5 - 6. Intention to create legal relation

Question 1

4.1) What is the difference between an agreement and a contract?

Answer 1

A contract is an agreement backed by the intention to be legally bound

Breaking an agreement has moral consequences, breaking a contract has legal ones

Question 2

4.2) How do you establish the legal intention?

Answer 2

• Parties declare whether or not their agreement is bound by law (gentlemen’s agreement is bound by honor and morality)
• Objective assessment in cases of disputes -> examining objective meaning behind parties’ words and conduct during negotiation process. Can promisee reasonably expect from the words/conduct that promisor intended binding?

Question 3

4.3) What are presumptions the law makes when performing objective assessments of agreements?

Answer 3

A. Business: all agreements made in commercial settings are legally binding, economic nature of matter makes it important that force of law is behind agreements

B. Domestic and family: household agreement are done out of goodwill and are thus not binding, unlikely one wants to take their beloved family to court, family relationships tend to be delicate and judges do not want to destroy them

Question 4

4.4) What are some other factors that the objective assessment takes into account?

Answer 4

• Economic importance of the matter
• Reasons for making promise
• Gravity of consequences should one party fail to perform obligations
• Customs, what is customary
• Sophistication of the parties
• Societal views

Question 5

4.5) What are gratuitous promises? Are they legally binding?

Answer 5

• Promises you make with no personal benefit from fulfilling them
• Tend not to be binding as it is unlikely someone intended to be bound when making them
• English absence of consideration
• Civil law objective assessment

Question 6

4.6) What situations are solved by case law regarding the intention to create a legal relationship?

Answer 6

A. Lottery:
- If friends agree to buy lottery ticket but purchaser fails to buy and number wanted wins
- English -> no consideration, no binding agreement
- German lotteriefall case, objective assessment determined defendant did not intend to be bound because the consequences of failure would have been way too harsh. Defendant potential loss&raquo_space;> Plaintiff actual loss. Only real agreement was to share losses if they had won

B. Public policy
- Woman and man agree to have sex and for her to take contraceptives, she does not, gets pregnant
- German supreme court decided child would suffer too much if the mother were to relieve father of having to support child

C. Professional favors
- Trusting a valet to drive your car at a restaurant, trusting a. bank to provide information
- A favor made by a person relating to their professional field of expertise is legally binding, even if free

D. Prenuptial/Cohabitation agreements
- Typically considered valid and enforceable
- English law historically considered them invalid, considering other factors for settlement like marriage duration, age, and financial needs of the parties (Paul McCartney case) until 2010 where they stated that if prenup has decisive weight in divorce settlement, it is valid (husband cannot make claim on wife’s fortune)