Tutorial 5 Capacity CHP5

1. All contracts made by minor are void. Do you agree? (pg 1)

According to S.11 of the Contracts Act 1950, a person is competent to contract if he is
of the age of majority. In Malaysia, the age of majority is eighteen years old, as stated
by S.2 of the Age of Majority Act 1971 as demonstrated in the case of Tan Hee Juan v
Teh Boon Keat , where the transfers of land executed by infants are void. However
there are four exceptions to the rule.
(Outline all the exceptions-refer to lecture notes)

2. Mary, a sixteen year old singer, obtained a diamond jewelry set from ABC
Sdn. Bhd. for a total purchase price of RM10,000. Mary promised to pay the
purchase price within three days, but failed to do so. Advise ABC Sdn Bhd

As a general rule, Mary has no l capacity to enter into a valid contract. Section 11
provides that only those who reach the age of majority are competent to enter into a
valid contract. According to Section 2 Age of Majority Act 1971, the age of
majority is 18 years old. In this case, Mary is 16 years old and therefore she is a
minor. Contracts made by minor are void as in the case of Tan Hee Juan v Teh
Boon Keat. Even though the diamond jewelry set cannot be considered as
necessaries to a minor, however if ABC can prove that the diamond jewelry set is
necessary to Mary, who is a singer, then ABC is entitled to take back the diamond
jewelry set from Mary if the diamond jewelry set is still in Mary’s possession or
claim back reasonable sum of money from Mary as in accordance to Section 69 CA
1950.

3. Farah, a 14 years old teenager, entered into a hand-phone shop to buy the
latest model, “Motorola mobile-phone” with the cost of RM2,500. Farah paid
a sum of RM200 as deposit and the balance was to be paid the next day. The
shopkeeper allowed Farah to keep the phone. Farah now refuses to pay the
balance sum. Is the contract valid, voidable or void?

As a general rule, a minor has no legal capacity to enter into commercial contracts.
Section 11 CA 1950 provides that only those who reach the age of majority and
who are of sound mind are competent to contract. According to Section 2 Age of
Majority Act 1971 the age if majority is 18 years old. In general, contracts made by
minors are void, as in Tan Hee Juan v Teh Boon Keat. Therefore, since Farah is
only fourteen years old, therefore she is a ....... and generally, she has no legal
capacity to enter into contracts unless the contract that she signed are contracts for
necessaries, contracts for scholarship, contracts of insurance or contracts of service
of apprenticeship. In this case scenario, a hand-phone which costs RM 2,500 may
not be deemed as necessary for a minor. So none of the exceptions can be applied
on the fact. Therefore the contract is void between Farah and handphone shop.
Farah is not liable to pay the balance sum. However, the shopkeeper still can take
back the handphone from Farah according to Section 69 CA 1950.
4. Kia Su has scored 6As in STPM. Due to his excellent results, he was offered a
scholarship in University of Cambridge and Kia Su entered into scholarship agreement
with Cambridge. At the time he signed the agreement with University of Cambridge, Kia
Su just celebrated his 17th birthday.

   (a) Determine whether Kia Su is competent to enter into contract with University of
Cambridge? Your answer should include the case law of general rule and exception to
the general rule. (12 M)
• General rule
• Section 2 of Age of Majority Act 1971 states that the age of majority is 18 years old. Anyone
below 18 years is regarded as a minor.
• 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.
• The general rule is all contracts entered into by a minor are void and a minor cannot sue or
be sued under such void contracts. This is a protection given to minors as it is presumed that
minors may lack judgment and may be exploited. But there are exceptions to this rule.
• Exception
• 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 the age
of majority.
• In Government of Malaysia V Gurcharan Singh, the government has spent a substantial
amount of money in educating the defendant and is now suing the defendant for breach of
contract. The claim was for $11,500, the sum actually spent by the government in educating
the defendant. The defendant’s defense was that he was a minor at the time of making the
contract and as such the agreement was deemed to be void. The court applied the above test
and ruled that education agreement could not be invalidate and thus, the defendant was liable
to pay a reasonable sum to the government.
• Conclusion!

  (b) Contract for necessaries is also one of the exceptions to general rule where the
minors are allowed to enter into contract. Discuss on this exception and support your
answer with relevant case law and legislations, if any. (8 M)
• ‘Necessaries’ are things which 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: i. The nature of the goods or services
supplied ii.The minor’s actual needs and his station in life.
• Government of Malaysia v Gucharan Singh where the court said: ‘An infant ... is incapable
of making a contract of purchase in the strict sense of the words, but if a man satisfies the
needs of the infant or lunatic by supplying to him necessaries, the law will imply an obligation
against the estate of the infant or lunatic.’
• Nash v Inman - A tailor sued for the price of the clothes, including 11 fancy waist coats,
supplied to an infant undergraduate. The court held that since the father was able to bring
evidence that the son, a minor, was already adequately stocked with the goods in question, the
clothes were no longer a necessity.
Void and voidable

1. John agreed to sell to Ah Kow illegal copies of several popular CD’s of

famous musicians for the sum of RM3,000. Discuss the validity of the
contract. (pg 7)

The object which is the popular CD, was obtained in an unlawful manner, in
accordance to S.24 of the Contracts Act 1950. Therefore according to S. 2(g) of
the Contracts Act 1950, the agreement between John and Ah Kow is void and
unenforceable.

2. Tan, a lawyer bought an apartment in Penang at an extremely low price

from James, his client. James has been relying on Tan as his family
lawyer for advice regarding his properties and business for several years.
Discuss the validity of the contract.

Base on the fact, James can rely on undue influence under S.16 CA 1950
because there is a fiduciary relationship between James and Tan. Both of them
are under lawyer-client relationship. Therefore, Tan, the lawyer was in a
position to dominate James’s mind and obtain unfair advantage on James. In
this case, Tan bought the apartment at an extremely low price. Therefore,
James can choose either to continue the contract and accept the low price or
James can choose to rescind the contract.

3. Distinguish between a void and a voidable contract.

S.2(g) of the Contracts Act 1950 states that a void contract is an agreement
which is not enforceable by law; a voidable contract means an agreement
which is voidable at the option of the innocent party to the contract whose
consent is caused by coercion, undue influence, fraud, or misrepresentation.

4. Chan and David entered into an agreement for David to murder Eric. In
return Chan must pay David the sum of RM50,000. Is the contract valid,
voidable or void?
In this case, the consideration (RM 50,000) which was received by David was
in unlawful as stated in S.24 of the Contracts Act 1950. Therefore according to
S. 2(g) of the Contracts Act 1950, the agreement between Chan and David was
void and unenforceable.

5.  All agreements are contracts if they are made by the free consent of the parties. The
consent is ‘free’ when it is not caused by any of the vitiating factors. Discuss the following
vitiating factors and support your answer with relevant case laws and provisions of the
Contract Act 1950:
 (a) Coercion; (5 marks)
  Coercion is defined in Section 15 as ‘the committing or threatening to commit any
criminal act, or the unlawful detaining or threatening to detain, any property, to the
prejudice of any person whatever, with the intention of causing any person to enter
into an agreement.’
 Nuri Asia Sdn Bhd V Fosis Corp Sdn Bhd
 The D contended that the signed the written guarantee under coercion. He had gone to
meet the P’s Chairman at a restaurant and the Chairman had 5 other men with him. A
witness testified that the D was sandwiched between 2 of the men and 1 of the men
pushed the D to sit down next to the Chairman. The court held that the execution of
the written guarantee clearing came within the scoop of ‘committing or threatening to
commit criminal act’. The written guarantee was tainted with coercion and so there
was no free consent.

 (b) Undue influence; (5 marks)

 Section 16(1) states that there is undue influence in a contract where there is a
relationship between the parties in which one party is in the position to dominate the
will of the other party; and the dominant party uses that position to obtain an unfair
advantage over the other party. The effect of undue influence is to render the contract
voidable at the option of the innocent party.
 Morley V Loughnan
 The deceased’s executor alleged that that L obtained gifts amounting to £140,000
from M through the exercise of L’s religious influence. The executor able to prove
that during M‟s lifetime, M had orally expressed to a neighbor that L and his family
have ruined M‟s life and they had taken away all M‟s property. This evidence shows
that M‟s state of mind at the time he made the gifts was unwillingly, without free
consent. The court held the gifts was obtained by influence under a cover of religion
and religious brotherhood and the gifts were not based on the deceased‟s own free
will.

 (c) Fraud; and (5 marks)

 Section 17 - There must be intention to deceive or to induce the other party to enter
into the contract, and there must be reliance on the false statement by the other party.
A false statement by itself does not give rise to fraud. The person must have relied on
the statement made by the representor and then entered into the contract.
 Letchumy v Annamalay
 P, an illiterate Indian woman rubber tapper was induced to enter a sale and purchase
agreement when all she wanted was to take a loan to discharge her property. D
fraudulently represented to her that the document she was signing was for a loan to be
used to discharge her land. The documents were actually an agreement to sell her land.
Subsequently the defendants sold off her land. She sought to bring an action to rescind
the agreement. The court held that there was fraud and the contract had to be
rescinded. She was also awarded damages for the fraud.

 (d) Mistake by both parties. (5 marks)

 Section 21 states that when both of the parties to an agreement are under a mistake as
to a matter of fact essential to the agreement, the agreement is void.
 Raffles v Wichellhaus
 The parties had an agreement for the sale of a cargo of cotton arriving from London by
a ship called „The Peerless‟ sailing form Bombay. Unknown to the parties there were
2 ships of the same name leaving from Bombay at different times. One party was
thinking about the Peerless sailing in October while the other was thinking about the
one sailing in November. They both were negotiating under a mistake of fact as they
had different ships in mind. Since both parties were not thinking on the same subject
matter, the contract was void for mutual mistake.