INTENTION TO CREATE

LEGAL RELATION
NURUL ASYIKEEN BINTI ABDUL JABAR
DEPARTMENT OF BUSINESS MANAGEMENT AND LAW
MSU

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Although the Contracts Act is silent on the
intention to create legal relations as one of the
requirements of a valid contract, case law clearly
dictates the necessity of this requirement.

An agreement cannot qualify as a contract unless

the parties intended to create legal relations. If
there is no intention to create legal relations, the
agreement cannot qualify as a contract, therefore it
is void ab initio (void from the very beginning).

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1.
BUSINESS AGREEMENT
 Presumption: parties intend legal
consequences (there is an intention to create
legal relation) – it is already assumed that
contract is binding upon the parties.
 If parties don’t want this presumption parties

can rebut by:

1. Adding clause in the contract ‘not subject to
jurisdiction of the court’
2. Put it in writing

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 Rose & Frank V. Crompton

Agreement contained the following clause:

‘ This agreement is not entered into nor is
this memo written, as a formal or legal
agreement, and shall not be subject to legal
jurisdiction in law courts of USA or England’
There was a breach of contract.
Held: There was no binding contract
enforceable in court (no intention to create
legal action)
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2. SOCIAL, DOMESTIC AND FAMILY
AGREEMENT
 Presumption: no legal relations are contemplated (no
intention to create legal relation)
Balfour v. Balfour
Df’s husband promised to pay his wife monthly
allowance as the wife was unable to accompany
him to Ceylon because of illness. The Df did
not give her money as promised.
Held: the agreement was not legally enforced.
(there is no intention to create legal relation
because agreement between husband and wife)

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 However in the case of
Merrit v. Merrit
The Df left the matrimonial home. The house was under joint
names between the Pf and Df and subjected to mortgage.
Husband and wife had a discussion and decided the
husband agreed to pay the wife ₤40 a month for the
purpose of paying the outstanding mortgage payments.
When the payment is completed, the husband would transfer
the property to her. The agreement was made in writing on a
paper and the husband signed it. After the payment was
completed, the husband refused to transfer the property to
the wife.

Held: In the light of all the surrounding circumstances, the

parties had the intention to create legal relations. Therefore,
the court ordered that the house be transferred to the wife.

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 Even though this is an agreement between husband and wife, there
is an intention to create legal relation because their marriage is
falling apart, about to divorce.
 Therefore for social, domestic and family agreement, to determine
whether there is an intention or not, we have to look at the facts
and circumstances of the case.

Simpkin v. Pays

Df agreed with Pf and Pf’s grand-daughter to share in a

weekly coupon submitted in a fashion competition. A
forecast by the grand daughter proved correct and the Df
received a prize of ₤250.
Held: there was an intention to create legal relations.
Evidence showed there was a joint enterprise and the parties
expected to share any prize won in the competition.

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 An agreement about volunteer working conditions did not
create legal relations.

Teen Ranch v. Brown

 D was a volunteer worker at Teen Ranch and he received
no wages. In return, he received accommodation, food
and the use of camp facilities. After D was injured, he
claimed workers compensation on the ground that he has
entered into a contract of employment.

 Held: D could not succeed as there was no intention that

he and Teen Ranch had intended to enter into legal
relations.

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Jones v Padavatton [1969] 1 WLR 328, CA
 Mother requested daughter to study legal course in
England, all expenses shall be borne by Mother and
Mother will provide a house for her daughter to stay.
 Daughter happily accepted her Mother’s offer.
 Later, Mother wanted to take back the house,
daughter refused.
 Court held: Mother was entitled to possession of the
house. The contract was motivated by the mother’s
desire for her daughter to succeed in her legal
studies. They have no intention to enter into a legally
binding contract.

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How Can the Family and Social
Presumption be Rebutted?
Presumption may be rebutted if one party able
to prove:-
1. one party reasonably relied on (believed and
acted upon) the agreement, and
2. would suffer significant loss

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Wakeling v. Ripley

• Ripley is an elderly who lived alone in a large

house in Sydney. He promised his sister and
brother in law, Mr. and Mrs Wakeling that if they
moved from England to his house, they could
live free in his house and he would leave them
all his property after his death. Mr. Wakeling
resigned as a university lecturer and sold their
home to move to Sydney. After 1 year, Mr.
Ripley quarrels with the couple and changed his
will to exclude the Wakelings. Mr. and Mrs.
Wakeling sued Ripley for breach of contract.

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 Held: There was strong evidence to rebut the
presumption regarding family arrangement.
The parties intended to enter into a binding
and enforceable contract as the Wakelings
have relied on the promise made by Ripley
and move to his house. They also have
suffered significant loss in the sense that
they resigned from their job, sell their house
and move far away from England to Sydney.
Therefore, they were entitled to damages.

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CAPACITY

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REQUIREMENT AS TO CAPACITY
 S. 10(1) provides that
‘All agreement are contracts if they are made
by…parties competent to contract…’
 Based on the above provision, a contract is

enforceable if the parties to the contract are

competent.

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LIMITATION TO CONTRACTUAL
CAPACITY
 S.11 provides that,
‘Every person is competent to contract who is
of the age of majority…of sound mind, and is
not disqualified from contracting…’
 Competent person to contract are :

- Adult – age 18 years

- Person of sound mind
- Person who is not disqualified by any law

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 Incompetent person to contract are :
- minor
- insane / drunken person
- bankrupts

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CONTRACT BY INSANE/DRUNKEN PERSON

1) DEFINITION
 S.11 CA provides that, every person is
competent to contract...who is of sound mind.
 S. 12(1) provides that,

‘A person is said to be sound mind for the

purpose of contracting if at the time he makes
it, he is capable of understanding it and
forming a rational judgment as to its effect
upon his interest’

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 Illustration (a) of S.12
A patient in a mental hospital, who is at intervals
of sound mind, may contract during those
intervals.

 Illustration (b) of S.12

A sane man, who is delirious from fever, or who
is so drunk that he cannot understand the terms
of the contract or form a rational judgment as to
its effects on his interest, cannot contract whilst
such delirium or drunkenness lasts.

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2. EFFECT OF CONTRACT BY INSANE OR
DRUNKEN PERSONS
 CA is silent, the Act didn’t specify whether

contract made by insane/drunken void or

voidable.

 There are 2 views :

English Law
 The contract is voidable at the option of the

unsound party if ;

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i) the fact of mental disorder can be proved; and
ii) the other party aware of his condition at the
time of contacting.

Imperial Loan V. Stone

‘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 the other party was of
sound mind. Thus the mental incapacity of the
parties to the contract must be known to each
other to avoid unfair contract’

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 Malaysian Law
 It is suggested that contract made by
insane/drunken person is void vide S.10(1)
and S.11
 Provided that, the person must proved that

he was insane at the time of the contract &

the other party have the knowledge of his
insanity.

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CONTRACT BY MINOR

1) DEFINITION
 Under the Age of Majority Act 1971, a person
attains the age of majority at 18.
2) EFFECTS OF CONTRACT BY MINOR
 General rule : Vide S.10(1) & S.11 of CA
provides that a minor is incompetent person
to contract as such contract made by minor is
void.
 Therefore, the contract can’t be enforced, a
minor cannot be made liable, can’t be sued or
sue for breach of contract.

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 Mohari Bibiee V. Dhurmodas Ghose

Facts : An infant entered into contract of loan.

He borrowed money and mortgage his house.
The loan giver knew that he was a minor
during the contract was made. Later, the
infant’s mother as guardian sought
declaration that the agreement was void as he
was a minor and lack of capacity.
Held : The agreement is void & not binding on
the infant.

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 Tan Hee Juan V. Teh Boon Keat

Facts : A PF (minor) contracted to transfer his

land to the defendant. Later, the PF applied to
the court to set aside the contract.
Held : The contract was void. The land was
restored to the minor.

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Exceptions :
a) CONTRACTS FOR NECESSARIES

 Under this exceptions, a contract made by minor is valid

and binding.
 The minors can sue or be sued under the contract which
fall under the exceptions.
 A minor is bound to a contract if the contract is for his
necessaries.
 S.69 provides that, if a person is incapable of entering into
a contract, or anyone whom he is legally bound to support,
is supplied by another person with necessaries suited to
his condition in life, the person who has furnished such
supplies is entitled to be reimbursed from the property of
such incapable person.

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 The said provision provides that where a
minor is supported by another person with
necessaries which the minor cannot obtained
by himself, then that person is entitled to be
reimbursed from the property of the minor.
 However, the amount of reimbursement to be

paid by the minor is only a reasonable sum

and not the whole amount of the necessaries
supplied.

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 Necessaries has not been defined in the Act.
But S.69 suggested that, the necessaries
supplied must be suited to the minor’s
condition in life.
 Necessaries includes :

- goods
- articles
- services which reasonably necessary to the
minor’s actual need.
 What are necessaries will vary from the facts

and circumstances of each case.

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 S.69 provides some conditions which need to
be fulfilled by a person who provides a minor
for necessaries to enable him to be
reimbursed.
i) the necessaries must actually be supplied
to the minor.
ii) The incapable person’s liability includes
necessaries supplied to anyone whom he is
legally bound to support, such as his wife or
children.

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iii) the supplier can only claimed for a
reasonable price and not the amount of the
actual contractual price. The supplier must
prove that, the goods are suitable to the
minor’s life conditions and that the goods are
suitable to the actual need of the minor
during the sale or the delivery of the said
goods.
iv) The minor is personally liable. He is
obliged to pay only if he has the property to
do so.

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 Government of Malaysia V. Gurcharan
Singh
Facts : Pf sued Df for breach of contract. The
claim was for RM11,500 which was actually
spent by the Pf in educating the Df to qualify
for and accept the appointment as a teacher.
Df was a minor at the time the contract was
made.
Held : 1) The contract was void, as the
defendant was a minor…However…

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2) Df was liable for the repayment of the sum
expended for his education and training, this
is on the reason that the professional and
vocational training for the Df was regarded as
necessaries.

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 There are exceptions with regard to
necessaries, whereby the minor has been
adequately supplied with such goods then
extra goods supplied to a minor may be
regarded as luxury.
 Once the goods are to be treated as luxury,

then the contract for supplying the goods to

the minor is void and it will not bind the
minor.

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 Nash V. Inman

Facts : Pf supplied clothing including 11 fancy

waistcoats to the Df. Pf then claimed for the
reimbursement from the Df.
Df defended that at the time the clothes were
supplied to him, he was a minor and the clothes
were not necessaries. It was also proved that the
Df’s father had supplied him with proper clothes
according to his life conditions.
Held : The clothes supplied were not necessary to
the Df’s actual requirement. Therefore the Df was
not bound to the contract.

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Exceptions :
b) BENEFICIAL CONTRACTS

 A minor is bound to a contract which is beneficial

to them such as a contract which is to provides the
minor with educations or training for a trade or
profession.

Doyle V. White City Stadium Ltd

Facts : Doyle is a professional boxer and he is a

minor. In consideration of the Board giving him a
license, they enter into a contract. Under the
contract, the Board will withheld the prize money if
Doyle were disqualified for certain reason. Doyle
was later disqualified during a contest.

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 Doyle sued the Board to recover the money
contending that, at the time when the
contract was made, he was a minor and
therefore, he was not bound to the contract.
Held : Doyle’s action failed. The contract was
regarded as a contract of employment and it
was therefore beneficial for him. The license
granted was essential to enable him to be a
proficient boxer. Therefore, the contract
became binding on him.

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 S.13 of Children and Young Persons
(employment) Act provides that a minor can
enter into a contract of service.
 Under this Act, a child is defined as any person
below the age of 14 and a young person is a
person between the age of 14 and 16.
 Under this Act a minor can sue or be sued
under the contract of service of apprenticeship.
 The contract of service can be enforced by and
against the minor, unless the terms of the
contract appear to be unfair and unreasonable.

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 De Francesco V. Barnum

Facts : Pf enter into a contract of apprenticeship

with a minor. The contract contained the
followings terms :
i) The minor cannot marry
ii) She would received certain payment for any
performances but there was no provision as
regards to the minor’s remuneration.
iii) She could not dance professionally for other
person without the Pf’s consent.
Held : The contract cannot be enforced against
the minor because the terms of the contract
was unreasonably harsh.

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Exceptions : c) Contracts for Scholarships
 S. 4 of the Contract (Amendment) Act 1976
provides that,
“no scholarship agreement shall be
invalidated on the ground that the scholar
entering into such an agreement is not of the
age of majority”.
 Thus, any scholarship agreement is binding

on the minor.
 E.g : PTPTN

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Exceptions : e) CONTRACTS FOR
INSURANCE
 Under the Insurance Act, a minor above the
age of 10 may enter into a contract of
insurance but written consent from their
parents is required.

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Exceptions : f) Contracts made under the Age of Majority Act.

 S. 4 (a) of this Act provides that,

“nothing in this act shall affect the capacity of
any person to act in the following matters,
namely; marriage, divorce, dower and
adoption…”
 Therefore, a contract of marriage entered into
by minors or by their parents is valid and
binding upon the minor.
 They can sue or be sued for breach of promise
to marry.

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 For non-muslim, a minor cannot get married
if she/he is under the age of 18 vide S.10 of
the Law Reform (Marriage and Divorce) Act.

 For Muslims, a minor cannot get married if

the man is under the age of 18 and the
women is under the age of 16 vide S.8 of the
Islamic Family Law (Federal Territory) Act.

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 Rajeswary & Anor V. Balakrishnan & Ors

Facts : The parties to this action were Ceylonese

Hindus. A marriage agreement was made on
behalf of the Pf and Df by their parents. Under the
agreement, if there is any breach of the terms of
the agreement by either party, the penalty is
$5000.
Subsequently, the Df refused to perform the
contract. Pf brought an action to claimed the
$5000. Df contended that the contract is not
binding since the Pf was a minor.
Held : The contract is binding since the contract of
promise of marriage entered into by minors are
valid.
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CERTAINTY
 Certainty of contract is one of the essential
elements to create a binding contract.
 The terms of the contract must be certain and

definite.
 The uncertain and vague terms of contract

will affects the validity of the contract.

 However, if the terms of the contract is

capable to be made certain later, then the

contract is valid.

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ENGLISH LAW
 There are 2 aspects of the issue of
uncertainty
1) The language used may be too vague
upon which the court is likely to hold that
the alleged contract is void for uncertainty.
2) when there is a failure to reach
agreement on a vital or fundamental term of
an agreement. This is where the contract is
also fails for incompleteness though there is
no problem with the clarity of the language.

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Effects of contract under English Law
 No contract will be concluded where an
essential or critical terms is expressly left to
be settled by future agreement.

 No binding contract where the language used

is so obscure and incapable of any precise or
definite meaning.

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Under the Malaysian Contract Act
 S.30 ‘Agreements, the meaning of which is
not certain, or capable of being made certain,
are void’

 Illustration (a) to S. 30
the agreement is void because the
description of the types of oil intended in
the contract was not specified.

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 Illustration (b) to S. 30
The agreement is valid because the types of oil
is determined upon which the nature of A’s
trade affords an indication of the meaning of
the words.

 Illustration (c) to S. 30
The contract is valid as the price of the rice is
capable of being made certain.
However, if C refuses or unable to fix the price,
the contract is void.

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 Illustration (f) to S.30
The agreement is void as there is
nothing to indicate which of the two
price is to be paid.

Karuppan Chetty V. Suah Thian

The contract was void for uncertainty
because the parties agreed to lease of
$35 per month for ‘as long as he likes’.

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