Contracts Law – Capacity & Consideration

$\text{Contracts Act 1950 (CA 1950)}$
- $\text{S10}$ – an agreement becomes a contract only if parties are competent to contract.
- $\text{S11}$ defines “competent” as:
- Age of majority: $18$ years (cross-refer $\text{S2 Age of Majority Act 1971}$ ).
- Sound mind at time of contracting.
- Not disqualified by any applicable law (e.g. bankrupts, certain public offices).
$\text{S12(2)}$ – a person of sound mind is one who can understand the contract and form a rational judgment.
Insolvency Act 1967 – an undischarged bankrupt is disqualified from some types of contracts.
Companies Act 2016 – corporations (artificial persons) possess contractual capacity within their objects clause and statute.

A contract made by an infant / minor (\lt 18 yrs) is void ab initio.
- Mohori Bibee v Dharmodas Ghose (1903) – Indian Privy Council established the rule; adopted in Malaysia.
- Tan Hee Juan v Teh Boon Keat [1934] MLJ 96 – infant’s land transfer held void.
Meaning of “void”: $\text{S2(g) CA 1950}$ – “agreement not enforceable by law”.

“When an agreement is discovered to be void, any advantage received must be restored or compensated.”
Leha bte Jusoh v Awang Johari [1978] 1 MLJ 202 – purchase price refunded to minor; minor ordered to vacate land (restitution in integrum).

If a person incapable of contracting is supplied with necessaries suited to his condition in life, the supplier may be reimbursed from the minor’s property.
“Necessaries” = goods/services essential for existence & reasonable comfort (food, clothing, lodging, education, medical care).
Nash v Inman [1908] 2 KB 1 – fancy waistcoats were suitable in quality but not necessary (minor already had ample clothes); tailor’s claim failed.

Contracts (Amendment) Act 1976 s4(a): scholarship, bursary, award or loan granted by Federal/State govt, statutory authority or approved university is binding on a minor.
Govt of Malaysia v Gurcharan Singh (1971) 1 MLJ 211 – education deemed a necessity; minor in breach for quitting teaching post early.

Financial Services Act 2013: minor over 10 yrs may contract for insurance; if below 16 yrs, written consent of parent/guardian required.

Age of Majority Act 1971 s4(a) preserves capacity relating to marriage, divorce, dower & adoption regardless of age.
Rajeswari v Balakrishnan [1953] 3 MC 178 – promise to marry minor (with dowry RM3 000 & RM5 000 penalty) upheld as valid.

Employment Act – a minor is competent to enter a contract of service and sue on it.
Clement v London & North Western Rly [1894] – minor railway porter bound by insurance scheme; considered beneficial and thus valid.

Imperial Loan Co v Stone (1892) – contract by person of unsound mind or intoxicated is prima facie valid unless:
1. He did not understand the nature of the contract, and
2. The other party knew or ought to have known of the disability.
If both limbs proved, contract is voidable at the option of the incapacitated party.

“When, at the request of the promisor, the promisee does, abstains from doing, or promises to do/abstain, such act or promise is the consideration for the promise.”

Executory – promise for a promise (performance in future).
- Example: A promises to pay B $\text{RM}100$ if B washes A’s car next week.
Executed – act completed in return for a promise.
- Example: A promises B $\text{RM}100$ after B runs round Taylor’s campus $10$ times (act performed now).
Past – act done before the promise; usually invalid unless saved by statute or exception.
- Example: A finds B’s cat and returns it; B later promises $\text{RM}50$ – generally unenforceable.

$\text{S26(a)}$ – Natural Love & Affection
- Requirements: (i) Written & registered, (ii) parties in near relationship, (iii) made out of natural love/affection.
$\text{S26(b)}$ – Past Voluntary Service done for promisor, followed by a subsequent promise to compensate.
- Illustration (c) CA: returning a lost purse → later promise to pay $50$ ; contract valid.
$\text{S26(c)}$ – Promise to pay a time-barred debt (limitation-barred) if:
1. In writing, and
2. Signed by debtor/personal agent.
- Illustration (e): A owes B $\$1000$ ; debt barred; A signs to pay $\$500$ ; valid.
Case: Tan Soh Sim v Tan Saw Keow (1951) – heirs agreed not to claim deceased’s property; held void because requirements of $\text{S26(a)}$ not fulfilled (probably not registered/near relation issues).

Given value need not be adequate; must merely be real.
Phang Swee Kim v Beh I Hock [1964] MLJ 383 – land worth $\$40\,000$ transferred for $\$500$ ; held adequate in law despite inadequacy in fact.
Explanation 2 to S26 codifies that insufficiency is immaterial.

Performance of an existing public duty is not good consideration, unless something extra is done.
Glassbrook Bros v Glamorgan CC [1924] – police stationed extra guards beyond statutory duty; payment $\text{£}2\,200$ recoverable (extra service = consideration).

Malaysian law (similar to Indian law) allows consideration to move from promisee or any other person.
Venkata Chinnaya v Verikatara Ma’ya (1881) – mother’s promise to pay annuity to daughter enforceable although consideration flowed from brothers.

Promisee may dispense, remit, extend time, or accept lesser satisfaction in place of original promise.
Kerpa Singh v Bariam Singh [1966] 1 MLJ 38 – creditor accepting lesser sum in full settlement precludes claim for balance once payment is made.

Capacity and consideration often overlap: e.g. scholarship = necessity, thus valid consideration arises despite minority.
Always cite statutory section first, then case authority to illustrate or distinguish.
In problem questions:
1. Identify party status – minor, intoxicated, corporation, bankrupt.
2. If minor, ask: “Is the subject matter a statutory/ common-law exception (necessaries, scholarship, insurance, marriage, employment)?”
3. If void, remember S66 restitution.
4. Move to consideration analysis – classify type and check adequacy/exceptions.
Public policy: the law aims to protect minors & incapacitated persons, yet allows beneficial or essential contracts.
Ethical dimension: balancing paternalism (protecting minors) with commercial fairness (preventing unjust enrichment under S66).