Topic Law of

Contract
4 (Capacity to
Contract)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Identify the importance of contractual capacity of a minor to
contract;
2. Describe the types of contract validly entered into by a minor;
3. Examine the effect of a minor contract;
4. Explain the importance of mental capacity for purpose of
contract; and
G 5. Discuss the status of contract made by an unsound mind
person.
G

INTRODUCTION
In forming a valid contract, it is important that the person who enters into the
contract must have the full capacity in terms of age and mind. This means, the
person who has not reached the age of majority or unsound mind cannot make a
valid contract (Refer to Figure 4). This is provided by Section 11 of the Contracts
Act 1950, every person is competent to contract who is of the age of majority
according to the law to which he is subject, and who is of sound mind, and is not
disqualified from contracting by any law to which he is subject. The following
48 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT)

discussion will also look into the status of a contract entered into by a minor and
an unsound mind person.

Figure 4.1: Persons who cannot make valid contract

 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT) ! 49

4.1 MINORS
A minor or an infant is a person who is below the age of majority. Under the Age
of Majority Act 1971, the age of majority is 18 years. With regards to the minors
contractual capacity, the general rule is that all contracts entered into by a minor
are void. The authority derived from the following Indian case of:

Mohori Bibee v. Dhurmodas Ghose (1903) I.L.R. 30 Cal. 539.

The Privy Council held that: the combined effects of sections 10 and 11 of the
Indian Contracts Act (which is similar to the same sections of the local Act)
rendered the contracts void.

The local case that applied the decision in the Mohori Bibees case was the case
of:

Tan Hee Juan v. Teh Boon Keat [1934] MLJ 96.

The plaintiff in this case was an infant. The infant executed transfers of land in
favour of the defendant. The transfers were witnessed and registered. Later,
the plaintiff applied to the court for an order to set aside the transfers and for
incidental relief.

The Court ruled that: the transactions were void and ordered the restoration of
the property to the minor.

Normally, when a contract is void, under Section 66 of the Contracts Act 1950,
any person who has received any advantage under the agreement or contract is
bound to restore it, or to make compensation for it, to the person from whom he
received it.

However, the Privy Council in Mohori Bibees case decided that a party who is a
minor cannot be compelled to repay any moneys which he has received in the
contract. Thus, Section 65 of the Indian Contracts Act (similar to Section 66,
Malaysian Contracts Act) does not apply to a minor contract. It applies to a
contract between competent parties, whereas in a case involving a minor, the
contract never exists from the beginning.
50 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT)

In the case of Tan Hee Juan, the plaintiff (minor) had received the purchase price
for the transfers of land to the defendant. However, when the court made an
order declaring the transfers void, the court refused to order the minor to refund
the purchase price paid by the defendant.

4.1.1 Valid Contracts (Exceptions to Minors)

There are certain exceptions available to contracts entered into by a minor. It
includes those exceptions under the:

Exceptions to Minors

Age of Majority Act 1971 (including matters relating to marriage, divorce,

dower, adoption; religion and religious rites and usages of any class of
persons within Malaysia; and any other written law fixing the age of
majority).
Contracts Act 1950 (contract for necessaries).
Contracts (Amendment) Act 1976 (contract of scholarships).
Insurance Act 1963 (Revised 1972) (contract of insurance).

(a) Exceptions under the Age of Majority Act 1971

The Age of Majority Act provides exceptions to the general rule that minor
contracts are void. The exceptions include:
(i) The capacity of any person to act in matters relating to marriage,
divorce, dower and adoption;
(ii) The religion and religious rites and usages of any class of persons
within Malaysia; and
(iii) Any other written law fixing the age of majority.

The above provision shows that minors can enter into contracts of promise
of marriage and the contracts are valid. Apart from marriage contracts, etc.,
minors can also make a valid contract depending on the statute that
provides the age of majority for particular purposes. For example, the age
for voting is 21 years, and the age of a young person to join a trade union is
above 16.

An example of case where a minor entered into a valid contract of promise

of marriage is the case of:
 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT) ! 51

Rajeswary & Anor. v. Balakrishnan & Ors. (1958) 3 MC 178.

The parties in this case were Ceylonese Hindus. They entered into a
marriage agreement according to customary practice that provides for a
dowry and a penalty for breach, and they went through a customary
ceremony. Later, the first defendant repudiated the promise of marriage and
the plaintiffs then brought an action for breach of promise of marriage. The
defendant pleaded that the first plaintiff had no capacity to enter into the
marriage contract because she was a minor.

The High Court held that: the age of majority for entering into a marriage
contract differed from other minor contracts and were not affected by the
general principle established in the Mohori Bibees case.

In the above case, the contract was a valid contract and enforceable
although the party to the contract was a minor.

(b) Contract for Necessaries

Contract for necessaries is another exception to the general rule. A minor
who enters into a contract for necessaries is liable for the contract.
According to Section 69 of the Contracts Act 1950, 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.

It is important to observe the principles in Section 69 as follows:

The necessaries have been supplied to a minor.
The minor is also liable for necessaries supplied to his dependants (wife
and children).
The supplier of necessaries may only claim for reimbursement (a
reasonable price).
The minor is not personally liable and this means he is liable to pay only
if he has the property to do so.

The above principles will therefore apply to contract for necessaries entered
into by a minor. The contract will be valid if the minor has been supplied
with articles which are considered as necessary to the minors actual
requirements and suited to the minors condition in life. For example, food,
52 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT)

shelter, clothing, medical services, and education. The Contracts Act 1950
does not define the word necessaries but the concept has been mentioned
by the Lordship in the case of Government of Malaysia v. Gurcharan Singh
& Ors [1971] 1 MLJ 211, by holding that education was necessaries for the
minors.

In Government of Malaysia v. Gurcharan Singh & Ors [1971] 1 MLJ

211,

The Government sued the first defendant (the minor) and the second
and third defendants (the sureties) for breach of contract. The amount
of claim was Rm11,500.00, being the sum spent by the Government for
the minors education. At the time when the contract was made, the
first defendant was a minor.

The Court held that: The contract was void but since education was
necessaries, the minor was liable for the repayment of a reasonable
sum spent on him. The amount ordered as payment to the Government
was Rm2,683 because the minor has served the Government for three
years and ten months out of the contractual period of five years.

An example of contract for the minors benefit was the case of:

Roberts v. Gray [1913] 1 KB 520.

The defendant in this case wished to become a professional billiards

player and entered into an agreement with the claimant, a leading
professional, to go on a joint tour. The claimant went to some trouble in
order to organise the tour, but a dispute arose between the parties and
the defendant refused to go. The claimant now sued for damages of
6,000.

The Court held that: The contract was for the minors benefit. Thus, the
claimant could continue the action for damages for breach of contract.
Damages of 1,500 were awarded.

As far as the goods or services are concerned, if the goods or services have a
utility value, such as clothing, and are not merely things of luxury (e.g. a
diamond tiara), then they are basically necessaries. However, if the minor is
well supplied with the particular articles, then they will no longer be
 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT) ! 53

necessaries even though they are useful for the minor. As illustrated by the
following case:

Nash v. Inman [1908] 2 KB 1

The claimant was a Savile Row tailor and the defendant was a minor
undergraduate at Trinity College, Cambridge. The claimant sent his
agent to Cambridge because he had heard that the defendant was
spending money freely, and might be the sort of person who would be
interested in high-class clothing. Following the agents visit, the
claimant supplied the defendant with various articles of clothing to the
value of 145. The clothes included 11 fancy waistcoats. The claimant
then sued the minor for the price of the clothes. There was evidence
that the minors father was in a good position, being an architect with a
town and country house, and it could be said that the clothes supplied
were suitable to the defendants position in life. However, the father
proved that the defendant was adequately supplied with such clothes
when the claimant delivered the clothing.

It was held that: The claim failed because the claimant had not
established that the goods supplied were necessaries.

The above case shows that a minor will not be bound by a contract of goods
supplied, which are not of necessaries for the minor. The burden to prove
that the goods supplied are necessaries for the minor is on the supplier or
the seller.

(c) Contract of Scholarships

Another exception to the minors contract is the contract of scholarships.
The rule relating to scholarship agreements is provided in the Contracts
(Amendment) Act 1976. Section 4(a) provides that no scholarship
agreements shall be invalidated on the grounds that the scholar entering
into such agreement is not of the age of majority. The Scholarship
Agreements have been defined as any contract or agreement between an
appropriate authority and any person, with respect to any:
Scholarship
Award
Bursary
Loan
Sponsorship
54 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT)

Appointment to a course of study

Facility for the purpose of education or learning.

Appropriate authority includes:

The Federal Government
A State Government
A statutory authority
An educational institution.

The above rule, however, is not applicable to contract of scholarships

between minors and private organisations.

(d) Contract of Insurance

Contract of insurance also constitutes an exception to the minors contract.
Section 153 of the Insurance Act 1963 (Revised 1972) provides that a minor
over the age of ten may enter into a contract of insurance but if he or she is
under sixteen years, the written consent of the parents or guardians is
essential.

4.2 PERSON OF SOUND MIND

With regards to capacity to contract, it is important that at the time of making the
contract, the contracting party must not suffer from mental disability. Section 11
of the Contracts Act 1950 states that every person is competent to contract...who
is of sound mind, and is not disqualified from contracting by any law to which he
is subject.

Section 11 is followed by Section 12(1) of the Contracts Act 1950 which provides
that 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 interests.

Further, Section 12(2) and (3) state that a person who is usually of unsound
mind, but occasionally of sound mind, may make a contract during the period
when he is sound. Conversely, a person who is usually of sound mind, but
occasionally of unsound mind, may not make a contract when he is of unsound
mind.

The examples of contracts covered under Section 12 can be seen in Illustrations

(a) and (b) as follows:
 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT) ! 55

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 interest, cannot contract whilst such delirium or drunkenness lasts.

Illustration (a)

A patient in a mental hospital, who is at intervals of sound mind, may contract

during those intervals.

In Matthews v. Baxter (1873) LR 8 Exch 132,

Matthews agreed to buy houses from Baxter. He was so drunk as not to

know what he was doing. Afterwards, when sober, he ratified and
confirmed the contract. It was held that both parties were bound by it.

The Contracts Act 1950 does not state the status of contracts entered into by
persons of unsound mind. Under the English common law, the contract is
voidable if the fact of mental disorder or intoxication can be proven, and the
other party knew this. Thus, the drunken person can ratify contracts when sober,
as in the above case of Matthew.

SELF-CHECK 4.1

(a) What is the legal effect of a contract entered into by a minor?

(b) Is there any exception to the above principle?
(c) What are the important principle laid down in Section 69 of
the Contracts Act 1950?
(d) Can the contracting party sue a minor for damages under
contract for necessaries?
(e) What is the effect of a contract entered into by a person who is
of unsound mind?
56 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT)

ACTIVITY 4.1
Discuss the following cases by applying the principles of law on
capacity to contract:
(a) Alan is a college university student, aged 17. He had
difficulty in coming to the college and decided to purchase
a Modenas (the national motorcycle of Malaysia) from
Ismail. Alan paid RM500.00 as the deposit for the
motorcycle and promised to pay the balance of the
purchase price in two weeks time. After two weeks, Alan
failed to come with the balance and Ismail wanted to claim
from Alan for the payment. At the same time, Alan, who
was in need of money, had disposed the motorcycle to his
other friend, Rani. Can Ismail succeeded in his claim?
Discuss.
(b) Norman, aged 17, enters into a contract of apprenticeship
with Roy to become a successful enterpreneur in health
product. For that purpose, Norman is given a training on
the marketing aspect of the product. An outlet is provided
for Norman to carry out his tasks and goods worth
RM10,000 are ordered for Norman. Later, Roy has some
difficulties in supervising Normans training and
disagreement arises between them. Norman is not happy
and decides to withdraw himself from the training. Roy is
not happy either and brings an action for damages for
breach of contract of RM20,000. Discuss the legal action that
can be taken by Roy against Norman.

Contracts made by minors are void.

Marriage contract, contract for necessaries, contract of scholarship and
contract of insurance constitute valid contracts for minors.
Contract for necessaries include contract to supply goods or services to the
minors which suited to his condition in life.
However, the supplier of necessaries may only claim a reasonable price from
the minor.
A minor is only liable to pay from his property and he is not personally
liable.
 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT) ! 57

The burden to prove that goods or services supplied are necessaries is on the
supplier.
A person who is competent to contract includes a person who is of unsound
mind.
A person may make a contract during the period when he is sound.

Capacity Marriage contract

Minor Scholarship
Necessaries Insurance
Reimbursement Sound mind

Text Books:
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Keenan, D. (2006). Smith and Keenans Law for Business (13th ed.). UK:
Pearson and Longman.
Wu M. A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.

Cases:
Government of Malaysia v. Gurcharan Singh & Ors [1971] 1 MLJ 211.
Matthews v. Baxter (1873) LR 8 Exch 132.
Mohori Bibee v. Dhurmodas Ghose (1903) I.L.R. 30 Cal. 539.
Nash v. Inman [1908] 2 KB 1.
Rajeswary & Anor. v. Balakrishnan & Ors. (1958) 3 MC 178.
Roberts v. Gray [1913] 1 KB 520.
Tan Hee Juan v. Teh Boon Keat [1934] MLJ 96.