The term legally binding contract that it is an agreement process where two parties are involved and one party are offers some conditions so that other party can accept it or negotiate it in a legal purpose. Discuss
Introduction:
An agreement is formed by a meeting of the minds of at least two parties, a mutual assent resulting from the expression of an offer by one and an acceptance of precisely that offer by the other. Contracts are legally binding agreements. Attorneys often use the terms “contract” and “agreement” interchangeably, but not just any agreement is a legally binding contract.[1] A contract is formed under the principle of Consensus ad idem, that is, all parties are in agreement as to the particulars of the contract. A contract will not be enforceable unless the parties intend to create ‘legal relations’. If no such intention to create legal relation exists, the agreement will be no more than an unenforceable promise. There is a presumption that social, domestic or family agreements are not legally binding as individuals make promises to each other on a regular basis that they would not intend to have legal effect.[2]Creation of legal relations is a doctrine in English contract law that states an agreement is legally enforceable only if the contracting parties may be deemed by the court to have intended it.[3] There is with most commercial agreements a strong rebut table presumption that parties intend to create legally binding relations. However, the reverse is true with most social and family agreements.[4]
Family and Social Agreements:
There is a presumption that agreements made in family, social or domestic contexts are not intended to be legally binding. This is because it is generally unusual for an arrangement between family members to be thought of in terms of legal consequences. It is more likely that both parties consider the promises made amount to nothing more than unenforceable obligations.
In domestic arrangements it is generally assumed that the parties do not intend to relate legal relations. In many domestic agreements, for example those made between husbands and wives and parents and children, there is no intention to create legal relations and no intention that the agreement should be subject to litigation. Familial relationships do not preclude the formation of a binding contract, though to create contractual relations, there must be a clear intention on either party to be bound. While there are conflicting legal authorities on whether specific facts involving familial relations result in binding and enforceable agreements, it seems settled that in domestic agreements there is a rebuttable presumption that the parties do not have intention to create legal relations.[5] Whilst most social agreements are not intended to have any legal consequences, this requirement of contracting has been labeled ‘fictitious’,[6] and ‘superfluous’.[7] However, it has been stated that the need for parties to show intent to contract is important, in allowing courts to dismiss frivolous social agreements, which for policy reasons should not be legally enforceable.[8]
Domestic agreements made between spouses are rarely found to result in legally enforceable contracts.[9] This principle was firmly established at common law by the early 20th century case of Balfour v Balfour,[10] where a husband’s promise to pay his wife an allowance of £30 a week – during his absence on business – was deemed unenforceable. Here, it was stated that as a general rule, agreements between spouses would not be legally enforceable:
The matter really reduces itself to an absurdity when one considers it, because if we were to hold that there was a contract in this case we should have to hold that with regard to all the more or less trivial concerns of life where a wife, at the request of her husband, makes a promise to him, that is a promise which can be enforced in law.[11]
This principle is not absolute however, and clearly in cases where spouses are not on friendly terms, it is important they be able to make enforceable agreements. Where a husband who left his wife agreed to transfer title of their house to her, if she paid off the remainder of the mortgage,[12] this was held to be enforceable. This is a necessary distinction; if it were not the case, it would be unduly difficult for divorced couples to make financial provisions, or to divide property.[13]
Agreements made between other family members may also be subject to the question of contractual intention,[14] as shown in the case of Jones v Padavatton.[15] Here, a mother made a promise to her daughter that she would pay her an allowance of $200 a month, and provide her with a house, if she moved to England and studied for the bar.[16] The Court of Appeal held that the mother held title to the house, as the agreement was purely domestic. However, Lord Denning stated in Hardwick v Johnson[17] that where good consideration can be shown for a domestic promise, this may rebut the principle that it is intended not to have legal consequences.[18]
Social agreements between friends, work colleagues, and those sharing households, are equally scrutinized when considering intent to create legal relations.[19] Agreements which encompass purely social activities, such as meeting for dinner, are never considered to be legally binding;[20] however, this principle has been extended even where financial bargains have been considered. In Coward v Motor Insurers Bureau,[21] one man’s agreement to pay his work colleague a sum for transport to work was deemed to be informal enough not to be legally binding.[22] Equally, the winner of a golfing competition failed to recover his prize where no one involved had intended to be legally bound.[23]
Case Example of Family Contract:
Jones v Padavatton [1969] Court of Appeal UK
The mother lived in London and her daughter lived in the USA. The mother (P) said that if daughter (D) went to London to take her Bar exams mum would pay her a monthly allowance. Defendant in fact went to England and mum paid tuition fees plus the monthly allowance. Mum then bought a large house for defendant to live in with rooms to be let to tenants. Defendant collected the rents but did not pass them on to mum. Defendant remarried in 1965, and in 1967 mum sought possession of the house. Defendant counterclaimed for £1655-00 which she had spent on the house.
One judge (Danckwerts) says little more than that this was one of those family arrangements not really intended to be binding, and that the Balfour principle could apply also to other family relationships. Another judge (Salmon) started by pointing to many of the standard things which it would be useful to remind ourselves of: – that if there is a contract then who has the onus of proof – here, the judge said that the onus would be on defendant to establish that. He also pointed out that the existence of a contract is a matter of intention – what, he asks, would ordinary people have intended by communicating with each other in this way? He took the standard line of saying that we apply an objective test – but we should perhaps take the opportunity to pause and ask ourselves whether the references to intention / ordinary / objective, give us any clear criteria regarding what is involved?
The judge also points to the presumption against intending legal relations in domestic arrangements – the presumption here being contrary to that of business arrangements. He says that if the daughter had gone to London, then surely the mother would not have been able to simply withdraw the allowance – the daughter would have had a contractual right to it? But, we might add, what claim would the mother have if the daughter just packed in her studies? Probably none – like the uncle in Shadwell if the nephew did not marry. These situations might look like a contract with obligations on one side only. Such a contract, he thought, would only run for a reasonable time to allow the daughter to complete her studies (say 5 years) – that would take her up to 1967. She cannot then be expected to gain anything further under the contract in 1968.
The remaining judge (Fenton Atkinson) asked what consideration there could be from the daughter. Giving up her job and accommodation might be sufficient. Then what evidence is there with regard to intention? When the daughter said, when she wouldn’t let her mum into the house that a normal mother doesn’t sue her daughter in court that could be taken as a clear indication that legal remedies were not intended to attach to the arrangement. But, we should ask, is it right to view the evidence in this way? We should presumably be looking to evidence of their intentions at the time they were entering into the arrangement – not what they might have thought about it later. On this basis, most legal arrangements could be avoided. Also, shouldn’t we be looking for objective intent rather than actual intent?[24]
Rebutting the Presumption:
The presumption can be easily rebutted for example if parties who are in a familial relationship are contracting in a business context or if a husband and wife enter into an agreement in circumstances in which they are no longer living in harmony. Similarly, if the words used in the contract indicate a legal intention, the presumption that may otherwise have arisen may be rebutted.
If a married couple or civil partners can agree the terms on which they will live separately, they may enter into a separation agreement. The essence of a separation agreement is that it is an agreement. Where parties are divorced, separated, or in the process of separating, the negotiation do not take place in the context of natural love and affection therefore there is no room left for the application of such a presumption and the court will generally find that the requisite contract intent existed.
Reasons for family and social agreement are not legally binding:
An agreement must possess the essential elements of a valid contract. In family and social agreements the essential elements of legally binding contract are not present.[25] The essential elements of a valid contract are as follows:
a. Offer and acceptance. There must a ‘lawful offer’ and a ‘lawful acceptance’ of the offer, thus resulting in an agreement.
b. Intention to create legal relations. There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations.
c. Lawful consideration. The third essential element of a valid contract is the presence of ‘consideration’. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives something and gets something.
d. Certainty. ” Agreements, the meaning of which is not certain or capable of being made certain, are void.” In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced.
e. Possibility of performance. Yet another essential feature of a valid contract is that it must be capable of performance. “An agreement to do an act impossible in itself is void”. If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law.[26]
To be a binding contract, there must also be an offer and acceptance that involves the exchange of promises to act and/or provide goods, services or money. The act, promises, goods, services and/or money are called “consideration.” In order to have a binding, enforceable contract, there must be consideration. In addition, an agreement to do something or pay something can also become binding if one party acts to his or her detriment upon the promise or agreement to perform by the other party. Similarly, in some cases, giving up the right to act in reliance on a promise may be sufficient consideration for a binding, legally enforceable contract.[27]
In family and social agreements the elements are not always remain present. So, without these elements any family or social agreement cannot be said legally binding agreement.
Summary:
Even if an agreement is supported by capacity, offer and acceptance, and consideration, the promise may still not be contractual. For a promise to be binding, it is necessary that the promise has been made with the intention that the promises should be legally bound. In commercial agreements it is assumed that the parties intend to create legal relations, whereas in social/family agreements it is assumed that intention to create legal relations is absent. For say offer to eat lunch together or playing football match is not legally binding by the law.
Bibliography:
1. http://www.lectlaw.com
2. http://netk.net.au/Contract/05Intention.asp
3. Halson, p. 182
4. Chen-Wilshart, p. 111
5. http:///82-ashton-v-pratt-no-2-2012-nswsc-3.htm
6. http://intention-to-create-legal-relations-in-1-domestic-and-social-agreements-2-commercial-agreements.htm
7. Unger, p. 96
8. Chen-Wilshart, p. 111
9. Koffman, Macdonald, p. 98
10. Koffman, Macdonald, p. 99
11. Balfour v Balfour [1919] 2 KB 571
12. Per Warrington LJ, [1919] 2 KB 571, pp. 574-575
13. Merritt v Merritt [1970] 1 WCR 1211
14. Koffman, Macdonald, p. 99
15. Koffman, Macdonald, p. 99
16. Jones v Padavatton [1969] 1 WLR 328
17. Chen-Wilshart, p. 111
18. Hardwick v Johnson [1978] 1 WLR 683
19. [1978] 1 WLR 683, p. 689
20. Halson, p. 183
21. Chen-Wilshart, p. 114
22. Coward v Motor Insurers Bureau [1963] 1 QB 359
23. Chen-Wilshart, p. 114
24. Halson, p. 18
25. http://05Intention.asp.htm
26.http://wiki.answers.com/Q/All_contracts_are_agreements_but_all_agreements_are_not_contracts._Explain_this_statement_and_also_give_essential_elements_of_a_valid_contract
27. http://An agreement is regarded as a contract when it is enforceable by a law “ explain and illustrate. _ Law firms, drafts, and legal documents.htm#_ftn18
28. http://6a653200b74c8a2085257405007a3ac3!OpenDocument.htm
[1] http://www.lectlaw.com
[2] http://netk.net.au/Contract/05Intention.asp
[3] Halson, p. 182
[4] Chen-Wilshart, p. 111
[5] http://intention-to-create-legal-relations-in-1-domestic-and-social-agreements-2-commercial-agreements.htm
[6] Unger, p. 96
[7] Chen-Wilshart, p. 111
[8] Koffman, Macdonald, p. 98
[9]Koffman, Macdonald, p. 99
[10] Balfour v Balfour [1919] 2 KB 571
[11] per Warrington LJ, [1919] 2 KB 571, pp. 574-575
[12] Merritt v Merritt [1970] 1 WCR 1211
[13] Koffman, Macdonald, p. 99
[14] Koffman, Macdonald, p. 99
[15] Jones v Padavatton [1969] 1 WLR 328
[16] Chen-Wilshart, p. 111
[17] Hardwick v Johnson [1978] 1 WLR 683
[18] [1978] 1 WLR 683, p. 689
[19] Halson, p. 183
[20] Chen-Wilshart, p. 114
[21] Coward v Motor Insurers Bureau [1963] 1 QB 359
[22] Chen-Wilshart, p. 114
[23] Halson, p. 184
[24] http://05Intention.asp.htm
[25] http://wiki.answers.com/Q/All_contracts_are_agreements_but_all_agreements_are_not_contracts._Explain_this_statement_and_also_give_essential_elements_of_a_valid_contract
[26] http://An agreement is regarded as a contract when it is enforceable by a law “ explain and illustrate. _ Law firms, drafts, and legal documents.htm#_ftn18
[27] http://6a653200b74c8a2085257405007a3ac3!OpenDocument.htm