Therefore in the case of social agreements the intention to create legal relations is usually disregarded on the basis of previous assumptions, because at the point when the ‘agreement’ was formed there was no indication that the arrangement was intended to be a contract. A couple of exceptions are where the family circumstances have changed drastically for the worse since when the contract was formed, in which case intention to create legal relations usually stands. For example, in Merritt v Merritt the wife’s action was rebutted, because in comparison to Balfour v Balfour, the parties had already separated and were on bad marital terms.
In commercial agreements the presumption is that there is an intention to create legal relations, in which case strong evidence will have to be given to prove otherwise. Yet courts are wary in such cases, due to business men attempting to escape a contract which is no longer profitable to them.
Given that the parties’ intentions were different in Collins statement how will the court establish a doctrine to determine the true intentions of the parties?
Determining the Intentions of the Parties
Firstly, when evidence, other than that included in the written terms of the agreement, such as parol evidence, is given to prove that there was no intention to create legal relations, it is not taken into consideration by the courts. The parol evidence rule states that any terms, once made and agreed upon by the parties, cannot be argued as to what they are or imply even if new evidence is introduced, thus preventing the introduction of new evidence that will attempt to change the terms of the contract.
Secondly, the intention of the parties is interpreted objectively, wherein the court regards the subject as an outsider -that of the reasonable man- and decides whether the offer was one which was intended to create legal relations. The court is not interested in what the parties believe subjectively, even though elements of the parties individual subjective intents most probably caused the parties intentions to differ originally, but rather the court decides on the matter based on the objectivity of the parties, and in addition takes into account the importance of the agreement made between the parties, and whether one party has already performed his side of the agreement, as seen in Simpkins v Pays.
However in situations where an objective approach does not help solve the actual intentions of the parties and thus the meaning of the contract, the courts use as a basis different rules of interpretation according to the nature of the contract at hand.
Was the Agreement Legal or Merely Morally Binding?
As mentioned earlier a contract is not legally binding unless it has an offer, an acceptance, a consideration and intent to create legal relations. Nevertheless, only with the presence of the latter two can a mere agreement become a legally binding contract. A social or domestic agreement is usually not legally binding as it only consists of an offer and acceptance, whilst in a business agreement there is also an intention to create legal relations.
Thus it seems apparent that if the intentions of both parties in a legally binding contract, contrasted, so that an intention to create legal relations is uncertain, the courts would have to take into consideration hidden policy considerations so as to ascertain the obligations of either party individually, and the importance of it as a whole to finally come to a conclusion on the actual intentions of the parties.
A consideration is a requirement which enables an agreement to be a bargain irrelevant of whether that bargain is fair or not, and allows for the obligation to be enforced once the promisee has given something in exchange for that promise.
By relying on hidden policy considerations the court can put some legal limits on the enforceability of the contract, where the joint intent of the parties is uncertain.
Conclusion
In Conclusion, a legal and binding contract must have an intention to create legal relations otherwise the parties cannot be held to by the terms that they have agreed to. And although an intention is established on facts and can be backed by evidence, in cases where this evidence is insufficient or uncertain, the courts look to hidden policy consideration –the second important factor which can convert a mere agreement into a legally binding contract. Policy considerations also give the courts a possibility of justifying the limits of contracts, where they were previously unknown due to the contradictions in the intents of the parties, and enforcing any obligations made on behalf of the parties.
The doctrine to create legal relations plays an important role in social and domestic agreements whereby it is presumed that parties do not intend to create legal relations, and therefore require evidence to prove otherwise. These cases usually do not hold, on the basis that there was not an indication in the agreement that there was an intention to create legal obligations. Whilst in commercial agreements it is taken that legal relations were intended to be created, and so the contract is already legally binding, and thus harder to prove that the parties did not intend to create legal relations.
Parol evidence is not considered adequate enough to change what the terms of the contract were or imply, once they have been agreed upon. Therefore courts take an objective approach in interpreting the intentions of the parties, and avoid looking at it from the point of view of what each party believed them to be, but rather if a reasonable man looking at the terms of the contract as an outsider would believe them to suggest legal relations were intended.
Another aspect the courts study in order to come to a conclusion is the importance and nature of the agreement and whether either party has already fulfilled their obligations. However this is only taken when sufficient evidence cannot be mustered from the other determining factors.
Table of Cases
Balfour v Balfour (1919) 2 KB 571
Merritt v Merritt (1970) 1WCR 1211
Simpkins v Pays (1955) 3 All ER 10
Bibliography
Mc Kendrick, E (2005) Contract Law: Text, Cases and Material, 2nd ed., Oxford University Press.
Mc Kendrick, E (2005) Contract Law: Text, Cases and Material, 2nd ed., Oxford University Press.
As mentioned in the lecture