Chapter 5 – OTHER ESSENTIALS OF A CONTRACT BUSINESS LAW Chapter 5 – OTHER ESSENTIALS OF A CONTRACT

LEARNING OUTCOMES What are the other essential elements of a valid contract? What are the rules and laws governing the elements? How do the rules/laws operate in different circumstances?

INTENTION TO CREATE LEGAL RELATIONS (ITCLR) Meaning – intention to create contractual relationship. Intend the other party to be bound by obligations. If this element is absent, there is no contract. It is either express or implied from circumstances. Express – based on what both parties intended. Implied - based on legal presumption which depends on type of agreement. Contracts Act 1950 is silent on ITCLR, therefore we import English common law on this matter.

INTENTION TO CREATE LEGAL RELATIONS (ITCLR) Social/domestic/family agreement: No legal relations are contemplated, but such presumption may be rebuttable. Business agreement: there's a presumption that the parties intend legal consequences to follow unless the parties specify otherwise.

DOMESTIC/FAMILY, SOCIAL AGREEMENTS

DOMESTIC/FAMILY, SOCIAL AGREEMENTS Presumption – no ITCLR No contract Balfour v Balfour [1919] 2 KB 571 Facts: Husband came back from Ceylon to stay with his wife. Then he promised to pay 30 pounds per month when he is in Ceylon.He then went again to Ceylon. Later he wrote to his wife to live apart. The wife then obtained divorce decree from court and ask for the promise. Held : the wife’s claim cannot succeed because there was no contract as there was no ITCLR

DOMESTIC/FAMILY, SOCIAL AGREEMENTS Presumption is rebuttable if circumstances of the case show to the contrary. Merrit v Merrit [1970] 2 All ER 760 Fact :A married couple divorced. They made an arrangement in writing about their house. The husband promised to transfer his ½ share of the house if the wife pay all charges in connection to the house. The wife did pay & the husband refused to transfer. Held : by having such arrangement- there was ITCLR-There was a contract.

COMMERCIAL/BUSINESS AGREEMENTS - I Presumption – there is ITCLR. Query? What is the effect then? Hv, presumption is rebuttable if circumstances show to the contrary.

COMMERCIAL/BUSINESS AGREEMENTS - II If ‘subject to contract’ clauses are used – no ITCLR (Low Kar Yit & Ors v Mohd Isa & Anor [1963] MLJ 165). Conclusion – it depends on parties intention and surrounding circumstances (Daiman Development Sdn Bhd v Mathew Lui Chin Teck & Anor [1981] 1 MLJ 56).

CERTAINTY OF TERMS At common law,there are 2 types – language used is vague; certain terms are vague. In Malaysia, these are covered by S.30.- Illustration (a), (b), (c), (d), (e) & (f) If this element is absent, contract is void Case: Karuppan Chetty v SuahThian (1916) 1 F.M.S.L.R.300 – parties agreed to a lease for as long as he likes.

CAPACITY OF PARTIES One of the elements of valid contract – S.10(1)”All agreement are contracts…parties competent to contract…” Meaning – party must be of age of majority, have sound mind & not being disqualified by law to enter into contract– S.11 If these elements are absent, contract is void – case: Mohori Bibee v Dhurmodas Ghose (1903) I.L.R. 30 Cal. 539

MINORS S.2 of Age of Majority Act 1971- 18 year old Thus, minor is a person whose age is below 18 General rule :Contracts entered by minors are void – Tan Hee Juan v Teh Boon Keat [1934] MLJ 96 Queries? What is the legal justification? What is the effect?-to protect the minors against consequences of their own actions as they are presumed lack of judgment in their action. Hv, there are exceptions to the general rule.

EXCEPTIONS 1.Contract to marry entered by minors/ their parents on their behalf– valid. Rajeswary & Anor v Balakrishnan & Ors (1958) 3 MC 178 2.Contracts for necessaries – the minor is liable to reimburse the supplier. The basis of a minor’s liability for necessaries is summed up in Nash v Inman.

MINORS Common law: minor is liable for contract for necessaries as the contract is valid But in Malaysia,the minor is liable to compensate the necessaries supplied to him under Sec 69 but the contract is void as stated in the case of Government of Malaysia v Gurcharan Singh & Ors [1971] 1 MLJ 211

NECESSARIES Necessaries is not defined in the Contracts Act 1950.Therefore, we have to refer to the definition provided by English common law. According to the case : Gov. of M’sia v Gurcharan Singh – it must be suited to minor’s condition in life. E.g. clothes, shelter, education, food and medical aid. ‘necessaries': must be construed broadly, depends on the facts of the case, conditions and circumstances in which supply was made and purpose which was served.

NECESSARIES What constitutes necessaries: may vary according to the position of particular individual. Test of necessaries: depends on the nature of goods or services supplied, minor's actually needs and his station of life. E.g: clothes cd well be necessaries but if the minor is already adequately stocked, they may be treated as mere luxury. Education in this time and age, held to be necessaries in Gurcharan Singh’s case

Sec 69- Reimbursement S.69 – minor is bound to pay for necessaries. Illustration (a) & (b) S.69 applicable if: a. Necessaries must have been actually supplied; b. Minor’s liability includes necessaries supplied to anyone whom he is legally bound to support such as his wife or child. c. Supplier of necessaries can only claim reasonable price and which may not be the same as the contract price; d. Minor is bound to pay only if he has the property to do so.

Misrepresentation of age Query? If minor has misrepresented his age, can he still avoid the contract by pleading minority? YES Case: Natesan v Thanaletchumi & Anor[1952] MLJ 1

SCHOLARSHIP 3. Scholarship agreement with govt bodies - valid (s.4(a) Contracts (Amendment) Act 1976) Scholarship agreement: any contract between appropriate authority and any person, with respect to any scholarship, award, bursary,loan,sponsorship or appointment to a course of study, the provision of leave with or without pay or any other facility for the purpose of education or learning.

SCHOLARSHIP ‘Appropriate authority’:includes Federal Government or State Govt, a statutory authority or educational institution. The amendment does not affect the general law relating to contracts including scholarship agreement between minors and private organizations.

OTHER EXCEPTIONS 4. Several other legislation allows minors to enter into valid agreements Contract of insurance – minor between 10 and 16 must obtain parents/guardian/ consent – Insurance Act 1963 (Revised 1972) Contract of apprenticeship or service – valid. S.13 Children and Young Persons (Employment) Act 1966 any child (below the age of 14) or young persons (a person between the ages of 14 and 16) is competent to enter into a contract of service other than as an employee.

CAPACITY OF PERSONS OF SOUND MIND S11: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. Sound mind – capable of understanding and forming a rational judgment as to the contract and its effect.-S12 S12: covers mentally disordered person, those incapacitated through sickness, drugs/alcohol. Effect – Act doesn’t specify if such contract are void or voidable.

CAPACITY OF PERSONS OF SOUND MIND In the absence of an authoritative judicial pronouncement, the law remains uncertain. Under common law: contract voidable at the option of the person of unsound mind if the fact of mental disorder or intoxication can be proved, provided the other party knows of his condition. Imperial Loan Co v Stone [1892] 1 Q.B. 599.

Person not disqualified by law A bankrupt and wound up companies cannot enter into certain types of contract for example: transfer of land Corporation and companies can only contract in transaction within their powers given by the statutes under which they are incorporated or licensed memorandum & article of association.

FORMALITIES General rule – contract can be made orally/verbally, in writing or by conduct- Diamond Peek Sdn Bhd v D.R. Tweedie S.10(2) – unless any law requires a contract to be in writing. E.g. S5 of Hire Purchase Act 1967, S.26(a) and S.26(c) of Contracts Act 1950.

CONCLUSION The other essentials are equally important in determining whether valid contract exists. Certain elements are required by CA 1950 and some are required by common law.

Legality The object and consideration must be lawful We will be dealing in chapter 7

QUESTIONS