Q2 To create a contract there must be a common intention of the parties to enter into legal obligation’. Discuss.
Marks 15
Intention to Contract
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Q2 To create a contract there must be a common intention of the parties to enter into legal obligation’. Discuss.
Marks 15
© 2020 ChinarLawInstitute.Com All rights reserved
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To create a contract there must be a common intention of the parties to enter into legal obligation’:
In order that an offer, after acceptance, can result in valid contract, it is necessary that the offer should be made with an intention to create legal relationship. Promise in the case of social engagements is generally without an intention to create a legal relationship. Such an agreement , therefore cannot be considered to be a contract.
As per section 2(h) an agreement which is enforceable by law is called as contract. Therefore every contract is an agreement but only that agreement will become contract which fulfill the certain requirements of a valid contract these requirements are:
1.Conditions of section 10.
2.Consideration under section 25
3.Intention of parties
The requirement of ‘Intention to create legal relations’ constitutes one of the most significant conditions of a valid contract in many jurisdictions around the globe— both developed and developing. Contract Act, being an Act governing relations between private parties, cannot be interpreted in the court of law without giving much weightage to the intention of the parties forming such contract.
English law
As per Lord Atkin in Balfour v. Balfour(1919) it was held that intention to contract is an important ingredient to create a contract . intention here means intention to create legal relationship. Similarly in Rose and Frank company v. J.R.Crompton & Bros. Limited(1925) held that there must be an intention to follow legal consequences. Therefore parties must have the intention to fall into the clutches of law then only there will be an intention to contract. To see whether in a contract there is an intention of parties or not is depend upon the facts and circumstances of the case.
As it was held in Jones v. Padavatton(1969) that the parties have no intention to enter into a contract therefore it is not enforceable.
As it was held in Simpkins v. Pays(1955) that parties have intention tocontract therefore it is enforceable by law.
In Meritt V. Merrit (1970) it was held that in this case it was clear that the parties intended to create a legal relationshipand therefore the husband was bound by the contract.
Indian law
In our Indian law the intention to create legal relations is not given as an essential ingredient of contract law, but even the apex court of India has expressed its reservation about the need of this separate requirement of “intention to contract” under the Contract Act. It is sufficient if the parties show that consideration is part of contract to legally bind the parties. It is presumed that there exists an intention to create contract, when the parties show that the agreement contained clause as to consideration. Consideration is one of the essential elements of a valid contract. The requirement of consideration stems from the policy of extending the arm of the law to the enforcement of mutual promises of parties. A mere promise is not enforceable at law. Consideration is the price for which the promise of the other contracting party is bought. Nevertheless, this price need not be in terms of money. If the promise is not supported by consideration, the promise will be nudum pactum (a bare promise) and is not enforceable at law. Furthermore, the consideration must be real and lawful. The test of contractual intention is objectivity, not subjectivity. The deciding factor is not what the parties had in mind, but what a reasonable man would think, in the circumstances, their intention to be
1.In Banwarilal v Sukhdarshan Dayal (1973 SC) the court held that since the announcer was not serious at the time of making the proposal therefore it is not a valid contract.
2.In Commissioner Wealth Tax v Abdul Hussain it was held that the test of intention is objectivity and not subjectivity. Though the Supreme Court in the above 2 cases not expressly made intention as a important point for a contract still it can be derived that the court is tilted in favor of making it a requirement in India. As per Dr. Avtar Singh it is concluded that in India also there must be a requirement of the concept of intention to contract.
3. In Speech Software Technologies v. Neos Inter Active Limited (2009SC) it was held that agreement to agree in future is no contract because the terms are unascertain at presentand there is no intention to contract.
Therefore in Indian law by virtue of above 3 judgment intention to contact is must.
Conclusion
It has been rightly stated that “An agreement, even though it is supported by consideration, is not binding as a contract if it was made without any intention of creating legal relations. Of course, in the case of ordinary commercial transactions, it is not normally necessary to prove that the parties in fact intended to create legal relations.” The position in England and in India in relation to intention to create contract is inversed reality. In England, the legal development on the principle of intention to create legal relationship has ensured that the marginalization of consideration only as an evidentiary factor. But in India, consideration is essential to prove the existence of legal intention to bind parties to the contract. It is a non negotiable element in the formulation of binding contractual liabilities.
Marks 11
Write in your own language
Intention to create legal relations is defined as an intention to enter a legally binding agreement or contract. It is one of the necessary elements in formation of a contract. It is because, intention to create legal relations consists of readiness of a party to accept the legal sequences of having entered into an agreement.
English law is very clear on ‘intention’ as pronounced through various judgments.
In the landmark case of Balfour v Balfour (1919), as per Lord Atkin it was held that intention to contract is an important ingredient to create a contract. Intention here means intention to create legal relapionship.
In this case, the defendant who worked in Ceylon, came to England with his wife on holiday. He later returned to Ceylon alone, the wife remaining in England for health reasons. The defendant promised to pay the plaintiff £30 per month as maintenance, but failed to keep up the payments when the marriage broke up. The wife sued. It was held that the wife could not succeed because: (1) she had provided no consideration for the promise to pay £30; and (2) agreement between husband and wive is not a valid enforceable contract because the parties do not intend them to be legally binding i.e. the parties had no intention to enter into legal relationship.
Similarly Bankes Justice in Rose &Frank Co. v J.R. Crompton and Bros. held that there must be an intention to follow legal consequences.
Therefore, parties must have the intention to fall into the clutches of law then only there will be an intention to contract. Whether in a contract paties had intention or not would be decided byits own facts and circumstances
Moreover, in Jones v Padavattan (1969), Jones v Padavatton (1969), the court held that parties had no intention to enter into a contract. Therefore, it is not enforceable. In this case, in 1962, Mrs Jones offered a monthly allowance to her daughter if she would give up her job in America and come to England and study to become a barrister which was later on breached. It was held that the it was a family arrangement and not intended to be binding.
Simpkins v Pays (1955)
The defendant, her granddaughter, and the plaintiff, a paying lodger shared a house. They all contributed one-third of the stake in entering a competition in the defendant’s name. One week a prize of £750 was won but on the defendant’s refusal to share the prize, the plaintiff sued for a third. It was held that the presence of the outsider rebutted the presumption that it was a family agreement and not intended to be binding. The mutual arrangement was a joint enterprise to which cash was contributed in the expectation of sharing any prize. Thus, the parties had intention to enter into a contract therefore enforceable by law.
Indian Law
Under the Indian Contract Act, there is no provision which makes intention to contract a mandatory requirement. However, there are various judgments which makes intention mandatory in India as well for a valid ontract. These are as follows:
1. Banwarilal v Sukhdarsan Dayal (1973 SC)
In this, the case was about a plot that was reserved for dharmashala was sold to one Manohari Devi who in turn sold to defendant. Defendant constructed a wall around the plot. Plaintiff than filed a permanent injunction that the plot was reserved for dharmashala and hence should be restored. It was contended that it was announced over a loudspeaker, while the housing scheme was being advertised, that a plot will be reserved for a Dharmshala. The Court held that since the announcement was not serious at the time of making the proposal, it is not a valid contract.
2. Commissioner Wealth Tax v Abdul Hussain.
Supreme Court held that test of Intention is objectivity and not subjectivity. Though the SC in the above two cases nowhere expressly made ‘intention’ as important ingredient for a contract, still it can be derived that the court was tilted in favour of making it a requirement in India.
3. Speech Software Technologies v NEOS InterActil Ltd (2009SC)
In this case, it was held that agreement to agree in future is no contract because:
i. The terms are uncertain at present
ii. There is no intention to contract
Therefore, in India, by virture of above three judgments,intention to contract is a must.
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Test of intention to contract is objectivity and not subjectivity
What intention do the courts take into account while dealing with different situations before them—the ‘subjective’ intention or the ‘objective’ intention? In Merritt v. Merritt [1970], Lord Denning held “the court does not try to discover the intention by looking into the minds of the parties. It looks at the situation in which they were placed and asks itself: Would reasonable people regard this agreement as intended to be legally binding?” Also in Smith v Hughes [1871] it was decided that a person’s conduct with regard to the quality of the subject matter proposed by the other party is determined by the reasonable man regardless of the per- son’s actual intentions
To sum up, a contract is not enforceable unless the parties intended the contract to create legal relations. Whether or not the parties intended to create legal relations is determined accurately by examining the circumstances existing at the time of execution of the contract. The balfour law gave a new perspective to the contract validation.
Marks 14
Impressive answer
Common Intension between parties is very essential element. Without the common intension no Contract or Agreement cannot become a valid contract.
The Intension of both the parties should be legal. Fundamental principle of Contract law is that the contracting parties must actively intend to enter into an arrangement that creates legal obligations. To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly.
In 1919, Lord Atkin held in Balfour v Balfour[3] (where a husband promised his wife to pay maintenance while he worked in Ceylon) that there was no “intention to be legally bound”, even though the wife was relying upon the payments, But the husband did not pay the amount which he had promised. The judge stated that as a general rule, agreements between spouses would not be legally enforceable.
Marks 6
More explanation required
In order to form a valid agreement after acceptance, a proposal has to be made with an intention to create a legal relationship. The test to judge the intention is an objective test and not a subjective one; the intention at the time of making the proposal is what material e.g. in an agreement to go for a walk, to go to a movie etc. there is no intention to create a legal relationship.
In Appleson vs. Littlewood Ltd. (1939), the parties may expressly mention that there is no intention to create a legal relationship. In other cases, the intention has to be derived from the nature of the agreement. Generally, in social engagements such an intention is presumed to be lacking.
In the case of Balfour vs. Balfour, it was held that the agreement in the case was not intended to create a legal relationship. There are certain agreements which are not contracts in the legal sense viz. an agreement to go for a walk etc. An agreement between a husband and a wife generally lacks such an intention (to create legal relationships) as the parties (husband and wife) can be presumed not to hav intended to be attended by legal consequences. Later on, the above rule was extended to other close relationships e.g. parents and children, in the case of Jones vs. Padavatton (1969), it was held that as the contract had not been reduced to writing nor the duration for which she was to be maintained had been mentioned to create a legal relationship could be impacted.
Conclusion – Thus, it is the intention (to be tested on the criterion of objectivity) that is material. The intention can be inferred from a variety of facts. But generally in case of social relationships (particularly close relationships), such intention is presumed to be lacking unless the contrary is proved.
Tests
1. Intention important – To create legal relationships
2. Objective test – Facts to be seen
3. Intention at the time of the agreement is important
Marks 7
More explanation required
An agreement enforceable by law is a contract. One of the essential elements of a valid contract is the intension of the parties to enter into a valid contract, and create a legal relationship which must be entered into with free will, and should be practically possible to be performed.
The intension must be express or implied. The intension to the contract must be same for both parties, which may also mean that there must be meeting of mind of the parties to the contract. Both the parties must have the same intension to the contract.
In the case of Balfour v Balfour, it was held by the court that there was no intension to create a legal relationship, and hence it cannot be considered as a valid contract. It was held in this case that as Mr. and Mrs. Balfour had failed to expressly declare their intention for their agreement to be legally binding, Mrs. Balfour could not recover payments that she felt were owed to her by her husband under the arrangement, made between them.
In order to create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly. This intention may be found to be expressed or implied through an analysis of the subject matter of the contract, or the conduct of the parties. The parties must have intended to create a legal relationship
Marks 8
More explanation required
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