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Consideration And Estoppel Intention To Create Legal Relations Notes

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INTENTION TO CREATE LEGAL RELATIONS A contract will only be formed if both parties intend their agreement to create legal relations between them (i.e. intend the agreement to grant legal rights to and impose legal obligations upon each of them), their intent being judged 'objectively' (i.e. without inquiring into their actual beliefs).

GENESIS OF THE DOCTRINE Carlill v. Carbolic Smoke Ball [1893] crystallised the doctrine. CA held that the Carbolic Smoke Ball Company's advertisement made plain that prospective customers were intended to believe that the company was making a binding offer to pay 100 pounds if the product did not work, particularly since the company declared that 1000 pounds had been 'deposited in the Alliance Bank' as a token of its serious intent.

RATIONALE OF THE DOCTRINE This doctrine stems from the principle of freedom of contract. The 'intent' doctrine allows the parties to contract out of the legal regime through 'honourable pledge' clauses and 'subject to contract' clauses. The 'intent to create legal relations' doctrine also allows the court to take into account various practical/policy factors. It can be used to deny legal effect to technical bargains (i.e. arrangements would be enforceable if consideration alone determined the question of enforceability)?

There is the objective triviality of any social or domestic promises; it would also be inappropriate for domestic/social promises to be subject to the heavyhanded and intrusive process of the system of contract law. There is also the fear of excessive litigation if every technical 'bargain' were capable of being sued upon.

DISCOVERING 'INTENT' OR ITS ABSENCE As it may be difficult to tell from parties' conduct whether they did have an intention to create legal relations, the courts have developed a number of presumptions as to the parties' intent: Non-commercial' context If the agreement is concluded in a domestic/social context, it is presumed that the parties did not intend to create legal relations unless there is clear evidence to the contrary (Balfour v Balfour [1919]) In Balfour v Balfour (decision approved by Lady Hale in Granatino v Radmacher
[2011]), where the wife sued her husband over his promise to pay her money every month during their enforced but ostensibly amicable separation, CA held that there was no contract. Thus Balfour negatives promises between spouses even where consideration is present, only if the promise is made while the marriage is harmonious. Majority in Granatino v Radmacher [2011] held

Balfour principle (ie harmonious or not) would apply in ante or post nuptial arrangements and not draw a distinction between them.-Cf Merritt v. Merritt [1970], the promise was made while the marriage had broken down. The husband left his wife for another woman, and his wife insisted that he write down his promise that the wife would become solely entitled to the matrimonial home if she paid off the remaining mortgage instalments. CA issued a declaration that the property should be transferred from their joint names into the wife's sole name
? Could also be due to performance of the contract by one party ie the wife paying off mortgage in this case Cf Jones v Padavatton (1969) (Mother gave daughter licence, daughter took too long to finish studies, fell out with mother, mother kicked her out), only Danckwerts LJ supports familial presumption in Balfour case. Other judges (Fenton-Atkinson and Salmon LJJ) examined the particular facts (eg contractual licence ended followed by the effluxion of a reasonable period of time which the daughter was expected to complete her legal studies) rather than resorting to mechanical presumptions
? Supports view that Balfour decision confined only to promises during happy matrimonial relations and mostly social and informal undertaking (unlike Jones v Padavatton (1969) where there was no licence) Cf Parker v Clark (1960) where a promise between friends was held to be enforceable. Agreement to live in estate and provide "support services", in return will get one-third joint estate. Friends later fell out. Held the promise was enforceable
? Devlin J emphasis placed that the arrangement occurred over a significant period that resulted in it being enforceable

Displacing the non-commercial presumption These factors seem to guide the courts in determining whether the presumption will be rebutted:

1. Where one party has performed his side of the agreement and is seeking to hold the other party to their side of the deal, the court will be more likely to find that the presumption is rebutted, because it seems unfair that one party should do something for the other without getting what he was promised in return (Meritt v Merritt [1970], where wife paid off mortgage)

2. Where both sides have performed the alleged contract, it will be unrealistic to suggest that there was no intention to be legally bound

3. The more commercial the context, the more likely it is that the presumption will be rebutted.

4. The closer the parties are to dealing at arm's length, the more likely the presumption is to be rebutted, so if the relationship was close to breakdown at the time of the agreement, this will point towards rebuttal eg Meritt v Merritt [1970]
In any case an agreement by deed will seal matters in favour of enforcement (in the absence of misrep, duress or undue influence).

Commercial context If an express agreement is concluded in a commercial context, the onus of demonstrating that there was a lack of intention to create legal relations lies on the party asserting it and it is a heavy one. If it is alleged that an implied agreement has been reached in the commercial context, it is for the party alleging the existence of the contract to show that there was an intention to create legal relations (i.e. the presumption that there is an intention to create legal relations in the commercial context only applies if there is an express agreement (Baird Textile v M&S [2001] where held M&S no intention to create legal relations as no long term agreement. Mance LJ: this case shows that the "commercial" presumption of enforceability cannot apply unless the court can first identify an "explicit" or "apparent" promise) Expressly displacing the commercial presumption The presumption will be rebutted if the agreement expressly provides that there is no intent to create legal relations. Examples include: (a)
`honourable pledge' clause clearly stating that the agreement was not a legal agreement. (b)

`subject to contract'

The words "subject to contract" have a prima facie meaning in making the formation of any contract contingent upon the execution of a formal document. Parties should be careful to label their pre-contractual negotiations as subject to contract if they do not want find themselves inadvertently bound to a contract, if the other party manages to convince the court that there has been offer and acceptance + intention to create legal relations + consideration. Even if the phrase 'subject to contract' is not explicitly used, CA in Grant v Bragg
[2009] acknowledged that a clear requirement that an oral/emailed consensus should be finalised in writing is sufficient to imply that the parties' dealings are 'subject to contract'. Lord Neuberger interpreted the statement 'I understand that Russell would definitely require your signature to the [draft contract]' as making it clear that there was to be no contract until there had been a formal signing of the draft. In exceptional cases such a condition will not be given this effect, such as where in context the parties cannot have intended the words to have the usual meaning. In Alpenstow v Regalian [1985], the court held that one would expect to find the words "subject to contract" at the preliminary stage of a negotiation, not some four to five months into negotiations. Here, the court interpreted the 'subject to contract' formula to mean that that defendants' acceptance should be conditional on the coming into existence of some OTHER contract. SC in RTS v Molkerei [2010] (D insisted that because "SUBJECT TO CONTRACT" had still been included, there was no contract, as CEO had yet to formally sign the contract though work for installation of the machinery had already begun) held that the parties conduct can indicate a joint intention to disapply the

'subject to contract' bar. However, the court will need to find clear evidence that all points of dispute have been resolved during the negotiations AND that the parties have substantially performed under the intended transaction. Letters of Comfort: no intention to create legal relations: Kleinwort Benson v Malaysian Mining [1989] where letter written "it is our policy to ensure that of business of [X, the subsidiary company] is at all times in a position to meet its liability to you under the [loan facility] arrangement". Comforted by this, C lent money to X. X went insolvent and C later sued. Held letter was not an intention to create legal relationsThe presumption that commercial arrangement are legally enforceable, as recognised in Edwards v Skyways Ltd (1964), only applies if one can identify a promise
? But letter was couched in the present tense (though this phrase was not explicitly said by the court) and thus did not constitute a promise that it would continue to ensure that this was so
? This was also read in light that the parent company refused to give C a standard guarantee, seen as further evidence that the letter was not intended to create a legal obligation

Estoppel can also override the 'subject to contract' clause. Borderline of `commercial and non-commercial' relations For agreements lying somewhere between an obviously commercial transaction and a social exchange, the onus is on the person claiming that a contract existed to establish an intention to create legal relations, albeit that the onus is less heavy than in the purely social context. In these borderline cases the court cannot confidently invoke the presumption of enforceability, nor its converse. Instead the court must make a value judgment

1. Trade Unions: collective agreements (between a trade union and employer) presumed unenforceable unless the parties explicitly declare otherwise (s 179, Trade Union and Labour Relations (Consolidation) Act 1992)

2. Athletes and Athletic Federations: In Modahl v. British Athletic [2001]
(defendant for breach of contract and claimed damages for expenses and loss of income during the period of her suspension from competition, on the basis that the defendant had been in breach of an implied obligation to take all reasonable steps to ensure that those who sat as members of the disciplinary committee were free from bias and that the claimant would have a fair and impartial hearing), CA decided that there can be a contract between a sportswoman and her governing body even if it has never been formally acknowledged. Although there was no exchange of offer and acceptance the contract arose from repeated invitations to Modahl to run on behalf of the sports body. There was also an intent to create legal relations on these facts. Although not a fully-fledged commercial relationship, the facts concerned an 'arm's length' relationship between a sportswoman and her 'ruling bodies'.


Points of emphasis:
? Emphasis placed by courts on claimant's conduct in joining a club, in competing at national and international level on the basis stated in the rules and in submitting herself to both in- and out-of-competition doping tests is that she became party to a contract with the defendant subject to the relevant terms of the rules.
? Possible to read evidence of more in tune with commercial context that modern sporting scene, which, whatever the labels of amateurism, has aspects affecting substantially the career, livelihood and prosperity of participants.

3. (Some types of) Clergy/Priest: In Preston v President [2013] SC held that a priest within the Methodist church does not have a contractual relationship with her Church and so was not an employee .
- Points of emphasis:
? Lack of contractual relationship found due to: the lifelong commitment of the minister, the exclusion of any right of unilateral resignation and the characterisation of the stipend as maintenance and support
? The mere fact that the arrangement includes the payment of a stipend, the provision of accommodation and recognised duties to be performed by the minister, does not without more resolve the issue.
? The question is whether the parties intended these benefits and burdens of the ministry to be the subject of a legally binding agreement between them.

THE FUTURE Three views: (1) Intent to create legal relations should be excised as a separate doctrine and treated as merely an aspect of 'offer and acceptance' (O'Sullivan and Hilliard). The very essence of an offer (and an acceptance) is that it indicates that the maker intends to be legally bound, so if the parties do not intend their agreement to create legal relations between them, there will be no offer or acceptance. (2) 'Intent' should be allowed to oust the doctrine of 'consideration'; 'Consideration' is an inexact and indirect way of posing the question addressed more precisely by the doctrine of 'intent to create legal relations': is this promise supported by a shared wish to create legally binding rights and duties or is the promise too casual and informal to have legal force?
The better view is that this bargain test is not just a roundabout way of discerning an 'intent' to create legal rights (on the basis of an inference that a 'bargain' is normally intended to be legally binding but a promise of pure generosity is not). Consideration encapsulates the paternalistic policy that the promisor should be protected against the risk of squandering too liberally his assets by making gratuitous promises. Even if the promise were sincerely

intended to create legal rights the purpose of the 'consideration' doctrine is to give the gratuitous promisor the right to change his mind, preventing him from being sued for the benefit not conferred. (3) 'intent' is here to stay, as a separate doctrine.


1. Formality, by use of a `deed'

2. `Consideration', the element of bargain (requested detriment and/or requested benefit, or the exchange of promises); or

3. Induced but unrequested reliance (estoppel)

DEEDS A gratuitous promise is not enforceable, because the element of bargain/'consideration' is missing, even if made in writing and signed. However, a gratuitous promise is enforceable if presented as a 'deed'. According to section 1(2), 1(3), LPMPA 1989, a deed has to fulfil the following requirements:

1. Signed by the covenantor ('the promisor),

2. The signature is witnessed by a third party ('attestation'), and

3. The document is activated by 'delivery'(normally, but not necessarily, involves the document's physical transfer to the covenantee or his representative). Most types of contract need not be made in writing. An exception to this are contracts involving the sale or other disposition of an interest in land (s2(1) LPMPA 1989) . Sometimes a proposed contract will require signature, not because this is a positive rule of law applicable to the transaction, but because the parties have rendered the agreement 'subject to contract'. Otherwise, parties might enter into a binding contract even though a signature has not been added. CA in Maple Leaf v Rouvroy [2009] held that a company had become party to the relevant transaction even though it did not sign the relevant documentation. It had instead notified its assent by email. There was no prescribed mode of acceptance in this case. "The fact that the agreement envisages a signature and leaves a space for those signatures is not a 'prescription' that the agreement can only become binding on the appending of signatures. The signatures are evidence and no doubt the best evidence of what had been agreed but are not themselves conditions of the agreement." (Longmore LJ)

CONSIDERATION A contract must be 'supported by consideration'. It is not enough that an offer made by one party, made seriously and with the intention to create legal relations, has been accepted by the other party. Consideration is required not just when a contract is formed, but also if the contracting parties wish to vary or discharge their contract by agreement.

Consideration is the 'price of the promise' - what one contracting party is getting, in return for his promise, from the other. Lord Dunnedin in Dunlop v Selfridge [1915] defined the consideration doctrine as follows: An act or forbearance of one party[the promise],or the promise thereof is the price for which the promise of the other [the promisor] is bought, and the promise thus given is enforceable.Consideration is widely viewed to include:
? Swapping of promises
? Suffering of detriment without any gain
? Conferring a benefit onto an unrelated 3rd party

An element of detriment or benefit will suffice: the claimant need not show both, although most contracts involve both elements. Examples include:?Simultaneous contract and performance, like sale of goods: X gets the goods and provide, by way of consideration, the price in return; the supermarket gets the price and provides, by way of consideration, the goods in return. Bilateral contract made before it is due to be performed: A's promise is the consideration for B's and vice versa. (A's promise is only good consideration for B's because the law regards it as enforceable and therefore of value, and it is only regarded as enforceable because it is supported by consideration. But it is only supported by consideration if B's promise is enforceable. Goes on ad infinitum) Unilateral contract, as where A makes a promise to pay money if B performs a specified act. B provides consideration by doing the specified act.

Request If X asks for something from Y, that will be the consideration for X's promise. Courts might be prepared to imply a request where that was a reasonable way of understanding what was said. In Combe v Combe [1951], the husband's solicitor wrote to his wife's solicitor, in the course of divorce proceedings and stated that the husband had agreed to pay her an allowance of PS100 per annum. In reliance on this, his ex-wife did not apply to the courts for an order for maintenance, but the husband failed to make any of the promised payments and the ex-wife sued. CA held that the husband's promise was not supported by consideration and was thus unenforceable. There was no request by the husband, express or implied, that the wife should so forebear from applying for a maintenance order.

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