Chapter 5: Capacity and Terms of Contract

1. Who is minor? Support your answers with case law and Section.
A minor is a person who has not reach the age of majority. In Mohori Bibee v Dhurmodas Ghose, it
was held that an infant (age below 18) cannot make a valid contract.
In Malaysia, Section 2 of Age of Majority Act 1971 states that the age of majority is 18 years old.
Anyone below 18 is regarded as a minor.
2. What are the exceptions that allows minor to make contracts.
There are five exceptions to the general rule where minor can enter into the following contracts: -
(i) Contracts of necessaries
- ‘Necessaries’ are things are essential to the existence and reasonable comfort of the
infant such as food, shelter, clothing, medical services and even education, but luxurious
items are excluded.
- Necessities is not statutorily defined. It varies from case to case depending on the
minor’s station in life.
- The test for necessaries depends on:
(a) The nature of the goods or services supplied
(b) The minor’s actual needs and his station in life
(ii) Contracts of scholarship
- A scholarship agreement between a minor and an appropriate authority (Federal Gov,
State Gov or education institution) cannot be invalidated on the ground of his majority.
- Section 4(a) Contracts (Amendment) Act 1976 – provides that no scholarship agreement
shall be invalidated on the ground that the scholar entering into such an agreement is
not of age of majority.
(iii) Contracts of insurance
- Section 4 of Financial Services Act 2013 (FSA) provides that a minor who has attained the
age of 16 years is competent and may enter into a contract of insurance.
- Section 4(2) FSA states that if the minor has attached the age of 10 years but is below 16
years old, he has to have the consent of his parent or guardian to enter into contract of
insurance.
(iv) Contracts of service or apprenticeship
- Under Section 13 of Children & Young Persons (Employment) Act 1966 – minor are
permitted to enter into contracts of service as employees. Child is defined as below age
15, young person is below 18 years old.
(v) Contracts of marriage
- The courts recognized that contract of marriage by a minor is an exception to the general
rule. Therefore, a minor may sue and can be sued for breach of promise of marry.
3. William has scored 20As in SPM. Due to his excellent results, he was offered a scholarship in
University of Oxford. At the time he signed the agreement with University of Oxford, William just
celebrated his 16th birthday. Determine whether there is valid contract? And would he be liable if
he has breached the contract?
Issue:
- The issue here is whether there is a valid contract between William and University of Oxford
and would he be liable if he breach the contract.
 Law:
- Contracts for scholarship is one of the exceptions to the general rule.
- A scholarship agreement between a minor and an appropriate authority (Federal Gov, State
Gov or education institution) cannot be invalidated on the ground of his minority.
- Section 4(a) Contracts (Amendment) Act 1976 – provides that no scholarship agreement shall
be invalidated on the ground that the scholar entering into such an agreement is not of age of
majority.
- Can refer to the case in Government of Malaysia V Gurcharan Singh.
Apply:
- Even though William is considered as a minor when he entered inti the contract, but he falls
under the exception of contract of scholarship. There is a scholarship agreement between the
minor, William and an appropriate authority, University of Oxford. Applying S.4(a) and the
court’s decision in decision in Gurcharan Singh case, a scholarship agreement between William
and University of Oxford cannot be invalidated due to the age of William.
Conclusion:
- In conclusion, there is a valid contract between William and University of Oxford and he will be
liable if he has breach the contract.
4. What kind of persons is categorized as of unsound mind?
A person suffering from metal disability either permanently or temporarily would be disqualified
from contracting due to his lack of capacity to give consent nor is there a meeting of mind due to his
mental state.
Section 11 CA provides that every person is competent to contract… who is of sound mind, and is
not disqualified form contracting by any law to which he is subject.
5. What are terms in contract?
Terms basically are the clauses that appear in a written contract. They define the rights and duties of
the parties, a breach of which would entitle in the injured party to an action for damages for breach
of contract.
Terms are either expressed or implied and can be further classified into conditions, warranties or
innominate terms.
(i) Express term
- Section 9 CA – an express term can be made orally or in writing.
- Usually express terms are in writing. Identification of express terms is by looking at the
contract document.
(ii) Implied term
- Implied terms do not appear in the contract but are presumed based on certain grounds.
- Implied terms read into the contracts may be justified by reference to a number of
acceptable practices such as from provision of statutes, customs or trade usage, or
inferred by judges out of necessity to give business efficacy to the contract i.e. to give the
full effects to the intention of the parties.
6. Explain the difference between term condition and warranty.
Condition
- A condition is a term in the contract which is so vital or essential to the main purpose of the
contract its breach by one party will entitle the innocent party to repudiate (terminate) the
contract. It must be so fundamental to the contract without which the contract would collapse.
 - Section 12(2) Sales of Goods Act 1957 (SOGA)- a condition is a stipulation essential to the main
purpose of the contract, the breach of which gives rise to a right to treat the contract as
repudiated.
Warranty
- A warranty is a minor term. A breach of warranty will not repudiate the whole contract. It only
gives rise to an action for damages, not repudiation of the whole contract. Why? Because a
warranty is only secondary or collateral to the main term of the contract and its breach will not
affect the efficacy of the whole contract.
- Section 12(3) SOGA – A warranty is a stipulation collateral to the main purpose of the contract,
the breach of which give rise to a claim for damages but not the right to reject the goods and
treat the contract as repudiated.
7. What is innominate terms?
This is a term that is neither a condition nor a warranty. Much will depend on the circumstances and
effect of the breach. If the effect of breach is substantial then the innocent party may repudiate the
contract, but if the effect of breach is minor then it would be treated as a breach of warranty.
Innominate or intermediate terms are terms which cannot be classified as conditions or warranties.
They fall in between them. The court would have to look into the seriousness of the breach and
determine whether the plaintiff would be entitled to terminate the contract or only be entitled to
damages only.
If there is no substantial loss then the innocent party would not be allowed to repudiate the
contract but only claim for damages, as in the case below.
8. What is an exemption/ exclusion clause?
An exemption clause or exclusion clause may be defined as a term of a contract that exclude or limit
the liability of one party which would otherwise arise as a result of a breach by that party of his
primary obligations to perform the contract according to the terms.
9. How an exemption/ exclusion clause can be incorporated into a contract?
(a) Sufficient information to the parties
- The parties to a contract should be sufficiently informed of the terms in order for the
contract to be valid.
- Does the information behind a receipt/ticket considered as sufficient information?
- Chapelton v Barry Urban District Council
 The P rent a chair from D to sit on the beach. He took the chair to a comfortable
area and set it up firmly, sat on it and he went through the canvass. He sued D for
the injury sustained. D argued that there was a clause printed behind the back of
receipt “the council will not be liable for any accident or damage arise from renting
the chairs”.
 The court held that that the receipt did not form a part of the contract and the D are
liable for the injury suffered by P.
(b) Sufficient information must be made before or at the time of contract
- The term, in order to be part of the contract, must be put forward to the other party
before or at the time the contract is made. This is to make the other party aware before
entering into the contract, for it to be binding on the parties.
- Exception: Where the parties had consistent previous dealings, it would be sufficient to
show that the other party was made aware of the terms i.e. the other party had
constructive notice of the terms.