However, intention to create legal relations is an essential feature of contract law in the UK, and the existence of the intention will depend on the nature and form of the contract and the contracting parties.
Here, the law will not necessarily recognise the existence of a contract as enforceable in the courts of law simply because of the presence of mutual promises or consideration. It is necessary to establish also that both parties made the agreement with the intention to create legal relations so that if the agreement is brocken the party offended will be able to exercise legally enforceable remedies. Often, the intention to create legal relations is expressly stated by the contracting parties. In other situations, the law will readily imply the intention, because of the nature of the commercial dealings between the parties.
Intention
To offer a friend a meal may look like an offer and may be capable of acceptance but we would not expect the courts to enforce this agreement. Mere agreements do not create contracts. Even if we add in the ingredient of consideration this does not cook up a legally binding contract. On the other hand, we expect agreements with companies to be enforced. It is understood that we need to demonstrate the following contractual elements: An agreement with an offer and an acceptance, Consideration and Intention
Criticism of Intention
Oddly, this third factor is capable of being criticised because it can be seen as unnecessary given that there is consideration. Williston:
“The common law does not require any positive intention to create a legal obligation as an element of contract … A deliberate promise seriously made is enforced irrespective of the promisor’s views regarding his legal obligation.”
Of course, consideration in itself does not prove an intention to create legal relations, e.g., two people may go have a meal with one agreeing to buy the food if the other agrees to buy the drink. This has all the elements but lacks an intention to be legally bound. Thus intention must be proved, whatever Williston suggest and often comes down to whether: The parties subjectively so intended.
A reasonable person would objectively assume such an intention from the nature of the relationship.
There are two classes of agreement where a person may deny a legal intention:
- Domestic agreements, assumed to not be so intended.
- Commercial agreements, assumed to be so intended.
Ultimately, the difference between these comes down to the assumptions that the courts make regarding what will be intended. This often comes down to language.
Domestic Agreements
This concerns contracts involving social, family or other domestic agreements. The assumptions is that the parties are not intended to be bound unless it can be demonstrated: that some degree of distance between the parties, autonomy, that clear expression and performance of the terms of the agreement, Preferably, a written document of appropriate language and completeness do exists.
An example of domestic agreement is an agreements between husband and wife.
The assumption here is that there is no such intention. But there are exceptions and the true meaning and intention will depend on the context where there may be found such an intention. All that is being said is that if the evidence of intention is so strong then the courts will depart from the assumption.
In many domestic agreements, for example those made between husbands and wives and parents and children, there is no intention to create legal relations and no intention that the agreement should be subject to litigation .Balfour vs Balfour (1919) A husband returned to Ceylon to take up his employment and promised his wife who could not return with him due to healthy problems, that he would pay her $30 per month a maintenance. When the marriage later ended in divorce the wife sued for the promise maintenance. It was held that the paties had not intended the original promise to be binding in law and therefore it was not legally enforceable.
The intention to create legal relations in family and social relationships is only a presumption an as with all presumptions, it may be rebutted with actual facts and circumstances of the particular case. Thus in merit v Merritt (1970) after the husband left the matrimonial home he met the wife and promised to pay her $40 per month from which she undertook to pay the outstanding mortgage on their house. The husband at the wife’s insistence signed a note agreeing to transfer the house in the wifes sole name when the mortgage had been paid off. However when the wife eventually paid off the mortgage the husband refused to complete the transfer of the house. Inspite of the fact that the agreement had been entered into while the couple were still married and could be seen to be similar to balfor v Balfor the court held that the agreement was enforceable . In the circumstance the parties had to enter into a legally enforceable agreement and the usual presumption was rebutted.
While there are conflicting legal authorities on whether specific facts involving family relations result in binding and enforceable agreements, (Merritt v Merritt 1970) it seems settled that in domestic agreements there is a rebuttable presumption that the parties do not have intention to create legal relations.
Agreements between Parent and Child
Jones v Padavatton, 1969-Mrs Jones lived in Trinidad. Her daughter’s marriage had failed so Mrs Jones suggested that she go to London and become a barrister. She offered her an allowance. Mrs Jones bought a house and she moved in. They quarrelled and Mrs Jones claimed possession of the house. There was consideration but no written agreement – the daughter had started the course. It was decided that Mrs Jones could claim for the house because there was no real intention that would rebut the presumption. Other opinion was that the agreement had a limited life span and that after five years and little progress by the daughter, it lapsed and thus the allowance could be stopped. The house had the added complication of being vague and uncertain and thus could not amount to an intention for Mrs Jones to renounce her rights to dispose as she felt. She was a mere licensee.
The courts decided here on the two separate agreements, the allowance and the house. The allowance had lapsed quite reasonably and the house was too vague to amount to an agreement to be legally binding because the time factor was indeterminate.
COMMERCILA AGREEMENTS
Commercial agreements differ from domestic and social agreements in that the presumption operates the other way. It is here that there is a very strong presumption that there is an intention to create legal relations. For anyone to come along after they have made an ordinary commercial contract and argue that there was no intention to create legal relations would be wasting their time. For such an argument to succeed there must be a very clear and explicit statement. One way in which this can happen is if parties who are negotiating for a contract want to make absolutely sure that their negotiations do not inadvertently become a contract. We looked at this issue earlier when we examined. In the case of commercial transactions the courts presume that the parties did intend to create legal relations and the presumption is not an easy one to displace. The strength of the presumption is such that the issue rarely arises in commercial litigation. One case in which it did arise, and which produced a division of judicial opinion, is the decision of the House of Lords in Esso Petroleum Ltd v. Commissioners of Customs and Excise, (1976)
Esso Petroleum v Customs and Excise (1976)
The case of World Cup Coins
Esso had a marketing campaign based on 1970 World Cup whereby customers could collect sets of coins ‘ a coin for every four gallons’. The Customs commision wanted to charge tax on these coins. It all depended on what happened at the pumps. Esso argued that the advertisements were not intended to create legal relations. They were not bound to issue to the customers and that they were therefore not of any intrinsic value, they were just gifts and no more.
It was held that, Esso are engaged in business, and are supplying these coins in order to promote the sale of their petrol. But it does not necessarily follow that there was any intention on their part they should enter legally binding contracts with respect to the coins. Nor is there any reason to impute to the motorist an intention to enter into a legally binding contract for the supply of a coin.
If it were found that Esso, the dealer, and the customer intended to create a contract, it would seem to preclude the possibility of any dealer ever offering a free gift, however negligible the value. A common intention to enter legal relations would be found more easily if the item were something of value to the purchaser. But here the coins were of little intrinsic value. If there were any contract relating to the coins, the consideration for it would be not the payment of money, but the entry into a contract to buy petrol.
Edwards v Skyways Ltd
The airline company promised to make an "ex gratia" payment to its redundant airline pilots. This followed on from an industrial dispute in which BALPA, the pilots' union, represented the pilots. The payment was described as "approximating to the company's contributions for each member of the pension and superannuation fund." Having made this promise, Skyways then decided not to make a payment to the pilots.
The issue was whether the promise to make the ex gratia payment was a legally binding promise. It was conceded that there was a consideration for the promise. What was it?
The argument used by Skyways was that there was no intention to create legal relations because of the words "ex gratia". There was also an argument that the payment was supposed to be a non-contractual payment because it was intended that there would be no tax payable by the pilots when they received it from time to time that parties who are in the process of negotiating for a contract use various types of documents, such as memoranda of understandings, heads of agreements, letters of intent. The general position is that these types of documents are not contracts, though in a particular case it may be that the surrounding circumstances indicate that such a document is intended to create a contractual relationship.
For example, a letter of comfort in the Clayton’s case (1816). A letter of comfort is a Clayton's guarantee. It can be used in a variety of situations but a typical situation is where a bank is seeking a guarantee from a parent company to support a loan made to a subsidiary company. The bank asks for a guarantee but the parent company refuses to give one. The bank may be content to be given a letter of comfort instead. This letter usually says things like the parent company stands behind its subsidiary and it is the policy of the parent company to ensure that its subsidiary can at all times meet its obligations.
The issue which arises with a letter of comfort as with all documents of this kind is whether it has any legal effect. Basically, the answer is no. After all, it is not a guarantee. And, indeed, there have been a number of cases where the courts have decided just that. For example, the English Court of Appeal decision in the Kleinwort Benson v Lincoln city council (1998) case, where the court of appeal ruled that money paid under a contract which was ultra vires or beyond the legal powers of the council was nevertheless recoverable by the claimant who had made the payment.
It has been decided in the UK, that so called "Letters of Comfort", which express a parties intention on business dealings can amount to an intention to create legal relations and so bind a party in contract, but that it will depend on the nature of the specific wording used.
Agreements between companies and trade unions have also raised the question of the intention to create legal relations. Collective agreements are generally not intended to be legally binding. It has been held that specific provisions of collective agreements can be incorporated into individual contracts of employment and thus legally binding.
The intention to create legal relations is an essential feature of contract law in the UK, and the existence of the intention will depend on the nature and form of the contract and the contracting parties.
6. Conclusions
The discussion on the subject of ‘intention’ as one of the important ingredient of a valid contract is well debated by not only scholars but also courts. The paper has at- tempted to unfold the various aspects spinning around that discussion. The paper strongly argues for abandon- ing the requirement of proving ‘intention to create legal relations’ in case of countries that requires the existence of ‘consideration’ for forming a valid and enforceable contract. Therefore, in case of common law countries, where consideration is one of essentials of a valid con- tract, the requirement of proving ‘intention to create legal relations’ should not be pressed upon. The consideration in itself can be taken as a proof strong enough to indicate the presence of intention of forming a legally binding contract. Professor Williston pointed out this proposition stating that the common law does not require any po-
Copyright © 2011 SciRes. BLR ‘Intention to Create Legal Relations’: A Contractual Necessity or An Illusory Concept Copyright © 2011 SciRes. BLR 133
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, Anson`s Law Of Contract (28th ednOxford, Delhi)
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http://netk.net.au/Contract/05Intention.asp
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