Intention to Create Legal Relations & Certainty of Contractual terms

Question 1

what view do the courts take when evaluating an agreement for legal intent

Answer 1

The courts take an objective view of the intention of the parties. What a party intends if to be gauged according to what a reasonable person would understand him to intend

Question 2

what are the types of social or domestic agreements presumed are not intended to be legally binding ?

Answer 2

(a) agreements between husband and wife
(b) Agreements between Mother and Child
(c) Other Family Relationships
(d) Lottery syndicates
(e) other social relationships

Question 3

what are the facts of Balfour v Balfour?

Answer 3

Leading case - In Balfour v Balfour the defendant husband was a civil servant stationed in
Ceylon. The plaintiff, his wife, was unable to accompany him there due to ill
health. He promised to pay her £30 per month as maintenance while they were forced to live
apart. She sued for breach of this agreement. The court took the view that, quite apart from the absence of consideration, the parties had not intended to enter into a legally binding contract.

Question 4

How did Courtney v Courtney distinguish from Balfour?

Answer 4

Distinguished Balfour; they had not living amicably together – separated. Thus it was clear they intended to create legal relations

Question 5

describe the two leading cases on agreement between mother and children

Answer 5

Roger v. Smith
A mother promised her son that the costs of caring for her would be recoverable from her estate. SC said that this
was a promise that was not seriously intended to be binding. He would have done it regardless of the money or
not.

Jones v. Padvatton
The Court of Appeal held that neither the agreement relating to the payment of an allowance nor the agreement relating to possession of the house were intended to create legal relations.

The terms of each agreement had not been put in writing, and remained uncertain, particularly in respect of duration. Taking these factors into account, the court took the view that this was
a family arrangement intended to rely on the good faith of each party, and not intended to be legally enforceable. It is an objective test; would the reasonable person have intended to create legal relations.

Question 6

Lottery syndicates and Simpkins v Pays

Answer 6

Lotteries and gambling syndicates have often been held to have contractual effect. Clark recognises the fact that there is a presumption of an intention to create legal relations in such structured pooling arrangements, as there may be substantial winnings.

Simpkins v. Pays
Agreement to join gambling syndicate was upheld. Established it was a syndicate where profit and loss was to be shared. It didn’t matter that a granny and grandchild was to be part of it.

Question 7

Commercial Arrangements

Answer 7

commercial agreements are prima facie intended to create legal relations. However, there are instances where parties choose to depart from this presumption, and deliberately provide that an agreement should not be enforceable by the courts.

This presumption can be rebutted by clear evidence that there is no such intention.

However, as was stated by Barrington Jin is O’Rourke v Talbot Ireland, a heavy onus of proof rests on a person alleging that a commercial agreements was not intended create legal relations. The onus is “heavy” given the nature of the contract being commercially orientated.

Question 8

what are the facts of Esso petroleum v Commissioner for Customs & Excise?

Answer 8

a legally enforceable contract was held to arise from a transaction where football tokens were offered to anyone who purchased four gallons of the plaintiffs petrol.

Lord Simon asserted that there was an intention that his transaction was to be legally binding as “… the whole transaction took place in a seeing of business relations” Moreover, the purpose of this promotional offer was commercial in that it was designed by Esso to encourage more members of the public to purchase its petrol

Question 9

what was held in the case of Kleinwort Benson ltd v. Malaysia Mining Corp BHD regarding letter of comfort

Answer 9

COA held that it was merely stating a fact, as it was misrep. of fact, not enforceable. It was only a hope, not a
promise. Said it is our policy to at all times ensure we are in a position to meet the liabilities.

Question 10

Letter of intent

Answer 10

A letter of intent is generally used to indicate the intention of the issuer to enter into contractual agreements, in due course, with the person to whom it is issued. If it is worded as such, it will not be considered to be legally binding.
Generally the letter is used when a person or a company seeks to induce another to undertake work or to incur expenditure while denying or limiting liability to that other, indicating that a formal contract will follow at a later date.

In such cases, the courts have strived to discover a concluded contract where work has already been carried out. A letter of intent may also expressly state that it is not intended to be legally binding

Question 11

collective agreements

Answer 11

Collective agreements, that are agreements of a collective nature between management and workers, present special difficulties. At first glance, these are agreements of a commercial nature, which would be presumed to be legally binding. However, the position is not so straightforward.

Question 12

reasons why collective agreements will sometimes be treated as not giving rise to legal relations

Answer 12

1. They tend to be less than precise in their terms, and represent loose arrangements between labour and management
2. it is often not contemplated that breach of a collective agreement will give management a right of action against a union or individual workers, or vice versa.
3. it is generally recognised as undesirable that the courts
   should involve themselves in industrial relations disputes: recognition of which is given statutory effect in the Industrial Relations Act, 1990.

Question 13

Position in England about collective agreements

Answer 13

In English law, there is a strong presumption that collective agreements are not
intended to give rise to legal relations: Ford Motor Co. Ltd v. Amalgamated Unions of Engineering, it was held that these agreements are aspirational and present problems of enforcement. Without express terms making them legally binding, they are only honour undertakings.

Question 14

Position in Ireland about collective agreements

Answer 14

Irish law, it seems, is less hostile towards giving collective agreements legal effect, taking a Pragmatic, case-by-case, approach. An early case demonstrating this point is Ardmore Studios v lynch

It was held that an agreement can be legally binding where they are specific and certain.

Goulding Chemicals v. Bolger.
Here, SC held that it was legally binding as it was a business like document and had all the appearances of being intended to create a legal relationship to be relied upon by the parties.

Question 15

what is an honour clause

Answer 15

The presumption that there is an intention to create legal relations may be displaced by a clear expression of a lack of intention. Indeed, the parties may even include a clause to that effect within the agreement itself.

A clause that seeks to exclude legal liability in this manner is known as an honour clause and the agreement into which it is inserted is known as a “gentleman’s agreement”

Question 16

what are the facts of Cadbury Ireland v Kerry-op creamery LTD

Answer 16

If it can be established that an agreement was not intended to create a legally binding contract, then even if it
contains all the other elements necessary to create a binding contract it will not be held to be a legally enforceable
contract. The defendant promised to continue to supply milk to the plaintiff company. The defendant had acquired
a small creamery, that previously supplied the plaintiffs with milk. Despite the clause being inserted into the
contract, the parties had not relied on it to determine their rights and obligations after the agreement was signed,
instead the parties evinced their intention to subsequently create clear and binding agreements that were ultimately never finalised. It was just a vague agreement to deal with each other in the future.

Question 17

ambiguous terms

Answer 17

An ambiguous term is a term which is capable of interpretation in more than one way. Generally, ambiguous terms can be interpreted in more than one way. Thus creating obvious difficulties for the courts, and those seeking to rely on them. Often the court will try and establish what the true intention of the parties is in a particular matter.

Question 18

what are the different mechanisms the court may adopt in order to clarify vague terms?

Answer 18

1. The contract itself might provide for an alternative mechanism within which to decide the dispute, e.g., an arbitration clause: Foley v Classique Coaches
2. The admission or calling of oral or parol evidence: ESB v Newman
3. Terms that may be implied by statute, e.g., Sale of Goods Act 1893.
4. Terms that may be implied by reference to the principle of reasonableness. Would a reasonable observer (officious bystander) have reasonably reached the conclusion being put forward by the parties.
5. Terms that may be implied to give “business efficacy” to the contract: The Moorcock
6. Terms implied by a previous course of dealing, which may through custom or practice clarify the issue before the court: Spurling v Bradshaw

Question 19

what are the facts of the case ESB v Newman?

Answer 19

The word account was ambiguous, so parol evidence was admitted. She had multiple accounts and a 3rd party had
agreed to indemnify the account was found that it was for her personal one, not business properties.

Question 20

Best endeavours clauses

Answer 20

A contract may require a party to use their “best efforts” or “best endeavours” to perform an aspect of the contract

In Jet2com v BlackpooL airport - the contract stipulated that the defendant would use his “best endeavours” in providing the service to ensure that the plaintiff continue its commitment to provide low cost travel to their customers.

Blackpool airport changed their opening hours and the plaintiff instituted proceedings relying on the term of the contract which provided that the parties would use their “best endeavours”. This clause was disputed by the Defendant who submitted that the clause was too ambiguous to be enforceable.

The court of Appeal held that such clauses should be upheld provided that the objective of the clause was sufficiently certain.

The def. argued that it
would have cost them money, so not valid. Ct rejected this; such an agreement can carry financial penalties.
However this is not to say that it will go so far as to bankrupt a party. Reasonableness.

Question 21

Illusory terms

Answer 21

In effect, empty promises, will not be enforced by the courts. If a term is constructed in such a manner that interpretation leaves the court or party without any valid meaning, the term will be deemed an illusory term.

Question 22

what are the facts of bula Ltd v Tara mines - Illusory terms

Answer 22

In Bula Ltd v Tara Mines - two companies discussed their future with a view to co-existing with less friction than had previously been the case. The agreement was verbal but, afterwards, one party reduced his understanding to the agreement to writing. His terms read as follows

1. Good relations between Bula and Tara are desirable and both companies will strive to establish such relations.
   2 The future relationships between the companies will be based on each company accepting and respecting the autonomous independent plans of the other.
2. Cooperation is necessary between the companies in certain areas.

Lynch J. rejected the claim that this could amount to an enforceable contract.

Question 23

Incomplete agreements

Answer 23

The Court will find an incomplete contract to be void if it renders the contract unworkable.

Pagnan SPA v. Feed Products Ltd
- Must distinguish between where the essential terms are agreed & parties believe a contract exists and where they
don’t. Where they don’t, cant have agreement. It is objectively assessed and turns on its own facts. In this case,
they had agreed the essential terms despite their later disagreements on other items. Note the need for 3 ps: Price,
parties, product.

Question 24

what are the facts of Supermac’s Ireland v Katesan (Naas) Ltd - Incomplete agreements

Answer 24

The parties had negotiated an agreement to purchase a restaurant franchise and premises. There was no mention made of the payment of a deposit. The issue to be determined was whether there was an enforceable agreement depends on whether “everything intended to be covered by the agreement has been either expressly or impliedly agreed”

Question 25

Agreements to negotiate in good faith

Answer 25

A question arises as to whether agreements to negotiate can be legally binding. These agreements may be entered into where parties have not finalised all
the material terms of a contract, but it is their firm intention to do so.

The first question, which arises, is, of course, whether the parties to the agreement intended it to have legal effect; and, in the context of a commercial transaction, it may be presumed that they did.

Next question is whether this form of contract is sufficiently definite to be enforceable. Although a contract is not incomplete simply because it calls for some further agreement between the parties, nevertheless , a contract will be incomplete and thus unforceable if what is left to be agreed makes the contract “unworkable or void for uncertainty”

Equally, a term by which the parties simply “agree to agree” or agree to negotiate will generally be found to be so vaugue as to be unenforceable

This view is supported by the comments of Barrington J. in Cadbury Ireland v Kerry Co-op
creameries where it was indicated that a particular clause was unenforceable
since it involved at best a commitment to enter into honest negotiations.”