Intention to creat legal obligations Flashcards
Intent = fundamental meeting of the minds when creating a contract. No Intent, no contract, no binding.
When assessing seriousness of intent there are 3 options:
1) If it’s in a social or family context: begin with a presumption that there is no intent to create a legal obligation unless evidence to show otherwise (Balfour v Balfour and Family Law Act). We assume there is an intent not to be binding.
2) If it’s in a commercial context: begin with a presumption that there is intent to create a legal obligation, unless there is evidence to show otherwise (Rose and Frank v JR Compton Bros)
3) If it’s neither strictly speaking social/family or commercial context: ask whether there is serious intent to create a legal obligation in the context of a reasonable person’s perspective. (e.g. you and your uncle are contracting buying a car, so you have both aspects, in such situation, no presumption)
BALFOUR V BALFOUR 1919 CA OF E&W – FAMILY/SOCIAL CONTRACT NO INTENTION TO CREATE LEGALLY BINDING CONTRACT, HUSBAND LEAVES PROMISES WIFE 30 POUNDS
Facts * Husband leaves country and promises to give wife 30 pounds for month in maintenance while he’s gone
* Husband decides not to come back and stops paying her, so wife sues arguing valid and binding contract
Issues * Did the husband have intention to create a legal obligation?
Rules * Established a presumption (default starting point) that in family or social contract there is no intent to create a legal obligation unless there is evidence to reject that presumption on a balance of probabilities, onus on plaintiff to prove there was
* Objective reasonable person test to determine if they intended to create a legally binding contract by assessing the context:
* (1) was it intended to be sued upon if any breach – legal consequence, the presumption is no.
* (2) was it intended to have legal effect?
* (3) was it intended to have a contractual rather than moral undertaking?
Analysis * Before a contract can be binding need to have prerequisite of intention to create legal relations
* Parties here motivated by affection, friendship, or kinship – going to assume they didn’t intend for legal contract unless strong evidence otherwise
Conclusion No intention here to create a legal obligation, there is no contract because there is no intent to do so.
ROSE AND FRANK V JR COMPTON BROS 1924 HL – COMMERCIAL CONTEXT PRESUMES INTENTION TO CREATE LEGAL OBLIGATION, GENTLEMAN’S AGREEMENT
Facts * Commercial relationship between the 2 companies dealing with the import/export of paper products
* They create a gentleman’s agreement meaning “arrangement was not a legal one subject to jurisdiction in court “and write down an honourable pledge that reflects their relationship of past cooperation and friendship-not intended to be sued upon
* Relationship breaks down, pledge was not offered, and so one party sued the other on the basis of the document
Issues * Did both parties have the intention to create a legal obligation?
Rules * In a commercial context the court will presume (default starting point) that the parties did intend to create a legal obligation, unless there is evidence to reject that presumption on the balance of probabilities.
Analysis * Made clear in the honourable pledge that the agreement was not intended to be sued upon based on the wording
Conclusion * No, the parties did not intend to create legal obligations.
TD BANK V LEIGH INSTRUMENTS LTD 1999 OCA – COMFORT LETTER NOT INTENTION TO CREATE LEGAL OBLIGATION
Facts * Plessy is the mother corporation and Leigh is the subsidiary, TD loans great deal of money to Leigh, in exchange, TD wants assurance from Plessy
* Plessy agrees but won’t guarantee they loan, they will only provide a comfort letter to TD
* Comfort letter: “it is our policy that our wholly owned subsidiaries, including Leigh, as to be able to meet their financial obligations including the repayment of debts”
* Money loaned but Leigh does not pay back so TD goes after Leigh and Plessy arguing that the comfort letter obligated Plessy to pay the debts of Leigh
Issues * Is the comfort letter intendedd to be binding, or it’s suable?? Is Plessy under contractual obligations to TD?
Rules * Comfort letters are generally not binding and of course depend on the intentions of the parties, the wording of the letter, relationship between the parties and overall commercial context.
Analysis * Parent companies are not liable to their subsidiaries and the letter was strategically passive only intended to comfort TD
* Analyzing the context, words used, relationship between the parties, and overall commercial context to assess mutual intentions of parties, here the objective reasonable person would say the letter was not binding:
* (1) general corporate landscape: corporation is independent of subsidiaries so not liable for this action, ruling otherwise would undermine understanding of corporate law, TD should have known otherwise
* (2) language used in the letter was passive: letter drafted by sophisticated corporate council and was designed to give specific intent, “be managed” did not say “is managed” shows Plessy did not promise to manage Leigh’s debt
* (3) relationship between the parties is clear: TD wanted parent company to guarantee the loan, Plessy specifically said no and issued comfort letter as an alternative, bank knew it was not a guarantee
* Comfort letters have business utility even though they are not binding they create an ethical relationship, provide comfort by putting reputation on the line, and tells other party of their financial policies
Conclusion * No, comfort letters are not binding and Plessy is not under contract with TD.
CANADIAN TAXPAYERS’ FEDERATION V ONTARIO (MINISTER OF FINANCE) 2004 OSC – CAMPAIGN PROMISES DO NOT HAVE INTENTION TO CREATE LEGAL OBLIGATION
Facts * Dalton McGinty makes election pledge and signs it on TV to not raise taxes and then he did raise taxes
* Taxpayer federation sues him and argues he is in breach of contact
Issues * Did McGuinty have intention to create a legal obligation?
Rules * Campaign election promises do not establish intent to create a legal obligation.
Analysis * Obvious not a contract because can’t have serious intent to create a contract with every voter
* Shows how independent prerequisite to have intent can have utility in situations where it might look like a contract
* Mutual intent assessed from objective common sense
Conclusion * No, McGuinty did not have intention to create a legal obligation, as this is the politician thing, not intended binding.
FAMILY LAW ACT SBC 2011 SS. 3 AND 92 – DISPLACES BALFOUR V BALFOUR
Balfour v Balfour: common law presumption in family context against intention to create legal obligation
Displaced by family law act if the following prerequisites are met between spouses, that means the agreement is binding:
1) There is a deal to divide assets and debts
2) they must be spouses, which is defined as married people or people living in a marriage like relationship for 2 years, or were married
3) The deal is signed, written, and witnessed
Basically: there is a deal between spouses or ex-spouses concerning the division of debt or assets – then Balfour v Balfour doesn’t apply
If it is about anything other than property or division of assets or not a spousal relationship, then Balfour v Balfour applies.
