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INTRODUCTION • The law requires that the parties to an agreement intend that it be legally enforceable. • such intention mat be express or implied from the circumstances.
INTRODUCTION • Common Law Position: Ø The transaction may not be enforceable agreement if the parties did not have the intention to be legally bound. • Contract Act 1950: Ø Nothing specific on the issue of intention as an element of a contract.
Continue…… • To determine whether intention exist or not, refer to English Common Law. The law divides agreements into 2 classes: Ø Commercial or Business Agreement Ø Social, Domestic & Family Agreement
1. COMMERCIAL OR BUSINESS AGREEMENTS • The presumption is that the parties do have the intention to be legally bound.
1. COMMERCIAL OR BUSINESS AGREEMENTS • If a party asserts that they have no intention to be legally bound, the party have to adduce evidence to rebut. • This is normally done by the usage of an express clause.
Continue…… • “Subject to Contract” clause • A variety of contractual clause may be employed to negative contractual intention. • Used to express the intention that the oral or informal agreements is not binding until the execution of a full and final agreement in a formal written instrument.
WINN v BULL (1877) 7 ch. D 29, pg. 32 • “subject to and is dependent upon a formal contract being prepared” • There was a written agreement between the plaintiff and the defendant for the lease of a house subject to the clause mentioned above, but no further formal contract was entered into. • Held: there was no enforceable contract.
Low Yar Kit v Mohd Isa & Anor  MLJ 165 • The Defendant gave an option to the agent of the Plaintiff to buy a parcel of land subject to a formal contract to be drawn up and agreed upon by the parties. • The Plaintiff’s agent duly exercised the option but the defendant subsequently failed to sign the agreement for sale.
Continue…. • The Plaintiffs instituted proceedings for specific performance or alternatively, damage for breach of contract. • Held: The option was conditional upon and subject to a formal contract to be drawn up and agreed upon between the parties. • The exercise of the option amounted to nothing more than an agreement to enter into an agreement.
Daiman Development Sdn Bhd v Mathew Lui Chin Teck & Anor  1 MLJ 56 • The respondent (purchaser) signed a booking “pro forma” to which the parties agreed to the purchase price of a house to be built by the appellants (housing developer). • After that the developer inform the purchaser that the price of the house was to be increased the price and the purchaser disagree. • The developer then refused to continue with the contract. • The purchaser sue the developer for breach of contract and applied for Specific Performance.
Continue…. • The appellant contended that upon its proper construction, the pro forma was “subject to contract” or until a further document was mutually agreed and signed. • Thus, no contractual obligation arose from pro forma itself.
Continue…. • Held: Appellant was bound with the pro forma and could not argue that the pro forma did not create an obligation to purchase and sell the property.
2. Social, Domestic and Family Agreements • Agreements which are made between friends and family members on certain family or social arrangements.
2. Social, Domestic and Family Agreements • The law presumed that there is no intention to create legal relation. • It is not intended to be legally binding between the parties.
Balfour v Balfour  2 KB 571 The defendant was a civil servant stationed in Ceylon (Sri Lanka). while on leave in England he has promised to pay his wife a monthly allowance as maintenance. The wife was unable to accompany the defendant abroad because of her poor health. He then defaulted and the wife sued for breach of contract.
Continue…. . • Held: It was not legally enforceable agreement because the parties did not intend that they should be attended by legal consequences.
Merit v Merit 2 All ER 760 Ø There is a matrimonial home which was in joint name of husband wife and mortgage. Ø The husband left the matrimonial home. Ø Both husband wife have a discussion and the husband promise to pay 40 pounds a month and the wife pay the outstanding mortgage.
Continue…. . • The husband agreed to transfer the property to the wife’s name after the completion of the payment of the mortgage. • The agreement was recorded in writing on a piece of a paper and signed by the husband. • But after the fulfillment of the mortgage, the husband refused to fulfill his promise.
Continue…. . • Held: the parties had intended to create legal relations and accordingly ordered the house to be transferred to the wife.
Note: This Notes and Copyright therein is the property of Madam Norazla Abdul Wahab and is prepared for the benefit of her students enrolled in the MGM 3351 course for their individual study. Any other use or reproduction by any person WITHOUT CONSENT IS PROHIBITED.