Intention to Create Legal Relation PDF Dec 2022

Dato Viva promised her daughter, Cik D, to buy a Lamborghini if she managed to lose weight. After Cik D lost weight, she claimed the Lamborghini from Dato Viva. However, since their assets were seized due to debt, Dato Viva could not keep her promise. Feeling betrayed, Cik D wants to sue...

Dato Viva promised her daughter, Cik D, to buy a Lamborghini if she managed to lose weight. After Cik D lost weight, she claimed the Lamborghini from Dato Viva. However, since their assets were seized due to debt, Dato Viva could not keep her promise. Feeling betrayed, Cik D wants to sue Dato Viva for breach of promise. Advise Cik D. INTENTION TO CREATE LEGAL RELATION  LEARNING OUTCOME At the end of this topic, students will be able to: 1. Describe the general rule on Intention to create legal relation. 2. Determine the existence of Intention to create legal relation 3. Determine the importance of this legal rule 4. Apply the rules on Intention to create legal relation to resolve contractual issues.  FORMATION OF A CONTACT Intention To Create Legal Relations The common law position is that even if the elements of offer, acceptance and consideration are exist, the transaction or agreement MIGHT still not be an enforceable agreement if the parties did not have the intention to be legally bound 4  FORMATION OF A CONTACT No provision in the Contract Act 1950 for the element of intention to create legal relations, hence the courts in Malaysia have applied common law cases. The court uses the objective test to construe the words and conduct of the parties Interestingly , we now need to look at circumstances of a particular case to ascertain if parties had intention to be legally bound. 5  FORMATION OF A CONTACT The test of intention then is the view of the hypothetical reasonable person, courts will look at the totality of the evidence, written, oral, conduct and otherwise, to arrive at the decision as to whether the parties intended to conclude a binding contract. 6  FORMATION OF A CONTACT The intention to create legal relations means the intention of a party to be come legally bound, with legal consequences to sue and to be sued Now, lets look at facts and circumstances that will determine whether intention to create legal relations exists: 7  FORMATION OF A CONTACT 1. An expression in writing Carlill v Carbolic Smokeball Co ……the statements made in the advertisement which showed intention of the defendant to enter a legally binding relationship. 8  FORMATION OF A CONTACT Kwong Kum Sun (S) Pte Ltd v Lian Soon Siew & Ors The appellants who are importers of glass sheets offering to supply and install glass wrote to the respondents…..we hope that the above prices are acceptable to you and shall be grateful if you will kindly sign and return the duplicate copy of this letter….. 9  The respondent then notified their confirmation and acceptance of the offer on the letter itself. The issue: whether the letter created a binding contract? Or was it an ITT? CoA held: Binding contract. For the parties to be bound, they must have finished reaching an agreement, so that it is possible to infer an intention on the part of both of them to be bound immediately.  MN Guha Majumder v RE Donough 2MLJ114 An advertisement appeared in the Sarawak Tribune dated 21st May, 1969 for the sale by the defendant of his house in these terms: "Property for Quick Sale Tenders are invited for the purchase of attractive house and garden in first class residential area at No. 3 Jalan Bukit Hantu. Highland of 4.34 acre. Firm offers in writing should reach the address given below by noon on 28.5.69. There is no undertaking to accept the highest or any other offer. Further particulars or to view the property may be obtained an application to: Reddi & Co., Lanka Building, Kuching.”  The property in question was advertised for sale, inviting written offers. The plaintiff viewed the property twice and communicated with the defendant's agent between the visits. It was claimed that the defendant accepted the plaintiff's offer to buy the property for $70,000. 12  During the second visit to the property, the mode of payment was discussed, but no clear agreement was reached on the sale of orchid plants, which the defendant wanted to sell separately. The defendant denied committing to the sale of orchid plants but was eager for a quick transaction as he planned to leave Kuching for Johor Bahru. The issue to decide was whether a contract existed between the plaintiff and the defendant at that time.  The court ruled that the law does not assume an intention to create a legal relationship of seller and buyer when the circumstances and behavior of the parties show otherwise. The evidence showed that the parties did not intend to be immediately bound by a contract, as they lacked the necessary intent to form one. Their interactions were merely negotiations from the beginning to end.  When parties sign a formal document, it is clear they intend to create a legal relationship. However, casual conversations, whether over the phone or otherwise, make it harder to conclude that they intended to enter into a binding agreement. The law does not assume such an intention when the circumstances and behavior of the parties show otherwise. While negotiations took place, the evidence suggests the parties did not intend to be immediately bound, as they lacked the necessary intention (animus contrahendi) to form a contract. The entire interaction was merely a negotiation.  FORMATION OF A CONTACT 2.”Subject to contract” clause Here parties have made the agreement with a phrase ‘subject to contract’…..Usually is not conclusive of the issue of whether there is a concluded contract. 16  FORMATION OF A CONTACT 3.Social or domestic arrangements These arrangement are arrangements between spouses, parents, children, close relatives and friends. The general rule is where social and domestic relationship are concerned …there is no intention to create legal relations….thus transactions between friends and close relatives are presumed to have no legal consequences 17  FORMATION OF A CONTACT Balfour v. Balfour The Plaintiff (W) and Defendant (H), a married couple, lived in Ceylon where the Defendant worked. In 1915, they returned to England during the Defendant's leave. Due to health concerns, the Plaintiff was advised not to return to Ceylon. Before leaving, the Defendant promised to send her £30 per month for support. Their relationship later broke down, and they began living separately. The Plaintiff sued to enforce the Defendant's promise to pay her £30 per month. Does the husbands promise to pay £30 per month constitute a valid contract which can be sued upon? 18  Held: The court recognised that certain forms of agreements do not reach the status of a contract. An agreement between a husband and wife is often such a form of the agreement. In such agreements, one party is given a certain sum of money on a daily, weekly, monthly, basis. This agreement is sometimes termed an allowance. However, these agreements are not contracts because the “parties did not intend that they should be attended by legal consequences.” One reason the court is hesitant to treat these agreements as contracts, is that there would not be enough courts to handle the volume of cases. Thus, here, the husband’s promise did not rise to the level of a contract. The court makes an interesting argument in not enforcing these types of promises. The court argues that if these promises are treated as contracts the flood gates will open.  Choo Tiong Hin & Ors v Choo Hock Swee MLJ 67 Jones v. Padavatton 2All ER 616 Heslop v. Burns 1WLR 1241, CA  FORMATION OF A CONTACT However the presumption may not be invoked in certain circumstances: i) when parties were not on cordial terms Merritt v Merritt 2 AllER760 Mr and Mrs Merritt married in 1941. They held their matrimonial home in joint names. In 1966 Mr Merritt left the family home to live with another woman. Mr Merritt agreed to pay Mrs Merritt £40 per month. At Mrs Merritt’s request, he signed a document confirming that when she had repaid the balance on the mortgage, he would transfer the matrimonial home into her sole name. Mrs Merritt paid off the mortgage and successfully acquired a declaration that the house belonged to her. Mr Merritt appealed. 21  Mr Merritt contended the agreement was a domestic arrangement between husband and wife and there was no intention to create legal relations and, as such, there was no enforceable contract. He also argued the purported contract was insufficiently certain to be enforceable by the court, and that Mrs Merritt had failed to provide consideration for his promise. Mrs Merritt argued that given they were in the process of separating, the presumption of there being no intention to create legal relations did not apply. She claimed there was every intention of creating legal relations, and her having paid off all the expenses on the home and finishing off the mortgage payments amounted to consideration. Held: Mr Merritt’s appeal was unsuccessful. When parties are in the process of separating, or are separated, the presumption of there being no intention to create legal relations does not apply. The arrangement was sufficiently certain to be enforceable, and the paying of the mortgage was ample consideration for Mr Merritt’s promise. Mrs Merritt was entitled to the matrimonial home entirely.  ii) where the parties undertake a substantial commitment(huge + serious undertaking) See case of Wakeling v Ripley (1951)51 SR (NSW) 183  Ripley was an elderly and wealthy widower who required domestic assistance in his large home in New South Wales. Between 1940 and 1945, he persuaded his sister and her husband (the Wakelings) to move from England to Australia to look after him. During those discussions, the Wakelings made it clear to Ripley that moving to Australia would require them to make significant sacrifices, including Mr Wakeling abandoning his salaried position at Cambridge University and his pension. Mr Wakeling sought assurances from Ripley as to what Ripley could offer to his family for the future. In May 1945, Ripley wrote to the Wakelings urging them to come as soon as they could and giving the Wakelings information as to the contents of the house, which he referred to as theirs. He wrote again in October 1945 attaching a copy of his will in which he bequeathed the bulk of his estate to the Wakelings. On the basis of this correspondence from Ripley, the Wakelings agreed to come to Australia. They sold their property in England and Mr Wakeling resigned from his position at Cambridge.  The Wakelings arrived in Australia in early 1947 and lived with Ripley throughout that year. A number of misunderstandings arose between the Wakelings and Ripley which resulted in Ripley selling the house and altering his will. The Wakelings commenced proceedings seeking to recover damages from Ripley for breach of the alleged contract between them.  Issue: Was the agreement between Ripley and the Wakelings a mere domestic arrangement that was not legally binding, or was it a legally binding contract? Held: The Supreme Court of New South Wales unanimously decided that there was sufficient evidence upon that the parties had made a definite and binding contract. The Court considered the evidence and concluded that the correspondence between the parties regarding the arrangements as well as the seriousness of the move for the Wakelings demonstrated that the parties intended to be legally bound by the agreement.  FORMATION OF A CONTACT 4.Business/Commercial arrangement In business transactions, the presumption is the other way around. The general rule is there is intention to create legal relation. The rational being…to facilitate trade and commerce and to promote certainty. Also in commercial transaction, it would always involve not only rights but also profits, commission and opportunity. 27  FORMATION OF A CONTACT However this presumption can be rebutted. Read cases ; Rose and Frank Co v JR Crompton & Bros Ltd ac 445 Esso Petroleum v Comminnoners of Customs and Excise 1AllER117 Kleinwort Benson Ltd v MMC 1 AllER 714 28