Contract Law Part 2 – Capacity and Consideration (Malaysian Law)

Vocabulary flashcards covering key Malaysian principles, statutes and cases on contractual capacity and consideration.

Capacity (to contract)

A person’s legal ability to enter into a binding contract

Section 10 Contracts Act 1950

States that an agreement is a contract only if made by parties competent to contract.

Section 11 Contracts Act 1950

Defines competence: (1) age of majority, (2) sound mind, and (3) not disqualified by law.

Age of Majority Act 1971 s.2

Fixes the Malaysian age of majority at 18; persons below 18 are minors.

Mohori Bibee v Dharmodas Ghose (1903)

Leading case holding contracts made by minors are void.

Tan Hee Juan v Teh Boon Keat (1934)

Malaysian case confirming transfers of land by minors are void.

Void Agreement

A void contract is an agreement not enforceable by the law

Section 66 Contracts Act 1950

When an agreement is discovered to be void/becomes void any person who has received any advantage under the agreement is bound to restore it/make compensation for it to the person whom they received it

Leha Bte Jusoh v Awang Johari (1978)

Court ordered refund of purchase price to minor for void land contract, applying s.66.

Necessaries

Goods or services essential for a minor’s reasonable existence and comfort; contracts for them are enforceable.

Section 69 Contracts Act 1950

Allows suppliers of necessaries to minors to be reimbursed from the minor’s property.

Nash v Inman (1908)

Clothes supplied to minor were not necessaries because he already had enough; tailor’s claim failed.

Scholarship Agreement Exception

Scholarship, loan or bursary contracts with minors are valid when granted by government or approved institutions.

Section 4(a) Contracts (Amendment) Act 1976

Scholarship agreements entered into by minors are valid when it s granted by the federal/state gov/ education institution

Government of Malaysia v Gurcharan Singh (1971)

Scholarship bond enforced; education deemed a necessity under s.69.

Insurance Contracts for Minors

Financial Services Act 2013 allows minors over 10 to contract for insurance; under 16 need parental consent.

Marriage Contracts with Minors

Age of Majority Act 1971 s.4(a) preserves capacity relating to marriage, divorce, dower and adoption.

Rajeswari v Balakrishnan (1953)

Promise to marry a minor with dowry clause held valid by court.

Employment Contracts with Minors

Employment Act permits minors to enter contracts of service and sue to enforce them.

Clement v London & North Western Ry (1894)

Employment and insurance scheme for minor upheld as beneficial.

Sound Mind (Section 12(2))

A person is of sound mind if he can understand the contract and form a rational judgment at the time of contracting.

Imperial Loan Co v Stone

Contract with person of unsound mind is prima facie valid unless incapacity and other party’s knowledge are proved.

Corporate Capacity

Companies Act 2016 gives corporations contractual capacity within statutory limits, like natural persons.

Consideration (Section 2(d))

when at the request of the promissory/promisee does/refrains frm doing smth

Executed Consideration

Consideration consisting of an act already performed in response to a promise.

Executory Consideration

Consideration in the form of mutual promises to be performed in the future.

Past Consideration

An act done before a promise; generally invalid unless falling within statutory exceptions.

Section 26 Contracts Act 1950 – General Rule

Agreements without consideration are void unless they fit specific statutory exceptions.

Natural Love and Affection Exception

A written, registered agreement made out of natural love and affection between close relatives is enforceable without consideration (s.26(a)).

Tan Soh Sim v Tan Saw Keow (1951)

Family agreement void for lack of consideration despite close relationship.

Debt Barred by Limitation Exception

A written, signed promise to pay a time-barred debt is enforceable without fresh consideration (s.26(c)).

Adequacy of Consideration

Courts do not assess whether consideration is adequate; any amount of value suffices.

Phang Swee Kim v Beh I Hock (1964)

Sale of land for $500 upheld; inadequacy of price immaterial when consideration exists.

Existing Public Duty

Performance of a duty already required by law is not good consideration unless extra duty is undertaken.

Glassbrook Bros v Glamorgan CC (1924)

Police providing extra protection beyond statutory duty supplied valid consideration for promised payment.

Consideration from Third Party

Consideration may move from the promisee or any other person; privity not required for consideration.

Venkata Chinnaya v Verikatara Ma’ya (1881)

Promise enforceable although consideration moved from a third party (mother paid annuity).

Accord and Satisfaction (Section 64)

Promisee may accept lesser performance or other satisfaction in full discharge of original obligation.

Kerpa Singh v Bariam Singh (1966)

Creditor barred from claiming balance after accepting lesser sum in full settlement under s.64.