Importance of Intention to Contract

Importance of Intention to Contract

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Introduction

 

            In any business transactions in which large amount of money and intention are involved, creation of a contract is necessary. In the case of Chris, Jas and Pat, their agreement concerning the buying of equipments and installation of it to Pat’s shed should have an enforceable contract.  However, in the creation of this contract, certain terms and conditions must be reviewed carefully in order to identify its impact if one of them breaches this contract. In addition, the terms and conditions should be fair enough to the parties involved.  And since the purchase of the necessary equipment is for their benefit, thus certain shares of money should be divided among them.  It means to say that there is a need to have an agreement regarding the money involved in this transaction.  With this respect, the following discussion will relate the importance of intention to contract with respect to the given case of Chris, Jas and Pat.

 

Discussions

 

To start with the context of this paper, let us define first what contract is. According to Wehberg, H. (1959), the contract is “an exchange of promises between two or more parties to do or refrain from doing an act which is enforceable in a court of law.” Basically, this is the stage in which an unqualified offer passed in acceptance and the parties engaged reach Consensus ad Idem. Meaning, the parties must have the essential capability to have an agreement/contract and this should not be insignificant, indefinite, unfeasible or unlawful. Usually, written contracts are required specifically when buying a house. However, most contracts can be and are made orally, such as what happened in the case of Chris, Jas and Pat. Contract law can be classified, as is usual in civil law systems, as part of a general law of obligations.

Apparently, under UK law, an agreement sustained by reflection is not enough to create a legally binding contract, the parties must also have an intention to create legal relations (Salanié, B. 1997). Usually, the intention to create legal relations is specifically stated by the contracting parties. In other cases, the law will readily imply the intention, because of the nature of the commercial dealings between the parties.

The existence of consideration is often indicative of the intention to create legal relations, though there are situations where the presumption of the intention can be rebutted, thus determining that there is no contract and no legal liability.

In many domestic agreements, in which our subjects Chris, Pat and Jas are not covered, the agreements made between wives and husbands and children and parent, there is no intention to create legal relations and no intention that the agreement should be subject to litigation. Actually, familial relationships do not disqualify the arrangement of a binding contract, although to create contractual relations, there must be a comprehensible/lucid intention on either party to be bound.

In commercial agreements in which we may consider the case of Chris, Pat and Jas, there is a rebuttable presumption that parties intend to create legal relations and conclude a contract (Salanié, B. 1997).  As indicated in the paper of Salanié, B. (1997), in determining whether parties have created legal relations, courts will look at the intentions of the parties. If in the course of business transactions, the parties clearly and expressly make an agreement stating that it ought not be binding in law, then a court will uphold those wishes. However, if a court is of the view that there is any ambiguity of intention, or that such intention is unilateral, such contract will be voided. The burden of rebutting the presumption of legal relations in commercial agreements lies on the party seeking to deny the contract. In terms of commercial contracts involving large sums of money, case law has determined that it is a heavy burden.  With this consideration, the parties specifically Pat and Jas clearly agreed on the purchase of the necessary equipment which justify their intention to create legal relations which could be the basis of contract but the conditions regarding this agreement is not clearly stated.  Actually, it has been decided in the UK, that so called “Letters of Comfort” (Steyn, L. 1997), which express a parties intention on business dealings can amount to an intention to create legal relations and so bind a party in contract, but that it will depend on the nature of the specific wording used (Steyn, L. 1997).

Basically, there can be no contract without the requisite intention. And if we reviewed the case of Chris, Pat and Jas, there is an intention for the parties to buy necessary equipments of their satellite link , therefore, creation of contract is possible. As we note, contract with the requisite intention is trite law (Balfour v Balfour).

Actually, not only in the case of Chris, Pat and Jas raised the question of the intention to create legal relations but also some agreements between some known companies and trade unions (McKendrick, E. 2005). The paper of McKendrick (2005) pointed out that collective agreements are generally not intended to be legally binding. It has been held that specific provisions of collective agreements can be incorporated into individual contracts of employment and thus legally binding.

The intention to create legal relations is an essential feature of contract law in the UK, and the existence of the intention will depend on the nature and form of the contract and the contracting parties (Atiyah, P.S. 1986).

Although we have observed that the reasons for making some promises (for example, the promises involved in marriage) are much stronger than the reasons for making other promises (for example, the promises involved in ordinary buying and selling or like what Chris, Jas and Pat made). The explanation that naturally suggests itself is that the community created by marriage promises somehow exercises a greater draw on persons than the community created by promises to buy and sell–perhaps because it involves sharing more significant ends, or even a more significant mode of sharing.

With respect to the case, we may say that contract presents a special case of promise, and a species always incorporates the essential characteristics of the genus to which it belongs, so that the reasons for making and keeping contracts must be expressed in terms of the reasons for making and keeping the promises that contracts involve. Thus, both the intention and conditions should be apparent and clearly stated. The focus on contract therefore represents not a new departure but a move inward–an effort to elaborate the precise forms of respectful community that arise in connection with the particular class of promises presented by contract (Bolton, Patrick and Dewatripont, M. 2005).

As shown in the case of Chris, Jas and Pat, contract law governs transactions involving one or more promises. We may say that a promise is a commitment or assurance that something will (or will not) be done in the future. This commitment or assurance invites reliance by the promisee.

Promising takes place within the context of a social practice and derives its significance from that practice (Barnett, R.E. 2003). A social practice is established whenever people engage in a regular pattern of conduct because they agree that this is the right way to act. The behavioral regularity that we observe in a social practice is the result of people internalizing the rules of the practice and judging each other’s conduct by these rules.

In the social practice of promising, we have one important rule: “Keep your promises!” Most members of our society adhere to this rule most of the time, because they believe this is the right way to act. Because promises are usually kept, it is usually reasonable to rely on a promise, and promises are usually relied upon.

The social practice of promising is quite rudimentary and incomplete, however. It is not highly developed like our practice of mathematics or our linguistic practices or our game of baseball. We have our basic rule, “Keep your promises!” But the practice of promising does not determine, in any precise way, what counts as a promise. It is generally agreed that one need not say “I promise” in order to make a promise, but we have no agreed-upon test specifying which kinds of words or actions constitute a promise and which do not. Nor does our promising practice include a set of rules determining what counts as an excuse or justification for breaking a promise. Few would maintain that all promises are absolutely binding, but those who recognize excuses do not agree as to which circumstances justify breaking a promise. Furthermore, our promising practice lacks a generally accepted method for interpreting promises. Promising is a speech act often riddled with ambiguity, and in the absence of a prescribed method of interpretation, the social practice cannot establish what an ambiguous promise means and thus cannot determine whether certain promises have been kept or broken. Finally, our social practice of promising does not prescribe penalties or sanctions (other than general social disapproval) for unexcused promise-breaking.

If our legal system is to enforce promises, it must thus go beyond the social practice in establishing rules and standards by which contractual disputes are to be resolved. Nevertheless, if a social practice or usual way of doing things exists and is relevant to some legal issue, we can expect the legal system to take it into account. In the Uniform Commercial Code, for example, the word “agreement” is defined to include not only terms expressly agreed upon, but also “usages of trade” recognized as business customs, and any “course of dealing” or “course of performance” established by the manner in which the two parties to the agreement have been doing business with each other. Our legal system thus gives effect to many implied promises that were never expressed in the promisor’s words but are implied by the usual way of doing things. In the eyes of the law, a person who voluntarily engages in a transaction of a type involving normal practices will be held to have promised to abide by the usual way of doing things, unless he clearly expresses himself to the contrary.

Another source of implied promises is the objective approach courts take in deciding whether a promise has been made. Given the lack of a definitive social practice determining what counts as a promise, courts could take a subjective approach and say that a person has made a promise only if she actually intended to commit herself, or courts could take an objective approach and say that a person has made a promise if her words and conduct could reasonably be interpreted as a commitment. Because it is often impossible to know what a person intended in her own mind, and because of a perceived need to protect those who reasonably rely on what looks like a promise, our courts generally take an objective approach. Thus, a person may be bound by a promise implied by her words or conduct, even though she never expressly said “I promise” and never even intended to commit herself.

When we consider all the promises implied from business practices or the usual way of doing things, and all the promises implied by some reasonable contextual interpretation of words or conduct, we find that a vast number of the promises enforced by our courts are implied promises. When we say that contract law governs transactions involving a promise, we must therefore use the word “promise” in a broad sense that makes room for a variety of implied promises.

 

Conclusion

As evidently observed in the case, contracts generally do not, however, involve shared cooperative activity. Some forms of promise, especially among intimates, may well invoke the intentions in favor of mutual support that constitute the core of cooperation (think of the traditional marriage vow’s language “in sickness and in health” or indeed of contractual promises to establish partnerships or joint ventures. But contracts can arise among parties who retain opposed interests in the joint activity that the contracts contemplate and who are each unwilling, when the other stumbles and places the success of the joint activity in jeopardy, to shoulder any uncompensated increases in their shares of the burden of the joint activity. And although even discrete contracts do not necessarily involve parties who are in this sense uncooperative–although even discrete contracts may be sufficiently profitable, and the costs associated with their breakdown sufficiently large, so that the parties are willing to shoulder additional uncompensated burdens in order to keep their contracts afloat–the legal structure of the discrete contract relation characteristically accepts such uncooperative participants. As a general matter, a material breach by one party to a contract relieves the other of its obligation of return performance. Moreover, the law never requires a disappointed promisee to catch a stumbling promisor and (shouldering the burden herself) ensure that the contemplated performance occurs. In place of mutual support, contract imposes only a much thinner nondefection condition on joint intentional activity. The parties to a contract need not be willing to compensate for each other’s shortcomings; they need only be committed to not stumbling first.

 

 

 

References:

 

Atiyah, P.S. (1986) ‘Consideration: A Restatement’ in Essays on Contract, Oxford University Press, p.195.

 

Barnett, R.E. (2003) Contracts, Aspen Publishers ISBN 0-7355-6535-2

 

Bolton, Patrick and Dewatripont, M. (2005) Contract Theory, MIT press.

 

McKendrick, E. (2005) Contract Law – Text, Cases and Materials, Oxford University Press ISBN 0-19-927480-0

 

Salanié, B. (1997) The Economics of Contracts, MIT Press, Cambridge, Mass. & London, England.

 

Steyn, L. (1997) Contract Law: Fulfilling the Reasonable Expectations of Honest Men, 113 LQR 433.

 

Wehberg, H. (1959), Pacta Sunt Servanda, The American Journal of International Law, Vol. 53, No. 4 (Oct., 1959), p.775.

                                                               

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