LAW OF CONTRACT:
ELEMENTS OF CONTRACT
(CAPACITY)
Prepared by:
NURUL NASIHIN ARIFFIN
KPMBP
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.
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
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.
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.
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
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.
Thanks for your
coorporation