Lecture # 5 Intention

Transcription

1 Lecture # 5 Intention By: Salik Aziz Vaince [ ] Introduction An agreement will only be legally binding if the parties intend it to be so. The courts assess the parties intentions objectively. As far as intent to be legally bound is concerned, contracts can be divided into domestic and social agreements on the one hand and commercial transactions on the other. Where an agreement falls into the domestic and social category, there is a rebuttable presumption that the parties do not intend to create legal relations. The reverse applies in commercial agreements, where it is presumed that the parties do intend such agreements to be legally binding. The intention of a party to willingly enter into a contractual agreement. If expressly denied the contract may not be enforceable. - Example: A exclaims give me 5 and said to B that you can take the car. A, pulls 5 from B s wallet and handed over the keys. Although the motions of forming a contract, no agreement exists as B had no contractual intent. As B never intended. Intention is a part of elements in contract. In fact look to a party s subjective intentions at all, but reflects a court s general policy to uphold agreements in the commercial sphere of life, and not to interfere within the private sphere. Merrritt v Merritt (1970) Facts: A husband left his wife and went to live with another woman. There was 180 left owing on the house which was jointly owned by the couple. The husband signed an agreement whereby he would pay the wife 40 per month to enable her to meet the mortgage payments and if she paid all the charges in connection with the mortgage until it was paid off he would transfer his share of the house to her. When the mortgage was fully paid she brought an action for a declaration that the house belonged to her. Held: The agreement was binding. The Court of Appeal distinguished the case of Balfour v Balfour on the grounds that the parties were separated. Where spouses have separated it is generally considered that they do intend to be bound by their agreements. The written agreement signed was further evidence of an intention to be bound. Jones v Padavatton (1969) Facts: A mother promised to pay her daughter $200 per month if she gave up her job in the US and went to London to study for the bar. The daughter was reluctant to do so at first as she had a well-paid job with the Indian embassy in Washington and was quite happy and settled, however, the mother persuaded her that it would be in her interest to do so. The mother's idea was that the daughter could then join her in Trinidad as a lawyer. This initial agreement wasn't working out as the daughter believed the $200 was US dollars whereas the mother meant Trinidad dollars which was about less VLC Publishers Page 1

2 than half what she was expecting. This meant the daughter could only afford to rent one room for her and her son to live in. The Mother then agreed to purchase a house for the daughter to live in. She purchased a large house so that the daughter could rent out other rooms and use the income as her maintenance. The daughter then married and did not complete her studies. The mother sought possession of the house. The question for the court was whether there existed a legally binding agreement between the mother and daughter or whether the agreement was merely a family agreement not intended to be binding. Held: The agreement was purely a domestic agreement which raises a presumption that the parties do not intend to be legally bound by the agreement. There was no evidence to rebut this presumption. In general, arrangements of a social nature are presumed not to be legally binding, while commercial arrangements are presumed to be intended as binding contracts. Of course, these presumptions can always be rebutted, in court by producing evidence to the contrary. The parties must intend the agreement to be legally binding. Court finds out what is in the parties minds? Court apply objective test and judge the situation by what was said and done. Intention to create legal relations Intention is part of elements in contract Legally binding Readiness of a party Concept of intention to be serious about agreement The contracting parties mind will be obvious to enter a serious contract If there is no intention to create legal relations the contract would not be enforceable legal and binding Without intention to create legal relations, the parties cannot sue each other. Without intention to create legal relations the contract may become a mere promise. Without intention to create legal relations the contract may lack the binding effect. Agreement subject to contract Use of these words on an agreement is usually (though not always) taken to mean that the parties do not intend to be legally bound until formal contracts are exchanged. If the parties subsequently act upon the agreement, their conduct may be interpreted as amounting to an intention to create the final contract. Confetti Records v Warner Music UK Ltd (2003) Facts: The Claimants owned the copyright in a track of garage music ( the track ). The Defendant wanted to use the track on a compilation album and after negotiations sent a fax to the Claimants containing deal terms, marked subject to contract. The Claimants faxed back a signed version of the terms, sent the Defendant a CD of the track, label copy for the track as cleared and an invoice. However, before the Defendant tendered payment and before any full contract had been entered into the Claimants informed the Defendant that they wanted to renegotiate terms and that the track was VLC Publishers Page 2

3 not to be used in the meantime. The Defendant s compilation album had by this time been recorded and manufactured. The Claimants issued proceedings and sought to restrain use of the track. The third Claimant, the originator of the track, also brought a claim for derogatory treatment of the work under s.80(2)(b) CDPA Issue: (1) Whether the fax constituted a contract; (2) Whether the Claimants had made an offer which the Defendant had accepted; (3) Whether the Defendant s addition of a rap to the track constituted derogatory treatment under s.80(2)(b) CDPA Held: (1) The use of subject to contract on the fax prevented it from constituting a contract. (2) The delivery of the track and invoice constituted an offer which the Defendant had accepted. The Defendant s use of the track was not therefore an infringement of the Claimants copyright. (3) To constitute derogatory treatment, the treatment of the work had to prejudice the author s honour or reputation. The meaning of the words of the rap could only be explained by expert evidence and had not been proved. No evidence of prejudice to the third Claimant s honour or reputation had been shown, so the claim for derogatory treatment failed. Comment: This case about rap music received much press coverage as, in the judge s words, it involved the faintly surreal experience of three gentlemen in horsehair wigs examining the meaning of such phrases as mish man and shizzle (or sizzle) my nizzle. Interestingly, there was a moral rights claim alleging derogatory treatment. It remains the case that moral rights actions are still relatively rare in the United Kingdom, unlike the civil law jurisdictions. There still remains a notable paucity of authority where moral rights claims have succeeded in the UK. Ambiguity Where the words of a business agreement are ambiguous, the courts will favor the interpretation which suggests that the parties did intend to create legal relations, and therefore find that there is a contract. Edwards v Skyways [1964] 1 WLR 349 Court of Appeal Facts: The claimant was an airline pilot working for the defendant. He was to be made redundant. The defendants said that if he withdrew his contributions to the company pension fund, they would pay him the equivalent of company contributions in an ex gratia payment. The claimant agreed to this and withdrew his contributions. The company then ran into further financial difficulty and went back on their promise relating to the ex gratia payment. Held: The agreement had been made in a business context which raised a strong presumption that the agreement is legally binding. The claimant could therefore enforce the agreement and was entitled to the money. Intention To Create Legal Relations As we all know, intention to create legal relations is part of elements in contract. Intention to create legal relations is defined as an intention to enter a legally binding agreement or contract. Intention to create legal relations is one of the necessary elements in formation of a contract. It is because; intention to create legal relations consists of readiness of a party to accept the legal sequences of having entered into an agreement. VLC Publishers Page 3

4 Intention to create legal relations is a motion of every contracting party must have the necessary intention to enter into a legally binding contract. Based on the case of studies, Mr John has an intention to create legal relations when he decided to do some window shopping at SOGO Shopping Complex last Sunday. There are a few concept of intention to create legal relations. Intention to create legal relations also means an intention to be serious about agreement significance: a) The contracting parties mind will be obvious to enter a serious contract When two parties decided to enter in the environment of a contract, their mind will understand the contents of the contracts. This is due to their intention' to be consenting mind which both of the parties have to agree. If there is no agreement by both of the parties, it may make the contact being a void agreement. Thus, both of the contracting parties will enable to be serious into the contract. b) If there is no intention to create legal relations the contract would not be enforceable, legal and binding Intention to create a legal relation is one of the essential elements of contract. So, if there is no intention to create a legal relation, the contract can be assumed as a not legal. Due to that, the contract may not being enforceable because there is no intention to create legal relations at the beginning which not making contracting parties to be legally binding. c) Without intention to create legal relations, the parties cannot sue each other With no intention to create legal relations, it may cause the contracting parties are not being legally binding and this circumstances may cause the contract is enforceable. Therefore, when the contract is enforceable, the contracting parties cannot sue each other and this will spoil their business crisis. This will make the contracting parties hard to enquire their justice. d) Without intention to create legal relations the contract may become a mere promise In addition, with no intention to create legal relations, it will make any contract to become a mere promise. Mere promises simply like a simple promise arise when there is no intention to create legal relations. Based on the case of studies, the situation of mere promises can be seen when Nathan, the Comfortable Furniture Sdn Bhd salesman have no intention to create legal relations. He did not accept cash deposit from Mr John to obey the company policy. When the mere promise occurs, the salesman still can sell the dining set to other people because they is no legal contract between Nathan and Mr john. e) Without intention to create legal relations the contract may lack the binding effect Besides that, when there is no intention to create legal relations, it will make the contract or agreement become less powerful due to whether one or both of the parties does not have a consent mind. So, if the contract lack of binding effect, it will cause the difficulty to the party involved in future. Domestic and social agreements of intention to create legal relations can be broken down into three groups which are firstly commercial or business relations, secondly social friend's relations and thirdly family or domestic relations. VLC Publishers Page 4

5 Definition definition of contractual intent: The intention of a party to willingly enter into a contractual agreement. contractual intent, as it might be used: The court held that there was no valid contractual offer because the defendant's mistake of fact negated his contractual intent. contractual intent, in an example: Fergus has been restoring a vintage Jaguar for about eighteen months. One day, after fruitlessly working to start the engine, Fergus visits his neighbor, Jack, who asks how the car is coming. Fergus exclaims, Give me five pounds and you can take the car. Jack, pulls a five from his wallet, hands it to Fergus and asks for the keys. Although the two went through the motions of forming a contract, no agreement exists as Fergus had no contractual intent. He never intended to sell the automobile for five pounds. How important is intention to create legal relations? In practice, it is rare for contract cases to involve problems with the requirement of intention to create legal relations. This is largely because in many of the situations in which the issue might be raised, particularly domestic and social ones, there is no consideration. The courts will only consider intent to create legal relations if offer and acceptance and consideration have already been established. The US academic, professor Williston, has suggested that in fact the common law does not demand any positive intention to create a legal obligation as an element of contract. In his view, the separate element of intention serves no purpose in our system, and is useful only in legal systems which do not have the test of consideration to help them to determine the boundaries of contract. He suggests that mere social agreements will be enforced as contracts if the other requirements offer and acceptance and consideration, for example are present, and the issues of intention to be legally bound adds nothing to the decision of the court. But the case of Balfour v Balfour is an example of offer, acceptance and consideration existing but still being no contract, and the only explanation for this lack of contract seems to be that there was no intention to be legally bound. Feminist argue that the presumption against contractual intention in domestic agreements is in fact the laws way of saying that the work usually done by women is not to be regarded as important it is seen as something done out of love for the family, rather than an economic contribution which ought to be paid for. Key definitions: Intention to create legal relations: the parties to a contract must intend the agreement to be legally binding. This is implied in commercial agreements, but presumed not to exist in social and domestic agreements. Commercial agreements: Where the law presumes that the parties wish to be bound by a contract. Usually the situation clearly implies this or the parties say or write this down in the form of a written contract. VLC Publishers Page 5

6 Domestic agreements: Where the law presumes the parties do not wish to be bound by a contract. Usually the situation clearly implies this such as family/friend agreements and a lack of any formal arrangements such as a written contract. Deed: a formal written and witnessed document that can be classed as a contract and an intention to create legal relations. The law will not enforce a contract if there is no intention to create legal relations. Everyone expects to have some legal rights should goods bought turn out to be defective or services ordered not provided. The law presumes that there is an intention that such contracts will be legally binding. These are in situations where the law presumes legal relations are required, known as commercial agreements. However it is equally clear that we do not expect our domestic arrangements to be legally binding, with the prospect of a court case in the event of failure. I do not expect my children to sue me if I am late in paying their pocket money, if a friend fails to turn up and give me a lift to a venue for an evening out in their car, I, again, will consider that I have no legal right to claim damages. In these situations the law presumes there is no intention to create legal relations. Important: The law allows both domestic and commercial presumptions over intention to create legal relations to be challenged (rebutted) by using evidence to show there was an intentions to create legal relations, in a case of a domestic agreement, or there wasn t an intention to create legal relations, in a commercial agreement. General division 1. Social and domestic agreements 2. Business/commercial agreements Social and Domestic agreements In term of general rules of social friend's relations, there is no presumption to be legally binding. Otherwise, in term of exception the presumption is rebuttable. Domestic agreements are those made between family or friends. In domestic agreements there is a general presumption that the parties did not intend to create legal relations. Simpkins V Pays in year 1955 The case shows mutuality. In this case.the defendant, her granddaughter and the plaintiff (paying lodger) regularly took part in newspaper competition. All contributed but entered in defendant's name. There is no set of arrangement that state payment of postage etc. When entry of the competition is successful, defendant refused to share with plaintiff. The plaintiff sued for his share. Court ruled legally binding relationship as sufficient mutuality in the arrangements between parties. Covers agreements between family members, friends and workmates. The law presumes that social agreements are not intended to be legally binding. Lens v Devonshire club (1914) The law presumes that social agreements are not intended to be legally binding. See, for example: VLC Publishers Page 6

7 It was held that the winner of a competition held by a golf club could not sue for his prize where "no one concerned with that competition ever intended that there should be any legal results flowing from the conditions posted and the acceptance by the competitor of those conditions". However, if it can be shown that the transaction had the opposite intention, the court may be prepared to rebut the presumption and to find the necessary intention for a contract. The cases show it is a difficult task to rebut such a presumption. If intention is opposite, the court may be prepared to rebut the presumption and to find the necessary intention for a contract. It is a difficult task to rebut. Agreements between a husband and wife living together as one household are presumed not to be intended to be legally binding, unless the agreement states to the contrary (opposite to the normal). Balfour v Balfour [1919] 2 KB 571 The husband brought wife to England from Sri Lanka. The husband had to return but wife stayed for medical reasons. He promised to pay her 30/month until his return. When he failed to pay, the wife sued the husband. Wife's action failed because there is no consideration moved from her and there is no intention to create legally binding agreement found. The court stated in husband and wife cases, burden of proof is on plaintiff to prove intention to create legally binding agreement. ISSUE: Was a verbal agreement between spouses legally enforceable? HELD: The agreement was not enforceable as there was intention to be legally bound. Atkin LJ:.. [Spousal agreements] are not contracts, and they are not contracts because the parties did not intend that they should be attended by legal consequences... Agreements such as these are outside the realm of contracts altogether. The common law does not regulate the form of agreements between spouses... The consideration that really obtains for them is that natural love and affection which counts for so little in these cold Courts... Policy reasons for the presumption also exist, as Atkin LJ noted:.. the small courts of this country would have to be multiplied one hundredfold if these arrangements were held to result in legal obligations... However, the presumption is rebuttable. The court will not enforce agreements between spouses that involve daily life. Agreements between husband and wife over matters that affect their daily lives are not subject to contractual interpretation, even when consideration is present. Spouses normally intend that the terms of their agreements can be varied as situations develop. The court held that it was presumed that the parties made the agreement as husband and wife and did not intend that it could be sued upon. The court held that as a matter of public policy it could not resolve disputes between spouses. Disposition: Judgment for plaintiff Mrs. Balfour reversed. Note: Contracts related to the social aspect of marriage will not be enforced by the courts. Contracts between spouses related to business relationships can be enforced, however. Courts are willing to support negotiated divorce settlements and written statements of support. The presumption against a contractual intention will not apply where the spouses are not living together in amity at the time of the agreement. If a social agreement will have serious consequences for the parties, this may rebut the presumption. VLC Publishers Page 7

8 Tanner v Tanner (1975) Facts: Mr. Tanner, milkman by day and a croupier by night, got involved with Miss Macdermott while still married, she had two twins in 1969 and changed her name to Mrs. Tanner, though he never married her. She moved in with him in 1970, giving up her rent controlled tenancy hoping she would remain there till the twins left school. Mr. Tanner did divorce his first wife, but then married another woman, and offered Mrs. Tanner 4000 to leave, and maintenance that he had not previously paid. She refused. He brought an action to remove her, and succeeded at first instance. She left, and went to a council flat, but appealed, arguing that he was under a contractual duty to allow her to remain until the twins left school, although she merely claimed damages. Held: Lord Denning MR held that the licence could not be terminated, so that Miss Macdermott was entitled to remain in the house. He said as follows. There was, it is true, no express contract to that effect, but the circumstances are such that the court should imply a contract by him whereby they were entitled to have the use of the house as their home until the girls had finished school. It may be that if circumstances changed - so that the accommodation was not reasonably required - the licence might determinable. But it was not determinable in the circumstances in which he sought to determine it, namely to turn her out with the children and to bring in his new wife with her family. It was a contractual licence of the kind which is specifically enforceable on her behalf, and which he can be restrained from breaking, and he could not sell the house over her head so as to get her out in that way. It seems that agreements of a domestic nature between parent and child are likewise presumed not to be intended to be binding. Where the parties to the agreement share a household but are not related, the court will examine all the circumstances. MERRITT V MERRITT [1970] 1 WLR 1211 FACTS: The defendant agreed to pay the plaintiff, his ex-wife, 40 per month if she paid the mortgage owing on their family home. The plaintiff agreed provided that the defendant signed a document stating that, in consideration of her paying the debt, the house would be transferred into her sole ownership. ISSUE: Was there a legally binding agreement between the parties? HELD: It was a formal agreement which the parties clearly intended to be legally binding. Denning LJ:.. It is altogether different when the parties are not living in amity but are separated, or about to separate. They then bargain keenly. They do not rely on honourable understandings. They want everything cut and dried. It may safely be presumed that they intend to create legal relations... The onus for rebutting the presumption is not heavy and factors such as whether the parties are dealing with one another at arms' length or in circumstances involving large sums of money are taken into account. SIMPKINS V PAYS [1955] 1 WLR 975 FACTS: The defendant, her granddaughter and the plaintiff, her lodger, all lived together and entered a weekly newspaper competition. The entry coupon was sent in the defendant's name each week but VLC Publishers Page 8

9 there was no fixed arrangement as to who paid the entry fee and postage cost. They agreed that any winnings would be shared between all three parties. The defendant received 250 in prize money but refused to share it. The plaintiff sued for one third of the winnings. ISSUE: Was the agreement legally enforceable? HELD: There was an enforceable agreement as there was a clear understanding of what would happen if the entry won and the plaintiff was entitled to a third of the winnings. Sellers J found that there was: mutuality in the arrangement between the parties... Business/commercial agreements In term of general rules of commercial or business relations, there is a presumption or intention to be legally binding. Otherwise in term of exception the presumption is rebuttable. Kleinwort Benson Ltd V Malaysia Mining Corporation Bhd in year 1989 The case shows the letters of comfort. In this case, the plaintiff (bank) agreed loan to MMC Metals, subsidiary of MMC. The bank asked MMC to guarantee loan. MMC said not policy to guarantee loans to subsides offered letter of comfort stating: "It is our policy to ensure that the business of MMC (Metals) is at all times in a position to meet its liabilities under the arrangements. The bank accepted but charged higher rate of interest and the market collapsed and MMC went into liquidation. The plaintiffs tried to claim balance from MMC. First instance the court found in favour of plaintiff, relying heavily on Skyways (1964) ruling overturned on appeal and the judge said Skyways case not was about promise supported by consideration so not applicable here. Hence, ruled no intention to create legally binding agreement statement was not meant to act as guarantee, stating on current position, not future intention. The general principle is that an intention to create legal relations is presumed in commercial agreements. This can be rebutted by the words used in the agreement. The agreement must be quite clear as to the nature and effect of this restriction and the courts are very strict in interpreting these agreements. A clear express statement excluding legal intention can be seen to have been effective in two situations: A football coupon: A sale of a house subject to contract: This is reflecting the situation that an agreement has been reached between the owner of the house and the prospective purchaser; but that a written contract has not yet been completed. The delay may occur while the purchaser checks financial and other details. A contract to sell land, and therefore a house, has to be evidenced in writing to be legally valid under the Law of Property Act The idea of sold, subject to contract' is common practice in such transactions but can still lead to unpleasant disputes where a house seller ignores the agreement and then sells to another person for more money. Commercial agreements Agreements which are not deemed to be domestic are commercial. In these situations, the general presumption is that the parties intended the agreement to be legally binding. It is more difficult to rebut the presumption in commercial arrangements compared to domestic arrangements. VLC Publishers Page 9

10 EDWARDS V SKYWAYS [1964] 1 WLR 349 FACTS: The plaintiff, a pilot, was made redundant by the defendant. The plaintiff was offered and accepted an ex-gratia payment as part of his redundancy arrangements. The defendant refused to pay. ISSUE: Did the term ex-gratia imply that the defendant did not intend to be legally bound? HELD: There was a presumption that the parties intended it to be legally binding and the words exgratia merely meant that the defendant did not admit any pre-existing liability to make the payment. The defendant had not rebutted the presumption. ESSO PETROLEUM LTD V COMMISSIONERS OF CUSTOMS & EXCISE [1976] 1 WLR 1 FACTS: The defendants, Esso, ran a promotion involving World Cup coins, advertised by posters stating: We are giving you a coin with every four gallons of Esso petrol you buy. The plaintiffs claimed that the coins were subject to purchase tax because the coins had been produced in quantity for general sale. The plaintiffs were claiming that the defendant was liable to pay The defendant argued that the coins were a free gift and the promotion was not intended to have legal effect and therefore there was no tax liability. ISSUE: Was there an intention to create legal relations? HELD: The majority of the House of Lords found that the deal was a commercial transaction and therefore that was an intention to create legal relations. The majority found that the posters were an offer of a unilateral contract and the required acceptance and consideration were met on the purchase of four gallons of petrol. Lord Simon of Glaisdale (majority):.. Esso and the garage owners put the material out for their commercial advantage, and designed it to attract the custom of motorists. The whole transaction took place in a setting of business relations... The coins may have been themselves of little intrinsic value; but all the evidence suggests that Esso contemplated that they would be attractive to motorists and that there would be a large commercial advantage to themselves from the scheme, an advantage in which the garage proprietors would share... Lord Russell (dissenting) argued that the World Cup coins, despite having a commercial element, were more of a gift than a sale:.. benevolence is not a necessary feature of a gift, which may well be motivated by self-interest... It seems the minimal value of the coins were important in his reasoning. Viscount Dilhorne (dissenting):.. True it is that Esso are engaged in business. True it is that they hope to promote the sale of their petrol, but it does not seem to me necessarily to follow or to be inferred that there was any intention on their part that their dealers should enter into legally binding contracts with regard to the coins; or any intention on the part of the dealers to enter into any such contract or any intention on the part of the purchaser of four gallons of petrol to do so... Parties to a commercial transaction may expressly rebut the presumption that there is an intention to be bound. In business agreements the presumption is that the parties intend to create legal relations and make a contract. This presumption can be rebutted by the inclusion of an express statement to that effect in the agreement. VLC Publishers Page 10

11 ROSE & FRANK CO V CROMPTON BROS [1923] 2 KB 261 FACTS: The plaintiff supplied the defendant with tissues used for carbonising paper. There was a written arrangement that the plaintiff would be the sole supplier. However, the agreement also contained an honourable pledge clause which stated: This arrangement is not entered into, nor is this memorandum written, as a formal legal agreement and shall not be subject to legal jurisdiction in the Law Courts... but is only a definite expression and record of the purpose and intention of the... parties to which they each honourably pledge themselves... ISSUE: Could the clause rebut the presumption to create legal relations? HELD: The clause was capable of expressly rebutting the presumption. Atkin LJ:.. To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly. Such an intention ordinarily will be inferred when parties enter into an agreement which in other respects conforms to the rules of law as to the formation of contracts. It may be negatived impliedly by the nature of the agreed promise or promises, as in the case of offer and acceptance of hospitality, or of some agreements made in the course of family life between members of a family as in Balfour v Balfour. If the intention may be negatived impliedly it may be negatived expressly. In this document, construed as a whole, I find myself driven to the conclusion that the clause in question expresses in clear terms the mutual intention of the parties not to enter into legal obligations in respect to the matters upon which they are recording their agreement. I have never seen such a clause before, but I see nothing necessarily absurd in business men seeking to regulate their business relations by mutual promises which fall short of legal obligations, and rest on obligations of either honour or self-interest, or perhaps both... Contractual intention may be negatived by evidence that the agreement was a goodwill agreement made without any intention of creating legal relations. If a clause is put in an agreement and the clause is ambiguous then the courts will intervene and interpret it. Contractual intention may be negatived by the vagueness of a statement or promise. JH Milner v Percy Bilton (1966) A property developer reached an "understanding" with a firm of solicitors to employ them in connection with a proposed development, but neither side entered into a definite commitment. The use of deliberately vague language was held to negative contractual intention. There are situations where it would appear at first sight that the parties had entered into a commercial agreement, but nevertheless, a contract is not created. Letters of intent: This is a device by which one person indicates to another that he is likely to place a contract with him, but is not yet ready to be bound. A typical example of a situation where a letter of intent might be provided is where a main contractor is preparing a tender and he plans to sub-contract some of the work. Where the language of such a letter does not negative contractual intention, the court can hold the parties to be bound by the document. VLC Publishers Page 11

12 Turriff construction v Regalia knitting Mills (1971) Facts: Turriff tendered for a design and build contract for a mill in Corby an at a meeting with Regalia informed that it was intended to award it the contract. Under pressure of time Turriff started to prepared detailed plans and to brief specialist contractors, while Regalia set about to finding finance arranging planning permission and purchasing the land. Turriff wanted some assurance that it would be paid for the preparatory work and asked to be sent a letter covering this. Regalia replied with a letter of intent stating that the contract would commenced on August 1st, the whole to be subject to agreement on an acceptable contract. In reliance, Turriff continued with its work until the Regalia were taken over and the project was abandoned. No formal agreement was ever made. Held: (1) The plaintiff had offered to carryout work with urgency required by the defendants if the defendants assumed liability for the work done and it was part of their offer that it might be accepted by the receipt of a letter of intent. (2)A letter of intent was sent thereafter and there was nothing in it which negatived the apparent acceptance of the plaintiff offer and accordingly and ancillary (Furnishing added support) contract came into existence. (3)Turriff was entitled to recover for the preparatory work. Letter of intent held to be a collateral contract for preliminary work. Collective bargaining agreements This is an agreement between a trade union and an employer regulating rates of pay and conditions of work. Such agreements are not intended to be legally enforceable unless they are written and expressly affirm that they are to be binding. [US/179 of Trade Union & Labor Relations Act 1992] There is one exception to the rule that the parties to a commercial agreement are presumed to intend to be legally bound. Under a collective bargaining agreement, an employer negotiates pay and conditions with the workforce as a whole (usually represented by a trade union), rather than on an individual basis. Such agreements are binding in most countries but it was held that in English Law such an agreement was not intended to be legally binding. Agreements with Govt. Normally commercial agreements with Govt. are likely to intend to be legally binding. Just as is the case for other types of commercial agreements. How to approach an offer and acceptance problem All offer and acceptance problems require the same logical approach: 1. Identify the sequence of events and list them in chronological order. 2. Identify each event as an invitation to treat, offer, counter-offer, revocation of offer, acceptance, etc., as appropriate. 3. State the reasons why you identified the event as you did using decided cases to back up your argument. 4. Identify when the offer opens and when it ends. 5. Identify whether there is an acceptance within that period. VLC Publishers Page 12

13 6. Identify if there is an intention to create legal relations (if so, there is a contract). 7. Come to a conclusion. Conclusion The doctrine of intention to create legal relations to create legal relations has not lacked its critics. Some, such as Professor Freeman, are critical of the way in which it has been used to deny legal effect to agreements made in a family context. Others points out that the doctrine rests on a fiction in that the parties to the alleged agreements frequently have no discernible intention one way or the other.. But it is assumed that it is a necessary part of contract. In the case of Albert v Motor Insurers Bureau, it was stated by the Upjohn LJ- The hazards of everyday life, such as temporary indisposition, the incidence of holidays, the possibility of a change of shift or different hours of overtime, or incompatibility arising, make it most unlikely that either contemplated that the one was legally bound to carry and the other to be carried to work. "An agreement, even though it is supported by consideration, is not binding as a contract if it is made without any intention of creating legal relations. Of course, in the case of ordinary commercial transactions, it is not normally necessary to prove that the parties in fact intended to create legal relations. Ultimately we should assume that the intention to create legal relation is an essential requirement of contract. At the first instance it may have some similarities with consideration but there may be so many cases when both these elements are different. As like, it two friends decided to go to a restaurant, and one of them promises to pay for the drink and the other for the food then we cannot say that there is no consideration but still there is no intention to create legal relations, and if anyone of them sue the other for breach of contract then the action should fail. Class activity What is an intention to create legal relations? Teacher led introduction dealing with basic principles and the relationship between policy, presumption and rebuttals. Why is it necessary? Research task using the website opposite make summaries of the leading cases on intention to create legal relations. Discussion why is an intention to create legal relations such an important area in the law of contract? What happens in social and domestic situations? Research task analyse the reasoning in Balfour v Balfour (1919) to illustrate the presumption in domestic cases. What happens in commercial situations? Research task analyse the reasons given in Esso v CCE (1976) to illustrate the presumption in commercial cases. Discussion compare the majority and minority reasoning in Esso to assess which is the most convincing. Revision task make a mind map to distinguish between domestic and commercial situations link to decided cases to reinforce learning. VLC Publishers Page 13

14 Revision task listen to the lecture on the website opposite. Make your own notes and then create revision flashcards for this topic. Essay Is the doctrine of intention to create legal relations based on considerations of policy or does the court genuinely seek to discover the intention of the parties? Exam questions both essay and hypothetical problem/case study questions can help learners to develop their skills. Questions from past papers Q1. In the view of the American academic, Professor Williston, the contractual requirement that there should be an intention to create legal relations is superfluous because English Law has the test of consideration to determine the boundaries of contract. Discuss this view. [October/November 2004] Q2. Of the requirements for a binding contract (agreement, consideration and intention), intention to create legal relations is the most recently developed and the least practically important. Using decided case law in support of your conclusions, critically assess this statement. [October/November 2005] Q3. The intention to create legal relations is the least important of the elements of valid contracts. Critically assess this statement, using decided case law to support your conclusions. [May/June 2011] Q4. The requirement of intention to create legal relations seldom gives rise to problems in contract cases. Explain why the requirement exists and assess the extent to which the above statement is true. [October/November 2011] VLC Publishers Page 14