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If you search the user's guide for "zero instances", you should be pointed towards the topic "Use an entity or relationship in a rule", which notes the following (taken from OPM v10.4.1):
Note that if there are zero instances of the entity, then the rule using the For All operator will evaluate to true.This is also the case for the ForAllScope operator
Another way to think of this is the default is to assume that ForAllScope will evaluate to true if all entities are known AND those that exist satisfy the subsequent conditions. What this means is you need to decide whether you want the logic to represent "at least one cat exists AND all cats are happy" (which requires an additional condition) or "every cat that exists is happy" (the default).
In terms of the policies / rules, it is always best to be explicit (regardless of the default behavior of a function such as ForAllScope). The recommended approach would be to explicitly state whether at least one cat must exist for the person to be happy OR whether the person is happy if the person has no cat's.