CONTRACT LAW I
LAW 60604
SEMESTER 1 YEAR 1
ACADEMIC YEAR 2015
(MARCH 2015 SEMESTER)
INDIVIDUAL WRITTEN COURSEWORK ASSIGNMENT
Name of Candidate
:
MAHESHWARAN A/L L SELVA
KUMARAN
Student Number
:
0323772
Intake Subject Code
:
LAW 60604
No of Words
:
2589
Due Date
:
30/4/2015
Date of Submission
:
30/4/2015
Lecturer
:
Ms.Sia Chin Chin
For divisional office/lecturer use only
Date Received:
2
Marks Obtained:
The following declaration must be included in the coursework:
CANDIDATE DECLARATION
I hereby declare that the coursework produced herein is based on my original effort
except for quotations and citations that have been duly acknowledged. This work or any
part of it has not been previously or is not concurrently submitted for any other degree at
Taylor’s University or any other institution. I also fully understand that in the event of
any academic dishonesty on my part, I may be subjected to the strictest disciplinary action
at the discretion of Taylor’s University Malaysia.
_______________________
(SIGNATURE)
NAME : ____________________________
STUDENT NO: ________________________
NRIC NO: __________________________
DATE: _____________________________
3
In recent years, there has been much debate over the requirement of
‘intention to create legal relations’ for contracts to be legally enforceable. The
English Legal System recognises the requirement of ‘intention to create legal
relations’ for a contract to be valid and legally binding besides offer, acceptance and
consideration. Lord Bingham mentioned the use of this objective approach in
determining the intention of the parties in Edmonds v Lawson. He stated, “Whether
the parties intended to enter into legally binding relations is an issue to be
determined objectively and not by inquiring into their respective state of mind”. 1
The use of the objective approach is preferred as it avoids issues of self-interest,
dishonesty and fraud. In an article by Bhawna Gulati published by Beijing Law Review
in 2011, she argues that the requirement of proving the intention of the parties to
create legal relations is not necessary as the existence of consideration already
indicates the intention of the parties. 2 On the contrary, A.G. Chloros suggests that
consesus ad idem and ‘intention to create legal relations’ has to be established
before an offer can be accepted. Hence, there are opposing views on the
requirement of ‘intention to create legal relations’ in establishing a contract to be
legally binding.3
1
[2000] 2 WLR 1091
Bhawna Gulati, '‘Intention to Create Legal relations’: A Contractual Necessity of an
Illusory Concept' [2011] BLR 127, 133”
3 A.G Chloros, 'Comparative Aspects of the Intention to Create Legal Relations in
Contract' [1958-1959] Tul. L. Rev.
2
4
In modern contract law, people have the freedom to make contracts on their
own terms. For an agreement to be legally enforceable, the parties have to state or
show their intention by conduct. However, there are certain exceptions to domestic
and social agreements and agreements that are commercial in nature. Agreements
originating in a domestic set-up are presumed not to be legally binding whereas a
commercial transaction is otherwise although the presumptions are rebuttable. In
the case of Balfour v Balfour, Lord Atkin mentioned that an agreement between
husband and wife living together in a household is a family arrangement and hence a
familial contract, whereby the courts have no place to interfere in such agreements
unless there is evidence to the contrary. He also mentioned that domestic contracts
are not contracts, as the parties do not intent to face legal consequences. 4 The
Court of Appeal in Jones v Padavatton applied the same principle as in Balfour v
Balfour whereby Lord Justice Harold Danckwerts stated that an arrangement
between mother and daughter were simply family arrangements and it was not
enforceable.5 It is also evident in the case of Choo Tiong Hin & Ors v Choo Hock
Swee. In this case, father and his adopted sons worked together in a family farm,
and the sons claimed an equal share of wealth from their father after their mother
passed away. Chief Justice Whyatt held that “an agreement is not a contract in the
strict sense of the word, unless it is the common intention of the parties that it shall
be legally enforceable”. 6 Hence, the Court of Appeal dismissed this case on the
4
[1919] 2 KB 571 (CA)
[1969] 1 WLR 328, CA
6 (1959) 25 MLJ 67
5
5
ground that it was a private family arrangement and the presumption on domestic
and social agreements applies. The presumption was rebutted in the case of Meritt v
Meritt whereby the judge held that the presumption was not valid for parties who
are separated or are in the process of separating. 7
Besides family matters, the same presumption applies to social agreements
such as in the case of Lens v Devonshire Social Club. The court held that the
claimant could not sue for his prize in a competition held by a golf club because the
organizers did not intend to create legal relations with the participants.8 In the case
of Simpkins v Pays, the presumption was rebutted. In this case, three of them took
part in newspaper competition regularly, and they won in one of the competitions.
The defendant refused to pay the claimant when she demanded one-third of the
winnings. The court held that since there is mutuality in the agreement, the claimant
has the right to claim her winnings. 9
In comparison with domestic agreements, commercial agreements are
presumed to be legally enforceable as the general rule is that there is intention to
create legal relations although the presumption can be rebutted. The test of
intention used is also objective in commercial agreements.
7
[1970] 1 WLR 1211 (CA)
(1914) The Times, December 4.
9 [1955] 1 WLR 975 QB
8
6
In the case of Esso Petroleum Ltd v Commissioners of Customs and Excise, Lord
Fraser of Tullybelton held that the words, “Collect the complete set. One coin given
with every four gallons of petrol” and “Collect the full set of thirty Coins. One coin
given when you buy four gallons of petrol” mentioned in the posters were sufficient
enough to conclude that there was intent to create legal relations.10 This case was
brought up for the courts to decide if there was a contract of sales. The courts tested
the question of whether a motorist who bought four gallons of petrol will have a
contractual right to one of the coins. It was concluded that the transaction was
intended to take place in a business setting and hence, the presumption of
commercial agreements being legally enforceable is strong. In contrary to the
decision made by most judges in this case, the dissenting judge mentioned that free
gifts were not necessarily to be regarded as a business matter. In the Malaysian case
of Guthrie Waugh Bhd v Malaiappan Muthuchumaru, the presumption of
commercial agreements was applied as well whereby the judge held that “Any deed
or agreement executed or made in the ordinary course of business between
merchants and traders must be presumed as intended to be legally binding”. 11
There are three main circumstances whereby the presumption of commercial
agreements being legally enforceable is rebuttable. They are when the words used in
a contract are ‘mere puffs’, honour clauses and agreements that are ‘subject to
contract’. In the case of Weeks v Tybald, defendant made an ambiguous promise by
10
11
[1976] 1 All ER 117
[1972] 2 MLJ 62 (FC)
7
announcing that he will award 100 pounds to any suitable man who will marry his
daughter.12 The words “any suitable man” is too ambiguous as to what a suitable
man is and the court held that promise made by the defendant is not to be taken
seriously. In the case of Rose and Frank Co v JR Crompton & Bros Ltd, a ‘honourable
pledge clause’ was part of the agreement between the defendant and the claimant
and it was ‘binding in honour only’. The court held that the honour clause in the
agreement was an evidence of the contract being not intended to be legally
binding.13 In certain agreements, it would be clearly stated that it is only legally
enforceable after a contract is formed. An example of a case whereby a dispute
arose due to the term ‘subject to contract’ is Confetti Records v Warner Music UK
Ltd. The court held that ‘subject to contract’ term clearly indicated that an
agreement is legally bound only when a contract is formed between the parties. 14
In developing legal institutions such as India and China, offer, acceptance and
consideration are the only requirements for a contract to be legally enforceable as
they feel that the intention of the parties can be deduced from this three basic
elements. According to Williston, the doctrine of consideration already exists as a
test of legal enforceability and ‘intention to create legal relations’ is unneeded. 15
Gulati also mentioned, “the consideration itself can be taken as a proof strong
12
(1605) Noy 11; 74 E.R. 982
[1925] AC 445 HL
14 [2003] EWHC 1274 Ch
15 Wiliston, S., Williston on Contracts (3rd ed) (3rd, Rochester, New York 1957)
13
8
enough to indicate the presence of intention of forming a legally binding contract”. 2
Her opinion supports Williston’s view that intention test is unneeded.
Hepple in “Intention to create legal relations” mentioned that agreements are
always structured in the form of bargain, which includes an offer, acceptance and
consideration. He also mentions that the test of enforceability should be the test of
bargain.16
The principle established in Balfour’s case could be criticised for the
relevance of the presumption made for the changing nature of domestic, social and
familial relations. The ever-changing scenario of modern contracts is shrinking the
distinction between the natures of contracts. It is apparent that people are more
commercial even in familial relations and the ‘pure’ theory of intention established
in Balfour v Balfour may not be helpful to the courts to settle disputes in contracts,
which have a thin demarcation line from being domestic and commercial in nature.
Freeman in ‘Contracting in the Haven: Balfour v Balfour Revisited’ mentioned that
courts shouldn’t apply the presumption made in Balfour’s case anymore. He
classified the marriage between Mr. & Mrs. Balfour as ‘Victorian Marriage’ and he
feels that marriage in modern times is more of individual’s choice and is less
regulated. 17 Stephen Hedley also argues that ‘pure’ theory of intention forces judges
to find or even ‘invent’ an intention of the agreement, which are domestic and social
16
17
Hepple, B. A., 'Intention to create legal relations' [1970] CLJ 122, 137
M.Freeman, 'Contracting in the Haven: Balfour v Balfour Revisited' [1996] 75, 77
9
in nature to settle disputes in court18. Gulati believes that the presumptions are
misleading and no longer relevant as the natures of the contracts in current times
are very different from those in the 20th century.2
The decision made by the courts in Balfour v Balfour and Jones v Padavatton
would have been different if they had applied ‘Will theory’ of contract law whereby
it adopts a more subjective approach by looking at what has the promisor “willed”.
The contract would have been enforceable based on the ‘Will theory’ because the
agreement was on a voluntary basis.2 Hence, Mrs.Balfour would have been able to
claim money promised by her husband and Padavatton could have continued staying
in her mother’s house. Critics have claimed that the ‘Will theory’ if applied in such
situations, will create dilemma for the judges, as they have to look at the
expectations of the promise from the contract and the subjective intention of the
promisor.
It can be argued that the doctrine of ‘intention to create legal relations’ is a
necessary to determine if a contract is legally enforceable. In juxtaposition to
Williston and Gulati, Kimel in ‘Towards a liberal theory of contract’ mentioned that
existence of consideration in a contract often indicates seriousness and undertaking
18
S.Hedley, 'Keeping Contract in Its Place - Balfour v Balfour and the Enforceability of
Informal Agreements ' [1985] OJLS 396
10
of obligation by the parties but not necessarily legal obligation.19According to
Zhixiong Liao, offer and acceptance already indicate the seriousness of the parties’
intention but it does not amount to the intention of the parties to be legally bound.20
The common law courts especially English courts, still look for the intention of the
parties and uphold the presumption that domestic and social agreements are not
legally enforceable. If the doctrine of ‘intention to create legal relations’ was not
established in Balfour v Balfour, it would have been hard for the court to decide in
the case of Jones v Padavatton as the presumptions would not have existed and the
court would have referred to other theories such as the will theory and this would
have increased the burden of the judge to find reasons to dismiss the case since it
was a clear cut case of domestic in nature.
Beside that, if the presumption of agreements being commercial in nature to
be legally binding were not established, it would have then allowed companies to
make false promises in advertisements and there would have been a lot of disputes.
This can be illustrated in the case of Carlil v Carbolic Smoke Ball Co., whereby the
defendants claimed that their promise of paying hundred pounds as a reward to
anyone who has contracted influenza after using their smoke balls were ‘mere puff’.
The court held that the promise made was clearly intended to be taken seriously and
19
Kimel, D., From promise to contract: Toward a liberal theory of contract(Hart
Publishing, Oxford 2003)
20 Zhixiong Liao, 'Intention to Create Legal Relations and the Reform of Contract Law:
A Conservative Approach in the Modern Global Era' [2013] BLR 82, 93
11
it was held that there was enough consideration concluding that claimant suffered
inconvenience and she had the right to claim the reward as stipulated in the
advertisement. The court also mentioned, the seriousness the promise was justified
by the defendant’s action of banking in 1000 pounds in Alliance Bank.21 This case was
before the doctrine of ‘intention to create legal relations’ was established and
consideration was used to test the enforceability of the contract. It would have been
easier for the courts to decide in the case of Carlill v Carbolic Smoke Co. after the
doctrine of ‘intention to create legal relations’ was established in Balfour’s case as
commercial agreements are strongly presumed that parties intend to be legally
bound.
The doctrine of consideration has been compared with the doctrine of
‘intention to create legal relations’ as they seem to be similar in nature but it has
been criticised by many legal experts. According to McKendrik, English law would not
adopt the doctrine of consideration if the elements of contract were to be
reformed.22 Professor Coote also mentioned that many have found the doctrine of
consideration confusing. 23 In the United Kingdom Law Revision Committee’s 1937
report, it was evident that a reform for the doctrine of consideration was stated in
21
[1893] Q.B. 256 (CA)
Ewan McKendrick, Contract Law (10th, Macmillan Publishers Limited, Hampshire
2013)
23 Coote, B., Contract-An underview (Legal Research Foundation, Wellington 1995)
22
12
the report.24 This shows that there were objections against the doctrine of
consideration and not the doctrine of intention. Building on from the idea that the
doctrine of consideration has received much criticism, it its further illustrated in the
case of Chwee Kin Keong v Digilandmall.com Pte Ltd. In the orbiter dictum of the
judge, the application of the doctrine of consideration in commercial contracts was
questioned. He felt that it was unnecessary to look for consideration, and instead he
stated, “The marrow of contractual relationships should be the parties‘ intention to
create a legal relationship”.25 Hence, it is clear that the doctrine of ‘intention to
create legal relations’ is preferred over the use doctrine of consideration.
It is evident that the doctrine of ‘intention to create legal relations’ has
received much attention from the legal fraternity. Since the intention test was
devised about 100 years ago, some believe that it is anachronistic and irrelevant in
the modern era but the English Legal System still maintain their position on the
requirement of the doctrine of ‘intention to create legal relations’ as an additional
element to offer, acceptance and consideration. In Article 2:101 (ex art. 5.101) of
The Principles of European Contract Law, it is clearly stated that for a contract to be
enforceable, the parties must intent to be legally bound26. This also applies to the
law of contract in United Kingdom, as they are part of the European Union since
24
The Editorial Committee of the Modern Law Review, ‘The Law Revision
Committee's Sixth Interim Report’ [1937] MLR 97, 110
25 [2004] 2 SLR 594
26 Ralph Amissah, 'PRINCIPLES OF EUROPEAN CONTRACT LAW' (The Faculty of Law in
Oslo 2002) <http://www.jus.uio.no/lm/eu.contract.principles.parts.1.to.3.2002/>
accessed 25/4/2015
13
1973. Section 2 of the European Communities Act 1972 clearly mentions that
European law is a binding and a valid source of law in the United Kingdom 27 Tritel in
The Law of Contract also stated “An agreement, though supported by consideration,
is not binding as a contract if it was made without any intention of creating legal
relation.28 Although The Contracts Act 1950 of Malaysia does not contain any clause
on ‘intention to create legal relations’, English law can be applied based on the
provisions in the Civil Law Act 1956. The use of intention test in Malaysian cases is
evident in the judgment of Kajang Sri Rock Products Sdn Bhd v Maybank Finance
Bhd & Ors. Judge VC George stated that “To constitute a valid contract there must
be separate and definite parties thereto; those parties must be in agreement, that
there must be consensus ad idem, those parties must intend to create legal relations
in the sense that the promise to each side are to be enforceable simply because they
are contractual promises and the promises of each party must be supported by
consideration.”29 Based on the arguments that I have mentioned above, it can be
concluded that doctrine of ‘intention to create legal relations’ is still a relevant
element and necessary in order for a contract to be legally enforceable since it is the
only test that can distinguish the real intention of parties involved.
(2589 Words)
27
European Communities Act 1972 s 2
Treitel, The Law Of Contract (13th, Sweet & Maxwell, London 2011)
29 [1992] 1 CLJ 204
28
14
Bibliography
1.Edmonds v Lawson [2000] 2 WLR 1091
2. Bhawna Gulati, '‘Intention to Create Legal relations’: A Contractual Necessity of an
Illusory Concept' [2011] BLR 127, 133”
3. A.G Chloros, 'Comparative Aspects of the Intention to Create Legal Relations in
Contract' [1958-1959] Tul. L. Rev.
4. Balfour v Balfour [1919] 2 KB 571 (CA)
5. Jones v Padavatton [1969] 1 WLR 328, CA
6. Choo Tiong Hin & Ors v Choo Hock Swee (1959) 25 MLJ 67
7. Meritt v Meritt [1970] 1 WLR 1211 (CA)
8. Lens v Devonshire Social Club (1914) The Times, December 4.
9. Simpkins v Pays [1955] 1 WLR 975 QB
10. Esso Petroleum Ltd v Commissioners of Customs and Excise[1976] 1 All ER 117
11. Guthrie Waugh Bhd v Malaiappan Muthuchumaru [1972] 2 MLJ 62 (FC)
12. Weeks v Taybald (1605) Noy 11; 74 E.R. 982
13. Rose and Frank Co v JR Crompton & Bros Ltd [1925] AC 445 HL
14. Confetti Records v Warner Music UK Ltd. [2003] EWHC 1274 Ch
15.Wiliston, S., Williston on Contracts (3rd ed) (3rd, Rochester, New York 1957)
16. Hepple, B. A., 'Intention to create legal relations' [1970] CLJ 122, 137
17. M.Freeman, 'Contracting in the Haven: Balfour v Balfour Revisited' [1996] 75, 77
15
18. S.Hedley, 'Keeping Contract in Its Place - Balfour v Balfour and the Enforceability
of Informal Agreements ' [1985] OJLS 396
19. Kimel, D., From promise to contract: Toward a liberal theory of contract(Hart
Publishing, Oxford 2003)
20.Zhixiong Liao, 'Intention to Create Legal Relations and the Reform of Contract
Law: A Conservative Approach in the Modern Global Era' [2013] BLR 82, 93
21. Carlill v Carbolic Smoke Ball Co. [1893] Q.B. 256 (CA)
22. Ewan McKendrick, Contract Law (10th, Macmillan Publishers Limited, Hampshire
2013)
23. Coote, B., Contract-An underview (Legal Research Foundation, Wellington 1995)
24. The Editorial Committee of the Modern Law Review, ‘The Law Revision
Committee's Sixth Interim Report’ [1937] MLR 97, 110
25. Chwee Kin Keong v Digilandmall.com Pte Ltd [2004] 2 SLR 594
26. Ralph Amissah, 'PRINCIPLES OF EUROPEAN CONTRACT LAW' (The Faculty of Law
in Oslo 2002) <http://www.jus.uio.no/lm/eu.contract.principles.parts.1.to.3.2002/>
accessed 25/4/2015
27. European Communities Act 1972 s 2
28. Treitel, The Law Of Contract (13th, Sweet & Maxwell, London 2011)
29. Kajang Sri Rock Products Sdn Bhd v Maybank Finance Bhd & Ors. [1992] 1 CLJ 204
16