Download Chapter 1 – Malaysian Legal System

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Chapter 3: Capacity and Terms
of Contract
Capacity to contract
• The parties entering into a contract should also be
competent to contract, i.e. they must have the legal
capacity to do so.
• Section 11 of the Contract Act reads:
• Who are competent to contract.
– 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.
– Refer to General Principles of Malaysian Law, Lee Mei Pheng,
p.106.
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Section 11 Akta Kontrak 1950 (AK
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. .”
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CAPACITY
SECTION
11
Is not
disqualified by
Law
Age of Majority
Sound Mind
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Child Contracts
• Generally a contract entered by a child is void.
But there is 3 exceptions.
• A contract is deemed legal even though entered
by parties without capacity, as below;
1. Contract for necessities as provided in s.69.
a person, incapable of entering into a
contract 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.
2. Contract for study under s.4(a)
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3. Akta Insuran 1963 allowed children over age
of 10 years old to engage insurance , but if
he/she is below 16, then he had to had
written consent from guardian
Exception to General
Principles
Necessities Contract – S.
69
Insurance Contract – S. 153
Akta Insurans
Study Contract – S. 4 (a)
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Effect of Contract
• Privity of contract
– It is a fundamental principle of common law that,
apart from special circumstances, a person who is
not a party to a contract has no right to sue on the
contract. Thus, if A enters into a contract with B, only
A and B can enforce or sue on the contract. C, who
is not a party to the contract, cannot do so.
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Terms of contract
• The Malaysian Contracts Act does not contain
any provision which deals specifically with the
contents of a contract. The contents of a
contract are made up of terms which may be
expressed and or implied.
• Terms may be classified as either conditions or
warranties.
• Terms may be implied by
– Custom and usage pertaining to a particular type of
transaction
– Statutory provisions
– The courts, based on the intention of the parties
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Conditions and Warranties
• Terms of a contract have been traditionally
classified into conditions and warranties.
Whether a particular term in a contract is a
condition or a warranty depends on the
intention of the parties.
• The mere labelling of a term as a condition or a
warranty is not conclusive.
• Refer to Associated Metal Smelters Ltd v. Tham
Cheow Toh case.
• Refer to The Commercial Law of Malaysia by
Beatrix Vohrah & Wu Min Aun, p.71.
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Terms
Terms
Conditions
Warranties
• Generally, any statement made in a contract can
be classified as two:
1. ‘mere statement’ means that the contents of
the statement is not intended to be legal
binding
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2. Terms means that the contents is part
of the legal contract and enforceable.
Terms can be categorized into two types:
1. ‘Conditions’ that the contents forms
the essential part of rules in the contracts.
If the conditions being breached then the
parties is given rights to terminate/end the
contract and entitle for damages
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2.
‘Warranties’ that is supplement
rules for the contract. If breach, the
parties not entitle to terminate the
contract but just to damage.
Besides that, terms also be categorized as :
1. Express Terms
2. Implied Terms
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1. Express Terms – terms that written in
contract and it clearly stated during
formation of contract.
2. Implied Terms is terms that may not
be written in contract but parties are
still bound to follows as in ordinary
sense. Usually like norms, law or facts.
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Implied
Terms
Customs / Business
Norms
Law
-Akta Jual Beli
Facts
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-Akta Sewa Beli
-Akta Konsumer
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Exemption Clauses
“Syarikat tidak bertanggungjawab atas
keselamatan barang-barang yang
dibawa oleh penumpang-penumpang”
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Standard Contracts and Exemption Clauses
• An exemption clause may be defined as a term of a contract
that attempts either:
– To modify the principal obligation or obligations arising
under the contract of that particular type or
– To limit or exclude the liability of a party which would
otherwise arise as a result of a breach by that party of his
primary obligations to perform the contract in accordance
with its terms.
– In standard form contracts, it has become increasingly
common to find exemption clauses which often seriously
disadvantage the unsuspecting consumer. The motive for
the inclusion of such clauses are many and probably the
most compelling one in a capitalist economy is the
maximisation of profit by reducing costs and risk.
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• Exemption clause is a valid term but it subject to
strict guidance to protect the consumers.
• Some of the guidance as below:
1. Every exemption clause must be clear and
simple to be understand
2. Notice must be given before or during the
negotiation of contract
3. A strict interpretation by Court as to ensure
the exemption clause is not acted as over
protective to the party that drafted the
contract.
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