INTENTION TO CREATE LEGAL RELATION AND CONSIDERATION PDF

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LAW OF CONTRACT (LAW 436)QUESTION 1The issue is whether Grace can transfer her land to her son, Greg, without any consideration under the law of contract.Section 2(d) Contracts Act 1950 stated that “when, at the desire of the promisor, the promisee or any other person has done or abstained from doin...

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LAW OF CONTRACT (LAW 436) QUESTION 1

The issue is whether Grace can transfer her land to her son, Greg, without any consideration under the law of contract. Section 2(d) Contracts Act 1950 stated that “when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstained from doing, or promises to do or abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.” In Currie v Misa1, Lush J defines consideration as ‘some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other’. Consideration can simply be said to be ‘the price of the promise’. In order to be a good consideration under the Contracts Act 1950, at the wish of the promisor, there must be actor promise on the part of the promisor or some other person. It follows that the nature of the concern is that the promisee in fulfillment of the promise takes on himself some sort of responsibility or detriment. Consideration may be an act performed in the past, a promise to do an act in the future, doing an act in compliance with the promise, forbearance to exercise legal rights. In Section 26 of the Contracts Act 1950, the General Rule is that an agreement without consideration is void. A void contract is an agreement that, as given in Section 2(g), is not enforceable. There is, however, an exception to this general law, which is Section 26(a), Section 26(b), and Section 26(c). An agreement made on account of love and affection between parties is a legitimate agreement under Section 26(a) of the Contracts Act 1950, given that the agreement is in writing, is registered under the law (land matters under NLC-National Land Code), and made in relation to each other due to natural love and affection between the parties (who are in 'close relations' depends on the group. It is an accepted principle that the recognition of natural love and affection in the law is good and true. This is all too well-known in law and practice in particular.

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[1874] LR 10 Ex 153

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Natural love and affection is determined by Low Hop Bing JCA In Tang Meng Hock v Tang Ming Seng and the case of Chock Yook Kwai2, ‘There is in my view a special position, meaning and dimension attributed to the expression “natural love and affection” both in law and fact. In my considered opinion, in the case of natural parents and their children, a presumption of natural love and affection arises so that a valid consideration is constituted in law for the purposed of Section 26(a). In Queck Poh Guan (As Administer Of The Estate Of Sit Kim Boo, Deceased) v Quick Awang3 the plaintiff argued that for non-compliance with Section 26(a) of the Contracts Act 1950, the instrument of transfer of the land from the deceased mother to her son was invalid. On the other hand, the defendant argued that the land had been transferred to him by the deceased as a gift for the sake of love and affection and that, in order to give effect to it, the deceased had executed the instrument of transfer of his own volition and had obtained an indefensible title to the land upon registration of the transfer. On account of natural love and affection, the court ruled that the transfer of the property was a gift from the deceased mother to the defendant. In contrast to the other children, the defendant took greater responsibility for the care and well-being of the deceased. In Kwan Teck Meng & ors v Liew Sam Lee4, a father executed a transfer memorandum by which he gave his sons, his daughter in law and a trustee for his youngest son all of his title and interest. The High Court found that the transition was carried out on the grounds of love and affection. Furthermore, in the case of Tan Soh Sim5, the learned judges also judicially interpreted the essence of "natural love and affection." In this case, her will to pass all her assets to her four adopted children has been expressed by a mother on her deathbed. The court held that it did not comply with Section 26(a) of the Contracts Act 1950 since it was not in writing and that there was no natural love and affection between the parties because the four children were adopted and had no natural relationship with the mother. The agreement made was invalid for failure to comply with the aforementioned elements, the claims made by the adopted children were declared as not effective. In this case, Grace wants to transfer her land to Greg, her son. Section 2(d) of the Contracts Act 1950 provided that there must be a consideration in between parties for the 2

[2002] 1 AMR 1256 [1998] 3 MLJ 388 4 [1963] 1 MLJ 333 5 [1951] 1 MLJ 21, CA. 3

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contract to be valid. As stated in Currie, there must have any action done by the parties to be a good consideration. However, in this case, her son is not going to pay her for the land. In order to make the contract valid, there are two steps that Grace and her son need to fulfill as stated under Section 26 of the Contract Acts 1950. Section 26(a) is an exception to the general rule where consideration is not needed for the agreement to be valid, instead the agreement can be made on account of natural love and affection and will have the same legal effect. Firstly, the agreement needs to be in the form of writing and registered under the law as a form of formality and evidence for precautionary functions. By having both parties signing a written agreement, it is sufficient to complete the transfer of the land ownership. Secondly, there must be natural love and affection between both of them. Since the parties are a parent and a son, therefore there is a presumption of natural love and affection between Grace and Greg as affirmed in Tang Meng Hock and the case of Chock Yook Kwai by Low Hop Bing. Given that Grace is the mother to Greg, it is not disputed that the parties, in this case, stand in a near relation to each other which is the same as the case of Quek Poh Guan. The relationship between Grace and her son also fulfilled the principles of natural love and affection in Tan Soh Sim supported with additional written agreement. Even without Greg’s consideration in the way of giving money for the land, the land can still be transferred in consideration of love and affection and therefore by way of a gift as affirmed in the case of Kwan Teck Meng. With the above discussion, the contract between Grace and her son Greg is valid. Grace can transfer her land to her son by way of having a formal written agreement in accordance with Section 26 of Contracts Act 1950 other than having the existence of the natural love and affection due to the relationship.

The second issue is whether there is a valid contract between a mother and a son. Section 10 of the Contracts Act 1950 states that before a contract can be enforceable, certain elements need to be present. Whether the parties agree to be legally bound is an essential factor to look at. The 1950 Contracts Acts are silent on the subject of intent as an aspect of a contract. The situation in Malaysia, however, is similar to that of common law: if the circumstances of the case suggest that there is no intention of being legally bound, a contract cannot come into being. Since our Act is silent about it, in the view of the

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hypothetical reasonable person as to what the parties to the contract intended, the test of intent should then be. In order to arrive at a conclusion as to whether the parties agreed to conclude a binding contract, the courts will analyze the entirety of the facts written and by looking at the type of contract. In family (domestic) agreements, the presumption is that there is no intention of both parties to the agreement to create legal relations. This is demonstrated in the Balfour v Balfour6 case, where the judge ruled that the law would usually imply from the circumstances of the case that the parties did not expect their agreement to have legal implications in an agreement reached between family members in the course of family life. In Jones v Padavatton7, the daughter argued the agreement between herself and her mother amounted to a legally binding contract and, as such, she should be entitled to remain in occupation of the house. She claimed there had been an intention to create legal relations and she had provided consideration for her mother’s maintenance by studying for the bar. The mother argued there was merely an informal family arrangement, there had been no intention to create legal relations and she was, therefore, entitled to recover possession of the house. The mother’s appeal was successful and she was awarded possession. There is a presumption that family arrangements are based on mutual trust, family ties, and affection, and that there is no intention to create legally binding contracts capable of enforcement in the courts. This presumption can be rebutted, but the lack of formality regarding the agreement between mother and daughter strongly indicated there was no such intention and the daughter had no defense to her mother’s claim for the house. In Wakeling v Ripley8 (1951), the defendant’s sister and her husband came to live with the defendant after he promised that he would provide them the home and a living and eventually would leave them all his property upon his death. The husband resigned his lectureship, they sold their house before agreeing to live with the defendant. Just over a year, later the parties quarreled, the defendant reneged on his promise, sold his house, and disinherited the plaintiffs. They sued. In the first instance, they succeeded and were awarded £12000 damages. The defendant appealed, arguing (inter alia) that the agreement was purely social and thus unenforceable. The voluminous correspondence and the seriousness of the move for the plaintiff showed that the parties had intended their agreement to be binding. The contract was binding and the defendant was liable for his unjustified breach.

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[1919] 2 KB 571 [1969] 1 WLR 328 8 [1951] 51 SR (NSW) 183 7

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Since Grace and her son are family members, there is a presumption that there are no legal intention, hence they are not considered to be in a contract. The court might not consider them as being in a binding contract as in the case of Jones v Padavatton. This is because of them living together causing family ties and affection based on mutual ties, thus implying that the party has no intention to have any legal consequences of the promises said. However, this presumption of having no legal intention in between families and friends can be rebutted by taking substantial commitment to prove that they intended the promise to have legal consequences. Without the written agreement, the court will apply the principle in Balfour v Balfour as this leading contract case made the principles decided apply to dealings between other relations, such as father and son and daughter and mother other than only husband and wife. As in the case of Wakeling v Ripley, Grace can file a proper and formal written agreement to prove the intention for the agreement to be binding. By having both of the parties to sign the agreement in a registered contract, it proves that the parties have the intention to make the contract legally binding. Hence, the process of transferring the land are all recorded in the written agreement. With all details recorded it would be useful for future use if the court were to question or enforce or deny the parties’ rights. Furthermore, the written agreement implies the readiness of both of them to accept the legal sequences of having entered into the agreement. In light of the discussion above, the presumption of family members having no legal intention can be rebutted by having a substantial commitment which is by filing a written agreement between the parties. Therefore, there can be a valid contract between Grace and her son to make the land transfer.

QUESTION 2

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The issue is whether there was an intention to create legal relations in the informal arrangement between friends so as to constitute a legal agreement. In addition to offer, acceptance, consideration, and capacity, the intention to create legal relations is one of the elements of contract formation. This aspect is not provided in the Contracts Act and common law cases on this subject have been applied by the Malaysian courts. The purpose of forming a legal relationship implies the intention of a party to become legally bound, to sue, and to be charged with legal repercussions. The court tries to decide if the parties have agreed to enter into a contract and to be bound by the terms agreed. For example, the court tests what the parties seem to have decided, rather than what the parties claim they have agreed, by applying an analytical test. If the subjective intentions of the pairs are taken into account, it facilitates the defense of fair expectations and prevents problems of self-interest, dishonesty, or fraud. The objective test accounts for all matters, including the facts and circumstances of a case that would be considered by a reasonable individual.

There is a need to differentiate social and domestic agreements, such as agreements between partners, parents, and children, from other agreements. The general rule with respect to social and domestic relationships is that there is no intention of forming legal ties. In the case of Coward v Motor Insurance Bureau9, Mrs. Coward argued that her husband and Mr. Cole had reached an agreement under which he would regularly provide lifts in exchange for some cash payments to work on his motorcycle. She argued that this amounted to a contractual responsibility and therefore, under their arrangement with the Ministry of Transport, the danger to her husband should have been protected by Mr. Cole's policy or, failing that, by the MIB. The claim by Mrs. Coward was unsuccessful. Under a binding contractual arrangement, neither party meant that there was a legal duty to bring and to be taken to and from work. Mr. Coward was not a passenger under a duty to protect Mr. Cole and the MIB was also not under an obligation to comply with the decision. In terms of the general rules of social friend relations, there is no presumption to be legally binding. Otherwise, in terms of exception, the presumption is rebuttable. The case of Simpkins v Pays shows mutuality. The defendant, her granddaughter, and the plaintiff (paying lodger) regularly took part in a newspaper competition. All contributed but entered in the defendant’s name. There is no set of arrangements that state payment of postage etc. When entry of the competition is successful, the defendant refused to share with the plaintiff. The plaintiff sued 9

[1963] 1 QB 259

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for his share. The Court held that, regardless of family relations and the informal sense, there was mutuality in the agreements between the Contracting Parties, by which they agreed on the manner in which the prediction was sent to Ms. Pays on a weekly basis, and that, if successful, the prize money would be shared equally between all three individuals. Despite the domestic context, Ms. Simpkins' filling out of the coupon was not a voluntary service to Ms. Pays, but rather under an arrangement under which each party had shares in the result, thus indicating an attempt to develop legal relationships. The Court held that, no matter how informal, the joint arrangement represented a legally binding agreement to split the shares into thirds.

In this particular case, provided that Krishan and Rizuan are friends, their agreements considered as a type of social contract. It would be presumed that they had no intention to enter into legal relation by giving and accepting the loan. However, this presumption can be rebutted as shown in the case of Simpkin v Pays. In this particular case between Krishan and Rizuan, given that they agreed with the said amount of loan and the due of the payment, it is shown that they had taken the agreement to have legal consequences. Even in the informal sense and the relationship between them, there is mutuality in the terms of agreements by which a party will give the loan and the other party promised to pay back the debt. The agreement is not merely a promise between friends as in the case of Coward v Motor Insurance Bureau. Therefore, there is a legal contract between them and it is binding upon them.

With the above discussion, there is a contract binding upon mutual friends provided that the parties mutually agreed to the terms in the agreement.

The next issue is whether Rizuan is obliged to pay the balance of the said loan towards Krishan.

Consideration is what sets a deal or contract apart from a gift. Consideration may be seen as the reason for the promise. The definition of consideration is provided under Section 2(d) of the Contracts Act 1950 as “when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstained from doing, or promises

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to do or abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.” Payment of a smaller sum can not satisfy a larger amount, also known as Pinnel's Rule, under common law. Thus, even though all parties may have agreed to this, part payment of an amount due cannot be construed as a full satisfaction of the debt, except where new or additional consideration is given. This is because only what the promiser is obligated to do under the contract is the paid payment, and it should not become a consideration for an arrangement to dispense with the debt balance. Pinnel brought an action against Cole in Pinnel's case10 for the recovery of a debt owed by Cole. Cole argued in his defense that he had repaid Pinnel; part of the sum and that Pinnel had acknowledged it for the entire debt in satisfaction. The court held that any satisfaction for the whole could not be the payment of a lower amount on the day in satisfaction of a higher one. In the case of Pinnel, the rule was taken as authority that a smaller sum does not satisfy a larger amount unless the payment is made on an earlier date than was due, is payable at another venue, or is made in another manner. The promise to allocate the larger debt is taken into account in these various ways. However, in Malaysia, as seen in the case of Tiun Eng Jin v Wong Sie Kong11, the court applied only the English rule of agreement and satisfaction; the plaintiff had initially brought an action against the defendant to recover a certain amount. The parties subsequently entered an arrangement whereby the plaintiff agreed to accept from the defendant those goods and articles and "agreed to withdraw the entire matter from the court case." The High Court held that as the appellant had acknowledged something distinct in nature, that is, the products and articles, there was consensus and satisfaction.

While the English doctrine has been applied, a party can dispense a debt in full under Section 64 of the Contracts Act. Under Section 64, the promisee may dispense with the promised performance in full or in part, extend the time to perform, or accept something to fulfill the promised performance. Illustration (a) shows a dispensation from the execution of an act (painting a picture), Illustration (b) shows the discharge of the entire debt by the payment of a smaller amount, while Illustration (c) shows the discharge by the payment by third parties of a smaller amount. Figure (d) indicates the composition of the debt to creditors.

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[1602] 5 Co Rep 117 [1975] 2 MLJ 34

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In Kerpa Singh v Bariam Singh12, the Federal Court recognized the different situation in Section 64 from the English position as follows: this provision [section 64] significantly alters the English doctrine of agreement and fulfillment with regard to the right of a party to take advantage of a release rendered for its benefit. The Supreme Court in Associated Pan Malaysia Cemen...