Intention to create legal relation

(a) What is meant by ‘judicial precedent’? (4 marks)

(b) Under the law of contract, case laws clearly indicate the necessity of an intention to create legal relations between parties to constitute a valid contract.

Explain the circumstances where no intention to create legal relations is imputed in the formation of a valid contract. (5 marks)

(c) With reference to the Contracts Act, 1950, describe any two (2) circumstances which may render a contract voidable. (5 marks)

(d) N/A Sale of Goods Act, 1957

(e) N/A Sale of Goods Act, 1957

(MIA QE 2014/9 Q1, 20 marks)

(a) Judicial precedent are asked in:
MIA QE 2008/3 Q1 (c) State briefly the advantages of the doctrine of binding judicial precedent.
MIA QE 2009/3 Q1 (c) Explain how judicial decisions form part of the law of Malaysia.
MIA QE 2014/3 Q1 (a) Explain the meaning of “binding judicial precedent” in the context of unwritten law in Malaysia.
MIA QE 2012/9 Q1 (a) ‘Judicial Precedent’ is one of the sources of “unwritten laws” in Malaysia.
MIA QE 2014/9 Q1 (a) What is meant by ‘judicial precedent’?
Precedence - is it always followed? Advantages and Disadvantages.
2012 D02 Q2 briefly explain Judicial precedent.
Briefly explain the challenges of Stare Decisis in Malaysian Courts.
What is meant by "Stare Decisis"?

(b) 'No intention to create legal relations is imputed in the formation of a valid contract' means the act of no intention in creating legal relationship has the impact on the validity of contract - ie the contract does not exist.

Case law: ESSO Petroleum Co Ltd v Custom and Excise Commissioner.

In the question, it is asked about what scenarios that 'no intention' actually apply and the transaction is not a contract. Easier way to understand this is when there is agreement in between family members, eg. father to son, there is obviously no intention to create a legal relation, thus there is no contract although the son promises the father to renovate the house.

Similar questions were asked in
MIA QE 2008/3 Q1(ii) on requirement of law as 'intention to create a legal relationship' here.
LPPEH D02 2012 Q8 Contract - Intention Q8.
MIA QE 2014/9 Q1 (b) explain the circumstances no intention

MIA model answer:

Although Contracts Act, 1950 is silent on the intention to create legal relations as one of the requirements of a valid contract, case-laws clearly dictate the necessity for this requirement.

There are, however, cases where no intention to enter into a legal relation can be imputed (ascribe to, or charged).

1. Cases where the agreement merely represent family arrangements:
Choo Tiong Hin & Ors v Choo Hock Swee (1959) MLJ 67
Phiong Khon v Chon Chai Fah (1970) 2 MLJ 114

2. Cases where concessions were made in the course of business negotiations:
Yap Eng Thong & Anor v Faber Union Ltd

Where there was a 'subject to contract' Clause, in the agreement, it was held that there was no valid contract.

3. Circumstances and conduct of parties indicating lack of such an intention:
Guha Majumder v Donough (1974) 2 MLJ 114
Yap Eng Thong & Anor v Faber Union Ltd 1 MLJ 191

4. In domestic arrangements there is a presumption against the existence of an intention to create legal relations whilst in commercial arrangements the rebuttable presumption is that a legal relation is intended.

ESSO Petroleum Co Ltd v Custom & Excise Commissioner

(c) 2 circumstances which may render a contract voidable.

Mistake please read more below:
2013 D02 Q8,
MIA QE 2012/3 Q1 (b) (iv),
Common and Mutual Mistake.

Coercion please read more below:
MIA QE 2012/3 Q1 (b)(i) Coercion
MIA QE 2014/3 Q1 (c)(i) Coercion
MIA QE 2014/3 Q1 (c)(i) which render a contract voidable
What constitute a voidable contract?
Briefly explain 'coercion'
LPPEH 2012 D02 Q2

Undue influence please read more below:
MIA QE 2014/3 Q1 (c)(ii) undue influence
MIA QE 2012/3 Q1 (b)(ii) Undue influence
What constitute a voidable contract?
Explain "Undue Influence" as per Contract Act, 1950
Bad Contracts
2013 D02 Q3 inducement and undue influence


MIA model answer:

Section 10, Contracts Act (CA): All agreements are contracts if made by free consent of parties;

Section 14, CA: Consent is said to be free when not influenced by the following:

1. Coercion; defined under section 15, CA.
Kanhaya Lal v National Bank of India Ltd; the definition of coercion in section 15 is limited to an unlawful act done with the intention of causing the person to enter into an agreement.

2. Undue Influence: Section 16, CA. Covers particular relations as is sometimes used as a comprehensive phrase to include cases of coercion, domination or pressure within or without those special relations.
Raganath Prasad v Sarju Prasad AIR (1924)

a) The relations between parties to each other must be such that one is in a position to dominate the will of the other;
(b) The issue whether the contract has been induced by undue influence;
(c) The burden of proving that the contract was not influenced by undue influence lies on the person in a position to dominate.

3. Fraud: Section 17 CA. Includes certain acts which are committed with intent to induce another party to enter into a contract. As a general rule, it may be stated that wherever a person causes another to act on a false representation which the maker himself does not believe to be true, he is said to have committed fraud.
Wong Cheong Kong Sdn Bhd v Prudential Assurance Sdn Bhd (1998) 3 MLJ 724

4. Misrepresentation: Section 18 CA. Differentiated from fraud in that the person making the representation may believe in its truth. Silence, in certain circumstances, where duty to disclose is imposed, may amount to a misrepresentation.
Tan Chye Chew & Anor v Eastern Mining & Metal Co (1965) 1 MLJ 201

5. Section 19, CA. Where the consent to the contract was caused by misrepresentation, the contract is voidable at the option of the party who was so induced to enter into the contract. If the truth could be discovered with ordinary diligence by the innocent party, contract is not voidable at his option.

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