1.

0 Introduction

There are some important elements must be in the law of contract which are an offer,
acceptance, intention to create legal relation, consideration, and consent. Therefore, when one of
the elements do not obey the requirement in Contracts Act 1950, the formation of a contract is
failed. However, when these elements are not provision in Contract Act 1950 to deal with certain
cases that occur in Malaysia, English case law can be applied to solve it.

Intention to create legal relations are important in Contract Act 1950 because it
means the parties are ready to accept the legal sequences of having entered into an agreement.
This element is not an agreement that creates a binding contract but it just a merely agreement
only. The agreements can classify into 2 presumptions, which are domestic agreements and
commercial agreements.

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2.0 Domestic and Social Agreements

The domestic agreement is an agreement which made between two parties who have a
close relationship or living in a family such as husband and wife, mother and child, relative and
relative. The presumptions for domestic agreements is that the parties do not intend to create
legal relations. This is because most of the people who have a close relationship will make an
agreement among themselves are basically based on trust or love but not for ‘business context’.
Therefore, they are not being legally binding, so this will cause their agreements to become a
mere promise, and they cannot sue each other.

Here have some cases that follow the initial presumptions of the domestic agreement
which are Balfour v Balfour (1919) 2 KB 571 and Jones v Padavatton (1969) 2 ALL ER 616.
Balfour v Balfour (1919) 2 KB 571 is the case that the agreement was made between husband
and wife. This case is about the husband orally agreed to pay his wife, who stay in England for
medical advice £30 monthly before he returned to Ceylon. However, the husband did not pay
any more to her wife later and her wife sought to enforce the agreement. Based on Atkin LJ’s
statement, the wife cannot sue the husband because there is no contract formed between them,
which mean there is no intention to create legal relation. This is because both have the close
relationship, so their promise will not form a contract as they did not intend that they should be
entered into legal consequences. Besides, this is an ordinary agreement as the husband promise
to pay his wife £30 per month, so this is most seem like both of them were made arrangement
among themselves. Therefore, the husband no needs to pay £30 monthly to her wife anymore.

Next, Jones v Padavatton (1969) 2 ALL ER 616 was the case that the agreement was
made between parent and child. This case was about a daughter accepted her mother’s offer to
study for the Bar in England in August 1962. The agreement was not put in writing, the mother
promised provide fees and maintenance of £42 per month while her daughter thought it was £70
per month. However, the daughter accepted the maintenance payment without objection. In 1964,
the mother orally agreed to buy her house, so that she could live, and rent the empty room. The
money will go to the daughter and the mother will continue provide £42 monthly. In 1967, the
mother claimed the possession of the house but her daughter still not completed her studies. The

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daughter relied upon the agreement as she defense to the possession action. According to the
Fenton Atkinson LJ’s view, he said that there is no intention to create legal relations in this case
as they have close relationship and cohabitant when they made the agreement. Moreover, he said
this case is more preponderant to the family arrangement as at first, her mother persuaded her to
study for the Bar and will give her maintenance fee. Then, the next arrangement was made
between them was the mother will buy a house for her to live in England. Their agreement did
not fall into a legally binding because the arrangement was not clear, so this cannot enforce a
contract. Hence, the mother was entitled to possession.

The initial presumptions can be rebutted when it consists of a written agreement between
both parties, the parties have separated, and there is a third party in agreement. Here has one case
which satisfied the condition, which are Merritt v Merritt (1970) 2 ALL ER 760. Merritt v
Merritt (1970) 2 ALL ER 760 is about the husband stated that he would pay £40 monthly for
his wife, and the wife needs to pay the outstanding mortgage payments on the house after he left.
They signed a written note which stated that when the mortgage payments had all been made, he
would transfer the house to his wife in consideration his wife need to pay all household charges.
The wife paid off the mortgage but the husband refused to transfer the house. As claimed by
Lord Denning MR, he thinks that the parties in this case had the intention to create legal relations
because they had signed a written note and their agreement made when they are not living in
amity and separated. Therefore, the wife can own the house as she had fulfilled the consideration
between her and her husband and their agreement was in a business context. However, the
another case Gould v Gould (1970) 3 ALL ER 728 had no intention to create legal relations
because the agreements made between them were uncertain although the agreement was made
after both were separated. As the husband agrees to pay the wife £12 a week ‘as long as he could
manage it’.

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3.0 Commercial and Business Agreements

The commercial agreement is a written contract or agreement which made

between two business entities such as corporate sector, retail, and industry.The
presumption of the commercial agreement had opposed to the presumption of
domestic agreements that the parties intend to create legal relation. The parties will
have intended to create relation because they just want to earn money which is related
to business context by ignoring the relationship between the parties. Hence, they are
being legally binding, so this will cause their agreements become an important
promise, and they can sue each other.

Here have two cases which follow the initial presumptions of commercial
agreement which is Esso Petroleum Ltd v Commissioners of Customs and Excise
(1976) 1 ALL. ER 117. This case was about the Esso had a sales promotion by
offering ‘free’ World Cup coin with every four gallons of petrol. The Customs and
Excise Commissioners claimed that the coins were chargeable to purchase tax
because they were ‘produced in quantity for general sale’ under the Purchase Tax
Act 1963. However, Esso claimed that the coins were as free gift, so there was not
present sale with intention to create legal relations. The conclusion made by Lord
Russell and Lord Simon is difference from each other. According to the Court, it held
that Esso had a sales promotion by giving free coins is designed to attract motorists
and to increase their revenue. Therefore, the whole transaction formed the business
relations between Esso and motorists. Motorists who saw the advertisement, they will
get the free coins as they buy four gallons of petrol (First, motorists will drive in and
offer to buy 4 gallons of petrol. Then, acceptance done when the tank was filled with
petrol and motorists will pay money based on the petrol price but not for the coins.)
Since there formed business relationship between parties, they will be intended to
create legal relations. Moreover, motorists pay money for the four gallons of petrol
but not for the coins. So, coins were not for sale purpose, and the coins should be
exempted from purchase tax.
Another case that fulfilled the initial presumption is Edwards v Skyways
[1964] 1 WLR 349. This case is about the claimant (Edwards) was to be made
redundant. Skyways (defendant) promise to pay claimant same amount of company
contributions if claimant agree to withdraw his contributions to the company pension

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funds. Then, claimant agreed with this but the company faced financial difficulty and
revoked the promise. The decision that made in the court of appeal is the agreement is
legally binding as the agreement had been made in a business context. Therefore,
claimant can get back that amount of money from defendant.

The initial presumptions can be rebutted when it is binding in honor only

clauses and comfort letter. The Rose and Frank Co. v J.R. Crompton and Brothers
Ltd (1923) 2 KB 261 is a case which was binding in honor only clauses. This case
was about the claimant (Rose and Frank Co.) was the only one sale the carbon paper
produced by defendant (J.R. Crompton and Brothers Ltd) in America. In their
agreement, there was an ‘Honourable Pledge Clause’ included stating that the
arrangement will not be intended to be a formal legal agreement. The claimants
placed orders for carbon paper which were accepted by the defendants. Then, the
defendant terminated the agreement and refused to send the carbon paper before the
orders were sent. The claimant was unhappy and sued defendant for breach the
contract. In the opinion of Atkin LJ, the claimant cannot sue the defendant because
they have made a written agreement which contains clause that they do not intend to
be legally binding. Although the claimant placed orders from defendant and defendant
agreed, there present offer and acceptance between the parties. However, we cannot
use only this point said that there had a contract formed. This is because referred to
Contract Act 1950, contract should have element ‘intention to create legal relation’.
Therefore, contract was not formed in this case.

The next case which also relate to legally binding in honour clauses is Jones v
Vernons’ Pools Ltd, (1938) 2 All ER 626. Mr. Jones filled in two winning entries on
coupons for sales promotion and sent it to defendant. The words “binding in honour
only” written on the coupon’s surface and state that the entry of the coupon shall not
form legal relations. The defendant said that he only received one coupon. Then,
Jones said that the coupon entry is a legally binding agreement, so he can entitle the
money. The court states that the entry coupon had the words “binding in honour only”
and it shall not form legal relations, so that there is no intention to be legally bound
between them. Therefore, Jones cannot entitled the money since it is not an
enforceable legal contract.

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4.0 Conclusion
Based on the above explanation of the domestic agreement, the initial
presumptions can be rebutted or can be said that there is an exception to the
presumptions. Basically, we can conclude that the parties who have close relationship
when they made the agreement and the agreement is uncertain or vague will
categorized with no intention to create legal relations among the parties.
Moreover,there have an exemption when the parties who made agreement are not
living in amity but are separated or about to separate, or there have third party, or
there has a written agreement. However, as long as the agreement is too vague, it
cannot form a contract, and there will no intention to create legal relations.

Moreover, there are also presumptions in commercial agreement and it also

can be rebutted. Most of the agreement made in this presumptions are intention to
create legal relations as they had the motive to get commercial advantage from others.
As long as they have relationship in business, both parties will form a legal contract
with each other to protect themselves from becoming a victim in business world.
There had exemption when the agreement includes honor clause and comfort letter.

In a nutshell, presumption of intention to create legal relations can be rebutted

based on some conditions. Basically, the courts made the decisions are based on the
intentions of the parties from the language used and the circumstances in which they
are used. Therefore, the parties who want to form a legal contract, they should write
out the terms properly and clearly.

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5.0 Table of Statutes

No. Statutes
1. section 2 (h) of the Contracts Act 1950

2. Purchase Tax Act 1963

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6.0 Table of Cases

No. Cases

1. Balfour v Balfour (1919) 2 KB 571

2. Jones v Padavatton (1969) 2 ALL ER 616

3. Merritt v Merritt (1970) 2 ALL ER 760

4. Gould v Gould (1970) 3 ALL ER 728

5. Esso Petroleum Ltd v Commissioners of Customs and Excise (1976) 1 ALL ER 117

6. Edwards v Skyways (1964) 1 WLR 349

7. Rose and Frank Co. v J.R. Crompton and Brothers Ltd (1923) 2 KB 261

8. Jones v Vernons’ Pools Ltd (1938) 2 All ER 626