‘To create a contract there must be a common intention of the parties to enter into legal obligation’. Discuss.

Question: ‘To create a contract there must be a common intention of the parties to enter into legal obligation’. Discuss. [BJS 1977]

Find the answer to the mains question of the Law of Contract only on Legal Bites. [‘To create a contract there must be a common intention of the parties to enter into legal obligation’. Discuss.]

Answer

Every set of promises does not constitute a contract. It is essential that the promises be made with an intention to either create a legally binding promise or to create legal relations. A mere gratuitous promise does not constitute a contract. The intention to create legal relations must be determined on objective considerations.

In order that a proposal may be binding by acceptance, it must be such as can be reasonably regarded as having been made in contemplation of producing legal consequences. An agreement is not a contract without an intention of creating legal relations, even though supported by consideration.

A contract is created by the common intention of the parties to enter into legal obligation, and the intention is inferred when the parties to an agreement conform to the rules of law for the formation of contracts.

For example, an agreement in the context of family or social relations may not be based on an intention to create a legally binding promise. On the other hand, an agreement in the course of commercial relations will generally be held to have been entered into with the intention to create legal relations.

Thus, a gift or an agreement to help a company to obtain land or a document that is executed, but is not intended to be acted upon, are not contracts. The burden of establishing that an arrangement has been made without an intention to establish legal relations is on the person who alleges it.

It is now established that an agreement will not constitute a binding contract unless it is one that can reasonably be regarded as having been made in contemplation of legal consequences.

A mere statement of intention made in the course of conversation will not constitute a binding promise, though acted upon by the party to whom it was made, and even negotiated agreements do not necessarily give rise to legal obligations.

For example, as held in Ford Motor Co Ltd v. AUEFW [1969] 1 WLR 339, a collective agreement between employers and trade unions is conclusively presumed not to have been intended by the parties to be legally enforceable unless it is in writing and contains a provision stating that the parties intend it to be a legally enforceable contract.

But this intention may be negated, impliedly by the nature of the agreed promise or promises and expressly. The contractual intention may be negated by many factors. Whether or not there is a contractual animus must depend largely on the true construction of the documents from which that animus is to be inferred.

The test of intention to create legal relations is an objective one. Although the promisor never intended to create legal relations, he will be bound if a reasonable person would consider that there was an intention to contract. Many social or domestic arrangements may not be contracts, as they are not intended to be legally binding.

In a leading case of Balfour v. Balfour, Atkin LJ stated “It is necessary to remember that there are agreements between parties which do not result in contracts within the meaning of that term in our law.

The ordinary example is where two parties agree to take a walk together, or where there is an offer and an acceptance of hospitality. Nobody would suggest in ordinary circumstances that those agreements result in what we know as a contract.”

(a) Social engagements

Sometimes it is clear from the nature of the agreement that there was no intention to enter into a binding contract. A prime example is social engagement. This is not always because such engagements are not reducible to a money value, for they often may be.

The acceptance of an invitation to dinner or to play in a cricket match, of an offer to share the cost of petrol used on a journey, or to take part in a golf club’s competition or between friends relating to musical performances by them form agreements in which the promisee may incur expense in reliance on the promise.

The damages resulting from breach might be ascertainable, but the Courts would hold that, if no legal consequences could reasonably have been contemplated by the parties, no action will lie.

(b) Family arrangements

Family arrangements are another category of agreement in which there may be no intention to create legal relations. Balfour v. Balfour [1919] 2 KB 571] is the leading example A husband was employed in a government post in Ceylon. He returned with his wife to England on leave, but she was unable to go back to Ceylon with him for medical reasons. He consequently promised orally to make her an allowance of £30 a month until she rejoined him. He failed to make this payment and she sued him.

The Court of Appeal held that, although it was not impossible for a husband and wife to enter into a contract for maintenance, in this case, they never intended to make a bargain that could be enforced in law.

While that decision has been criticized, agreements between spouses and between parents and children are, as we shall see, presumed not to be enforceable contracts. Thus, it has been said that a parent’s promise to pay a child an allowance while at university ordinarily creates only a moral obligation.

The test of an intention to create legal relations is an objective one. It may be that the promisor never anticipated that the promise would give rise to any legal obligation, but if a reasonable person would consider there was an intention so to contract, then the promisor will be bound.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X