DIL 1103 Contract Law - Notes On ITCLR

Seri Stamford – Diploma in Law
Notes on ITCLR
DIL 1103 – Contract Law
INTENTION TO CREATE LEGAL RELATIONS

The element of contract which is the requirement for the intent to create legal relations, or
the intent to be legally bound is also tantamount to a contract and whether or not it would
be void or legitimate. It also allows the court to better decide on if the case at hand is
suitable for further action and would allow the court to quickly reach a decision and
judgement if there was not a contract.
In Malaysia, it is worth noting that the Contracts Act 1950 does not state explicitly that the
intention to create legal relations (or to be bound) is an actual and express requirement for
a valid contract. This, however, is not the case in case law where it is more than obvious that
it is a necessity. Generally, in domestic arrangements and scenarios, there is a presumption
against the existence of an intent to create legal relations. This presumption is erased in
commercial arrangements, see Esso Petroleum Co Ltd v Commissioners of Customs & Excise
[1976] 1 WLR 1.
This presumption is not unique to that of Malaysia. The English counterpart also sees to this
presumption as a domestic relationship cannot be ignored and must be addressed. A
breakthrough or very clear cut case would be that of Balfour v Balfour [1919] 2 KB 571,
where a husband, while married, had promised to his wife that he would pay her a sum of
money each month. This promise was, of course, made while they were happily married and
the husband then subsequently stopped this after the marriage was soured and the
relationship was strained. The wife had argued his word was an oral offer and both his word
and conduct and performance proved his word to be a contract. The court, however, found
otherwise: the agreement between husband and wife was a social and domestic agreement,
to be made between two people with a special relationship and was never meant to be
legally binding for either party.
While there is a general presumption that there is no intent to create legal relations in the
aforesaid scenario, this particular presumption may be rebutted if there is evidence pointing
to the contrary. Consider the following:
1) Errington v Errington Woods [1952] 1 KB 290 COA

A father-in-law had purchased a house for his son and daughter-in-law. This house
was purchased strictly in only the father’s name. The very same father had paid a deposit as
a wedding gift to the happy couple and promised them that if they had managed to pay the
mortgage installments, the father would eventually transfer the home to their name
instead. Unfortunately, the father fell ill and ultimately passed away before the house was
transferred; the mother inherited the house instead. To compound on this misfortune, after
the father’s death, the son had went to live with his mother but the wife had refused to live
with her mother-in-law but had continued to keep up with the mortgage payments. The
mother had then tried to have an action be brought against the daughter-in-law to be
removed from the house.
The court had found and held that the wife was completely entitled to remain and
live in that very house. The court had found the father to have made a unilateral offer (but
not limited to a single party) to both son and daughter-in-law. The wife had over a course of
time, had performed her part completely: she had paid mortgage instalments as was asked
of her. The wife in this sense, had continuously met the mortgage instalments and, by
conduct, accepted and performed the contract. Normally, an offer of course can be revoked
at any time prior to its acceptance but in the case of a unilateral contract, acceptance takes
place when there is full performance. A mortgage, however, is not something to be finished
with quickly but the daughter-in-law had performed anyway. Lord Denning himself stated
that it would be unethical, unconscionable and unfair to the daughter-in-law should her
mother-in-law be allowed to revoke the unilateral offer. Even though this was a family
matter, there is an intent to create legal relations.
2) Merritt v Merritt [1970] 1 WLR 1211

A husband left his wife to be with and live with another woman. The married couple
had jointly owned a payment of £180 left on the marital home. The husband had signed an
agreement stating that he would pay his wife (the woman he had left) a total of £40 a
month to enable her to meet the mortgage instalments; and only if she had paid all other
charges in connection with the mortgage, will he transfer to her his share of the house. The
wife performed and paid off the mortgage and subsequently brought an action for a
declaration for the house; claiming that it was rightfully hers.
The court found and held that there was an intent to create legal relations and the
presumption that there is no intent in a domestic setting was overruled. The agreement
between the couple was binding and the Court of Appeal made the distinction between this
particular case and that of Balfour v Balfour. A rule exists that should spouses separate, it is
generally accepted that they do intend and had intended to be bound by their agreements.
This presumption is further cemented by the fact that the husband had signed an
agreement with his wife.
3) Kleinwort Benson (KB) v Malaysia Mining Corporation BHD (MMC BHD) [1989] 1 WLR
379
The company, ‘Malaysia Mining Corporation Bhd’ was a wholly owned subsidiary by
the defendant MMC Bhd. MMC Metals approached the claimant, Kleinwort Benson, to apply
for a loan. MMC Metals were fresh; a relatively new company both lacking in size and
resources of MMC Bhd. The bank subsequently approached MMC Bhd to ask whether or not
they would be the guarantor for the loan being applied by MMC Metals. MMC Bhd had
refused to be the guarantor for the loan but then stated that they would ensure their
subsidiary would pay off any debt as it was “company policy”. In reliance on this assurance
and communication, the bank then advanced a loan to MMC Metals. Obviously enough,
MMC Metals went into administration for defaulting on loan payments. Kleinwort Benson
then brought an action against MMC Bhd to recover their losses based on the reliance upon
them that was placed.
The court held that the letter (communication and assurance) had no legal value
whatsoever. The very fact that MMC Bhd had refused to act as guarantor had demonstrated
that they did indeed not intend to be bound in any fashion. The letter itself was a simple
statement of fact to what was possibly the company policy for MMC Bhd at the time and
said policy may change at any given moment without legal recourse.
4) Albert v Motor Insurance Bureau [1971] 3 WLR 291

A docker was killed in a road collision on his way to work. He was a passenger in a
car owned and driven by a colleague. The driver gave lifts to the deceased and other
dockers in return for payment; doing so for over a period of eight years. A claim was made
against the Motor Insurance Bureau (MIB) as the driver had no insurance cover for
passengers. Said Bureau was only obliged to pay if there existed a contract between the
docker and the driver.
The court had held that there was an intent to create legal relations because the
‘lifts’ were offered in a commercial sense over a long period of time and offered to many
different people - in return for payment. Thus, there was an intent to create legal relations
and there was a contract (or were contracts) that were binding.

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Seri Stamford – Diploma in Law

DIL 1103 – Contract Law

INTENTION TO CREATE LEGAL RELATIONS

1) Errington v Errington Woods [1952] 1 KB 290 COA

2) Merritt v Merritt [1970] 1 WLR 1211

4) Albert v Motor Insurance Bureau [1971] 3 WLR 291

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