ELEMENTS OF CONTRACT (CONT'D)
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OTHER ELEMENTS
3. INTENTION
TO CREATE LEGAL RELATIONSHIP
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.
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:
- it
is expressed in writing
- it
is registered (if applicable) and
- 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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ELEMENTS OF CONTRACT (CONT'D)
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