Topic 3

Capacity to
Contract,
Certainty
&
Formalities
1
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CAPACITY TO CONTRACT
 The parties entering into a contract should be
competent to contract i.e. they must have the legal
capacity to contract.

 Capacity = Ability to fully understand the terms and

obligations in contract.

 S.
10(1): “…All agreements are contracts if they are
made by the free consent of parties competent to
contract…”
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Cont.
 S. 11: A person competent to contract is:

i. A person who attained the age of majority

according to the law to which he is subject;

ii. A sound mind person; and

iii. A person not disqualified from contracting by any

law to which he is subject
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i. MINOR
 S. 2, Age of Majority Act 1971: The age of majority
is 18 years.

 Anyone below 18 years is a MINOR and therefore

incompetent to contract – VOID contract

 Tan Hee Juan v The Boon Keat [1934] FMSLR 96

 Held: The transfers of land executed by a minor in
favour of D, were void and ordered the D to restore
the property to the minor. The court did not order the
minor to refund the purchase money he received.
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Cont.
 Mohori Bibee v Dhurmodas Ghose [1903] 1 LR 30
 A minor executed a mortgage for the sum of
Rs20,000. The minor brought an action to set aside
the mortgage and the money lender claimed refund
from the minor.

 Held:
A minor cannot make a valid contract and the
money lender could not recover the amount.
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Exceptions:

 Minor can enter into a valid contract of following:

a) Contract for necessaries

b) Contract for scholarship
c) Contract of insurance
d) Employment contract
e) Marriage contracts
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a) Contract for necessaries

 S.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…”

 This is a statutory liability and NOT a contractual

liability.
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Cont.
 Necessaries are things which are essential to the
existence and reasonable comfort of a minor.

 It would include items such as food, lodging,

clothing, medicine and medical care, and basic
education and vocational training.

 They must be ‘suited to his condition in life’ – it

would depend on the minor’s station in life, his
actual needs, the circumstances in which it was
supplied and the purpose which was served.
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Cont.

 Necessaries may vary considerably with each

individual depending on the above.

 The supplier is entitled to be reimbursed from the

property of such incapable person.

 He is only entitled to a reasonable price for the

necessaries supplied.
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Nash v. Inman [1908] 2 KB 1

A tailor supplied 11 fancy waistcoats to a minor. The

tailor then sued the minor for the price. The minor’s
father was in a good position and the clothes
supplied were suitable to his position in life.
However, his father proved that D was amply
supplied with such clothes at that time.

 Held: Tailor’s claim failed because he had not

established that the goods supplied were
necessaries.
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Scarborough v Sturzaker (1905) 1 TAS

LR 117

A minor periodically rode his bike to work for a

distance of about 15 km. He bought a new bike and
traded in his old one as part payment before the
delivery of the new one. He then attempted to
avoid the contract.

 Held: The bike could be classified as necessary.

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 Government of Malaysia v. Gucharan

Singh
 Held: Education was included under
necessaries.
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b)Contract for scholarship

 The scholarship agreement entered into by a minor
is VALID.

 Contracts (Amendment) Act 1976 governs

scholarship agreements entered into between a
person/scholar and an ‘appropriate authority’.

 S. 2: Agreement is with respect to scholarship,

award, bursary, loan… whether granted directly by
the appropriate authority or other person or body …
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Cont.
 Appropriate authority’ includes:-
 Federal Government,
 State Government,
 Statutory authority, and
 An approved educational institution (declared by
the Minister as such) – S. 3

 University Malaya v Lee Ming Chong (1986)

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Cont.

 S.4:Scholarship agreements shall not be invalidated

on the ground that the scholar is a minor or such
agreement lacks consideration.

 S. 5: In the event the scholar were to breach the

scholarship agreement, the scholar will be required
to pay the full sum named in the agreement to the
appropriate authority and no deduction shall be
made from the named sum for any partial period of
service performed by the scholar upon completion of
his course of study.
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c)Contract of insurance

 Paragraph 4 Schedule 8, Financial Services Act

2013
 A minor who has attained the age of 10 years but
has not attained the age of 16 years, may effect a
life policy upon his own life with the consent in
writing of his parent or guardian.

A minor who has attained the age of 16 years may

enter into a valid insurance agreement.
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d) Employment contract
 S. 13 Children and Young Persons (Employment)
Act 1966
 Any child (below 14 years of age) or young person
(between ages 14 and 16) is competent to enter into
a contract of service regardless anything in the
Contracts Act or any written law.

 However, no damages or indemnity may be

recovered from such person for breach of the service
contract.
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e) Marriage contracts
 Rajeswary v Balakrishnan (1958) 3 MC 178
 Held: The principle in Mohori Bibee was confined to
commercial transactions and was not meant to
extend to marriage contracts.

 S.4(a) Age of Majority Act 1971: Minority does not

affect the capacity of any person to act in marriage,
divorce, dower and adoption.

 However, a person under 21 years of age still needs

to obtain his or her father’s written consent before
marriage: s. 12 Law Reform (Marriage and
Divorce) Act 1976
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Fraud by minors
 Allcontracts entered by minor are void (apart from
exceptions), even if the minor induced the other
party to enter into the contract by falsely
representing himself to be a major.

 Khan Gul v. Lakha Singh AIR 1928 Lah. 609

 A minor could not be estopped or precluded from
pleading his minority to avoid the contract.

 It has been followed in R Natesan v.

Thanaletchumi & Anor [1952] MLJ 1.
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R Natesan v. Thanaletchumi &

Anor [1952] MLJ 1

P sued the Ds on an agreement entered into by the

three parties. The 1st D (minor) alleged that at the
time she signed the agreement she was a minor and
for that reason the agreement is VOID so far as she
is concerned. It was alleged that she had
misrepresented her age at the material time.

 Held:
A minor is not estopped from avoiding the
agreement by pleading her minority.
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Restitution
 Althoughthe contract entered by minor is void,
sometimes the money and property usually
exchange hand in a void transaction.

 S.66: 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 make
compensation for it, to the person from whom he
received it.
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Cont.
 The section refers to an agreement discovered to be
void, or when a contract becomes void, while a
contract by minor is actually void ab initio.

 Thus,this section is not applicable to a contract

entered into by a minor.
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ii. Sound mind

 Thecontract made by an unsound mind person is
VOID.

 S.11: ‘Every person is competent to contract who is

of the age of majority…and who is of sound mind…’

 S.12(1): 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 judgement as to its effect upon his
interest.
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Cont.
 S.12(2): A person who is usually of unsound mind,
but occasionally of sound mind, may make a
contract when he is of sound mind.

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

 S. 12(3): 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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Cont.
 Illustration (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.

 It would also apply when a person is under the

influence of drugs or medication and is therefore
unable to understand the nature of the contract
during such periods of incapacity.
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Cont.

 The contract is VOIDABLE by the impaired person,

if the other party knew or should have reasonably
known of the impairment.

 Imperial Loan Co. v. Stone [1892] 1 QB 599

 Held: Such a contract is voidable at the option of the
person of unsound mind if his unsoundness can be
proved and the other party knows of it.
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iii. Disqualified by law

A person who has been disqualified from
contracting by any law is considered as
incompetent to contract.

 E.g.: a bankrupt cannot enter into a valid contract.

 38(1)(a), Bankruptcy Act 1967:

 Where a bankrupt has not obtained his discharge,
the bankrupt shall be incompetent to maintain any
action (other than an action for damages in respect
of an injury to his person) without the previous
sanction of the Director General of Insolvency.
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Cont.
 A person who had been adjudicated a bankrupt by the
court has no locus standi to institute an action, unless he
had obtained the prior sanction of the official assignee
(Director General of Insolvency).

 In an action based on breach of contract by the

defendant, the bankrupt’s estate and cause of action are
vested in the official assignee (“OA”) upon adjudication
and unless the prior sanction of the OA is obtained, the
bankrupt is incompetent to maintain the action in his own
name or to employ an advocate and solicitor to act on his
own behalf.
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CERTAINTY
 The terms of the agreement cannot be vague and
must be certain.

 S. 30: An agreement which is uncertain or is not

capable of being made certain is VOID.

 Illustration(a):
 A agrees to sell to B ‘a hundred tons of oil’. There is
nothing whatever to show what kind of oil was
intended. The agreement is void for uncertainty.
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Cont.

 Illustration(f):
 A agrees to sell to B ‘my white horse for RM500 or
RM1,000’. There is nothing to show which of the two
prices was to be given. The agreement is void.

 Karuppan Chetty v Suah Thiam (1916)

 The contract was declared void as the phrase ‘for as
long as he likes’ carries uncertain definition.
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FORMALITIES
 There is no requirement that a contract should be in a
particular form; it can be in oral, writing or both.

 Certain formalities may be required by particular

legislation.

 E.g.: National Land Code 1965 – dealing such as

transfers, charges and the like are required to be in
writing in special forms and witnessed, and register to
be effective.