Intention to be legally bound

Intention to be legally bound, otherwise "intention to create legal relations" (animus contrahendi or obligandi), is a technical term used in contract law, particularly English contract law, to denote whether a court should presume that parties to an agreement wish it to be enforceable at law.

Classical usage

The concept is closely related to the "will theory" of contracts as espoused by German jurist Friedrich Carl von Savigny in his nineteenth century work System des heutigen Römischen Rechts (1840).[1] It had been a prominent concept through the nineteenth century that contracts were based on a meeting of minds between two or more parties, and that their mutual consent to a bargain, or their intention to contract, were paramount. While it is generally true that courts wish to uphold the parties' intentions,[2] courts moved in the later half of the nineteenth century to a more objective stance for interpretation,[3] whereby the emphasis moved to the way in which the parties had manifested their consent to a bargain to the outside world. Given this change, it was still said that "intention to be legally bound" was a necessary element for a contract, but it came to reflect a policy about when to enforce agreements, and when not to.

A contract is a legally binding agreement. Once an offer has been accepted, there is an agreement, but not necessarily a contract; and the element that converts any agreement into a true contract is “intention to create legal relations”. There must be evidence that the parties to the agreement intended that it should be governed by, and subject to, the law of contract; so that the agreement gives rise to legal consequences. In a contract, each party accepts a legal obligation, and each may seek a remedy in the event of breach.

There are two judicial devices assist a court to decide whether there is intent: the Objective Test, & the Rebuttable Presumption.

The objective test

Counterintuitively, the best way of discovering whether the parties intended to contract is NOT to ask them, as this “subjective test” would give the rogue an easy loophole to escape liability. (He would reply, "No!"). Instead, just as in Carlill v Carbolic Smoke Ball Company [1893],[4] the court applies the “objective test” and asks whether the reasonable bystander, after taking into account all the circumstances of the case, thinks that the parties intended to be bound. Since the advertisement stated that the company had "deposited £1,000 in the Alliance Bank to show sincerity in the matter", the court held that any objective bystander who read this would presume an intention to contract.

The rebuttable presumption

The rebuttable presumption establishes a burden of proof; but the burden may be rebutted the presumption by evidence to the contrary. The civil standard of proof is “a balance of probabilities”, while the criminal standard of proof is “beyond reasonable doubt”. Here, different presumptions will apply, according to the class of agreement. For these purposes, there are four classes:

Family agreements

Family agreements are presumed NOT to give rise to legal relations, unless there is clear evidence to the contrary. In 1919, Lord Atkin held in Balfour v Balfour[5] (where a husband promised his wife to pay maintenance while he worked in Ceylon) that there was no "intention to be legally bound", even though the wife was relying upon the payments. In a more modern case, Jones v Padavatton [1969],[6] the court applied Balfour v Balfour and declared that a mother's promise to allow her daughter the use of a house was not an enforceable contract.

But if there is clear intent to be contractually bound, the presumption is rebutted. In Merritt v Merritt [1970],[7] a separation agreement between estranged spouses was enforceable. In Beswick v Beswick [1967] [8] an uncle's agreement to sell a coal delivery business to his nephew was enforceable. In Errington v Errington [1952], a father's promise to his son and daughter-in-law that they could live in (and ultimately own) a house if they paid off the balance of the mortgage, was an enforceable unilateral contract.

Social agreements

Although some authors consider “Social and Domestic Agreements" to be a single class, it is better to consider "Social Agreements" as a separate class, as here there is NO presumption, and ONLY the objective test applies.

In Simpkins v Pays [1955] [9] an informal agreement between a grandmother, granddaughter and a lodger to share competition winnings was binding. Sellers J held, applying the objective test, that the facts showed a "mutuality" between the parties, adding: "If my conclusion that there was an arrangement to share any prize money is not correct, the alternative position to that of these three persons competing together as a “syndicate", as counsel for the plaintiff put it, would mean that the plaintiff, despite her propensity for having a gamble, suddenly abandoned all her interest in the competition in the Sunday Empire News. I think that that is most improbable …"

In Coward v MIB [1962],[10] the Court of Appeal held that when a motorcyclist regularly gave a friend a pillion lift in return for some remuneration in cash or in kind, there was no contract; but it seems the judge was ruled by his heart and not his head. Soon after, in Connell v MIB [1969],[11] a case with materially similar facts, Lord Denning (violating the rule that the Court of Appeal was bound by its own decisions) said, "I am not satisfied by the decision in Coward. I think that when one person regularly gives a lift to another in return for money, there is a contract, albeit informal". In a similar "lifts for friends case", Albert v MIB [1971],[12] the House of Lords approved Denning's decision in Connell.

Commercial agreements

These agreements where the parties deal as though they were strangers, are presumed to be binding. However, "Honour Clauses" in "Gentlemens' Agreement" will be recognised as negating intention to create legal relations, as in Jones v Vernons Pools [1938] [13] (where the clause, "this agreement is binding in honour only" was effective). One must be careful not to draft a clause so as to attempt to exclude a court's jurisdiction, as the clause will be void, as in Baker v Jones [1954].[14] If a contract has both an 'honour clause" and a clause that attempts to exclude a court's jurisdiction (as in Rose & Frank v Crompton [1925],[15]) the court will apply the blue pencil rule, which strikes out the offending part. The court will then recognise the remainder, provided it still makes sense, and remains in accord with the parties' bargain.

Collective agreements

A collective agreement is a special type of commercial agreement, such as one negotiated through collective bargaining between management and trades unions. At common law, Ford v A.U.E.F. [1969],[16] the courts held that collective agreements were NOT binding. The Industrial Relations Act 1971, introduced by Robert Carr (Employment Minister in Edward Heath's cabinet) provided that collective agreements were binding, unless a contact clause in writing declared otherwise. After the demise of the Heath government, the law was reversed.The law is now contained in the Trade Union and Labour Relations (Consolidation) Act 1992 s.179:

“Any collective agreement made after the commencement of this section shall be conclusively presumed not to have been intended by the parties to be a legally enforceable contract, unless the agreement: (a) is in writing, and (b) contains a provision which states that the parties intend that the agreement shall be a legally enforceable contract”.

See also

Notes

References

  1. ↑ Savigny, System des heutigen Römischen Rechts (1840) online, in German
  2. ↑ BCCI v Ali and HIH v Chase Manhattan Bank
  3. ↑ e.g. Smith v Hughes [1871] LR 6 QB 597
  4. ↑ Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256
  5. ↑ Balfour v Balfour [1919] 2 KB 571
  6. ↑ Jones v Padavatton [1969] 1 WLR 328
  7. ↑ Merritt v Merritt [1970] 2 All ER 760, [1970] 1 WLR 1211
  8. ↑ Beswick v Beswick [1967] AC 58
  9. ↑ Simpkins v Pays [1955] 1 WLR 975
  10. ↑ Coward v M.I.B. [1962] 1 All ER 531 CA
  11. ↑ Connell v M.I.B. [1969] 3 All ER 572 CA
  12. ↑ Albert v M.I.B. [1971] 2 All ER 1345
  13. ↑ Jones v Vernons Pools [1938] 2 All ER 626
  14. ↑ Baker v Jones [1954] 1 WLR 1005
  15. ↑ Rose & Frank v Crompton [1925] AC 445
  16. ↑ Ford v A.U.E.F. [1969] 2 QB 303