EPHUMA155 Applied Legal Studies

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EPHUMA155 Applied Legal Studies

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EPHUMA155 Applied Legal Studies

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Course Code: EPHUMA155
University: The University Of Newcastle

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Country: Australia

Discuss about the Intention to Create Legal Relations.

Agreements are not unique. In every place where there is more than one person, they must make an agreement. Among other elements of a contract, contract law require looks whether the parties had the intention to create a legal relation when they were making their agreements.  For a thorough analysis, this paper will use a case study of Caro and Max to look at the application of ‘intention to create legal relations.’
Carol and Max Case
The main issue in this question is under ‘intention to create legal obligations’ in a contract. English law requires that there must be an intention for the parties to be legally bound by their agreement. The law of contract uses tests that the courts apply to determine whether the parties intended to be bound by their promises legally. One of the tests is the courts take an objective approach[1]  This test looks at what the individuals said and did, plus what transpired after the agreement. Lord Clarke said[2]
“Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations.”
The reason why courts use this approach is that the parties’ disputes come after finalizing their agreements. The objective approach is not much difference with what courts call a reasonable man’s perspective.[3] Objective approach relies on two distinctions; agreements originating from a domestic or social setting, and agreements coming from commercial context.[4]  Where agreement seems to have been made within social and domestic settings, the presumption is that the parties never meant to create a legally binding agreement.[5] For example, in the case Jones v Padavatton, the court found that the agreement was not enforceable.[6] In most cases, family agreements like father and son or husband a wife follow this course. However, sometimes this presumption extends to agreements between friends or workmates. A good example is the case of Hadley v Kemp, the court stated that an oral agreement needed to be spoken with the intention to bind the parties legally, but since the parties had been acquaintances back from their school days, their relationship was distancing from that of business.[7] So there was no cost sharing of the profits.
However, at some point, the court can quash this assumption. This case happens when the parties designate a clear indication of an intention to be bound. The court considers three things. One is the manifested intentions, the content of the agreement and lastly, the facts encompassing the case. For instance; where commercial matters encompass the agreement. In Simpkins v. Pays the court found the agreement binding.[8] This case concerned a Lodger suing a Woman and her granddaughter after she refused to share the prize yet they had played together. A similar decision was held for Archbishop Ermogenous.[9] The considered the issue of PAYE deductions and salary, these were used to give an insight that there was employment and therefore the parties intended to have a legal binding agreement.
 Where the agreement arises from a commercial environment, the presumption is that the parties intended to create a legal relationship[10].  A helpful example is the case of Esso Petroleum Ltd v Commissioners of Customs and Excise.[11] This case developed after Esso started a sales promotion program whereby they offered garage owners a ‘free’ World Cup coin for every four gallons of petrol. The Customs and Excise were concerned with their operation and wanted to claim the purchase tax on the ‘sale’ of the coins. The House of Lords concluded that Esso had adopted the method as a way to gain more sales, meaning there was an intention to create a legal enforcement and were supposed to pay tax.
Likewise, in comparison with to the case of Caro and Max, it can be argued that their agreement is legally binding. Taking the example of Esso Petroleum, Max wanted to increase his sales, so the agreement was all about business matters.[12] Additionally, Miller and Jentz suggested that when looking for objective facts, there is a need to look at the words of the parties while negotiating the agreement, the action that took place after the negotiation, and the circumstances both prevailing and surrounding the transactions in question.[13] This notion, makes the intention for an enforceable agreement very clear. First of all, even though they met in a social place and the root of their friendship comes from a social network (LinkedIn), the primary intention that drove Max to know Carol was for business and not other matters. A reasonable man knowing that Max looked for Carol because of Max’s business hardships would not think that the meeting was about anything except business. So with this reasoning, the meeting was encompassed by financial circumstances. Secondly, by analyzing what happened after the meeting particularly the act of Max sending Carol $1200, this makes a proof that the negotiation was a commercial matter. Thirdly, the court can apply the reasoning of Devlin J.[14] If Max would not have sent the money if the agreement between him and Carol was not enforceable.
Element for an Enforceable Agreement Between Max and Carol
This issue is a matter of testing whether the agreement between Max and Carol contained all the elements of a legitimate or binding agreement. To start, an enforceable agreement should encompass an offer made by the offeror, andd the offeree replying with acceptance. An offer constitutes three elements. Common law dictates that an offerer must manifest its intention to enter into an agreement.[15] In short, the offeror must also put a degree of seriousness and objective purpose to an effective offer. The intention is determined by that fact that from a reasonable man’s perspective, he would see that the offeror’s action suggested an offer. For this reason, any offer resulting from anger, duress, or excitement will create a void agreement.[16] A comparison of this case the judgement held in the Supreme Court of California,
“The mental assent of the parties is not requisite for the formation of a contract. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party.”[17]
This case arose from a contract of sale of a farm signed by the parties after having some distilled spirit. Zehmer later disputed the contract claiming that the intention to sell was a joke but the court ordered a specific performance since there was a valid agreement. So like this case, Carol would not have been joking by presenting the work outline and requesting via an email written confirmation.
Another requirement of an offer that should also be in Max should include is the definiteness of the terms. A clear outline of this states that “an offer is an act or a statement that proposes definite terms and permits the other party to create a contract by accepting those terms.” [18] After an offer has been made, it would need to be accepted by the offeree as presented by the offeror so that it can become an agreement. And like an offer, acceptance should demonstrate a manifestation of the willingness to be bound by the agreement.[19] In addition, the law of contract states that acceptance must be unequivocal and it should be communicated to the offeror.
Like as seen above, Carol accepted the offer when she called Max the day after their meeting when she called to tell Max that she has accepted the offer. Denning LJ ruled on acceptance through a phone or telex.[20] This decision set a guidance regarding on the acceptance of a contracts where parties are at a distance. As a summary, it simply states that where means telecommunication are used in indication acceptance, and the methods of acceptance are instantaneous, acceptance is then deemed communicated as soon as the offeror receives the communication from the offeree. That is to say, Carol accepted Max offer the moment she called him and communicated of her acceptance.
Acceptance of a contract can also occur through the conducts of the parties. If Max misinterpreted the email (wanting also to have a written record of this arrangement with Max, Carol emails him on Thursday evening) and paid her the $1200, and Carol didn’t take action to return the money, it can be said that Carol accepted the contract by estoppel.
Another requirement of an agreement is considerations. The rules of consideration were set by Patteson J as, “Consideration must be of value and involve benefit or detriment”[21] This issue arose shortly after the detat of Thomas. Before dying, he shown the interest to have his wife to use the house, the executor of the will made an agreement with the wife that the wife would pay £1/year for the husband’s desire. Later the wife refused to pay and the executor commenced suit. The judge held that the deceased desire was not satisfactory consideration.
An enforceable agreement does not only rely on an offer, acceptance, and consideration. The law also requires the parties’ intention to create a legally binding contract. However, people should be very careful while dealing with friends and family relative. There is a high chance that the court will regard an unwritten agreement not binding the dispute comes from friends or family relative.
Stone, Richard, James Devenney, and Ralph Cunnington. 2011. Text, Cases And Materials On Contract Law. 2nd ed. London: Routeldge.
O’Sullivan, J. and Hilliard, J. 2016. The law of contract. 7th ed. Oxford University Press.
Mason, J. 2016. Construction Law. 1st ed. Routledge
Miller, R. and Jentz, G. 2010. Business law today. 9th ed. Mason, Ohio [u.a.]: South-Western Cengage Learning.
Meiners, R.E., Ringleb A.H., Frances L., & Edwards F.E.,2016. Legal environment of business. 13th ed. [. Mason, Ohio [u.a.]: Cengage Learning. 
Coward v Motor Insurers’ Bureau. 1962 1 All ER 531
Entores Ltd v Miles Far East Corporation. 1955 EWCA Civ 3
Entorres v Miles Far East. 1955 2 QB 327 Court of Appeal
Hadley v Kemp.1999 EMLR 589
Hartog v Colin & Shields. 1939 3 All ER 566.
Jones v Padavatton. 1968 EWCA Civ 4
Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954).
Parker v Clark. 1960 1 WLR 286.
RTS Flexible Systems Limited v Molkerei Alois Muller GmbH. 2010 UKSC 14
Scientific Elec. Co., Inc. v. ADG Park Constr. Group, LLC, 2013 N.Y. Slip Op 31251 (Sup. Ct. 2013).
Simpkins v Pays. 1955 1 WLR 975 Queen’s Bench Division
Thomas v Thomas (1842) 2 QB 851

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