INTENTION TO CREATE LEGAL RELATION

There are two presumptions/assumptions:

 1. Business/Commercial Agreements.

 2. Family/Domestic/Social Agreements.

The two presumptions are rebuttable if they can be proven otherwise.

1. Business/Commercial Agreements

Presumption:
- There Is an intention to create legal relation unless specify otherwise.
The contract is binding on the parties.
- However, if any party wishes that the agreement was not binding, the party must
rebut the presumption by evidence.
- For example, using a clause “subject to contract’ in the agreement. The effect of
this clause is that, the oral or informal agreement is not binding until the execution
of a full or final agreement.

Cases:

(An agreement “subject to contract” was not valid)

Low Kar Yit & Ors. v Mohd Isa & Anor.(There was no binding contract)
- The defendant gave an option to the plaintiff’s agent to buy a parcel of land
subject to a formal contract to be drawn up and agreed upon by the parties. The
plaintiff’s agent exercise the option but defendant failed to sign the agreement for
sale. The plaintiff sued the defendant for breach of contract.
Held: The option was conditional upon and subject to a formal contract to be
drawn up and agreed upon the parties. Therefore, the exercise of the option
amounted to nothing more than an agreement to enter into an agreement.

(However, in the following case, an agreement subject to contract was valid)

Lim Keng Seong & Anor. v Yeo Ah Tee (There was a binding contract)
-The respondent claimed that there was a complete contract arising from a number
of letters exchanged between them. However, the appellant stated that the sale was
subject to contract and they had informed the respondent’s solicitors that they did
not wish to proceed with the sale.
Held: The court ordered the agreement of sale be specifically performed. It was the
intention of the parties to come to a definite and complete agreement on the subject
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of the sale and the mere fact that a written contract had to be drawn up and
executed by them did not necessarily mean that there was no legally binding and
enforceable agreement.

(With intention)
Carlill v Carbolic Smoke Ball
- The act of defendant in depositing 1000 pounds in a bank showed that the
defendant had intention to make the advertisement as an offer. Therefore, Mrs
Carlill could claim for 100 pounds.

2. Family/Domestic/Social Agreements

Presumption:
- There is No intention to create legal relation unless proven otherwise.
The contract is not binding on the parties.
-However, the presumption may be rebutted by giving evidence.

Cases:

(No intention)
Balfour v Balfour (good relation)
- The defendant husband was a civil servant stationed in Ceylon. When he was in
England he had promised to pay his wife monthly allowance as maintenance. The
wife was unable to follow him due to health problem. The husband did not fulfill
his promise. The wife sued him for breach of promise. Held: Her claim failed
because there was no intention to create legal relation.

(With intention)
However, in Merrit v Merrit (bad relation)
- The defendant left the matrimonial home. The house was under joint names of
husband and wife and subjected to mortgage. Husband and wife had a discussion
and the husband agreed to pay the wife 40 pounds a month for the purpose of
paying the mortgage payments. However, when the payment is completed the
husband refused to transfer the house. The agreement was made in writing on a
paper and the husband signed it. Held: There was intention to create legal relation
between parties since the agreement was made in writing. The court ordered the
house to be transferred to the wife.

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CAPACITY

Section 10 Contracts Act 1950:

- Agreements are contracts if they are made by free consent and competent
parties.

Who are competent to contract?

Section 11 Contracts Act 1950:
- Three requirements:
 Attain the age of majority

 Sound mind

 Not disqualified from contracting by any law to which he is subject

A) Attain age of majority

Age of Majority Act:

 The age of majority is 18 years

 Below 18 is known as a minor

General rule:
- Contracts entered into by minors are void.

Mohori Bibee v Dhurmodas Ghose

- Held : the contract of loan entered into by a minor was void.

Tan Hee Juan v The Boon Keat

- Tranfers of land entered into by a minor was void.

Leha Jusoh v Awang Johari

- Held: Agreement to purchase an estate contracted by a minor was void.

Exceptions. Contracts entered into by a minor are valid in the following situations:

 Necessaries/Necessities
 Education/Scholarship
 Insurance
 Contracts of Apprenticeship
 Sec 4(a) of Age of Majority Act 1971 “Nothing in this Act shall affect the
capacity of any person to act in the following matters, namely marriage,
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 divorce, dower and adoption…”- Promise of marriage entered into by
minors or by their parents on their behalf are valid and binding upon the
minors. The minors may sue or be sued for breach of promise of marriage
contracts.

1. Necessaries/Necessities

What are necessaries?

Food, shelter, clothing, medical services, education. Luxury articles are not
necessary.

If it is for luxury, the minor is not bound by the contract.

If it is for necessary, the minor is bound by the contract.

Test of necessaries:
 nature of the goods/services supplied

 minor’s actual needs

 his station in life

According to section 69 of the Contracts Act,

 necessaries must have been actually supplied

 minor’s liability includes necessaries supplied to anyone whom he is legally

bound to support
 supplier of necessaries may only claim reasonable price

 minor is not personally liable- oblige to pay if he has property

Nash v Inman
- The defendant a minor ordered 11 fancy waistcoats from the plaintiff (a tailor).
The plaintiff claimed for the price of the clothes. The defendant’s father gave
evidence that the minor had enough clothes suitable and necessaries in life. Held:
11 fancy waistcoats were not necessaries. They were luxuries and therefore, the
minor was not bound by the contract.

2. Education/Scholarship

- S.4(a), Contracts (Amendment) Act 1976: a scholarship entered by a minor is a

valid contract.

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- Scholarship agreements = scholarship, bursary, loan, sponsorship, or appointment
to a course of study, the provision of leave with or without pay, or any other
facility for the purpose of education and learning.

Government of Malaysia v Gurcharan Singh & Ors

- Held: education was “necessaries”, thus the first defendant was liable for the
payment of a reasonable sum spent on him. The plaintiff was awarded however,
$2683 as the amount of damages payable based on the defendant’s completed
months of service.

3. Insurance

- Section 153(1) of the Insurance Act 1996 : a minor who is more than ten years
old but less than sixteen years old may enter into an insurance contract if he
obtains a parent or guardian’s consent. Section 153(2) of the Insurance Act 1996
states that if a minor is sixteen or older, they may enter into an insurance contract.

B. Sound Mind

- Section 12(1) of the Contracts Act: a person is of sound mind if he is:

a. capable of understanding
b. capable of giving rational judgement

E.g.
- persons of mentally disorder, and person incapacitated through sickness, alcohol
or drugs

-Section 12(2) of the Contracts Act:

“A person who is usually of unsound mind, but occasionally of sound mind may
make a contract when he is of sound mind”

-Section 12(3) of the Contracts Act:

“A person who is usually of sound mind but occasionally of unsound mind may
not make a contract when he is of unsound mind”

Effect:
Contract is voidable at the option of the person of unsound mind if
 The fact of mental disorder or intoxication can be proved

 The other party knows of his condition

Imperial Loan Co. v Stone

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“A contract made by a person of unsound mind is not voidable at that person’s
option if the other party to the contract believed at the time he made the contract
that the person with whom he was dealing was of sound mind. In order to avoid a
fair contract on the ground of insanity the mental incapacity of the one must be
known to the other party. A defendant must plead and prove both his insanity and
the knowledge of the plaintiff, the burden of proof those facts lies on the
defendant”

CERTAINTY
Section 30 Contracts Act 1950:
- Uncertain agreements are void

Karuppan Chetty v Suah Thian

- The contract that allowed one of the parties to rent a
premise for $35 a month “as long as he likes” was held
void. There was no certainty as to how long “as long as he
likes”