SUBJECT NAME : FOUNDATIONS OF BUSINESS LAW

SUBJECT CODE : LAW 2104

SECTION : DB11

PROGRAMME : DIPLOMA IN BUSINESS

ASSIGNMENT TITLE : INDIVIDUAL ASSIGNMENT

SUBMISSION DATE : 20TH JUNE 2017

LECTURER’S NAME : MS. SITI BAQIURATUL MOHD RAHIM

SESSION : APRIL 2017

STUDENT NAME : LEE YEN YANG

STUDENT ID : J15019606

I declare that this assignment is my individual work. I have not worked collaboratively nor
have I copied from any other students’ work or from any other source except where due
acknowledgement is made explicitly in the text, nor has any part been written for me by
another person.

Student’s name: LEE YEN YANG

Signature : _____________
Introduction

The definition of Capacity would be the law states that if an individual who could enter
into a contract must have capacity to enter in a contract, if not it would be voidable. The law also
sets out that for those individual that does not have legal capacity to the contract which also
particularly providing special legal to protect those who are still mental disability, minors and an
unsound mind.

The definition of Law of Contract, Capacity which would be who are the people that
could enter to a valid contract. In another words, it means that the legal competence of a person
to be in a valid contract. The capacity that relates to the contract refer back to legal agreement
and the competence of a person to perform some act. The basic element for a person to enter a
legal or valid contract is that he or she must have a sound mind. A person which is a unsound
mind would not be allowed to be in a valid contract. On top of that, A person must be the age of
maturity to enter a contract. In law, it sees this of the age at 18 or older. This is to make sure that
they could know what they are doing or totally understand about what a contract they are signing
on. Last but not least, it is also compulsory for a party to be free from mental illness. There are
many conditions that could challenge a person’s mind or in another words their mental state.
These are the three requirement that required a person before they legally enter to a valid
contract.

A briefly explanation of the elements in Law of Contract. A contract is an agreement

enforceable by law. To form a contract it needs more than one person to agree. In order for a
contract to be legally binding, all the elements of the contract need to be fulfilled. There are six
elements which are offer, acceptance, consideration, intention to create legal relations, certainty,
and capacity. An offer under Section 2(a) of the Contract Act 1950 is any person willingness to
do or abstain from doing something. An offer needs to be communicated to reach the end. Under
offer, it has invitation to treat that would be need to differentiated with an offer. Its more on a
pre-limary negotiation. Furthermore, Acceptance is where is defined under Section 2(b) of the
Contract Act 1950 as an offer whom the person is made signifies his ascent, therefore the offer is
accepted and becomes a promise. It includes acceptance must be absolute and inqualified where
the buyer must follow what the seller has the requirement to sell off its particular product. As
well must be made in a usual and reasonable manner and communication is needed. Moreover,
Consideration is defined as it must be supported by consideration to make a law enforceable, a
contract is invalid without consideration. A trade will reach the end if consideration is made and
that is part of the process in a valid contract. In addition, Intention to create legal relations
defines that a party start some offer to another person did they make any sacrifice to show they
have the intention to give a particular benefit to the other party. Next, Certainty is defined under
Section 30 of the Contract Act 1950, that provides an agreement of the meaning which is not
certain or capable of made certain are void. It must be very specific listed on what kind of
particular items to be sold and the amount of every transaction. It must be clear enough for the
other party to know the subject matter of the offer. Last but not least, Capacity is defined under
Section 69 of the Contract Act 1950, if a person incapable of entering into a contract, the person
whom suppliers are entitled to be reimbursed from the property of such incapable person. It has
exception to the rule that minor could enters into a valid agreement.

2.1 Who is competent person

Under Section 10 defined that the parties that involved in the contract needs to be competent to
make the contract.

Under Section 11 defined that who are the right person or competent person who is considered as
legal to enter into a contract.

1. It is provided that under the Section 2 Age of Majority Act 1971 defines that, a person must be
at their age of maturity for individual to enter into a contract. The law seems this age at 18 years
old or older. Under the case of Tan Hee Juan v Teh Boon Keat the plaintiff which is Tan Hee
Juan had a contract of land with the defendant. He then transfers the piece of land to The Boon
Keat, and the court decision or held that the land transferred to Boon Keat is not valid and there
is no contract at the first place. This is because Tan Hee Juan is a minor by the case. The
defendant, Boon Keat has to return the land back to plaintiff. In the other case of Mohori Bibee
V Dharmodas Ghose that Dharmonas lent a sum of money to the minor of $20,000 rupees at a
12% of interest by securing the loan and by the way of mortgage executed by the other party
which is the minor. Later then, the parents of the minor found out and claims that there no
contract at the first place and the mortgage was voided due to lack of capacity.

2. As stated in Section 12 that for the time of having a contract, a person must be sound mind
then the contract is considered as valid. If one individual that is unsound mind that enters into a
contract, the contract would be void immediately. Unsound mind are mostly alcoholic or
drunken person. As illustrated in this case of Matthews V Baxter (1873) Matthews had agreed to
sell his house to Baxter for a certain price. But because at a time he was too drunk to know what
he actually doing, but he already ratified the contract when the time he was sober. It was held
that the contract was binding. The contract is valid. As the similar case, Sim Kon Sang Peter’s v
Datin Shim Tok Keng. In this case that the plaintiff itself claims that the deceased when she was
still alive, it transferred to defendant’s certain share of her property when she was on the
condition of unsound mind at that time of executing the transfer and her capability to understand
the contract. The court held that it was the deceased that appeared to the Defendant. And the
defendant was not aware of that deceased and it was found unsound mind.

3. A person needs to be free from mental disability. Entering a contract a individual need to
understand the whole agreement about. Without it, this would not be a valid contract for both
parties. A person with mental disability does not able to understand every term correctly. |

2.2 Effect of contract entered by non-competent person

In forming a contract that is valid, a person must have the full capacity in terms of mind,
age and qualify to enter into a contract. This means that, an individual who has not reached that
certain age or age of majority or unsound mind it cannot be a valid contract. This provided under
Section 10 and Section 11 whereby every individual need to be competent to enter into a valid
contract which require their age of majority, who is also sound of mine and not disqualified from
any contracting by law.
1. Age of Majority Act 1971, Individuals who under the age of 18 years old is known as minors.
A minor could not enter a contract any time before they are 18 years years old or above. A minor
who caught in a contract and paid the money to an adult they could recover the money, at the
same time after they returned the goods or property back to the adult. In the case of Leha Jusoh
v Awang Johari. The minor entered into a contract to purchase the land belonging to the land
which belongs to the owner. The court held that, the adult which is the owner to refund on the
purchase price to the minor. Minor also has to return the property or land back to the owner.
Under Section 66 of the Contract Act 1950, any individuals that receive the benefit from the
agreement that they made is bound that to restore it back, or could make compensation for the
person whom received. The owner could get compensation on the time of wasting and effort of
making the contract valid due to minor was unable to enter an agreement. In a similarity case of
Mohamed Syedol Ariffin v Yeoh Ooi Gark that is the Plaintiff sued the minor which is the
respondent because the Plaintiff which is a moneylender that a sum of RM29,00 was lent to the
minor. Respondent reply was at the time he loan he was only a minor. But he told the plaintiff
that he was an adult. Therefore the court held that Plaintiff could not claim the money from the
respondent which is the minor.

2. Person of unsound mind, it is important that at the process of making contract, both parties
must not suffer from any mental disability. Under Section 11 of the Contract Act 1950 states that
every individual must be competent to enter a contract who is sound of mind. Under the case of
Che Som bte Yip& Ors. V Maha Pte. Ltd & Ors. In this case the court held that it was because
the defendant did not know about the Plaintiff that he was unsound mind during the process of
making a contract. Therefore, the contract is valid.

3. As stated that in Section 10, parties that involved in an agreement need to be competent to
enter into a valid contract. Under Section 11 provides information that who are the right person
to enter into a legal contract. Person who are disqualified are not allowed to enter into a contract
therefore in this case that people who are bankruptcy, criminals or evade tax are not able to enter
into a legal contract.
2,3 Exceptions

Not every contract that minor enters get voided, other parties would even refuse to enter a
contract with them. This is why the law provides that are certain necessary services and good are
not voidable for them. Which make it legal or a valid contract. Necessaries such as item and
services that maintain their health and security. For an example, food, mineral, shelter, and
clothes. Besides, The court also decided that the minor can enter in a marriage contract and it
would be unavoidable. Furthermore, according to Section 4(a) the contract act 1976, which
scholarship agreement entered by minor would be valid. On top of that, minor can enter into a
insurance contract under Insurance Act 1993 that minor below 16 years old must get a written
consent from their guardian or parents who take care of them. The Children and Young person
Act 1966 defines that a minor below age of 14 years old shall be competent to enter into a
contract of service for apprenticeship. It defines that the minor can be employed as an apprentice.

2.3.1 Contract of Necessity (S69)

A minor who gets to enter into a contract for necessaries is basically liable for the contract.
Under Section 69 of the Contract Act 1950, if a person that is incapable of entering to a contract,
or they are legally bound to support, is supported by other person with necessaries that suit his
condition of life, the person whom has furnished such supplies is somehow entitled to be
reimbursed on the property of such a incapable person. As illustrated under the case of
Scarborough v Stuzaker a minor that bought a brand new bicycle from the owner which is the
plaintiff. The minor really want and need the bicycle because he need to travel 12miles a day to
his work place and the minor did not manage to pay. The court held that minor definitely needs
to pay for the bicycle because if fall under the category of necessaries. The minor desperately
need that bicycle for his working transportation without it minor could not make it to earn money
for living, therefore the bicycle is a necessity for the minor.

However, in the similar case of Nash v Inman (1908). In this case that the claimant was a
tailor and the defendant was still a minor during the process of making the contract. The claimant
send his agent to the college of where the minor was studying. He was getting resources that the
defendant spending too much money and have the possibilities to be the person whom would be
interested in buying luxury clothes or called as high end clothes. By following the Agent’s visit,
the claimant supplied to the defendant with various type of clothing of the value $145. The
clothes inside included 11 fancy coats. The claimant make the action to sued the minor because
of the price of these clothes. There was even evidence that shown that the minor’s parents which
the father was in good position and it can be said that these clothes are supplied suitably to the
defendant’s position in life. Moreover, the minor’s father then proved that the defendant was in
real quality supplied with such clothes when they receive the clothe from claimant. The court
held that: The claimant failed to sue because he had not establish that these goods supply were
necessaries.

Last but not least, in the case of Roberts v Gray (1913). As illustrated in this case that the
defendant wish to be a professional billiards player. The defendant ended up entering into a an
agreement with claimant, a person who is leading professional, to join on a joint tour. The
claimant caught into some trouble during the process of organizing the tour, but a dispute arose
that between the parties and defendant refused to leave. The claimant then plan to sue for
damages for $6,000. The court held that: The contract was for the infant’s benefit himself. In
addition, the claimant could get compensation of $1,500.

2.3.2 Marriage Contract

Minors could also enters into a contract of promise of marriage. The contract would also
would be legal and valid under the law. According to Section 4(a) of the Age of Majority Act
1971, that it provides nothing that should affect the capacity of any individual to act in a
marriage, adoption and divorce. As illustrated based on the case of Rajeswary & Anor v
Balakrishnan & Ors (1958). In this case the parties enters into a contract of marriage that
according to customary practice that could provide for dowry and a penalty was held for the
breach, the both parties went through a customary ceremony. Then, the first defendant repudiated
that the promise of marriage and next the plaintiff brought an action for breach of the promise for
the marriage. The defendant claims that the first plaintiff has no capacity in the first place to
enter into the marriage agreement because she was still a minor. The court held that: the age of
majority that entering into a marriage of contract differed from the other minor contracts and
defendant broke the contract of marriage.

2.3.3 Scholarship

However, in the similar case of Government of Malaysia v. Gurcharan Singh & Ors
(1971). In this case it was illustrated that, the Government sued the first defendant which is
minor and second and third defendant as well for the breach of contract. The amount that he
claimed was RM 11,500, a sum of money spent by the Government to support the minor’s
education. At that time when the contract was form, the first defendant was still a minor. The
court held that: The contract was void but due to the education was a necessity for the minor.
Thus, minor is liable for repayment of reasonable sum that spent on the minor. The amount that
ordered as a payment to the Government was a sum of RM2,683 because the infant has already
served for Government for 3 years and 10 months.

2.3.4 Insurance

Insurance Act 1993 includes that a contract of insurance could be entered by a minor through
conditions of any minor below 16 years old, must have any written consent from their parents or
guardian. It is also because it was in a minor best interest to assure himself or minor’s property.

2.3.5 Apprenticeship

The Children and Young Person Act 1966 states that a minor that below age of 14 years old and
young person the age between 14 to 16 years old is competent to enter into an agreement or
contract of service of apprenticeship. That defines a minor or a young person could be employed
as an apprentice.
In the case of De Francesco v Barnum (1890) a 14 years old infant entered into an
agreement or a contract with a Chereographer. There is a clause stated in the contract that the
minor is not getting any paid from the work. Meanwhile the agreement or contract of apprentice
was still exist. In addition, she was prohibited to marry during the whole process of the
apprenticeship. Moreover, she only entitled to receive her payments for any performances
arrange by the Chereographer. But there were no promises that the chereographer would have
any performances for her. The court held that: this contract does not benefit the minor. There
were too many disadvantages for the minor in this case and the plaintiff is not able to sue the
minor for the breach of contract. (Dr Myra Williamson, 2013)

The similar case would be Doyle v White City Stadium 1935. In this case Doyle was a
boxer that made a contract with a British Boxing company. The conditions of it was if Doyle was
disqualified in his fight, he would not get any compensation. Doyle agreed and fought for it and
ended up was still disqualified and he now wants to sue the company. Doyle then argued about
the issue that he was still a minor. Therefore, it was not bound by the contract to forfeit the
money if disqualified. The court held that: the minor failed to sue to plaintiff which is the
company because the contract was similar to an employment agreement. It was for his benefit so
he is bound by it.

Another similar case would be Bromley v Smith. In this case itself, Smith is the minor who
working for Bromley in a bakery shop. Their agreement includes some clauses of restrictions and
the minor agreed to the contract. Then, the minor left Bromley’s bakery and have his own bakery
shop open nearby Bromley. Bromley then think of an injunction that was a breach of contract
and minor argued that he was still a minor when he signed the contract. The court held that: the
injunction was approved. Since there was a clause and the contract is still valid because it is
under the category of beneficial agreement of service. Smith which is the minor could earn his
own living because of his own employment.
Conclusion

These are the reasons that make clear of the information of who can enter into a contract.
Entering into a contract is not a normal activity but it needs to comply of both parties agreement
to form a contract. If either one of the party not able to perform or complete the contract it would
be waste of time during the process and much more other reason. This needed to make clear to
other individuals before entering into a contract. Individuals that suffer from mental disability,
disqualified individual that are criminal, bankrupt or evade taxes, unsound mind that they are not
aware of their own actions and as well as minors that are below 18 years old. For minors, there
are also exceptions that they could enter into a contract that explained above, they could enter
into contract that categorized in necessities falls under section 69, marriage contract, scholarship,
insurance and last but not least apprenticeship.
Reference

https://www.slideshare.net/naseer9848/business-law-ppt-41951911
http://itslaw.blogspot.my/2011/02/minors-capacity-to-contract.html
http://www.nolo.com/legal-encyclopedia/lack-capacity-to-contract-32647.html
http://www.vanuatu.usp.ac.fj/courses/LA202E_Law_of_Contract2/LA202E_t2u1_minor.html
https://www.lawteacher.net/cases/contract-law/capacity-cases.php
https://www.lawteacher.net/lecture-notes/contract-law/capacity-lecture.php
http://www.inbrief.co.uk/contract-law/capacity-in-contract-law/
https://asalraac22.files.wordpress.com/2016/10/law-of-contract-capacity-to-contract.pdf
http://www.lawhandbook.org.au/07_01_02_elements_of_a_contract/
http://www.klelawcollege.org/kle/wp-content/uploads/2015/09/Capacity-of-Parties.pdf
http://study.com/academy/lesson/legal-capacity-to-enter-a-contract-definition-examples.html

LLM - Comparative Legal systems (Dr Myra Williamson) – Slide

LAW OF CONTRACT: ELEMENTS OF CONTRACT (CAPACITY) Prepared by: NURUL NASIHIN ARIFFIN
KPMBP - Slide