CHAPTER 5 - INTENTION TO CREATE LEGAL RELATION

The intention to create a legal relationship (ICRL) signifies a party 's intention of
becoming legally bound, with legal implications to sue and to be sue. The court is
trying to decide if the parties agree to sign a contract and are governed by the terms
agreed. The court is implementing an analytical test, for example, the court is
evaluating what the parties seem to have agreed on instead of what the parties
claim they decided. It enables the defence of fair expectations and, if the subjective
motives of the parties are considered, prevents problems of self-interest, deceit or
fraud. The objective test defines all problems, along with the facts and circumstances
of a case that would be regarded by a reasonable man. In the case of Carlill v
Carbolic Smoke Ball Co, The Court of Appeal found the statements in the
advertisement that revealed the defendants' intention to enter into legally binding
agreements. The commercial claimed that a amount of money had been deposited
into their account by the defendants to pay for the payout. The court ruled that,
from the money deposited, a fair man might construe that there had been an
purpose to be bound.

An expression in writing of the arrangements between parties can show that

parties intend to be legally bound.
In the case of Kwong Kum Sun (5) Pte Ltd v Lian Soon Siew & Ors ,3 the appellants, A
business engaged in the business as glass sheet importers, penned a letter proposing
to respondents to provide and install glass for the respondents. The letter sets the
prices for the delivery and setting of glass and then the last part reads as they expect
the above prices would be reasonable to them and will also be thankful if they will
kindly sign and submit for the records the replicated copy of this letter." On that
day, the respondents mentioned their acknowledgement and acceptance of the offer
in the letter itself. Whether the letter produced a binding contract or was invitation
to treat arose an issue. The Singapore Court of Appeal held at first example the
judge's ruling that a binding contract had been formed by the letter. Sinnathuray J
claimed that the general rule concerning the establishment of a binding contract is
that in order for the parties to be bound, they should have reached an agreement in
terms of being able to conclude an intention on the part of both parties to be bound
instantly. The learned judge ruled that "a contractual text" was the letter. He must
have claimed that the letter was an offer for the supply and fixation of glass for the
project which, upon verification and approval by the respondents, established a
contractual agreement made. The presumption should be that the intention on the
side of the appellants and respondents was to be agreed by the respondents
immediately upon acknowledgement and approval of the letter. In our opinion the
letter had finished finding an understanding between the appellants and the
respondents. In the case of MN Guha Majumder v RE Donough, An advertisement
appeared for the sale of the defendant's house in the Sarawak Tribune. The plaintiff
twice visited the house as well as a number of phone calls between the plaintiff and
the representative of the defendant occurred. The complainant alleged the
defendant had approved his offer to buy the house however the defendant rejected
it. The High Court held that the parties have no intention of being bound by it. There
was an advertising for the sale of this situation, and a prospective buyer went to see
the house twice. There were negotiations through phone calls between the parties
however no agreement has been signed. In the case of Yap Eng Thong v Faber Union
Ltd, communications in between parties showed that the parties had no intention of
being bound by the law. The plaintiffs also entered into an agreement agreeing to
buy a semi-detached bungalow to be built on a plot of land and as an option they
paid an amount of $500 as money. It was agreed that the plaintiffs could sign a
purchase agreement with the defendant who owned the land within six weeks of the
agreement, failing whereby the defendant was allowed to re-sell the property and
lose the option money. No purchase agreement entered into and defendants "called
off" the offer to the plaintiffs. The plaintiffs demanded damages because of a breach
of the contract made. The issue was whether a legally binding contract had already
been in effect. The High Court held that there had been no contract which was
legally binding and enforceable. The parties had been in disagreement of what
should be included in the final sale agreement. In addition, since the six week
duration had passed, the defendants had submitted a form of sales agreement to the
complainants, but the plaintiffs refused to sign on the form. The Court found that the
plaintiffs were not ready to sign any agreement which did not include the items at
issue and continued in demanding that those items be included. This state of affairs
clearly suggested that there had not yet been any legally binding contract.

INTENTION TO CREATE LEGAL RELATIONS IN SOCIAL AND DOMESTIC AGREEMENTS

- NO INTENTION TO CREATE LEGAL LEGAL RELATION

Domestic and social agreements have to be differentiated from other agreements,

for example agreements between spouses, parents and children. The general rule
with regard to social and domestic relationships is there is no intention of forming
legal relations. This is centered on considerations of public policy to enable people to
be responsible for their domestic and social issues and to limit these problems to the
decision of the courts. In the case of Choo Tiong Hin & Ors v Choo Hock Swee, In
1916, husband and wife stayed in a farm-house in Singapore. They had two
daughters of theirs, five sons who were adopted. Most members of the family,
including their grandchildren, stayed at the premises together. The elderly served to
be worked on the farm as well as on other business enterprises. However, his wife
passed away in 1953. In 1955, after several family conflicts, the husband left the
family home and later sued three of his adopted sons and two of his grandsons for
the ownership of the farm and the family house, as well as for trespass damages.
The defence argued that there have been contracts between the man and the three
adopted sons, under which the latter agreed to work for the former to acquire
wealth for him to administer. They believed there was an attempt to establish legal
relationships after being adopted and having helped at the farm. The Court held that
the agreements were not meant to define legal relations and were thus not legally
binding as contracts. In the case of Balfour v Balfour, the husband had gone to work
in Sri Lanka. His wife was ill and did not pursue him, so she remained in the United
Kingdom, where the husband decided to pay £30 a month to the wife. The judge
stated that a contract was signed between the husband and his wife for the husband
to keep his wife at £30 a month during the temporary separation. On appeal,
though, it was claimed that there had been no intention of creating legal relations. In
the case of Jones v Padavatton, That included agreements between a mom and her
daughter. In this case , in order to practise as a lawyer in Trinidad, the daughter who
was adequately working in Washington accepted an offer from her mother to go to
United Kingdom and to study for the Bar. At the cost of £ 42, her mother agreed
provide the maintenance for her. No details of the settlement have been recorded in
writing and in specific nothing has been said as to the maintenance period. The
daughter accordingly went to the UK and started her Bar studies. A house was later
purchased in London, following a request made by the mother, for the daughter to
live with her son, with the rentals from letting other rooms to provide maintenance
instead of £42 a month for maintenance. The house was bought for £ 6,000 and then
sent to the mother, who was providing the money for extra expenses and
furnishings. Thus, no written contract existed and incidental matters remain
unsettled. The mother didn't earn any money from the rentals nor was she provided
with any accounts. Eventually, the mother requested that the daughter own the
house. The Court of Appeal ruled that this was only a social and domestic agreement
where is a family arrangement , and that the parties did not intend to enter into legal
relations.

In the case of Heslop v Burns, The defendants, a husband and wife, lived in the upper
building. The wife, who'd been expecting a child, was at the office of the deceased
doing some temporary regular cleaning work. The defendants were visited by the
deceased and expressed concern about the circumstances in which they lived. He
eventually offered a home for the defendants, first a cottage, and then two other
houses. He had become godfather to one of their daughters and brought her gifts
and paid for her education. He was exceptionally generous to the defendants, often
visited them, paid the rates on the properties they occupied, and never needed any
payment from them for their property occupation. The executors assumed
ownership of the premises occupied by the defendants upon the deceased 's death.
The defendant claimed they were tenants at the deceased's will. The Court of Appeal
ruled that the executors had the right to own the property of the deceased and that
the defendants were also not tenants at will, but simply licence holders.

EXCEPTIONS to the general rule that no intention to create legal relations exists in
domestic agreements.
In the case of Merritt v Merritt, The husband and wife were divorced from each
other. The husband decided to compensate his wife and move the house to her and
the wife was expected to pay the house payments. They put these agreements into
writing agreement. The wife was paying the payments but the husband refused to
transfer her home. In this case , the Court of Appeal ruled that there had been an
agreement to create legal relations and the wife may take an action for the breach of
contract happened.  It seems from this case that when a husband and his wife are
not "living in amity," the assumption that there is no intention of forming legal
relationships does not occur. It should also be noticed that their
negotiated agreements  were put into writing in this case. In the case of Pettitt v
Pettitt, The plaintiff and her husband lived in a house she had acquired for about
nine years. Her husband worked out a variety of renovations to the house during
that period. The house was eventually sold, and the plaintiff purchased a new house.
There was a balance of a few hundred pounds which the husband utilized after the
new house had already been paid for, evidently with the appellant 's agreement in
paying for his vehicle. Before getting divorced, the couples stayed in the house about
four years. The husband requested a statement that he was beneficially involved in
the profits from the house's sale on the basis that he had made a large number of
improvements to the house and garden during those four years. The husband had
then failed to claim it . The House of Lords investigated the problems encountered in
deciding the legal relationship involving husbands and wives in this situation.

INTENTION TO CREATE LEGAL RELATIONS IN COMMERCIAL AGREEMENTS

Unlike domestic agreements in which there is a assertion that there is no intention
to create legal relations, the general principle in commercial agreements is that an
intention exists. This is intended to make economic and commercial simpler and
fostering certainty in business transactions. This inference, however, may be tried to
refute if it has been suggested otherwise on the evidence. This may occur if an
agreement specifically specifies that it is not meant to be legally binding. The burden
of proof to rebut the general presumption lies with the party which disputes the
intention to create legal relation. In the case of Rose and Frank Co v JR Crompton &
Bros Ltd, A purchase and selling agreement included a "Honorable Promise
Provision" "It claimed that the agreement was not formal and legal and it was not
subject to the laws of the court as" This agreement is not entered into as a formal or
legal agreement, nor is this memorandum written, and neither the United States nor
England is subject to legal jurisdiction in the Law Courts. But it is only a clear
expression and record of the aim and intention of the three parties concerned, to
whom they honourably pursue each other, with the utmost trust, on the basis of
previous business with each other  that it will be carried by each of the three parties
with shared allegiance and pleasant cooperation.' The House of Lords held that the
conditions of the agreement demonstrated no intention of bounding the parties. It
was essentially a contract of honour and had been unenforceable under the statute.
In the case of Edwards v Skyways Ltd, An employee has been made redundant on the
decision of the employer to pay him a "ex-gratia" as a favour. The employer later
refuses to pay and claimed that there was no aspect of contract inherent in ex-gratia
payments and that they relied on the employer's honesty. Megaw J gave the
employee 's opinion and held that a commercial contract was the arrangement. The
general rule that a purpose exists holds, and the duty on the employer to refute it
was for the assumption to be inapplicable. The duty of rebutting the assumption is
high and the term "ex-gratia" alone does not refute the assumption in this situation.
In the case of Home Insurance Co Ltd & St Paul Fire and Marine Insurance Co v
Administratia Asigurarilor De Stat, In this case , three reinsurance contracts with the
defendant reinsurers were signed into by the applicant insurers. Among several
other things, the contract provided,  "this treaty shall be viewed as an honourable
pledge instead of a legal duty." This provision was part of an arbitration agreement
calling for "two arbitrators" to be subjected to disputes. The issue arose as to
whether the parties would have any contractual intention upon signing the contract.
It was held that explicit words are important to demonstrate the intentions of the
parties. The Court held that this was the mutual intention of the parties to have an
enforceable agreement on the true construction of the agreement. In the case of
Esso Petroleum v Commissioners of Customs and Excise, Esso created a petrol sales
promotion system where he would receive a coin bearing the image of one of the
English football team members who participated in the 1970 World Cup competition
in Mexico for every four gallons of petrol that a motorist purchased. The issue, for
tax reasons, was whether Esso sold the petrol alone or the coins including the
petrol. The House of Lords, by a majority, held that while Esso was involved in
business and wanted to facilitate the selling of its gas, it did not actually conclude
that their dealers had no intention of entering into any legally binding contracts with
respect to the coins. The coins were, however, of no intrinsic worth. In this case, the
facts negated any contractual motive on the part of the consumer and on the part of
the dealer with respect to the coin and were adequate to refute any inference to the
opposite. In the case of Ford Motor Co Ltd v Amalgamated Union of Engineering and
Foundry Workers, the company and the multiple labour unions comprising its
employee members have reached agreements governing the relationship between
the company as well as the trade unions on the terms and conditions of employment
for employees. The question was whether such agreements were legitimate
contracts and were legally enforceable. Geoffrey Lane J, held that while the
agreements involved commercial relations, the language of the agreements, their
existence and the context on which they were negotiated demonstrated that the
parties did not wish to be legally binding contracts but that they must stay in the
domain of honorary binding undertakings. The agreements were primarily comprised
of ambitious expectations and would have generated significant realistic
enforcement problems.

LETTERS OF COMFORT
- issue whether such docs has legal effect.

In the case of Kleinwort Benson Ltd v Malaysia Mining Corp Bhd (MMC), the
plaintiff's bank, Kleinwort Benson, provided the defendant's subsidiary (MMC) with a
loan of £ 10 million. The defendant provided the plaintiff with two of the letter of
comfort claiming that it is their policy to guarantee that our subsidiary is in a solvent
position. Based on the letter of comfort, the bank took action against the parent co-
defendant until the borrower or affiliate became insolvent. The trial judge held that,
since it was a contractual arrangement, there was an attempt to develop legal ties
and there was little to contradict the assumption. The Court of Appeal considered,
however, the object of the letter of comfort and held that no intention existed. At
that point, the letter was held to be merely a statement of fact of the policy of the
defendant, and offered no future promise or guarantee that the policy would
proceed.

Malaysian case
In the case of North South Properties Sdn Bhd v David Teh Teik Lim & Anor, the letter
was in fact a letter of undertaking and therefore not simply a letter of comfort; thus,
it was binding. The letter was written as they were, the undersigned being the
Company's directors hereby giving them their joint and many undertakings to pay
them on or before 29th day of October the amount of $217,002.50 mentioned in
paragraph 2(two) of the said letter dated 7 May 1991. The Court of Appeal held that,
as a general rule, a letter of comfort is a declaration of moral obligation and is
therefore not meant to have any binding legal effect. However, whether a letter of
consolation is capable of giving rise to a legally binding commitment depends on the
parties' intentions and the conditions or circumstances under which it is issued.

MEMORANDUM OF UNDERSTANDING
The memorandum of understanding, usually referred to as a 'MOU', is a document
identical to a letter of comfort. It was held that the courts looked at the vocabulary,
content and terminology in the contract and clauses such as the substantive law and
jurisdiction clauses to determine the existence of an agreement to create legal
relations. In the case of Lim Hong Liang & Anor v Tan Kim Lan @ Tan Kim Lang &
Anor, as individual shareholders, the parties entered into an MOU in relation to the
power of those businesses. The MOU's opening paragraphs specified that the
Memorandum of Understanding herein lays out the understanding of the parties or
some of the informal matters to be complied with before the parties finalise the
terms and conditions of the formal agreements related to the transactions discussed
herein. The defendants contended that the MOU would not be a legally binding text,
and therefore there were no enforceable rights which the plaintiffs could assert. The
High Court ruled that the parties planned to make the MOU subject to a written
contract to be enforced by all parties after the terms and conditions were finalised.
The MOU remained a negotiating deal until that point. This was further confirmed by
the need to obtain approvals from some appropriate authorities which existed in
some of the MOU clauses. Taking into account the entirety of the terms and
conditions set out in the MOU, the Court held that the parties had no intention of
forming a contract which was legally binding.