CONTRACT LAW (PERIKATAN 155-157)

Introduce The capacity of a party to enter into a valid banding contract refers to the legal ability or power of that party to make the contract in question. The law recognises adults, who do not their mental faculties impeded in any way, as having full capacity to contract. Such a persons state of mind may be incapacitated such that he does not understand the legal implications of the transaction. Examples of such persons are minors, the mentally infirm and drunkards. In such cases, the law comes to that persons aid by providing that the contract may not be enforced against him because of incapacity. The incapacity of a contracting party does not make the contract completely invalid as such but only makes it unenforceable against the person under the incapacity.

There are two countervailing concerns behind the law relating to contractual incapacity. The first is that the law should grant protection to the inexperienced or those dispossessed of their normal mental faculties ( whether permanently or temporarily) against parties who may wish to exploit them. The second is that ingranting such protection the law should not prejudice those who deal fairly with the incapacitated party .In the chapters, we shali examine when the incapacity of minors, the mentally infirm and drunkards may affect contracts entered into by them. We shall also look briefly at the issue of corporate capacity which raises somewhat different considerations.

Contracting with minors,

The age of majority in Singapore is 21. Persons under that age are considered to be minors (or infants as they were traditionally referred to). In some other common law jurisdictions, for exam, Malaysia, Australia and the UK, legislation has been enacted to lower the contracting age of majority to 18. Most common law countries also have legislation relating to contract with Minors Contracts Act and the Sale of Goods Act. Some of the more significant of these provisions will be highlighted in the following discussion.

Protecting minors

The law takes on a protective attitude in relation to minors. Its concern is that minors, because of their relative inexperience and vulnerability, may be taken advantage of or persuaded to enter into contracts which may not be prudent. However, this sometimes works to the detriment of parties who contract with the minor in good faith.

T he general rule is that minors are not bound to honour obligations under contracts which they have entered into unless and until they either expressly or by implication ratify (ie, indicate that they intend to be bound by) the contract after reaching the age of majority. In the absence of such ratification, they cannot be sued in respect of unperformed obligations nor be compelled to perform them. This rule is subject to a number of exceptions which will be discussed in detail later in the chapter. It must be emphasised that contracts with minors are not void, in the sense that there is no contract between the parties, but are merely unenforceable against the minor. Consequently, minors can hold the other contracting party to their obligations under the contract, the only restriction being that an order for specific performance (see chapter 12) is generally unavailable to minors in cases where the contract is itself unenforceable against them. Minors are also able to acquire title to property under contracts which are unenforceable against them as well as to pass such title to third parties.

There are, however, limits to the protection afforded to minors under the law. The first is that minors can only rely on their incapacity where it is sought for a contract to be enforced against them. The rights thus relate only to contracts where their obligations remain executory (ie, where the minors have yet to perform one or more obligations under the contract eg payment). Once the minors have performed their obligations or executed the contract, the law does not permit them to use their incapacity as a ground for recovering any money or property transferred under the contract.

Legislative provisions may also affect a minors rights. For example, s 3 of the Minors Contracts Acts provides that where contracts which are unenforceable against minors are repudiated by them, the courts have the powers to compel the minors to return any property which they may

have acquired under the contract or any thing representing such property to the other party. It is unclear. How ever whether minors may be required to return money obtained under such contracts though the prevalent view is that there is no reason why the court should not so order where justice requires it. Where there is no such statutory provision. The party who has contracted with the minor has no recourse whatsoever unless he can show that the contract falls within one of the excepted categories discussed below.

It is thus important always to check the age of the other contracting party if in doubt. If the person is a minor it is prudent to request a person of full legal age to contract on his behalf or to obtain an indemnity from such a person for all moneys owing by the minor. Alternatively, deal with the minor only on a cash basis.

The effect of fraud on the part of the minor

A minor cannot be made liable under a contract purely because he has been guilty of perpetrating a fraud on the other contracting party. Unfair as it may seem, even where the minor fraudulently misrepresents his age to the other party with the intention of using his incapacity as a defence to a claim under the contract, no contractual obligations can be imposed on the minors unless the contract falls under one of the exception to the general rule (see discussion below). At best, the fraud may be relied upon as a defence to a suit by the minor or as a grounds for rescinding the contract. Where the minor has obtained benefits under the contract pursuant to his fraud however, the court may order such benefits to be returned to the innocent party