A summary of Contract Law
The requirements of offer, acceptance and consideration may be regarded in themselves as indications of an intention to enter a legally binding contract. Some commentators have held the view that there is no need for a separate heading of intention.
Stone is of the opinion that the generally accepted view is that there are some agreements which may have all other characteristics of a contract, but which are nevertheless not to be regarded as legally binding. Stone goes further in asking that if the parties to an apparently binding commercial agreement specifically state that it is not to have legal consequences, should not the courts pay attention to this? He holds the opinion that English law operates on the basis of presumptions as to intention which differ according to whether the agreement is to be regarded as domestic or commercial. In order to understand the legal ramifications and rules within which the law operates, each form of agreement must now be considered.
The first form of agreement that is to be considered is that of a domestic agreement. Balfour v. Balfour is the leading case in this area and it purports to exclude social arrangements and it establishes that arrangements between husband and wife should not be considered because there is no intention to create legal relations. In this case, Atkin L. J. noted that even if there were consideration in such an arrangement, domestic arrangements of this type are clearly not intended by the parties to be legally binding. Atkin LJ stated that:
those arrangements, or many of them, do not result in contracts at all…even though there may be what as between other parties would constitute consideration for the agreement. They are not contracts because the parties did not intend that they should be attended by legal consequences
Treitel holds the view that the facts of Balfour v. Balfour have “stretched that doctrine to its limits” but that the doctrine itself has not be judicially questioned and the cases provide many other instances of application. The judgment in Balfour v. Balfour has been relied upon in subsequent case law and has been taken as establishing the position that in relation to domestic agreements there is a presumption that they are not legally binding.
Stone notes two points. He states that the first point is that the notion of the domestic agreement relates more to the subject matter than the relationship between the parties. Secondly, the rule is simply based on a presumption and it will be possible for that presumption to be rebutted.
At this point, several different suggestions need to be considered. Initial consideration of the establishing of legal relationships must take on an extrinsic format concerning the intentions of the protagonists. This means that the intention of the parties to make a legally binding contract will be seen as an objective test of the parties will. As noted by Atiyah there is a clear belief that one protagonist assumes there is a legally binding contract, otherwise there would be no requirement for them to come to court.
Resulting from this, it will therefore be necessary for the court to establish what form the extrinsic format will take. As this cannot be established through citing the intent of the other protagonist, as stated by Collins “we are forced to the conclusion that the courts must rely on hidden policy when determining the intent of the parties.”
If the agreement is not a domestic agreement it will be presumed that the agreement is a commercial agreement. Stone states that this will be mean that the presumption will be that the agreement is intended to be legally binding. In Edwards v. Skyways Megaw J. emphasised that there will be a heavy onus on a party to such an agreement who wishes to argue that the presumption has been rebutted. Treitel has the opinion that in deciding that whether the onus has been discharged, the courts will be influenced by the importance of the agreement to the parties and by the fact that one of them has acted in reliance on it. Treitel holds the view that contractual intention is not negatived merely by the fact that the parties were companies in the same group and that the terms of their agreement might not in practice be strictly enforced between them.
A similar reluctance to overturn the presumption is shown by the House of Lords decision in Esso Petroleum Ltd. v. Commissioners of Customs and Excise . In this case Esso supplied garages with tokens called “World Cup coins” instructing them to give one coin away with every four gallons of petrol sold. The scheme was advertised by Esso and also on posters displayed by the garages. By a majority of four to one, the House of Lords held that there was no sale of the coins but the majority was equally divided on the question whether there was any contract at all with regard to the coins. Those who thought that there was a contract relied on the incidence of the burden of proof, and on the point that “Esso envisaged a bargain of some sort between the garage proprietor and the motorist.” This point relates rather to the intention of Esso than to that of the alleged contracting parties. The Lords held that with regard to their intention it is submitted that the more realistic view is that contractual intention was negatived by the language of the advertisements and by the minimal value of the coins.
Stone does note that it is possible by using sufficiently explicit wording to rebut the presumption even in relation to a clearly commercial agreement. This was the case in Rose & Frank Co. v. Crompton Bros which concerned a continuing agency agreement between two companies. The agreement specifically stated that it was not entered into as ‘a formal or legal agreement’, but was ‘only a definite expression and record of the purpose and intention’ of the parties. The House of Lords held that this was not a legally binding agreement and could therefore be terminated without notice.
The final point of consideration is the status of letters of intention or where one party gives to the other a letter of comfort. The terms of such documents may negative contractual intention. This was considered to be the case in Kleinwort Benson v. Malaysian Mining Corporation in which a company had issued a letter of comfort to a lender in respect of a loan to one of its subsidiaries. The intention to create legal relations is becoming less clear as a result of this case.
The court’s attitude can be seen in the case of Baird v. Marks & Spencer in which the Court of Appeal upheld the decision that there had been no intention to create legal relations, despite the fact that Baird and Marks & Spencer had a relationship of thirty years’ standing. In the case Baird characterised its contract with M&S as ‘relational’. However, Mance L. J. disagreed.
The effect of this decision is to inject uncertainty into Baird’s relationship with Marks & Spencer, as it is now clear that they can expect no promises to be enforced in law under this type of agreement. As evidence suggests that modern contract agreements fall more into this model, the intention to create legal relations will exclude just as many commercial as social arrangements from the courts.
To conclude, in using these suggestions the courts appear to have rejected the ideas of adaptation on the basis of social doctrines, possibly on the basis of appearing not to be politically correct. Similarly they have rejected the idea of changing the premise to incorporate flexible commercial contracts, as in Baird. From this can be implied that the intention to create legal relations should not be rooted in previous ideology that contracts are unable to protect the current form of agreements, whether commercial or social. This has been demonstrated by research showing that resort to non-legal methods is being widely used as a method of enforcing contracts.
Tags: balfour, binding contract, intention to create legal relations, legal consequences, legal ramifications, presumptions
