Government of Malaysia

Identification of issue
Whether Daniel should pay compensation to the Government of Malaysia?

Explanation of the Law

The parties that enter into a contract must be legally competent. Section 10(1)
of Contracts Act 1950 states that all agreements are contracts if they are made by
the free consent of parties competent to contract, for a lawful consideration and with
a lawful object, and are not hereby expressly declared to be void. Section 11 of
Contracts Act 1950 states that, the person is of the Age of Majority according to the
law to which he is subject and the person is of sound mind and he or she is not
disqualified from contracting by any law to which he is subject are competent to
contract. According to Section 2 of Age of Majority Act 1971, the age of majority
for contracts is 18 years. So, a minor who age is below 18 years old is incompetent to
contract. The contract will be void when it entered into by a minor. It can be referred
to the case of Mohori Bibee v. Dhurmodas Ghose (1903). The fact was the agent of
Dhurmodas advanced money to Mohori, who was still an infant, fully knowing the
concept of incompetency of Mohori to contract, against mortgage of property
belonging to Dhurmodas. The court held that every agreement is void if entered by a
minor. However, there are some exceptions to this general rule which is Scholarship
Agreements.

Under scholarship agreements, the Contracts (Amendment) Act 1976

governs that scholarship agreements entered between a person or scholar and an
‘appropriate authority’. The ‘appropriate authority’ includes Federal Government,
State Government, statutory authority and declaration of an approved educational
institution. Under the declaration of an approved educational, the Minister for the time
being in charge of education may by notification in the Gazette declare any institution
or body, whether corporate or incorporate, to be an approved educational institution
for the purpose of this Act.

Apart from that, Section 4 of the Contracts (Amendment) Act 1976 provides
that the scholarship agreement shall not be invalidated on the ground that the scholar
is a minor or that such agreement such agreement lacks consideration. This can refer
to the case of University Malaya v. Lee Ming Chong [1986]. The fact was the
defendant was given a scholarship to study in Canada on the condition that he must
work for the University for two and a half years. Upon the defendant’s return, he left
the university contending that since he had not provided consideration, there was no
valid contract between them. The Federal Court held that there was sufficient
consideration as the university had paid the defendant’s. Furthermore, even if there
was no consideration, the agreement was regarded as valid by virtue of section 4 (C)
of the Contract (Amendment) Act 1976.

The amendment nullifies that the part of the decision in Gurcharan Singh v.
Government of Malaysia [1971] where it affects contracts between minors and an
‘appropriate authority’. The fact was Malaysia government gave Gurcharan Singh
scholarship for him to study at Malayan Teacher’s Training Institution. However, he
had to work for the government inconsideration for being a trainer as a teacher for 5
years. Gurcharan worked for 3 years and 10 months only. The contract was made
when he was still a minor. Malaysia government claimed the compensation for
$11,500. The court held that an infant is totally incompetent and incapable of entering
into a contract and there is no contract on which he can be sued. However, Section 5
of the Contracts (Amendment) Act 1976 provides that in the event that the scholar
were to breach the scholarship agreement, the scholar will be required to pay the full
sum named in the agreement to the appropriate authority and no deduction shall be
made from the named sum for any partial period of service performed by the scholar
upon completion of his course of study.

Furthermore, the effect of a contract by minor is also very important in the

scholarship agreements. In the case of Mohori Bibee v. Dhurmodas Ghose [1903],
the Privy Council held that a contract entered into by a minor is void because
according to the section 2 (g) an agreement not enforceable by law is void. Generally,
where one party has performed his part of the bargain under a void contract, section
66 would require the party who has benefited from the contract to restore the
advantage or compensate the other for the value of the benefit received. For
explanation, section 66 provides that where an agreement is discovered to be void, or
when a contract becomes void, any person who has received any advantage under the
agreement or contract is bound to restore or to make compensation for it, to the person
from whom he received it. The Privy Council have held that section 66 only applies to
a contract which becomes void. It does not apply to an agreement entered into by a
minor who could never have made a contract. It follows therefore that a minor cannot
be compelled to repay any moneys received in respect of such a contract.

Application of the Law

Since Daniel obtained scholarship from the Government of Malaysia to study

economics at Oxford University, London and signed a written contract that he would
return and work with Malaysian Government for 3 years. According to the case
University Malaya v. Lee Ming Chong [1986], there will be a breach of contract as
Malaysia government had already paid for the tuition fees for Daniel to study in
Oxford University. However, he did not fulfil his contract to work with Malaysia
government but worked in London after his studies. Daniel has to pay the
compensation of RM 90,000 to Malaysia government for breach of contract.

Moreover, according to Gurcharan Singh v. Government of Malaysia [1971]

case and Section 5 of the Contracts (Amendment) Act 1976, Daniel must have to
pay the full amount of compensation with RM 90,000 to the government of Malaysia
and no deduction is allowed for breach of scholarship agreement. .

Concluding Advie

Daniel should pay back the compensation that amounted RM 90,000 to the
Government of Malaysia.