ELEMENTS OF CONTRACT (CONT'D)

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OTHER ELEMENTS

Those two elements (offer and acceptance) are vital parts of the elements in contract. In the absence of those two elements the contract is void ab initio. We will continue for other elements to constitute a contract.

3. INTENTION TO CREATE LEGAL RELATIONSHIP 

An agreement does not itself create a binding legal contract, the parties should have intention that it be legally enforceable. The Acts is silent on this and the English common law principles will apply. Two presumptions have developed in the determination of intention with respect to the agreement:

1.    In business agreements, there is a presumption that the parties intend to legal consequences to follow unless the parties specify otherwise.

2.    In social, domestic or family agreements, it is implied as a matter of course that no legal relations are contemplated, but such presumption may be rebuttable.

BALFOUR v BALFOUR [1919] 2 KB 571

The defendant was a civil servant stationed in Ceylon (Sri Lanka) and while on leave in England, he had promised to pay his wife a monthly allowance as maintenance. The wife was unable to accompany the defendant abroad on account of her poor health. He defaulted and the wife sued for breach of contract.

Held: It was not legally enforceable agreement because the parties did not intend that they should be attended by legal consequences.

MERRIT v MERRIT [1970] 2 All ER 760

The husband left the matrimonial home which was in the joint names of husband and wife and subject to a mortgage. The husband and wife had a discussion in which the husband agreed to pay the wife 40 a month out of which she would pay the outstanding mortgage payments and when such payments had been completed, he would transfer the property to her sole ownership. The agreement was recorded in writing on a piece of paper and signed by the husband. Upon completion of the payment, the husband refused to transfer the house.

The Court of Appeal decided in the light of all surrounding circumstances that the parties had intended to create legal relationships and accordingly ordered that the house be transferred to the wife.

 4. CONSIDERATION

General rule

S. 26 : agreement without consideration is void

Definition

S. 2 (d) : ‘when at the desire of the promisor, the promise …do or abstain from doing something …. Or promise to do or abstain from doing something, such act or abstinence is called a consideration for this promise’

Consideration need not be adequate

PHANG SWEE KIM v BEH I HOCK [1964] MLJ 383

The Respondent agreed to transfer to the appellant a parcel of land on payment of $ 500 when the land was subdivided although the land was worth much more. The Respondent later refused to honour the promise, contending that the promise was unenforceable. The trial judge held that the agreement was void due to inadequacy of consideration.

The Federal Court reversed the decision and granted decree specific performance as the contract was valid even there was inadequacy of consideration.

Consideration need not move from the promise

VENKATA CHINNAYA v VERIKATARA’MA’YA (1881) I.L.R. 4Mad. 137

A sister agreed to pay an annuity of Rs 653 to her brothers who provided no consideration for the promise. But on the same day, their mother had given the sister some land stipulating that she must pay the annuity to her brothers. When the sister subsequently failed to pay to fulfill her promise to pay the annuity, her brothers sued her on the promise.

Held - The court ruled that she was liable on the promise on ground that there was a valid consideration for the promise even though it did not move from the brothers. 

Past consideration is good consideration

KEPONG PROSPECTING LTD & ORS v SCHMIDT [1968] 1 MLJ 170

Schmidt, a consulting engineer, had assisted another in obtaining a prospecting permit for mining iron ore in the State of Johore. He also helped in the subsequent formation of the company, Kepong Prospecting Ltd, and was appointed Managing Director. After the company was formed, an agreement was entered into between them under which the company undertook to pay him one percent of the value of all ore sold from the mining land. This was ‘in consideration of the services rendered by the consulting engineer for and on behalf of the company prior to its formation, after incorporation and for future services ….’. Among the issue to be determined was whether services rendered after incorporation but before the agreement, were sufficient to constitute a valid consideration even though they were clearly past.

Held – The Privy Council ruled that it did constitute a valid consideration so that Schmidt was entitled to his claim on the amount.

Exception to the rule that agreement without compensation is void –

Section 26:

1. Agreement made on account of natural love and affection

- to establish this must present with the requirements:

1. it is expressed in writing
2. it is registered (if applicable) and
3. the parties stand  in a near relation to each other

- the meaning of ‘near relationship’ depends on customs and practices of social group.

TAN SOH SIM, CHAN LAW KEONG & ORS v TAN SAW KEOW & ORS [1951] 17 MLJ 21

2. Agreement to compensate for past voluntary act

3. Agreement to compensate act the promisor legally compelled to do

4. Agreement to pay a statute barred debt.

5.    CERTAINTY

The terms of an agreement cannot be vague but must be certain.

If uncertain or incapable of being made certain - void.

Intentions of the parties will be frustrated because of uncertainty and the court will usually not interfere

At common law - two aspects of uncertainty:

- Due to language used too vague, in which court is likely to hold that the contract is void for uncertainty

- failure to reach agreement on a vital or fundamental term of the agreement. The contract also fails for incompleteness though there is no problem with the clarity of language.

In Contract Act - uncertainty provided by Sec. 30 - ‘agreements, the meaning of which is not certain, or capable of being made certain, are void’.

Case:

-KARUPPAN CHETTY v. SUAH THIAN (1916) 1 FMSLR 300

- ‘lease at $35.00 per month as long as he likes’

6.    CAPACITY

Parties to a contract should be competent to contract, i.e. have the legal capacity to do so.

Where one or more of the parties to a contract lack the capacity - contract invalid / void. –

TAN HEE JUAN v TEH BOON KEAT [1934] FMSLR 96

The court held that the transfers of land executed by an infant were void.

Who are competent?

Sec. 11 - ‘Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject’.

Age of majority- 18 years - Age of Majority Act 1971

Exception:

Contract for Necessaries 

Section 69

 NASH v. INMAN [1908] 2 KB 1

A tailor sued a minor to whom he had supplied clothes, including 11 fancy waistcoats. It was decided that, as the minor was an undergraduate at Cambridge University at the time, the clothes were suitable according to the minor’s station in life. Unfortunately for the tailor, however, it was further decided that they were not necessary, as he already had sufficient clothing. Point of law: If a minor orders something that they already have sufficient quantity of then those items can’t be necessaries.

Contract of Scholarship  

GOVT. OF MALAYSIA v. GURCHARAN SINGH & ORS [1971] 1 MLJ 211

The government sued the first defendant as the promiser and the second and third defendant as sureties for breach of contract. The claim was for RM11,500, the sum actually spend by the government in educating the first defendant. At the time of the contract, the first defendant was a minor and the defence was essentially that the contract was void due to lack of capacity. It was held that the contract was void but the court ruled that since education was 'necessaries', the first defendant was liable for the repayment of a reasonable sum spent on him.

Contract of Insurance  

Under the insurance Act 1963 (Revised 1972), an infant over the age of ten may enter into a contract of insurance. However, if he is below the age of sixteen, he can only do so with the written consent of his parents or guardian.

A person also is competent to contract if he is mentally sound.

Sec 12(1) - ‘….. If at the time of making the contract….capable of understanding it and forming rational judgment as to its effect upon his interest.’

Includes incapacity due to sickness, alcohol or drugs

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