To what extent do judges establish the existence of a contract based on the intention of the parties?

The law of contract requires that there must also be evidence of an intention to create legal relations between the parties. However it is usually held that the decision is against the intention for an agreement domestic in nature to be legally binding, such as in the case of Cohen v Cohen where an agreement between family members that may be morally binding will not necessarily create a lawfully binding contract. However there are exceptions to this. When both parties show an intention to enter a legally binding arrangement and it would be unreasonable for one party to revoke their decision, the arrangement holds evidence of a possible contract.

Intention to create legal relations can be defined as follows. ‘An agreement will only become a legally binding contract if the parties intend this to be so. This will be strongly presumed in the case of business agreements but presumed otherwise if the agreement is of a friendly, social or domestic nature.’ Source (HNC unit 5 Business law course book) In determining whether the parties intend their agreements to be legally binding the court is guided by two presumptions. Parties to a domestic or social agreement do not intend to be legally bond. Parties

In week four’s theory practice, we reviewed the case scenario of Big Time Toymaker vs Chou in regards to determining the validity of a contract.  As we’ve reviewed, an agreement or mutual assent is of course essential to a valid contract but the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. If his words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real but unexpressed state of his mind (Melvin, 2010).

A legal contract arises when there is an offer, acceptance of that offer and also a sufficient consideration to make the contact valid. There are five essential elements that make a contract legal and these includes;

The offer and acceptance model is flawed- only an agreement is necessary. In order to fully comprehend this statement, we must first establish what constitutes and offer and what constitutes acceptance. “An offer is a statement by one party of willingness to enter into a contract on stated terms, provided that these terms are, in turn, accepted by the party to whom the offer is addressed”. Acceptance is “…an unqualified expression of ascent to the terms proposed by the offeror”. The “Offer and acceptance model” is based on the court’s adopt the “mirror image” rule of contractual formation. Applying the definitions stated above, we can take this to mean that there must be a clear and unequivocal offer which must be matched by an equally

Every contract is based on the concept of agreement. A contract is defined as a legal agreement consisting of exchange of promises which is recognized by law as giving rise to enforceable rights and obligations. The test of agreement is used to ensure whether or not there is a contract between the parties. Whereas the objective test ensures certainty, the same cannot be said about the subjective test of agreement. The objective test of agreement is when the court decides whether there is contract based on the outward appearance of what constitutes the contract. However the subjective test of agreement involves trying to establish whether there was a “meeting of minds” when the contract was made. That is, to try to figure out the mental state of mind of the parties involved during the time the contract was made.

Due to the different roots of the two systems, the definition of a contract, as well as its formation, differ between contract law in Common Law Jurisdictions and in Civil Law Jurisdictions (France). The Common Law views contracts as bargains, exchange, a simple agreement has no binding force. It is mainly concerned with forecasting the impact and the binding legal consequences of a party’s promise. The structure or purpose of the contract is not as important as knowing whether the promise of performance that the contract is based upon is enforceable.

Under contract law, courts take relevance in the express terms of an agreement and any applicable course of past course of dealing, usage of trade and industry between parties by construing contract terms whenever reasonable as consistent with each other to ascertain the meaning of the parties agreement. An example is where one party to the contract offers evidence of a relevant usage of, the same is not admissible in court unless notice was given to the other party and courts find it sufficient as not to surprise the other party.

The four elements of a valid contract are offer and acceptance, meeting of the minds, consideration and competent parties. The contract must cover a legal purpose or objective as well (Binder, 2012). The objective theory of contracts holds that contract formation is dependent on what is communicated, rather than what is thought by one of the parties (Barnes, 2008).

Contractual agreements are supposed to be consensual, and freely entered into by the parties involved. Therefore, ‘before a court enforces a relationship as a contract, the courts must have a reasonably certain basis in fact to justify binding the parties to each other.’ (St. John’s Law Scholarship Repository, no date). Resolution of whether a contract was intended to be legally binding is not determined by what the parties themselves thought or intended. Rather, a more objective stance is taken by the courts. This is known as the objective theory of contract, and essentially enables ‘the courts to look at external evidence (what the parties said and did at the time)’ (Poole, 2006, p. 34), as to objectively indicate the parties’ intentions

In BROGDEN v METROPOLITAN RAIL CO it was held the railway company had accepted by placing orders since the amendment of the document, and in TRENTHAM LTD v ARCHITAL LUXFER the court used the 'reasonable man' to identify whether or not there has been acceptance. Both cases seemed to have reasonable outcomes; therefore the courts had been provided with satisfactory rules to help them reach a appropriate verdict. There are various different rules regarding acceptance. There must be a communication of acceptance from the offeree to the offeror. The case of YATES BUILDING v PULLEYN deals whether there had been a prescribed acceptance or not. It was held that there was no practical difference to the offeror therefore the acceptance method was binding. However in the case of ENTORES LTD v MILES FAR EAST CORPORATION there was no prescribed acceptance, yet it was held that the contract was formed in England as that was there acceptance had been received by telex. Other rules that can be used to decide whether there has been acceptance include a waiver of communication of acceptance; silence, which isn't a valid acceptance; ignorance, generally there isn't a binding contract; and acceptance via post using the postal rule. The postal rule can often be misused, as it states that a contract has been formed as

Contractual agreement has always been viewed in terms of offer and acceptance. The universal principle to contract law has always been parties may get into an agreement in whichever way they deem fit and they are subject to certain terms as they choose. As far as legal requirements vital to their formation are binding contracts may be formed. Moreover a binding agreement may be manifested in terms of writing or in verbal form.

Conceptually, reasonable expectations of honest men and sanctity of contract are not in conflict. Indeed, they often point to the same direction – it is the reasonable expectation of an honest man that an agreement should be executed. Although it is observed that the two themes usually work side by side, this essay argues that in regards to the rules of acceptance of unilateral contracts, the English courts place more emphasis on reasonable expectations when making decisions.

The formation of an offer, acceptance and consideration are necessary. The Offer is a willing on terms from the offeror with an intention to be binding with the offeree. Creation of legal relations is a concept which states that an agreement is legally enforceable only if the parties may be intentionally considered to have it. Consideration, as a bargain of exchange promises, involved a promisor and a promisee. They must receive a benefit and each suffer a detriment.

The contract between the plaintiff and the defendant here is a valid contract as per the offer and acceptance rule. As per the Indian contracts act, 1872 when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise .