ELEMENTS OF CONTRACT

~ INTENTION TO CREATE LEGAL RELATIONS

~CERTAINTY OF TERMS
~FORMALITIES
~CAPACITY
 INTENTION TO CREATE LEGAL
RELATIONS
In determining the intention of the parties to the
contract, the court has classified an agreement into two
types:
1. Business agreements
2. Social, domestic or family agreements.
 Business Agreements
Basic presumption: there is a presumption that the
parties intend legal consequences to follow unless the
parties specify otherwise.
However, the presumption is a rebuttable presumption.
A variety of contractual clauses may be employed to
negative contractual intention.
One of the most common is the ‘subject to contract’
clause, frequently used to express the intention that the
oral or informal agreement is not binding until the
execution of a full and final agreement in a formal
written instrument.
 Cases
Winn v. Bull (1877)
In this vase, there was a written agreement between the
plaintiff and the defendant for the lease of a house
subject to the clause ‘subject to the preparation and
approval of a formal contract’, but no further formal
contract was entered into.
The court held that there was no enforceable contract.
Low Kar Yit & Ors. v. Mohd Isa & Anor. [1963]
Lim Keng Siong & Anor. v. Yeo Ah Tee [1983]
Held: ‘it was the intention of the parties to come to a
definite and complete agreement on the subject os the
sale and the mere fact that a written contract had to be
drawn up and executed by them did not necessarily
mean that there was no legally binding and enforceable
agreement.’
Daiman Development Sdn. Bhd. V. Mathew Lui
Chin Teck & Anor [1981]
Social, Domestic and Family Agreements
Basic presumption: parties to such agreements are
presumed not to have intended legal consequences to
follow from them.
However, this presumption is also a rebuttable
presumption.
 Cases
Basic presumption: Balfour v. Balfour [1919]
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. He defaulted and the wife sued for
breach of contract.
The court held: it was not a legally enforceable
agreement because the parties did not intend that they
should be attended by legal consequences.
 Rebuttable presumption: Merrit v. Merrit [1970]
 The husband left the matrimonial home which was in the joint
names of husband and wife and subject to a mortgage. The
husband agreed to pay the wife 40 pounds a month out of which
she would pay the outstanding mortgage payments and when
such payments had been completed, he would transfer the house
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.
 Held: the parties had intended to create legal relations and,
accordingly ordered that the house be transferred to the wife.
 Pettitt v. Pettitt [1970]
 CERTAINTY OF TERMS
At common law, there are two aspects to the issue of
uncertainty:
1. The language used may be too vague
2. Failure to reach agreement on a vital or fundamental term
of an agreement.
 S. 30 CA 1950:
‘Agreements, the meaning of which is not certain, or
capable of being made certain, are void.’
 Illustration (c): A agrees to sell to B ‘a hundred tons of oil’,
there is nothing whatever to show what kind of oil was
intended and thus, the agreement is void for uncertainty.
But if A, a dealer in coconut oil only, agrees to sell to
B ‘one hundred tons of oil’, the agreement is not void
for uncertainty because the nature of A’s trade affords
an indication of the meaning of the words.
Illustration (f): a person agrees to sell his white horse
for dollars five hundred or dollars one thousand. Since
there is nothing to indicate which of the two prices is
to be paid, the agreement is void.
Where the meaning is unclear but it is capable of being
made certain, the agreement is not void for uncertainty.
Iluustration (e): A agrees to sell to B ‘one thousand
gantangs of rice at a price to be fixed by C’. As the
price is capable of being made certain, there is no
uncertainty here to make the agreement void.
However, if C refuses or is unable to fix the price, the
agreement will become void.
 Case
Karuppan Chetty v. Suah Thian (1916)
The contract was declared void for uncertainty because
the parties agreed to a lease of $35 per month ‘for as
long as he likes’.
 FORMALITIES
 General Rule: a contract can be made orally, in writing or by
conduct.
 However, there are exceptions to the general rule and these are
created by specific statutes.
 In the case of exceptions, contracts have to be made in writing.
1. The Hire-Purchase Act 1967 requires hire-purchase
agreements to be in writing and signed by all parties to the
agreement. S.5(1) provides that ‘a hire-purchase agreement
that is not in writing shall not be enforceable by the owner.’
2. The Contracts Act 1950: i) agreements made on account of
natural love and affection between parties standing in near
relation (s.26(a)), ii) agreement to pay a statute-barred debt
(s.26(c)).
 CAPACITY TO CONTRACT
Section 10:all agreements are contracts if they are
made by free consent of the parties competent to
contract.
Section 11: a person is competent to contract when he
fulfills 3 conditions:
1. Age of majority
2. Sound mind
3. Not disqualified from contracting by any law to
which he is subject.
 Minors
A minor is a person who has not reached the age of majority.
The age of majority is 18 years as provided in the Age of
Majority Act 1971.
General rule: all contracts entered into by a minor are void.
Rationale: as a protection of the minor against the consequences
of its own actions and presumed lack of judgment in such
matters.
Landmark case: Mohori Bibee v. Dhurmodas Ghose (1903)
Court held: Contracts made by minors are void.
Applied by Malaysian case: Tan Hee Juan v. Teh Boon Keat
Tan Hee Juan v. Teh Boon Keat
The P infant executed transfers of land in favour of the
D, and the transfers were witnessed and subsequently
registered. The P by his next of friend, applied to the
court for an order setting aside the transfers and for
incidental relief.
The court rule that the transactions were void and
ordered the restoration of the property to the minor.
 Exceptions
1) Exceptions under the Age of Majority Act 1971
 Promise of marriage
2) Contract for Necessaries
3) Contract of Scholarships
4) Insurance
5) Apprenticeship
6) Guarantee and Indemnity
 Exceptions under the Age of Majority Act
1971
The Age of Majority Act creates certain exceptions to
the rule that all contracts entered into by minors are
void, namely:
a) The capacity of any person to act in matters relating
to marriage, divorce, dower and adoption;
b) The religion and religious rites and usages of any
class of persons within Malaysia;
c) Any other written law fixing the age of majority.
 Promise of marriage
Promise of marriage entered into by minors or their parents
on their behalf have been held to be valid.
Rajeswary & Anor. v. Balakrishnan & Ors. (1958)
 The High Court held: the age of majority or entering into a
marriage contract differed from other contracts entered into
by a minor and consequently, such contracts were not
affected by the general rule.
Good J. ruled that the action was maintainable on the basis
that marriage contracts entered into by minors were
distinguishable from other classes of contracts and did not
come within the principles laid down in the Mohori Bibee
case.
 Incapacity of
the plaintiff to
enter into the
Damages for breach of contract to
marry
Promise of marriage
Rajeswary (P) Balakrishnan (D)

Promise of marriage

P’s father
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m a r
i se of
om
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 Contract for necessaries
 Under common law, a minor is liable on contracts for
necessaries. (Nash v. Inman [1908])
https://indiancaselaws.wordpress.com/2013/01/17/nash-v
-inman/
 The case of Nash v. Inman was cited with approval by
Chang Min Tat J. in Government of Malaysia v.
Gurcharan Singh & Ors [1971] 1 MLJ 211.
‘If an infant is totally incompetent and incapable of
entering into a contract, there is no contract on which he
can be sued….Section 69 of our Ordinance…embodies
the English common law of the liability of an infant to
pay a reasonable sum for necessaries…’
Government of Malaysia v. Gurcharan
Singh & Ors [1971] 1 MLJ 211
The Govt. sued the first D as the promisor and the second
Ds as sureties for breach of contract. The claim was for
$11,500 alleged to be the sum actually spent by the Govt. in
educating the first D. At the time of the contract, the first D
was a minor.
The court held that the contract was void but ruled that since
education was necessaries, the first D was liable for the
repayment of a reasonable sum spent on him. The amount
was calculated as a proportion of the actual sum spent on his
education and since the first D had served the Govt. for 3
years and 10 months out of the contractual period of 5 years,
the sum of $2683 was ordered as payment to the Govt.
Section 69 of the CA 1950
In Malaysia, the common law of England regarding
liability for necessaries supplied to a minor is
embodied in section 69 of the Contracts Act 1950.
S.69 states:
‘If a person , incapable of entering into a contract, or
anyone whom he is legally bound to support, is supplied
by another person with necessaries suited to his
condition in life, the person who has furnished such
supplies is entitled to be reimbursed from the property of
such incapable person.’
The legal interpretation of ‘necessaries’ includes goods
and services reasonably necessary to the minor’s actual
requirements such as food, shelter, clothing, medical
services and even education, but they must be tested
against the particular minor’s station in life.
The test of necessaries would necessarily depend on
the nature of the goods or services supplied, the
minor’s actual needs and his station in life.
For instance, clothes could well be necessaries, but
where the minor is already adequately stocked, they
may be treated as mere luxury.
Important points under section 69
1. The necessaries must have been actually supplied to a minor.
2. The minor’s liability includes necessaries supplied to anyone
whom he is legally bound to support such as his wife or
child. (Illustration (b))
3. The supplier of necessaries may claim only a reasonable
price which may not be the same as the contract price.
Government of Malaysia v. Gurcharan Singh & Ors. [1971]
The Court held that the contract was void but ruled that since
education was ‘necessaries’, the first defendant was liable for the
repayment of a reasonable sum spent on him.
4. The minor is not personally liable. He is obliged to pay only
if he has the property to do so.
 Contract of Scholarship
Section 4(a) of the Contracts (Amendment) Act 1976
provides that no scholarship agreements shall be
invalidated on the ground that the scholar entering into
such agreement is not of the age of majority.
This provision is clearly intended to nullify the decision
in Government of Malaysia v. Gurcharan Singh & Ors.
[1971]
The Amendment Act is given retrospective effect i.e. it
is applicable to scholarship agreements entered into
before the commencement of the Act and not yet
expired.
Section 5(a) also modifies the law relating to penalties
in the event of breach.
Where an amount is named to be paid in the event of a
breach, the scholar and the surety, if any, will be liable
jointly and severally to pay the whole sum irrespective
of whether actual damage or loss has been caused.
Further, no deduction is allowed for any partial service
performed by the scholar. Such deduction being
previously applied in the case of Gurcharan Singh.
 Insurance
Under the Insurance Act 1963 (Revised 1972), a minor
over the age of ten may enter into a contract of
insurance but if he or she is under sixteen years, the
written consent of the parents or guardians is essential.
 Apprenticeship
Section 13 of the Children and Young Person
(Employment) Act 1966 provides the necessary
capacity for a minor to enter into a contract of
apprenticeship or service.
For the purpose of the section, a child is defined as any
person below the age of 14 and a young person as one
between the ages of 14 and 16.
Though the child or young person may sue or defend
under such contracts of service, no damages or
indemnity can be recovered from him for breach.
Capacity of person of sound mind
Section 11: ‘Every person is competent to contract…
who is of sound mind, and is not disqualified from
contracting by any law to which he is subject.’
A person suffering from mental disability, either
permanently or temporarily, at the time of the contract
obviously lack the capacity.
Section 12: ‘A person is said to be of sound mind for
the purpose of making a contract if, at the time when
he makes it, he is capable of understanding it and of
forming a rational judgment as to its effect upon his
interests.’
 Section 12 covers contracts entered into by a mentally disordered
person as well as those of a person incapacitated through sickness,
alcohol or other drugs.
 The basis of incapacity is that of a person’s inability to understand
what he is doing.
 Illustrations (a) & (b).
 The Act does not specify if such contracts are void or voidable. In
the absence of an authoritative judicial pronouncement, the law
remains uncertain.
 Under English law, the contract is voidable at the option of the
person of unsound mind if the fact of mental disorder or intoxication
can be proved, and provided the other party knows of his condition.
 Imperial Loan Co. v. Stone [1892]
Imperial Loan Co. v. Stone [1892]
’A contract made by a person of unsound mind is not
voidable at the person’s option if the other party to the
contract believed at the time he made the contract that
the person with whom he was dealing was of sound
mind. In order to avoid a fair contract on the ground of
insanity the mental incapacity of the one must be
known to the other party. A D must plead and prove
both his insanity and the knowledge of the P; the
burden of proof of both lies on the D.’