  of the A. later the mother of the children claim
  that the mortgage was void for lack of capacity.
• held The court held that the contract was void
  and so as to the mortgage and the A cannot
  recover the money from the infant.

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Effects of contract by person of unsound mind

• Under EL provides that a contract by person of
  unsound mind is a voidable contract at the person
  option when he is of sound mind.
• (but, he must proof to the court that he is of
  unsound mind while contracting and the other
  party knows his condition)
• case Che Som bte Yip Ors. V Maha Pte. Ltd
  Ors.
• held court held that because D did not know
  about P unsound mind while contracting, the
  contract is valid.

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Effect of contract made by corporation

• A corporation is an entity that separates from
  its shareholders and board of directors.
• The corporation has capacity to contract.
• As stated above, corporation has capacity to
  contract on matters that related to the business
  only. If the contract is not on matters as in its
  memorandum of association, the contract is void.

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Exceptions to contract made by minor is void

• Despite of the above rule, there are several
  exceptions to section 11 where minor can enter
  into valid contract.
• 1) Contracts for necessaries
• 2) Contract of scholarship
• 3) Insurance contract
• 4) Marriage contract
• 5) Employment Contract

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Cont

• Promise of Marriage
• - Contracts promise to marry entered into by
  minor are valid.
• A minor can sue or be sued in case of breach of
  promise to marry.
• Not only marriage, but also divorce, dowry,
  adopted child, religion, religious ceremony an
  customs.
• case Rajeswary v Balakrishnan (Marriage)
• D is a Hindu. He broke a promise to marry P,
  also a Hindu. When P claim damages for breach of
  contract, court granted the claims although P is
  a minor.
• held D broke contract of marriage which is made
  under normal practice of their customs.

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Cont

• Contracts for Necessaries
• Whether the minor is in need of such goods or
  services or the goods suitable to the condition
  in life of such infants and to his actual
  requirements at the date of the sale.
• Such as food, shelter, clothing, medical services
  and even education. However luxurious articles
  are excluded.
• Sec 69 defines necessities as goods and services
  reasonably necessary to a minors actual
  requirement.

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Cont

• Nash v Inman (clothes worth 22 pound)
• a tailor sued a minor to whom he had supplied
  clothes including fancy waistcoats.
• held that although the clothes were suitable
  according to the minors life, they were not
  necessary as he already had sufficient clothing.

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Cont

• Contract of employment (Apprenticeship)
• A minor is bound by a contract of apprenticeship
  or employment as long as it is in the whole, for
  his benefit.
• Case Doyle v White City Stadium
• A minor agreed to undergo a training to be a
  boxer. So he was bound by the terms of this
  agreement with the stadium.

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Cont

• Scholarship
• - A scholarship agreement entered into by an
  infant is valid e.g. loan, sponsorship for the
  purpose of learning by government or educational
  institution
• No scholarship agreement shall be invalidated on
  the ground that the scholar entering into such
  agreement is below than 18 years old
• Case Government of Malaysia v Gucharan Singh
• Gurbachan received scholarship from government
  to attend trainings, as a teacher and for that he
  is to serve with government for 5 years after
  graduated. Gurbachan left before full term. When
  sued, he claims that the contract is void. He was
  lack of capacity during the time.
• held education is a necessities to a minor.
  Gurbachan is in breach of contract

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Cont

• Insurance Contract
• - Under Insurance Act 1963, an infant over the
  age of ten may enter into a contract of
  insurance. However, if he or she is below
  sixteen, the infant can only do so with the
  written consent of his parents or guardian.
• - It is because it is in a minor best interest to
  insure himself or his property.

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Misrep of his capacity

• In a situation where a minor purposely
  misrepresent the other party about his capacity,
  his action does not make the contract to be
  valid.
• case Natesan v Thanaletchumi Anor
• D is a minor. He contracted with P after making
  false statement about his age. When sued, he use
  of lack of capacity as reason. P claimed that D
  may no longer use the reason because D made false
  statement of his age.
• held misrepresentation does not obstruct the
  minor to use lack of capacity as defence.

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