Law of contract


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Law of contract

  1. 1. Contracts and agreements come into play in almost every aspect of life. The study andthe application of the law of contract make up a core component of the learning and thepractice of law. Contract is a voluntary, deliberate, and legally binding agreement betweentwo or more competent parties. Contracts are usually written but may be spoken or implied,and generally have to do with employment, sale or lease, or tenancy. A contractualrelationship is evidenced by an offer, acceptance of the offer, and a valid (legal and valuable)consideration. Each party to a contract acquires rights and duties relative to the rights andduties of the other parties. However, while all parties may expect a fair benefit from thecontract it does not follow that each party will benefit to an equal extent. Existence ofcontractual-relationship does not necessarily mean the contract is enforceable, or that it isnot void or voidable. Contracts are normally enforceable whether or not in a written form,although a written contract protects all parties to it. Some contracts such as for sale of realproperty, instalment, or insurance policies must be in writing to be legally binding andenforceable. Other contracts are assumed in, and enforced by, law whether or not theinvolved parties desired to enter into a contract. Besides, contract is an agreement which thelaw will enforce. Contracts can also be formed orally. The remedy at law for breach ofcontract is usually "damages" or monetary compensation. In equity, the remedy can bespecific performance of the contract or an injunction. Both remedies award the damagedparty the "benefit of the bargain" or expectation damages, which are greater than merereliance damages, as in promissory estoppels. In law, the term minor also infant or infancy is used to refer to a person who is underthe age in which one legally assumes adulthood and is legally granted rights afforded toadults un society. Depending on the jurisdiction and application, this age may vary, but isusually marked at either 18 or 21. Specifically, the status of “minor” is defined by the age ofmajority. In many countries, including Brazil, Croatia, India, the United Kingdom, Australia,Canada and New Zealand, a minor is presently defined as a person under the age of 18. In theUnited States, where the age of majority is set by the individual states, „minor‟ usually refersto someone under the age of 18, but can be used in certain areas to define someone under theage of 21. Contract is an agreement which the law will enforce. We should consider twoscenarios. The first is if we ask a friend or colleague to have lunch with us and they agree.There is an offer and an acceptance. If we were to be asked if we are suing the friend orcolleague for breach of contract our answer would be an emphatic no. Another example, wemake a booking at a hotel, we fail to turn up. The hotel having reserved a room for us has 1
  2. 2. been unable to sell the room to anyone else. If the hotel were to sue us we would accept thefact because there is an intention to create legal relations. In the same way if the hotel hadsold our room we would consider legal action of our own. A legally binding contract needsoffer, acceptance, intent to create legal relations and consideration. It is the presence of intentto create legal relations and of consideration that converts a social agreement into a legalagreement. There are seven elements of a valid contract. The first element is Offer. A proposal, according to Section 2(a) of the Contracts Act1950 is an act or utterance signifying the willingness of the person to be bound by hispromises implied in the act or utterance and with a view to obtaining the assent of the otherperson to the act or utterance. Furthermore, according to Section 2 (a), an offer must signifythe willingness of the proposer (offeror) to fulfil his promises if accepted by the offeree thatmean offer must be certain and also must be differentiated from an enquiry. It is also must bedifferentiated from intent to trade. During the build up to an agreement there is often a periodof negotiation which differentiates an offer from negotiations. The concept of intent to tradeis one of the most important and must be thoroughly understood. Besides, advertisements,catalogues and circulars are not usually an offer. If in doubt read again the section on offerand differentiating from intent to trade. In an auction the bid is the offer and acceptance iswhen the auctioneers hammer falls. Acceptance is the second element of a valid contract. According to Section 2(b) of theContracts Act specifies that when a person to whom an offer is made signifies his assentthereto, the offer is said to be accepted. Acceptance may be expressed, that is oral or written,and implied from the conduct of the offeree. An acceptance must also comply with certainrules before it becomes valid and enforceable. Where an offer specifies the form ofacceptance, failure to accept in the specified form, unless the proposer does not object,invalidates the acceptance. According to Section 7(a), the acceptance must be absolute andunqualified. , it means that the offeree‟s intention to accept must be clearly understood,without any doubt, from his conduct. There are numerous circumstances in the commercialenvironment where the conduct of certain parties appears to be acceptance but the law doesnot recognise such conduct as acceptance. The third element is Consideration. According to Section 2(d) of the Contracts Act,consideration is an act done or abstention from doing an act, or a promise to do or a promise 2
  3. 3. to abstain from doing, something. There are three forms of consideration, executedconsideration, executor consideration, and past consideration. The fourth element is Intention to Create Legal Relations. The Contracts Act 1950does not contain any provision relating to intention of the parties to a contract to be bound inlaw. Nevertheless, intention is an essential element of an enforceable contract. In this respect,based on the Civil Law Act 1956, English law may be applied. In law, agreements arecategorised into two, which is family and social contracts or agreements and commercialcontracts or agreements. Capacity to contract is the fifth element of a valid contract. Contractual Capacity isthe legal ability to enter into a contract. Minors have particular rights and obligationsestablished by the court when it comes to contracts. Once a person reaches age 18, they areconsidered a legal adult in every state in the nation. In addition to minors, other persons areable to avoid contracts. Mentally impaired and intoxicated people, convicts, and aliens lackthe capacity to enter into a contract. In principle, every person is qualified to contract.According to Section 10, every agreement made by the free consent of the parties competentto contract for a lawful consideration and with a lawful object is a contract. But who iscompetent to contract? According to Section 11 prescribes that a person who is of the age ofmajority and of sound mind is competent to contract. According to the Age of Majority Act1971, for every individual person, the age of majority is 18 years old. Sound mind is,according to Section 12 of the Contracts Act, the capability of a person in understanding thecontract and forming a rational judgment as to its effect upon his interests and whether he isusually or occasionally of unsound mind. According to Section 11, a person who has notreached the age of majority is not competent to contract. One of the elements constituting avalid contract is a valid contract is that the parties entering the contract are those who havethe competency to contract. This is based on Section 10 (1) of the Contract Act 1950.Competency refers to the capacity of being adult, having a sound mind and not forbidden bylaw to enter any contract example bankruptcy. This principle is based on Section 11 of theContract Act 1950 which provides that “every person is competency to contract that is of theage of majority according to the law to which hi is subject, and who is of sound mind, and isnot disqualified from contracting by any law to which he is subject”. In Malaysia, the age ofmajority is recognized as above eighteen years of age as stated in the Age of Majority Act 3
  4. 4. 1971: “The majority of all males and females at the age of eighteen years and every suchmale attaining that age shall be of the age of majority”. The next element is Certainty. Every term of an agreement must be certain or capableof being ascertained. Where the terms of an agreement are not certain, the contract may bevoid. This is stated in Section 30 CA 1950. The last element is Free Consent. The meeting of two or more minds leads to theformation of an agreement. If this agreement satisfies certain conditions, a legallyenforceable contract is formed. On that basis, every contract must be voluntarily donewithout any negative element which affects a person‟s capacity to make independentdecisions. Independent decisions are decisions which are made after due consideration of theeffects of a contract on the person. According Section 10 states that every agreement is acontract if it is made by the free consent of the parties. And in Section 14 consent is said to befree if it is not caused by coercion, undue influence, fraud, misrepresentation or mistake. In today‟s world, much dependence is placed on other people to fulfil personal needswhich in earlier times were often personally attended to. As such, often without being fullyaware and conscious, many a person enters into a contract which not only gives rise to legalrights but also creates obligations which much be honoured. Whilst little difficulty arises inthese matters, so far as adults are concerned, an increasing number of such transactions arebeing entered into, by children. And it has often been said that contracts involving a childmay not be valid. Does this therefore mean that children can enter into a contract and yet getaway from their obligations when the time to fulfil them arises? There are some few cases forus to review and was the fact for us to refer. First, there is a case called Mohori Bibee v Dharmodas Ghose in 1903 can be refer to.It was held that the agreement made by a minor is void. The court in this case held thataccording to Section 9 and Section 10 of the Indian Contract Act, which is in pari material toSection 10 and Section 11 of the Malaysian Contracts Act, a contract by a minor was void.The appellant in this case loan a sum of money to the respondent, a minor, secured on a housewhich was leased to the appellant. The minor, through the mother, applied for a courtdeclaration that the lease was void because the minor had no capacity to contract. The courtheld that the contract with the minor was void and he could not sue or be sued on anycontract. Besides of that, there is another case can be refer. That case is Tan Hee Juan v Teh 4
  5. 5. Boon Keat in 1934. In this case, the plaintiff had transferred ownership of a piece of land tothe defendant. He then applied to the court for an order to set aside the transfer. The courtreferred to Mohori Bibee and held that the contract was void and ownership of the land had tobe returned to the plaintiff. In Malaysia, the Mohari Bibee case in 1903 was followed in thecase of Tan Hee Juan v Teh Boon Keat in 1934. Plaintiff who is a minor said that contractthat involved a minor is said to be void. So there is no contract at all. So it was held that theplaintiff succeeds in his claimed and therefore Tan Hee Juan should not have to pay back tothe defendant. Later, in 1950 Contract Act had been made and in the Section 69 of the Actprovides that if a person, incapable of entering contract or anyone whom he is legally boundto support, is supplied by another person with necessaries suited to his condition in life, theperson who has furnished such supplies is entitle to be reimbursed from property of suchincapable person. But the word necessary is not defined in the Act. But later, in the case ofgovernment of Malaysia v Gucharan Singh & Ors, Judge Chang Min Tat concluded the worldnecessaries must be construed broadly and in any decision involving whether what aresupplied are or are not necessaries, it is incumbent to have regard to the facts of the case, theconditions and circumstances in which the supply was and the purposed which is served.Thus an infant is totally incompetent and incapable of entering into contract and there is nocontract on which he can be sued. In effect of Section 10 & 11 of contract Act 1950, thecourts held in the cases of Mohori Bibee v Dharmods Ghose (1903), Tan Hee Juan v TehBoon Keat (1934) and Government of Malaysia V Gurcharan Singh (1971) that all suchagreements are void. Therefore, all contracts entered by a minor are generally void and minorcannot sue or be sued on such void contracts. However, there are some exceptions towards a minor binding a valid contract. UnderSection 69 of Contract Act 1950, it is said that “if a person, incapable of entering into acontract, or anyone whom he is legally bound to support, is supplied by another person withnecessaries suited to his condition in life, the person who has furnished such supplies isentitled to be reimbursed from the property of such incapable person.” Under necessaries aminor can enter into valid contract if only it is the basic need of the minor and suitable of hisstation in life or lifestyle. Contract of Scholarship between a minor and the government ornon government organization is also under Section 4 (a) Contracts (Amendment) Act 1976 –“the scholar entering into such agreement is not of the age of majority”. Similarly, a minormay enter into a contract of marriage or divorcement as provided by Section 4 (a) AgeMajority Act 1971: “Nothing in this Act shall affect the capacity of any person to act in the 5
  6. 6. following matters, namely, marriage, divorce, dowries and child adoption and religion andreligious practise and ceremonies of the races in Malaysia”. A minor may also enter into acontract of insurance, pursuant to the Insurance Act 1966 – a minor between the ages of 10years and 16 years may contract to affect an insurance policy with the consent in writing ofhis parents or guardian. If a minor has attained the age of 16 years, he is not required toobtain the consent. There are some cases shows the facts. The case of Rajeswary vBalakrishanan, the court held that when the defendant, a Sri Kankan Hindu broke his promiseof marriage with the plaintiff, also a Sri Lanka Hindu, the defendant was, according to theirreligious practice, in breach of his contract of marriage, although at the time of contractingthe plaintiff was a minor. Besides, The Government of Malaysia v Gurcharan Singh and Ors,this case is Gurchran is a student who had received a government scholarship to undergoteacher training and was bonded to serve the government. However, Gurcharan left theservice before completing his 5 years bond. When the Government sued Gurcharan forbreach of contract, he contended that he had no capacity to contract. The court, nevertheless,held that education was a necessary. Since he had partly fulfilled his bond, he was ordered toreimburse a reasonable sum, taking into account his partly completed service. After discussed and explained the Minor‟s Capacity to Contract in Malaysia, in myopinion, I have some suggestion that I think it should or it maybe can adopt or amend to thecurrent law in Malaysia. Firstly, according to The Employment Act 1955, and the Childrenand Young Persons (Employment) Act 1966 prescribe that children below the age of 14 andyoung persons between the ages of 14 and 16 are competent to enter into a contract ofemployment but shall not become an employer. This Act should add into exception. At leastthe young person at the ages of 14 is allowed to become an employer. This is because somefamily or persons are too poor and need their young child to work to continue their live.Second, the scholarship should give to the students between 16 and 18. This is because somestudents who are have their talent and always jump the stage of class. When they finish theirSijil Pelajaran Malaysia (SPM) is just only 16 years of age. But they are not qualified toreceive any scholarship just because their still consider is a minor. It is not fair for thosetalent students. Lastly, is insurance. The insurance are effect between the ages of 10 to 16. Itshould be amending to from the age of 1o to its just born. The baby who just born shouldhave the rights to have cover by insurance with the consent in writing of his parents orguardian due to baby is also human and should enjoy all the rights for a human. 6
  7. 7. In conclusion, our law is good enough but doesn‟t recognized a minor for enter into acontract. But with some amendment, it will benefit the minor with some guardian orguarantor from their parents. (2,992 words) 7
  8. 8. Reference: (1) (2) (3) 05/12/2006 The Star by Bhag Singh 8