1. Considerations Intention to create legal relationship
Chapter 2: Elements of Contract
Considerations
Intention to create legal relationship
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2. By the end of this lecture, students will be able to:
Explain meaning of contract, offer and acceptance
Interpret the relevant provision under Contract Act 1950
Express and apply the concept of contract, offer and acceptance
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3. Intention To Create Legal Relation
ELEMENTS OF CONTRACT
Offer / Proposal
Acceptance
Consideration
CONTRACT
Intention To Create Legal Relation
Legality
Free Consent
Capacity
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4. Section 2(d) Contract Act (AK 1950)
“when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise ”
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5. REV 01
Consideration
Executory – when one promise is made in return for another i.e. a promise in return for a promise.
Executed – when a promise is made in return for the performance of an act.
Past – where a promise is made subsequent to and in return for an act that has already been performed, the promise is made on account of a past consideration.
Rules relating to consideration
Consideration is generally essential in every simple contract
Consideration should be supplied by anyone seeking to enforce a contract
Consideration must be lawful
Consideration must be certain and definite
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6. Section 24 Contracts Act 1950 (AK 1950)
“The consideration or object of an agreement is lawful, unless - (a) it is forbidden by a law; (b) it is of such a nature that, if permitted, it would defeat any law; (c) it is fraudulent; (d) it involves or implies injury to the person or property of another; or (e) the court regards it as immoral, or opposed to public policy.
In each of the above cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void
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7. Section 26 Contracts Act 1950 (AK 1950)
an agreement made without consideration is void, unless -
it is in writing and registered
(a) it is expressed in writing and registered under the law (if any) for the time being in force for the registration of such documents, and is made on account of natural love and affection between parties standing in a near relation to each other;
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8. Section 26 Contracts Act 1950 (AK 1950)
or is a promise to compensate for something done
(b) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or
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9. Section 26 Contracts Act 1950 (AK 1950)
or is a promise to pay a debt barred by limitation law.
(c) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.
In any of these cases, such an agreement is a contract.
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10. Consideration from third party
REV 01
Consideration from third party
An agreement to compensate for a Past Voluntary Act .
An agreement to compensate for an Act the Promisor was legally compellable to do.
An agreement to pay a statute-barred debt.
Refer to The Commercial Law of Malaysia by Beatrix Vohrah & Wu Min Aun, pp31-35.
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11. Inadequacy of consideration
REV 01
Inadequacy of consideration
If X promises to sell his car worth RM for ten ringgit, is the amount of ten ringgit sufficient consideration for the promise? The sum of money is obviously not adequate for his promise but the court will not assess whether a promisor has received adequate consideration.
It appears that the adequacy of consideration is immaterial. This state of law is borne out by Explanation 2 of section 26:
An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate, but the inadequacy of the consideration may be taken into account by the court in determining the question whether the consent of the promisor was freely given.
Refer to Phang Swee Kim v. Beh I Hock (1964) MLJ 383 case.
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12. Intention to create legal relation
REV 01
Intention to create legal relation
Two presumptions, though rebuttable, have developed in the determination of intention with respect to agreement, viz
In business agreements, there is a presumption that the parties intend legal consequences to follow unless the parties specify otherwise.
In social, domestic and family agreements, it is implied as a matter of course that no legal relations are contemplate, but such presumption may be rebuttable.
Refer to Choo Tiong Ors.v. Choo Hock Swee & Phiong Khon v. Chonh Chai Fah case.
Refer to : General Principles of Malaysian Law – Lee Mei Pheng, pg.93.
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