Business Law Involving Minor in Malaysia
Business Law, Contracts Elements, Minor, Malaysian Law...
1.0 Introduction In Malaysia, contract law is governed by the Contract Act 1950. The law in Malaysia evolved from English common law as a natural consequence of British rule. Therefore, many of the provisions in the Contract Act are the same to UK laws (TA, 2014). Contract Act 1950 must prevail if certain provisions differ from English law. When there are no provisions in the Contract Act 1950 in dealing with subjects concerning the law of contract, English law applies by virtue of Civil Law (Lee & Detta, 2009). Contracts and agreements are inevitable part in our daily life. The law of contract is a key element of the learning and practice of business law. Simply said, a business cannot exist without making contracts be it with their suppliers, customers, and employees and so the list goes on. Although the terms ‘contract’ and ‘agreement’ means the same thing, there is a difference between these two words. A contract is intentional, voluntary and legally binding agreements between two or more parties. Every contract contains an element of agreement but not all agreements are contract. What distinguishes a contract and other form of agreement is a contract give rise to legal rights and obligations. As the contract are legally binding, individuals is able to take another party to court if one of them fails in keeping promise made in the contract (About, 2014). According to law, the term minor is used to describe a person who is under the age in which one lawfully assumes adulthood and is legally granted rights as an adult in the society. The age may vary according to jurisdiction and application but it is usually set at either 18 or 21. As the law stands, it is generally acknowledged that minors cannot make contracts (Lee & Detta, 2009). However, there are circumstances and exceptions a contract can be legally binding with a minor. Referring to the assignment question, one must understand the key elements needed to form a contract beforehand.
2.0 Enforceable contract As mentioned earlier, not all agreements have the legal rights that legally bind both parties. A contract without the required component of a legally binding agreement is only an agreement nothing more than a conversation between the parties. There is a distinction between business agreement and social or domestic agreement. In business agreement context, the presumptions is the agreement is said to have legal relations while social or domestic does not considered as having legal relations (Goldman & Sigismond, 2007). Both are treated differently as friends and family do not normally expect their agreement to have legal effects and rely on trust instead. Example of social and domestic agreement is in Balfour v Balfour1 where the agreement made is not legally binding but it’s a promise for a husband to pay his wife allowance. However, in the case of Merritt v Merritt2, the agreement does have legal consequences as both are separated and no longer rely on trust. Although it may seem easy, it is really hard to prove that there is agreement by showing a valid offer and valid acceptance (Rush & Ottley, 2006). There are eight elements needed in a contract. In order to form an enforceable contract, the following basic elements must be fulfilled which is offer, acceptance, intention to create legal relations, consideration, certainty, capacity, consent and legality. Some of these elements will be explained in detail later. 2.1 Offer An offer is a convinced promise to be bound with specific terms. Offer or proposal is necessary to initiate an agreement. Section 2(a) Contract Act 1950 states that a proposal is made when an individual signifies his willingness to do or to refrain from doing anything to another party and he is aware of what is being offered (Lee & Detta, 2009). For an offer to be valid it must be accepted by the other person and the offer clearly justified what is being presented and its terms. In Gunthing v Lynn3, the contract is invalid as the offer is indefinite as the horse is only being paid if it was ‘lucky’. Similarly in Affin Credit (Malaysia) Sdn. Bhd. v Yap Yuen Fui 4, the court declared the contract as void from the beginning due to lack of offer and acceptance. Under section 4(1) Contract Act 1950, an offer is in effect once it is communicated by both parties. An offer is not necessarily to be written down and a contract can even be made orally provided it contains the element of a legally binding agreement (Blum, 2007).
An offer can be made to particular person, class of person and even to the public at large. Example of case is Carlill v Carbolic Smoke Ball Co. Ltd 5. The company is a medical firm which advertises that its product prevented disease with regular use and $100 is being offered if any buyers did caught the influenza. Unfortunately, Mrs Carlil used the product regularly and still caught the disease. She then sued the company as they do not want to pay her the money and the company argues that the claim in the advertisement was not to be taken as a legally binding offer. The court held that it was a unilateral offer as the company did state that $1,000 had been placed in case there were any claims. Therefore, it is concluded that it was an offer made to the whole world and any person who had seen the advertisement and caught the influenza are eligible for the claim (Pathak, 2013). 2.2 Invitation to treat There are often situations in which a business is mistakenly regarded as offer but they appear to be an invitation to treat. An offer and invitation to treat must be distinguished as invitation to treat is not considered as an enforceable contract. Invitation to treat is simply an invitation to others to make offers and it is not legally binding. An offer can be converted into a contract by acceptance however an invitation cannot as its action is just to draw the customers into negotiation. The person extending the invitation is not bound to accept it. There are certain situations where it can be seen the act is simply an invitation. For example, in Fisher v Bell6, the court held that the display of a product in the window was an invitation and not an offer. Similar held is used in Pharmaceutical Society v Boots Cash Chemist 7. The court held that goods displayed on the shelf do not mean the customer must purchase it. Most advertisement is considered as invitation as well. In Partridge v Crittenden8, the court ruled that the advertisement was not an offer as there is no expression of intention to be assured. A general advertising of goods for sale is not an offer as in the case of Grainger v Gough. Harrison v Nickerson9 is an example of advertisement of an auction case. Mr Harris cannot take an action as Nickerson has withdrawn the items in which he was interested in bidding as there are no contracts. In the cases examined above, the court ruled that the seller did not intend to be legally bound. Therefore it rests as invitation as the intention is missing and it is not accepted by the offeree (Rush & Ottley, 2006).
2.3 Acceptance In Section 2(b), when the person indicates his approval of the agreement, it is said that the contract to have been accepted. A person accepting the offer is called a ‘promisee’ in Section 2(c). The acceptance can be expressed or implied. Once it is been accepted, both parties become legally bound to each other. Under Section 7, acceptance must be final and unqualified. In Lau Brothers v China Pacific Navigation10, there is no agreement made as they are still in negotiating stage. Therefore, the defendants were defensible in withdrawing. When an offer is accepted, the offeree must do so unconditionally where he would have to agree on all of the terms. If the acceptance is not unconditional, a new offer can be made which is referred as counteroffer. The counteroffer eliminates the original offer. In Hyde v Wrench11, it was held that the counteroffer had disregarded the original offer and it no longer existed (Abbott & Pendlebury, 1993). An acceptance is only valid when it is communicated to and received by the offeror. In Fraser v Everett12, it was held that the contract is void as the offeror did not reply due to oversight. In Felthouse v Bindley13 the court ruled that the claim did not succeed even though the uncle has made an offer but the nephew never responded to the letter although he already agreed in his own mind. An acceptance can be in conduct as in Brogden v Metropolitan Railway14. Although the parties did not sign the agreement, the contract is still binding as acceptance is communicated by conduct with the act of continuing the trade. Recent case is by Pickfords v Celestica15 where the counteroffer is accepted by doing the work. It is true that an acceptance must be communicated. However, there are exceptions in Carlill v Carbolic, the acceptance need not to be communicated to individuals as it is unilateral contracts. Other circumstance is in Adams v Lindsell16 where the postal rule applies in which an acceptance is communicated as soon as the letter is posted. However, the postal rule cannot be used in modern forms of communications. In Entores v Miles Far East Corp17 the postal rule cannot be applied as the communication was practically instantaneous (Rush & Ottley, 2006). 2.4 Consideration The condition of ‘something for something’ is referred as consideration. In Section 2(d) the Act states that a promise is only valid if it is made in return for another promise. Further mentioned
in Section 26, an agreement without consideration is void. Example of the case is Guthrie Waugh v Malaippan Muthucumaru18. There are three types of consideration which is executory, executed and past consideration. An executory consideration is a promise to perform an action in future time while executed consideration is an act that is already done by the offeree. Both are deliberated as a valid consideration however past consideration is not valid as the action is done before the promise is made. In Roscorla v Thomas19, the buyer is unable to sue the seller as the promise was made after the horse is sold. However, there are certain exceptions for past consideration in the case of Lampleigh v Brathwait20 where consideration is given to an act initially done at the promisor’s request. Malaysian Contract Act recognizes love and affection as valid consideration under Section 26(a). It must be in writing, registered and both parties having near relation to each other (Lee & Detta, 2009). A consideration must be sufficient which refers to having value in the eyes of the law. For example, in White v Bluett21, the court ruled that the promise made by the son had no value and has been held to be no consideration. However, a consideration is not void just because it is inadequate. In Chappell v Nestle Co.22, the chocolate wrapper is considered as valuable consideration even though their value was miniscule. Malaysian case, Phang Swee Kim v Beh I Hock23, it was ruled that there was adequate consideration even if the transfer was not registered before the husband died. With no evidence of fraud or duress, the appellant was entitled for the transfer of the land payment (Gillies, 1988). 2.5 Capacity For a contract to be valid, both parties must have the legal capacity to do it. This means a person must have the ability to enter any contract they wish to and fully understand its terms and obligations. If the other party did not have the capacity, the contract will not be legally binding. Section 11 states that a person over the age of majority and who is not mentally ill are competent to a contract. The age of majority in Malaysia is 18 under the Age of Majority Act 1971. Any contracts made by minor are not considered as a valid contract (Lee & Detta, 2009). The law governing minor’s contract is to protect children from being exploited as they are inexperienced. Another principle is the law should not cause suffering to the parties dealing with minor. Example of the case is Mohori Bibee v Dharmodas Ghose24 where the court held that kids
cannot make valid contracts. Malaysian case, Tan Hee Juan v The Boon Keat 25 ruled that contracts made by infants are invalid. However, there are exceptions to this rule which is necessaries, scholarship and insurance. However, the validity of the contract only applies if they are old enough to know the nature of transactions and its terms. A young child who did not understand what he was agreeing is seen as having the lack of mental capacity. Therefore, any contracts made by them are void. In R v Oldham Metropolitan Borough Council26, it was held that contracts made by minor are only valid if they are old enough to understand. Minors do have advantage in contracts as they can terminate the contract before reaching the age of maturity. In Corpe v Overton27, the court held that the minor is entitled to have his deposit back even though that he repudiated the agreement (Elliott & Quinn, 2007). Under Section 69, a minor will be granted a contract in condition if it was necessaries. Necessaries are referred to as essentials in which it brings reasonable comfort to the infant. However, the exceptions are only valid to basics necessities and luxurious items are excluded. Normal clothing is not considered as necessaries if the infant already own enough herself. In Scarborough v Sturzaker28, the court held that the purchase of the bike is a necessity as he used it to work. The classification of necessaries depends on the minor’s need and condition of his life. In Nash v Inman29, the minor is being sued for failing to pay eleven ‘fancy suits’. The fancy waistcoats is considered as basic items due to his social standing in which he was expected to be reasonably dressed as being a Cambridge University student and the son of an architect. However, it was ruled that he already had enough clothing and he did not actually need them therefore the contract was not enforceable. It should be noted that necessaries is not confined to goods only but include services and other necessaries. In Chapple v Cooper30 it was held that the minor is obliged to pay for the cost of her husband’s funeral. However, if the agreement contains unfair terms, the minor are not to be bound even though it was a necessary in the case of Fawcett v Smethurst31 (Rush & Ottley, 2006). The next exception is scholarship. Contracts (Amendment) Act 1976 states that a scholarship agreement entered by a minor is valid provided that the awards, loans, scholarship is approved by the Federal or Government State or any educational institutions (Lee & Detta, 2009). In the case of Government of Malaysia v Gurcharan Singh32, the court held that he is liable for the
repayment of the sum due to the breach of scholarship contract made when he was a minor. The court will allow businesses to enforce contracts on minor only if it is beneficial to them. In Doyle v White City Stadium33, the court allowed the contract to be enforced as it was beneficial to him. However, in De Francesco v Barnum34 the court rejected the contract as it was unfavorable to her as the agreement contained harsh conditions. The last exception is insurance. An infant over the age of ten can enter into insurance contract under the Insurance Act 1963 (Revised 1972). Still, minor below the age of sixteen must have written consent from parents or guardian (Lee & Detta, 2009). A minor can enter contract and it is voidable at his option. In Stapleton v Prudential Assurance Co.35 The court held that the contract made by minor was a continuing contract and the minor can refute it but it was bound to do so within a reasonable time.
3.0 Conclusion It is general rule that minor is incapable of making contracts as they cannot make rational decisions for themselves. The law and statutes preventing minors from making contracts is relieving children from being taken advantage of as they do not have the legal capacity to enter enforceable contracts. However, there are certain exceptions which allow businesses to enter into contract with minors. A minor who signs a contract is given advantage to void the contract in his wish. This may protect the minor however, what about the other party. As minors can void the contract any time they want, the other party is left with nothing in return and they do not have legal effects towards minor. The rules may have created an injustice to businesses.
References Abbott, K., & Pendlebury, N. (1993). Business Law, 6th Edition. London: DP Publications Ltd. About. (2014). Principles of Contracts and Agreements: About.com. Retrieved from About.com: http://biztaxlaw.about.com/od/contractsandagreements/a/Principles-OfContracts-And-Agreements.htm Blum, B. A. (2007). Contracts: Examples & Explanations. Aspen Publishers Online. Elliott, C., & Quinn, F. (2007). Contract Law, 6th Edition. London: Pearson Longman . Gillies, P. (1988). Concise Contract Law. Federation Press. Goldman, A., & Sigismond, W. (2007). Business law: Principles and practices (7th ed.). Boston: Houghton Mifflin. Lee, M., & Detta, I. (2009). Business Law. Selangor: Oxford Fajar Sdn. Bhd. Pathak, A. (2013). Legal Aspects of Business. India: Tata McGraw-Hill Education. Rush, J., & Ottley, M. (2006). Business Law. London: Thomson Learning. TA, R. (2014). Professional Business Law Essays. Malaysia: Richard TA.
1 Balfour v Balfour (1919) 2 KB 571 2 Merritt v Merritt (1970) 2 All ER 760 3 Gunthing v Lynn (1831) 65 4 Affin Credit (Malaysia) Sdn. Bhd. v Yap Yuen Fui (1984) 1 MLJ 169 5 Carlill v Carbolic Smoke Ball Company (1893) 1 QB 525 6 Fisher v Bell (1961) 1 QB 394 7 Pharmaceutical Society of Great Britain v Boots Cash Chemist (1953) 1 QB 401 8 Partridge v Crittenden (1968) 2 All ER 421; (1968) 1 WLR 1204 9 Grainger v Gough (1896) 66 10 Lau Brothers & Co. v China Pacific Navigation Co. Ltd. (1965) 1 MLJ 1 11 Hyde v Wrench (1840) 3 Beav 334 12 Fraser v Everett (1889) 4 KY 512 13 Felthouse v Bindley (1863) 69 14 Brogden v Metropolitan Railway Co. (1877) 2 App Cas 666 15 Pickfords Ltd v Celestica Ltd (2003) EWCA CIV 1741 16 Adams v Lindsell (1818) 1 B&Ald 681 17 Entores v Miles Far East Corporation (1955) 2 QB 327 18 Guthrie Waugh Bhd v Malaippan Muthucumaru (1972) 1 MLJ 35 19 Roscorla v Thomas (1842) 3 QB 234 20 Lampleigh v Brathwait (1615) 80 ER 255
21 White v Bluett (1853) 23 LJ EX 36 22 Chappell & Co. Ltd. v Nestle Co. Ltd. (1960) AC 87 23 Phang Swee Kim v Beh I Hock (1964) MLJ 383 24 Mohori Bibee v Dharmodas Ghose (1903) 1 LR 30 Col. 539 25 Tan Hee Juan v The Boon Keat (1934) FMSLR 96 26 Regina v Oldham Metropolitan Borough Council, ex parte Garlick (1993) 2 All ER 65 27 Corpe v Overton (1833) 10 Bing 252 28 Scarborough v Sturzaker (1905) 1 TAS LR 117 29 Nash v Inman (1908) 2 KB 1 CA 30 Chapple v Cooper (1844) 13 M.&W 252 31 Fawcett v Smethurst (1914) 84 LJKB 473 32 Government of Malaysia v Gurcharan Singh & Ors (1971) 1 MLJ 211 33 Doyle v White City Stadium (1935) 1 KB 110 34 De Francesca v Barnum (1890) 45 Ch D430 35 Stapleton v Prudential Assurance Co. Ltd. (1928) 62 I.L.T.R 56 (High Ct. 1929)