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LAW OF CONTRACT: ELEMENTS OF CONTRACT (CAPACITY) Prepared by: NURUL NASIHIN ARIFFIN KPMBP
• 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.
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.
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.
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.
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.
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
• 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.
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 minor’s actual requirement.
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 minor’s life, they were not necessary as he already had sufficient clothing.
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.
• Scholarship - A scholarship agreement entered into by an infant is valid
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
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.
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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