2. Introduction
It refers to intention to create contractual relationship
In other words, both parties must have intention to be
bound by their obligations under the contract
If this element is absent, there is no contract, i.e. the
contract is void
It is either express or implied from circumstances.
Express – based on what both parties intended.
Implied - based on legal presumption which depends
on type of agreement.
Contracts Act 1950 is silent on this element. Therefore,
English common law can be referred to
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3. Vague and uncertain terms
Where the terms of the document signed by the parties are
vague and uncertain, the courts will construe that there
was no intention to create legal relations (Phiong Khon v
Chonh Chai Fah)
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4. 4
Gould v. Gould [1969] 3 All ER 728.
• In this case, a contractual intention was negatived when a
husband (who was leaving his wife) undertook to pay her
£15 per week “so long as I can manage it”.
• The word “so long as I can manage it” in the case of Gould
was considered as uncertain and does not create an
intention to enter into a legally binding contract.
5. 5
Jones v. Padavatton [1969] 2 All ER 616
• The vagueness of an arrangement may show that there is
no intention to create legal relations
6. Label used by the parties to call the
agreement is irrelevant
The court is not bound by the label of a document but has to construe the
nature and purport of a document from its language and other admissible
evidence.
Woo Yew Chee v Yong Yong Hoo
Malayan Banking Bhd v PK Rajamani
Perkayuan OKS No 2 Sdn Bhd v Kelantan State Economic Development
Corp.
2 classes of cases:
Social, family or other domestic agreements – it is inferred as a matter of course
that there is no common intention to create legal relations.
Commercial agreements – the intention to create legal relations is presumed and
the party seeking to deny it must rebut it.
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7. Social, family or other domestic
agreements
A party to a social, family or other domestic agreement will
not be held liable in contract unless there is positive
evidence that the party intended to enter into a contractual
relationship.
The courts will infer the presence/ absence of an intention
to create legal relations from the language used by the
parties and the circumstances in which they use it.
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8. Agreement between husband and
wife
Generally, the law presumes that an agreement made
between husband and wife is not intended to create legal
relations; Balfour v Balfour.
However, an agreement made between spouses who are
not living in amity but are separated, or about to separate,
will be held by the courts as being a bargain made with the
intention of being legally enforceable; Merritt v Merritt.
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10. Other domestic agreements
Same principle applicable.
However, it was held that there was an intention to create
legal relations in the following cases:
Simpkins v Pays
Parker v Clarke
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11. Simpkins v. Pays [1955] 3 All
ER 10
The defendant and the defendant’s granddaughter in this
case made an agreement with the claimant that they
submitted a weekly coupon in the defendant’s name to a
Sunday newspaper fashion competition. The coupon
contained a forecast by each of them. On one occasion, a
forecast by the granddaughter was correct and the
defendant received a prize of £750. The claimant sued for
her share of that sum. The defence given by the defendant
was that there was no intention to create legal relations but
that the transaction was a friendly arrangement binding in
honour only.
Held: There was an intention to create legal relations. The
evidence showed that it was not merely a friendly domestic
arrangement but a joint enterprise. Thus, the parties
expected to share any prize that was won.
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12. 12
Parker v. Clark [1960] 1 W.L.R. 286
• The defendants in this case, an elderly couple, agreed with the
plaintiffs (who were twenty years younger) that if the plaintiffs would
sell their cottage and come to live with the defendants and share
household expenses, the male defendant would leave them a portion
of his estate in his will. The plaintiffs sold their cottage and moved in
with the defendants. But difficulties developed between the two
couples. The defendants then repudiated the agreement by requiring
the plaintiffs to find somewhere else to live. As a result of this, the
plaintiffs claimed damages for breach of contract. It was argued by
the defendants that the agreement amounted to no more than a
family arrangement.
Held: The circumstances indicated that the parties intended to affect
their legal relations and thus the defendants were liable.
13. Other domestic arrangements
Many do not amount to contracts because the parties do
not intend to create legal relations.
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14. Commercial agreements
Presumption that the parties do intend to make a legally
binding contract.
Guthrie Waugh Bhd v Malaiappan Muthuchumaru
Onus of proving that there is no such intention is on the
party who asserts that no legal effect is intended.
Presumption may be rebutted by reference to the words
used by the parties and/or the circumstances in which they
used them.
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15. Edwards v. Skyways Ltd [1964] 1 All ER 494
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D who had promised to make an ex-gratia payment to the
employees contended that they were not bound to fulfil their
obligation
The Court held that the use of the words “ex gratia” with
regards to the airline pilot’s contractual redundancy payment
did not alter the presumption. Therefore, the airline had to
make payments because the agreement was enforceable
16. Advertisements
A statement in an advertisement inducing a contract may
be a ‘mere puff’ if it was not seriously meant and that this
should be obvious to the person to whom it is made.
INote: In Carlill v Carbolic Smoke Ball Co, the bank deposit
was strong evidence that the defendant had
contemplated legal liability when they issued their
advertisement.
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17. ‘Honour clauses’
If the parties have expressly declared that a transaction is not
to be binding in law, the courts will give effect to that
declaration.
Rose & Frank Co v JR Crompton & Bros Ltd
Jones v Vernon’s Pools Ltd [1938] 2 All ER 626
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18. Jones v. Vernon’s Pools Ltd [1938] 2 All ER
626
The claimant in this case had sent a successful football
coupon to the defendants but the defendants denied
receiving it and relied on a clause printed on every
coupon. The clause provided that the transaction
should not “give rise to any legal relationship.....or be
legally enforceable .... but ..... binding in honour only”
The Court held that: This clause was a bar to any action
in a court of law.
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19. Memorandum of Understanding (MOU)
Merely an agreement to contract or an agreement to
negotiate.
Generally not valid and enforceable as a contract.
Sia Siew Hong v Lim Gim Chian
However, each case must be decided on its own facts;
Ismail bin Mohd Yunos v First Revenue Sdn Bhd – both
MOUs were binding on the parties.
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20. Ambiguous words
Where a party wishes to rebut the presumption, he must use clear
words.
The onus of proving that the words exclude legal relations is on
the party who asserts it.
Edwards v Skyways Ltd – the use of the words ‘ex gratia’ did not
rebut the presumption that there was intention to create legal
relations.
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21. Collective bargaining in industry
Not intended to create legal relations between the parties.
Ford Motor Co Ltd v Amalgamated Union of Engineering &
Foundry Workers
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