The intention to be legally bound is an essential element of a valid and enforceable contract. This means that all contracting parties must accept the terms of the contract in order to establish a legally binding relationship.3 min read A contract is a legally binding agreement. Once an offer has been accepted, there is an agreement, but not necessarily a contract. The element that turns any agreement into a real contract is “the intention to create legal relationships.” It must be shown that the parties intended the contract to be governed by contract law. If proof of intent is found, the agreement leads to legal obligations that any party who violates it can be sued. The intention to establish legal relationships can be of three different types: The burden of proof of intent lies with the applicant. ⇒ national agreements are generally not considered legally binding, but trade agreements are generally considered legally binding. This article focuses on perhaps the most overlooked key criteria. Intention to establish legal relationships. “Intention to create legal relationships”, otherwise “intention to be legally bound”, is a doctrine used in contract law, particularly in English contract law and related common law jurisdictions.
[a] The principle in Balfour v. Balfour[3] was based on an agreement between mother and daughter in Jones v. Padavatton[4] Ms. Padavatton lived in Washington, D.C. and her mother in Trinidad. The mother was very interested in her daughter studying law, so she offered to provide her with an apartment and pay for her maintenance if she left her job in Washington, D.C. and moved to London to study law. The girl accepted this offer. After a few years, they fell and the mother claimed her property in the apartment where the girl lived. The girl refused. The court ruled that, in this case, there was no intention to establish a legal relationship, since it was a daughter and a mother.
In this test, also known as the reasonable man test, the court focused on the opinion of a reasonable man. If the promisor did not intend to create a legal relationship, it is not for the promisor to decide, but the court would assume that there is an intention if a reasonable man has the possibility that the intention was to bind the promisor. ⇒ The intention of the parties may be taken into account by the way in which the contract is concluded. In Carlill v. Carbolic Smoke Ball Company,[1] the court applied the “class test” and considered whether a reasonable man, knowing all the circumstances of the case, believed that the parties intended to be bound. The defendants in this case had made extravagant statements in an advertisement about the effectiveness of their smokeball in preventing influenza. They promised to pay £100 to anyone who used it and still contracted the flu within a certain period of time. They explained that to “show their sincerity” they had deposited £1,000 with their bankers. The plaintiff purchased the preparation, used it and became ill with influenza. The advertisement published by the company represented the company`s sincerity as it had deposited £1,000 with Alliance Bank. The court ruled that any objective person reading this would imply a contractual intent.
Industrial relations: In industrial relations, the courts do not imply the intention to establish a legal relationship. The opposite presumption, i.e. the existence of a bound intention, applies to agreements of a commercial nature (Edwards/Skyway Ltd, [1964] 1 All ER 4). Both of the above hypotheses can be refuted by evidence to the contrary (Merritt v. Merritt [1970] 1 WLR 1211). The doctrine determines whether a court must assume that the parties to an agreement want it to be enforceable in court, and it states that an agreement is legally enforceable only if it is assumed that the parties intended it to be a binding contract. The relevant category for a particular agreement depends on the intention of the parties, but words such as “subject to the drafting of a contract” or “subject to the drafting of a formal contract” indicate that the parties do not intend to be bound unless a formal contract is concluded (paragraph 13, page 363). ⇒ The employment contract may stipulate that certain conditions depend on the collective agreement of the employer and the unions – is there an intention to establish legal relations? There are two ways to determine the existence of an intention. In the objective examination, the court referred to the opinion of a reasonable man. In the rebuttable presumption test, the court established the burden of proof.
In Coward v Motor Insurance Bureau,[6] Mr. Coward was a passenger on a motorcycle owned and operated by his friend. They had this arrangement for a long time where the friend took M. Coward worked on the motorcycle, and sometimes Mr. Coward contributed to the price of gasoline. There was an accident in which Mr. Coward was injured. The insurance company would only pay Mr.
Coward if he could prove that he was a paying passenger. In support of his argument, Mr. Coward mentioned that he sometimes paid for gasoline. However, the court found that there was no binding contract between the friend and Mr. Coward, as there was no intention to establish a legal relationship. Business relationships: In the case of business relationships, it is generally assumed that the parties intend the agreement to be legally binding, unless they are refuted. There is a presumption that the parties intend to enter into a legally binding contract, unless otherwise suspected. In the context of ordinary commercial contracts, it is not necessary for the applicant to prove the existence of such an intention. However, the defendant may rebut the presumption by referring to the terms used and the circumstances prevailing in force. In 1919, Lord Atkin in Balfour v Balfour[3] (where a husband promised his wife to pay alimony while working in Ceylon) stated that there was no “intention to be legally bound”, although the wife depended on payments. The judge noted that agreements between spouses would generally not be legally enforceable: the intention to create legal relationships is often overlooked, but this case shows how this principle can sometimes be crucial to the enforceability of a contract. In Carlill v.
Carbolic Smoke Ball, the court rejected the defence that advertising was a “mere puff” and was not intended to create legal relationships. Filing with the bank was strong evidence that the defendant had contemplated legal liability. The court ruled that the promise was not legally binding for two main reasons: Sometimes the parties may agree that they are not legally bound. The courts generally respect this clause like any other, unless the agreement is invalid for some other reason. However, such agreements may complicate the interpretation of the nature of the promise. In Edwards v. Skyways,[8] Skyways was the employer and Mr. Edwards was the employee. Mr.
Edward was dismissed due to a termination of employment. He was promised a voluntary payment by Skyways. He was not paid and sued Skyways. The court agreed that this was a binding agreement with a valid offer and acceptance and the intention to establish a legal relationship. Since it is commercial and commercial in nature. Parker & Clark[5] involved an uncle and aunt on the one hand, and a niece and her husband on the other. The uncle wanted his niece and husband to come and live with them. As they grew older and frail, it was helpful for them to have their niece and her husband around them.
In order to lure them, the uncle promised to give them the share of the house in which they would all live. The niece and her husband accepted the offer, left their own home and sold it. When they fell, their uncle and aunt denied them a piece of the house. The court concluded that the intention was to establish a legal relationship because the consequences for the niece and husband were very serious. The party claiming the absence of a legal relationship must prove this; and all clauses intended to rebut the presumption must be clear and unambiguous. [16] In Edwards v. Skyways Ltd,[17] an employee was promised a “graceful” bonus, which was found to be legally binding. He had relied on the promise when he accepted severance pay and his employer could not sufficiently prove that he did not intend his promise to become a contractual clause.
[18] In civil law systems, the concept of intention to create legal relations[d] is closely related to the “theory of will” of contracts, as advocated by the German jurist Friedrich Carl von Savigny in his nineteenth-century System of Modern Roman Law. [22] Throughout the nineteenth century, the concept was important that contracts were based on a meeting between two or more parties and that their mutual consent to a transaction or intention to enter into contracts was paramount. While it is generally true that courts want to maintain the intentions of the parties,[23] in the second half of the nineteenth century courts adopted a more objective interpretive attitude,[24] with an emphasis on how the parties had expressed their consent to a settlement to the outside world. In light of this change, it has always been said that “the intention to be legally bound” is a necessary element of a treaty, but that it reflects a policy that agreements should and should not be implemented.