Intention in Contracts and Non-Commercial Disputes - Essay Example

Intention in Contracts Intention plays an important role in contract law. A contract is legally binding only when both the parties to the contract have the intention to form a legally binding contract. As such, intention is an essential element of a valid contract. Intention can be express or may be implied by the conduct of the parties. Implied intention is of great significance and the courts have developed a number of tests to determine whether there is an intention on part of the parties to be legally bound by their agreement.1 Hence, a legally valid agreement necessitates the presence of intention to be legally bound by it. Thus, intention plays a significant role in contracts, and renders an agreement enforceable in a court of law. It constitutes a cardinal feature of the contract. The laws relating to contracts consider intention to be an essential feature of any contract.2 Thus, in Ermogenous v Greek Orthodox Community of SA Inc,3 the High Court reiterated that intention to create a legally binding agreement was indispensable, in the context of contractual liability. The courts apply an objective test to determine whether there is intention among the parties to form a legally binding agreement. 4 Prior to Ermogenous, the courts relied on the presumption of facts to establish intention. The courts had varied their approach depending upon the nature of the agreement, namely whether it was commercial or non – commercial. The ruling in Ermogenous changed this situation. In that case, the court expressed misgivings regarding benefit of employing the language of presumptions. Thus, in some categories of cases the courts proceed on the assumption that intention was absent in the agreement. Thereafter, it is upto the party contending that a contract is in existence to prove that there is intention.5 Previously, agreements between the members of a family do not constitute contracts and can be rebutted. For instance, in Cohen v Cohen, a husband had promised to pay his wife a certain amount towards her dress allowance. Subsequent to their separation, he discontinued such payment. The court held that there was no legally binding agreement between these persons, hence it the wife’s claim was rejected.6 The case of Balfour v Balfour was a landmark case in the area of contracts, relating to family matters. In this case, the parties were a husband and wife. The husband left for Sri Lanka and promised the wife that he would pay her an amount towards monthly support, till such time as she joined him in Sri Lanka. However, this couple failed to reunite and the husband failed to keep up his promise to her. The wife filed a suit against her husband, but the court rejected her contention and ruled that there was no express intention on the part of this couple to be legally bound by the agreement. As such, the agreement could not be enforced in the absence of such intention. 7 This is because their agreement was based on social, family, and domestic matters. Moreover, in Jones v Padavatton, a mother promised her daughter to support her financially, during her course of study, at the mother’s city of residence. The daughter left her employment and took up studies in the city where her mother was located. Subsequently, the mother refused to continue with the financial assistance and the daughter approached the court, pleading breach of contract. The court held that there was no intention to be legally bound by the parties.8 It was of the opinion that there was insufficient evidence to rebut the presumption against domestic arrangements. This thinking changed subsequently, as depicted in the decision in Wakeling v Ripley. In this case the defendant asked his sister and her husband to leave their home and employment in England and live with him in Sydney. The purpose of their transfer would be to provide him with care and assistance. As remuneration, he promised to will his house to them. Relying on this promise, the couple relinquished employment and residence in England and moved to Sydney. 9 Subsequently, the defendant changed his mind, altered his will and sold his house. The distraught couple approached the court, which held that there was intention in both the parties to enter in to a legally binding relationship.10 It also held that there was sufficient evidence to prove the intention, and hence the defendant was liable for breach of promise. In Riches v Hogben, the son consented to migrate to Australia, if his mother were to purchase a house in his name. However, she purchased it in her own name. Subsequently, the mother employed considerable pressure upon her son and forced him to emigrate to Australia. Nevertheless, she did not change the ownership of the house to his name. The court held that as the son had undergone considerable financial and personal hardship in emigrating to Australia, while relying on her promise, there were sufficient grounds to prevent her from violating her promise to him.11 It was also held that their agreement had sufficient intent to be legally binding. In Godecke v Kirwan, an informal agreement was reached between the parties, regarding the sale of a piece of land. It was also agreed between these parties that the terms of the agreement would be provided via an additional agreement. 12This agreement was held to possess a binding nature by the court. The latter was of the opinion that a binding agreement could be formed by subsequently settling important issues, through a third party or even by the efforts of one of the parties.13 In the absence of the consent necessary for forming a contract, an agreement to agree is void. Thus, in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd, the court held that parties could indicate their willingness to be legally bound by the memorandum.14 In such instances, the parties would specifically accept that they would enter a further formal agreement that would incorporate the terms and conditions present in the memorandum. In addition, these parties can alter those terms by mutual agreement. Consequently, if the parties depict an intention to be immediately legally bound, even though they declare that they would form an additional agreement on further terms, then such agreement cannot be set aside on the grounds that it is merely an agreement to agree. 15 As such, the intention of the parties to be legally bound is central to a contract. In Carlill v Carbolic Smoke Ball Co, the plaintiff acted on the basis of an advertisement of the defendant. The court applied the test of intention to determine whether the advertisement was a promise and concluded that as this advertisement had required performance the plaintiff was not required to provide notice of acceptance. 16 In addition, the defendant’s advertisement depicted the clear intention to form a legally binding agreement with any potential offeree.17 Hence, the defendant was liable for breach of contract, if it failed to pay the promised award to the plaintiff. In this case, intention was established on the basis of the circumstances, despite the offer being unilateral in nature. The presumption regarding intention may be disproved. However, the burden of proof lies on the party who wants to exclude the presumption. In Australian Woollen Mills Ltd. V Commonwealth of Australia, the defendant issued a grant to some of the manufacturers of wool. All the involved parties including the plaintiff had the presumption of intention. Subsequently, the defendant discontinued the subsidy. The plaintiff contended that their relationship involved an intention for the agreement to be legally binding, as this agreement was commercial in nature. 18 The court rejected this contention and held the presumption to be rebutted. It also ruled that there was no binding legal relation between these parties. A promise does not always translate into a contract. Thus in Administration of Papua New Guinea v Leahy, the claim of Leahy that the government officers had breached its contractual duty, while spraying insecticide was not upheld. The court held that these officers had performed the duty prescribed by government policy, and there was no contract between Leahy and these officers.19 In McKinnon v Grogan, it was contended by the cross – defendants that a breach of contract had not transpired, when the executive committee of a voluntary association had not adhered to the rules of the association. The court discounted this argument and ruled that persons subscribing to league rules were legally bound and empowered to approach the court for the resolution of disputes.20 In Buckley v Tutty the plaintiff had entered into an agreement with the defendant, which required him to play exclusively for the defendant. The terms of this agreement were deemed to be onerous by the court and therefore this unfair contract was annulled.21 In their ruling, the court focused on the plaintiff’s right to work, which had been adversely affected by the terms of the contract with the defendant. As such, the circumstances governing an agreement between parties, has a major bearing in determining, whether that agreement was to be legally binding. In arriving at such evaluation, the courts adopt an objective approach. This is the procedure adopted by the courts, regardless of whether the agreement is commercial, or domestic or social in nature. Even agreements relating to domestic arrangements have commenced to acquire a binding nature. This is evident from the developments in contract law. In Balfour v Balfour, the court held that family agreements could not have the intention to be legally binding. However, this has changed and in Merritt V Merritt, the court ruled that the parties to the domestic arrangement had possessed the intention to be legally bound.22 Similarly, in Darke v Strout, a child maintenance arrangement was held to be legally binding, even after the separation of the parents.23 Moreover, Soulsbury v Soulsbury, the court held that the intent to form a legally binding agreement was in place, when a former spouse consented to give up maintenance payments, on being assured of a bequest in the will made by the other spouse.24 The law does not recognise contracts between family members and friends that relate to family matters and social issues. As such, under the law, the parties do not intend to legally enforce the contracts made for domestic, family and social matters. On the other hand contracts made for the express purpose of commercial and business matters have the intention to be legally binding.25 In general, social and family agreements do not constitute legally binding agreements. On the other hand, business agreements are usually deemed to be of a legally binding nature. With regard to social and family agreements, as well as the commercial agreements, these presumptions can be rebutted by providing the relevant evidence. The law has historically distinguished between commercial and family and social agreements. With regard to family and social agreements it has generally been presumed that there is no intention that the agreement should be legally binding. On the other hand, the opposite holds good in commercial agreements, which generally possess the intention to legally bind the parties. As such, in certain non – commercial disputes, the party seeking enforcement of the agreement is required to establish that the agreement was intended to be contractually enforceable. Non – commercial disputes are described by the courts and legal scholars as family, social or domestic disputes. With the establishment of the element of intention in the contract, social and family agreements are also legally enforceable. BIBLIOGRAPHY A Articles/Books Ayres, Ian and Gregory Klass, ‘Symposioum: Promissory Fraud without Breach.’ (2004) Wisconsin Law Review 507 Keyes, Mary and Kylie Burns, ‘Contract and the Family: Whither Intention?’ (2002) 26 Melbourne University Law Review 577 Monahan,Geoff , Essential contract law (Routledge, 2001) Tolhurst, G J, J W Carter and Elisabeth Peden, ‘'Masters v Cameron' - Again!’ (2011) 42 Victoria University of Wellington Law Review 49 B Cases Administration of Papua New Guinea v Leahy (1961) 105 CLR 6 Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 Balfour v Balfour (1919) 2 KB 571 Buckley v Tutty (1971) 125 CLR 353 Carlill v Carbolic Smoke Ball Company (1893) EWCA Civ 1 Cohen v Cohen (1929) 42 CLR 91 Darke v Strout (2003) All ER (D) 268 Ermogenous v Greek Orthodox Community of SA Inc (2002) 187 ALR 92 Godecke v Kirwan (1973) 129 CLR 629 GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 622 Jones v Padavatton (1968) EWCA Civ 4 McKinnon v Grogan (1974) 1 NSWLR 295 Merritt v Merritt (1970) EWCA Civ 6 Riches v Hogben (1985) 2 Qld R 292 Soulsbury v Soulsbury (2007) EWCA Civ 969 Wakeling v Ripley (1951) 51 SR (NSW) 183 Read More