The Intention to Create Legal Relations Is far more Important than Consideration - Essay Example

The Intention to Create Legal Relations Is far more Important than Consideration The law of contract requires that a contractualagreement is established by parties of sound mind, who have the capacity to exchange a consideration that creates a mutual obligation1. The insistence of the law, on the qualification of the parties as being of sound mound and competent persons, underlines the importance of the binding obligation that is to be established2. Therefore, the intention to create legal relations is far more important than consideration, since once the intention is established, then the law upholds that the intention is as good as an already established contractual agreement. Thus, whenever it is established that there was an intention to create a legal contract, the parties involved in the creation of the intention are prevented from rescinding the contract, through the doctrine of estoppels2. The substance of a contract is the intention that the individuals had when they were establishing the contractual agreement. Therefore under the law, an agreement is only legally enforceable, if the parties are deemed by the court to have intended to establish it1. While the element of consideration is essential for a legal establishment of a contract, the intention to establish such a contract overrides the substance of consideration, since where the court can determine that the parties involved in the establishment of a contractual agreement had the intention to do so, and then the presumed consideration is as good as agreed. While the intention to create a legal relation between parties may not have been stated explicitly, it is the circumstances and the conditions surrounding the establishment of the agreement that are inferred, to establish whether such an intention existed2. To establish the existence of an intention to create legal relations, two principles always come into play. First, the principle of the reasonable man test, must apply. This principle seeks to determine whether, given the circumstances under which the parties to an agreement were while establishing it, a reasonable man can find there was or there was no intention to create a legally binding agreement3. The second principle is the principle of two presumptions, which presumes differently when considering the intentions of an agreement, depending on whether the agreement is a commercial agreement or a social agreement. Nevertheless, the differentiation in the nature of the agreement, when it comes to the presumption of an intention to create a legally binding contract, has a predetermined position. The conditions applicable for a commercial agreement in relation to the principle of intention to create a legal contract are different when it comes to social and domestic agreements4. The predetermined position for a business transaction or any commercial agreement is that there is always an intention to create a legal relation. On the other hand, the predetermined position for the domestic and social contract is that there is no intention to create legal relations, unless proved otherwise. Therefore, for a business transaction, the person wishing to rescind the contract has to prove to the courts that the circumstances and conditions under which the agreement was entered into, do not qualify to establish a legal and binding obligation. On the other hand, for a social or domestic agreement, the parties involved must prove to the courts that there was indeed a need to establish a legally binding contract between the parties (Mulcahy and Tillotson 97). This presumption was demonstrated in the case of Balfour v Balfour [19193] 2 KB 571, where Mr. Balfour lived in a different estate with Mrs. Balfour, who could not join him due to her medical condition. Therefore, Mr. Balfour promised to be remitting $30 to his wife every month, but later default on the remittance. Consequently, Mrs. Balfour sought to enforce the agreement through a court of law, on the premise that there was a legally binding agreement between her and her husband for the monthly remittances5. The court of appeal on its ruling held that there was no enforceable agreement between the two, since there lacked any indication that they were intending to create a legally binding agreement at the time of the establishment of the agreement. Therefore, the court did not rebut the presumption that there was no intention to create legal contract, which is the principle presumption that applies in a domestic or social agreement4. Under the law of contract, there is a rebuttable presumption that there is always an intention to create a legal relation under any commercial agreement, while the contrary applies for any domestic or social contract, where the law has a strong rebuttable presumption that there is no intention to create a legally binding contract in such agreements. These principle assumptions were applied under the ruling of this case. The ruling on the case (Balfour v Balfour [1919] 2 KB 571) serves to enforce the fact that the intention to create legal relations is far more important than consideration. This is because, in the agreement between Mr. Balfour and his wife, a consideration was already present, which was the $30 that was to be given to the wife as the monthly remittances6. However, in establishing whether there existed an intention to create a legally binding contract, the courts observed that the agreement between the husband and wife did not amount to a legally binding agreement, considering that the rebuttable presumption of no legal intent on domestic and social agreement was not overruled. This is a clear indication that the substance of the intention to create a legal relation, overrides the substance of consideration, since the ruling went by the substance of the intent, as opposed to the subject of consideration, which already existed. Nevertheless, the rebuttable presumption of no legal intent for domestic and social contract can be rebutted, where the circumstance under which the agreement was entered into proves to be different. This is well demonstrated in the case (Merrit v Merrit4), where the husband and wife were entering into a contractual agreement based on the fact that the relationship between them was not under the premises of natural love8. The court observed that the relationship between the husband and wife, though a domestic relationship, was estranged at the time of entering the agreement, meaning that the conditions of natural love did not apply. The court held that where the parties are divorced, separated or in the process of separation, the negotiations or agreements made by the parties do not occur under the terms of affection and social relationship. This means that the negotiations are entered into with the intention of establishing a legally binding contract, since the individuals involved are serving as two different entities in the eyes of the law, with no natural bond holding them together10. Therefore, under these circumstances, the presumption of no legal intention for domestic and social contracts does not hold, and the court finds that requisite intent to create a legally binding agreement does indeed exist. The principle of intention to create a legal relation operates on the basis of the doctrine of promissory estoppels, which provides that contracts can be binding, not based on the substance of the agreement, but on reliance9. The doctrine of promissory estoppel provides that in law, where a party has caused another party to act on an assumption that was part of their relationship, then, the party will not be allowed to depart from the responsibility, or even act as though it was not the case12. The principle uphold that the party that caused the other to act based on an assumption will be stopped by the law to deny the assumption, and thus will be forced to perform the agreement based on the substance of the assumption that was created by their relationship. Therefore, if an individual promises the other party that will not enforce certain rights against them, thus causing them to act on such basis, the individual will be stopped from enforcing the rights later on (Tillotson 80). This can be demonstrated accurately in the case Hughes v Metropolitan Railway Co (18775) House of Lords, where a tenant, Hughes was issued a 6 month notice to repair certain defects in the house or risk being ejected11. However, instead of carrying out the repair and incurring such expenses, the tenant started negotiations with the landlord to have the landlord gain certain interests being transferred to him by the tenant, instead of the tenant undertaking the repairs. However, the 6 months’ notice expired before the understanding on the transfer of the interest could be effected and executed, thus, the landlord sought to eject the tenant. The court held that the tenant could not be ejected, since there were negotiations of understanding going on during the period of the notice8. Therefore, the court inferred an implied understanding to stop the landlord from ejecting the tenant, since the landlord had already created an assumption that an understanding could be reached, which would see the tenant transfer his interests to the landlord, at the expense of repairing the house. In this case, the tenant failed o repair the house, on the basis of an assumption that the interests to be transferred to the landlord will make-up for the repairs. The congruence between the doctrine of promissory estoppel and the principle of intention to create legal relation can be established from this case, where the landlord and the tenant had clearly indicated an understanding to have the tenant forfeit the repair of the house, in return for transferring certain interests to the landlord (Helewitz 97)6. Despite the fact that such an agreement was not reached at explicitly, there is already an indication that the parties had an intention to create a legal relation, which in this case could have seen the tenant perform certain activities, in return for the landlord stopping to perform a certain action10. The intent to create a legal relation, through an implied understanding, is the one that court applies to determine if a legally binding contractual agreement existed between the landlord and the tenant. This way, the doctrine of promissory estoppel and the principle of intention to create legal relation end-up operating as a single principle in law13 Under the contract law, the intention to create a legal relation and the doctrine of promissory estoppel serves to enforce an inferred or implied understanding between two parties to an agreement, based on circumstances and conditions surrounding the agreement or the understanding, considering that an explicit agreement may not exist. Under these principles of contractual law, the contractual minds of individuals involved in a business or commercial agreement will be obviously to create a legal obligation, unless proved otherwise7. On the other hand, a social or domestic agreement has no legal intentions, unless there is prove to the contrary. In such cases, where there is no legal intention to establish a binding contract, the contract so established will not be enforceable. The substance of the intention to create legal relations is far more important than consideration, since without an intention to create legal relations, an agreement remains merely a promise, and thus the parties cannot sue each other, despite the existence of a consideration. Therefore, the principle of intentions to create legal relations overrides the substance of consideration in a contractual agreement. References 1Bigelow, Melville M. A Treatise on the Law of Estoppel and Its Application in Practice. Littleton, Colo: F.B. Rothman, 1991. 2Collins, Hugh. The Law of Contract. Cambridge University Press, 2003. 3Furmston, M P, Greg Tolhurst, and Eliza Mik. Contract Formation: Law and Practice. Oxford: Oxford University Press, 2010. 4Helewitz, Jeffrey A. Basic Contract Law for Paralegals. Austin [Tex.: Wolters Kluwer Law & Business, 2010. 5Koffman, Laurence, and Elizabeth Macdonald. The Law of Contract. Oxford: Oxford University Press, 2007. 6McKendrick, Ewan. Contract Law: Text, Cases, and Materials. Oxford, U.K: Oxford University Press, 2012. 7Mindy, Chen-Wishart. Contract Law. Oxford: Oxford University Press, 2012. 8Mulcahy, Linda and Tillotson John. Contract Law in Perspective. Routeledge: Taylor & Francis group, 2004. 9Probert, Rebecca. Family Life and the Law: Under One Roof. Aldershot: Ashgate, 2007. Print. 10Salzedo, Simon, Brunner Peter and Ottley Michael. Briefcase on Contract Law. Taylor & Francis group, 2005. 11Rush, Jon, and Michael Ottley. Business Law. London: Thomson, 2006. 12Stone, Richard. Contract Law. Routeledge: Taylor & Francis group, 2005. 13Tillotson John. Contract Law in Perspective. Routeledge: Taylor & Francis group, 1995. Read More