Legal Relations

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As highlighted by Jill Pool in the text ‘Case Book On Contract 4th Edition’, the hypothesis advocated by many is that the eidolon of consideration is enough; the intention to create legal relations is not sine qua non. This essay embodies such a theory, which is also postulated by Hepple in his article “Intention To Create Legal Relations” [1970] CLJ 122 and those views that stand diametrically opposed to such proposition. In succouring you, my astute reader, to fully grasp the objective of this essay, the fundamentals have to be enunciated. It is said for the contract to be enforceable in an English court of law there must be an offer, to which a person of capacity, giving a genuine consent accepts it. Considerations which, are accepted by the English law, must also be presented. It is the other element of intention to create legal relations, which is being questioned.

To understand the reasons for Hepple and his “comrades” agreement, one has to be apprised as to the meaning of consideration. Aggregated in ‘Principles of Contract’ by Sir Fredrick Pollack 1950 p ______, consideration is “An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought and the promise thus given for value is enforceable”. Thus amounting to a defendant’s promise by performance of some act in return for it being bought by the plaintiff. Could this alone be sufficient with out the intention to create legal relations? Erle CJ in his judgment in Shadwell v Shadwell (1860) 9 CB NS 159 thought so. In this case, the plaintiff received a letter from his uncle after his engagement to his fiance.

The letter explained that he was elated to hear about the intended marriage, and promises he made to pay some fees. The plaintiff sought to claim arrears from his uncle executors, his consideration to be his marriage. Promises were held to be binding since it was supported by good consideration. Atkin LJ, however, in Balfuor v Balfuor [1919] 2KB 571 takes a slightly different approach, while confirming that consideration is necessary, he also re-affirms the requirement of intention to create legal relations. Before elucidating on that point, more fundamental pieces to the enigma of the law of contract in the light of this topic have to be stated succinctly.

The intention [to create legal relations] is determined by a ‘policy presumption.’ This presumption of intent is present in commercial agreements, but in domestic and social agreements, voluntary associations and government schemes there is no such presumptions. The presumption on either side can be rebutted but it requires unambiguity. Balfour v Balfour is a prime example of an agreement in a domestic context. This involved a husband who was a civil servant posted to Ceylon (now call Sri Lanka) and his wife to remain in England. He promised to pay her £30 monthly for maintenance for the time they were forced apart. Later the parties separated and were divorced. The wife brought an action against her husband for continued payment of the maintenance.

Atkin LJ given leading judgment said that a promise by a husband to pay his wife an allowance, even if could by said that there is a consideration for the promise, is not binding because neither parties intended legal liability to generate from such a promise. A similar result is seen in Jones v Padavatton [1969] 1WLR 328. Mrs. Jones, plaintiff, told her daughter that if she left USA, to read for the bar in England and lived there, she would pay her a monthly allowance. Daughter agreed. Mother then bought a house for the daughter to live and let rest to tenants whose rent paid daughter maintenance. Dispute arose between mother and daughter, resulting in mother seeking possession of the house. Court of appeal held that neither of the agreement was intended to bind the parties.

Cases contrasting such a result include Wakeling v Ripley (1951) 51 SR (NSW) 183. The defendant was an elderly and wealthy man who resided in a large house near Sydney and the plaintiff was is sister and husband. Husband and wife lived Cambridge, where he was university lecturer. Plaintiff left to live with the defendant due to his persuasion, giving all attachment to England due to reliance on defendants promise to provide them with home and to leave all his properties to them on his death. After a year of residing together, a dispute arose resulting in defendant selling his home and altering his testamentary disposition. Plaintiff sued. Verdict returned in favor of plaintiff. Synonymously in Merritt v Merritt [1970] 2 ALL ER 760, here the husband and wife jointly owned a home, which was subject to building society loan. Husband left to live with another woman.

He signed an agreement to pay the wife £40monthly, in return wife would pay outstanding mortgage and title be transferred to her sole name. Wife executed her job but he refused to transfer the house. Court of appeal held that the parties had entered into agreement, which was intended to affect their legal relations. The court distinguish this case from Balfour v Balfour on the grounds that in that case parties were living happily together up until point of agreement, while opposite is true here; parties separates before agreement. Thus the court seems to be breaking away from the conventional view that all domestic agreements have no presumption of intention. Hence amicability v hostility at times of agreement may affect their judgment. See Parker v Clerk [1960] 1 NLR 286, Popiw v Popiw, Riches v Hogben [1986] QD R 315 and Dunton v Dunton H H p 133 for similar results.

Reiterating the fact that in business agreements there is a strong presumption of intention unless otherwise explicitly and clearly stated. Rose and Frank Co v Crompton [1925] AC 445 is an example of clear words displaying presumption. Three parties entered into an agreement in which the defendant hoped to rely on the clause ‘a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts’ after terminating agreement with plaintiff. It was held by the court that the clause was affective and was binding in honour, referred to as a gentleman’s agreement by Vaisey J. unlike the result in, Edwards v Skyways ltd. [1964] 1 ALL ER 494. Where airline sought to rely “ex gratia” payment to the redundant pilots after refusing to make payment to Edward. Megaw J found that, that was not sufficient to discharge that burden, thus judgment for the plaintiff.

Likewise in Kleinwort Benson ltd V Malaysia Mining Corp Bhd [1989] 1 ALL ER 785, it speaks to the fact that memoranda of understanding heads of agreement, letters and intent and documents of that ilk are generally not contracts thus has no intention to be legally binding. Although only persuasive case, an exception was found in Air Great Lakes Pty Ltd. v K.S. Easter Pty Ltd. (1985) 2 NSWLR 369, see reference for facts of the case. The English case of Banque Brussels Lambert SA v Australian National Industries Ltd. H H208 is also an exception, as Rofers CJ decided that the letter of comfort used in this case did give rise to legal liability. The “honour clause” inserted into competition forms, states clearly that there is no intention to be legally binding. See

Jones v Vernon’s Pools Ltd [1938] 2 All ER 626 and Appleson v H Littlewood Ltd. [1939] 1 All ER 464 where this was successfully relied on.

There are some types of government dealings where it is deemed inappropriate to vilify as contract. The Australian Woollen Mills Pty Ltd. v Commonwealth case is an illuminating and persuasive example. The plaintiff alleged a unilateral contract constituted by the offer of a promise for the doing of an act. The foundation for the offer was an announcement by the government that it would pay subsidies to manufacturers who made purchases of wool in the domestic market. The court found that no promise was made because there was no express or implied request by the government that manufacturers would purchase wool in consideration of the subsidy. In concluding that the announcement was a non-promissory policy statement, it generated an expectation that a payment would by made as a matter of discretion, not as a matter of legal rights.

A further example is where government hands out money to industries and groups to achieve certain public purpose. The government would not be able to sue for damages if the condition of grant was broken and the recipient would not be able to sue for the money if the government failed to pay. In Administration of Papua New Guinea v Leahy (1961) 105 CLR 6, after a request from the plaintiff, the commonwealth Department of Agriculture took over spraying to eradicate ticks. Plaintiff was to pay for labour required and to muster the cattle. The Depts. officers failed to carry out spraying carefully enough and more serious infection occurred. Plaintiff sued for breach of contract. Held that arrangements were administrative and not contractual. Same where the public authority is carrying out a statutory duty and charges a fee to cover the cost of the services, it is unlikely that the arrangement will be seen as contractual.

The principle problem here is whether the rules of the club, political party, or other voluntary, unincorporated association are binding legally on their members. Traditional answer is that they are not legally binding and that the internal disputes are for such bodies to sort out and not for the courts. Cameron v Hagan (1934) 51 CLR illustrates this approach. The plaintiff – previously Premier of Victoria, was excluded form the Australia Labour Party, which he claimed was in breach of its rules, and prevented from retaining the job as Premier. The court took the views that normally, rules of a political organization to regulate its affairs, has not been understood to impose contractual duties on officers or members.

This is seen as a domestic matter. There has to be clear indication of the intent to create legal relations. It may well be the case that the court will intervene on other group such as those to protect natural justice. In the decided case of Simpkins v Pays [1995] 3 All ER 10, an agreement in a social context was made between defendant (owner of the house), her granddaughter and a playing lodger. They all lived in the same house. The three regularly took part in a competition in the Sunday newspaper. Entries were made under the defendant’s name but all three contributed to this end though there was no regular arrangement as to the payment of postage and other expenses. One faithful week, their entries won but the defendant refused to pay the plaintiff his share of the prize. It was held that the plaintiff was entitled to his share, there was sufficient ‘ mutuality in the agreement between the parties’ to establish a legally binding agreement. Hence although no presumption of intention, it can be rebutted by evidence to the contrary.

After such elucidation it can be deduced that questions of intention create legal relations are often associated with questions of uncertainty or incompleteness of agreement. Nevertheless courts often take into account matters that are material to potential reliance along with actual intention (expressed and presumed). Intention to create legal relation is sometimes referred to as essential ingredient for formation to contracts. It is, however, doubtful to its essentialness. Reason being, as also illustrated in this essay, contract are held be and not to be legally binding, with or without intention to do so. It has been seem seen that a contract must contain an element of agreement supported by considering, though it’s mere presence does not necessarily mean that a legally binding contract has come into existence. It cannot be reiterated enough that the court generally presumes. An intention to create legal relation in commercial agreement but does not in other agreement but can be rebutted by evidence to the contrary.

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