Topic 4 - Other Formative Requirements - Intention, Certainty and Completeness.docx

Topic 4 – Other Formative Requirements: Intention, Certainty and Completeness We have examined many of the basic requirements necessary for the formation of an enforceable contract. To these requirements we must add three more: That the parties intend to create legal relations That the terms of thei...

Topic 4 – Other Formative Requirements: Intention, Certainty and Completeness We have examined many of the basic requirements necessary for the formation of an enforceable contract. To these requirements we must add three more: That the parties intend to create legal relations That the terms of their agreement are certain and not vague and That their agreement is a complete agreement that does not need further development or clarification. Once all of these requirements are present, courts will, in the absence of any vitiating elements, recognise an agreement as an enforceable contract. (Mini Lecture 1) The requirement of an intention to create legal relations is the third requirement for the establishment of a contract. The requirement that for a valid contract to come into existence, there must be an intention to create legal relations. Let's put that into context. The three basic requirements for the establishment of a contract agreement by which we mean corresponding offer an acceptance, consideration by which we mean the requirement that something is given in exchange for something else, and finally, the intention to create legal relations. There's a tool we're going to use here, which is the idea of a rebuttable presumption which means a conclusion drawn by the courts unless the opposite is proved. It's something we assume unless someone proves us wrong or proves to the contrary. There were two rebuttable presumptions that operate in relation to the requirement that a contract must be supported by an intention to create legal relations: The first of those presumptions is a presumption that operates in relation to domestic and social agreements. In the case of domestic and social agreements, it is presumed that there is not an intention to create legal relations. An example, if I promise my daughter a sum of money in exchange for her tidying her room, it would be presumed that I did not thereby intend to create a legally enforceable obligation because it is a domestic or social agreement. The case that's authority for this general proposition, for this presumption is a case called Balfour v Balfour. In this old case, because a husband would be working overseas, he promised to pay his wife an amount of money each month. When the parties separated, the wife sued the husband for this monthly amount. The court denied her action on the grounds that the agreement was not enforceable contractually because at the outset of their agreement, it was not intended by either party to be, as the court expressed it "attended by legal consequences." At the time the agreement was made, the parties were married. At that point, an agreement between them would be presumed not to be intended to be legally enforceable. The case of Jones v Padavatton illustrates the general presumption as well. In Jones v Padavatton, a mother persuaded her daughter who was working in overseas in Washington DC to give up her work and instead to come home and to read for the English Bar to do the English barrister's exams. In exchange, the mother promised her £200 maintenance per month while the daughter began to study for the barrister's course and the agreement was varied. The mother bought a house in London and she did this so that the daughter could live there rent-free, and the rent from letting out the other rooms to the tenants would provide maintenance for her daughter. Well, sadly, the daughter had more than one unsuccessful attempt at passing the exams and the mother and the daughter then fell out. The mother wanted possession of the house. The daughter relied upon the agreement as a defense to her mother's action. The question was, was that agreement meant to be legally binding? The Court of Appeal applied the presumption and said that it is presumed that an agreement between family members domestic or social arrangement like this is NOT intended to create legal relations, so was not binding on the mother. The quality these presumptions have is that they CAN be rebutted. You can lead evidence to suggest that the general presumption does not apply. Such evidence was relied upon in Radmacher v Granatino. Radmacher v Granatino was a case involving what has become known as prenups, a prenuptial agreement, an agreement to parties, agreement between parties in advance of getting married. In Radmacher v Granatino, the Supreme Court upheld a decision that the husband was not entitled to an award of £5.5 million after the breakup of the marriage because the award would give insufficient weight to the prenuptial agreement. The prenuptial agreement acknowledged that neither party should acquire any benefit from the other's property during their marriage. The unusual presumption that the prenup didn't have legal force was to some extent rebutted because the court, the Supreme Court, decided that they had to give some weight to this prenuptial agreement. Similarly, in the case of Merritt v Merritt, there was a rebuttal of the usual presumption. Balfour v Balfour when the parties were married, but the agreement was made when they were already separated. An agreement between parties who have already separated, it was said would be enforceable because their intention at that point would be more likely that they wanted the agreement to be binding. Now, that is our first presumption. The first presumption operates in relation to domestic and social agreements. The second presumption operates in relation to commercial agreements. It's the reverse. Here, in the case of commercial agreements, it is presumed that there is an intention to create legal relations. This is particularly strong, this presumption when an agreement is reached in the context of an ongoing employment relationship. An agreement as to how a bonus pool is going to be distributed between an employer and an employee will fall within the general rule, and the presumption will be that a statement of intention, a statement as to how the employer intended to apply that bonus pool was meant to be contractually binding. It can be rebutted. In a slightly surreal case, Blue v Ashley involving Mike Ashley, the former owner of Newcastle United Football Club, the claimant said that he was owed £14 million by Mike Ashley under an oral contract he entered for business services. It was a contract he alleged that he entered with Mr. Ashley while they were drinking in a pub. Mr. Justice Leggatt relied upon the unusual location, the general atmosphere of the meeting place as well as a lack of certainty and definiteness to the agreement to say, "Okay, an agreement between two business partners would normally be intended to be legally enforceable but the usual presumption is rebutted by those circumstances." The usual presumption could also be rebutted by express words. The case of Kleinwort Benson v Malaysia Mining involved an undertaking by a parent company given in respect of a subsidiary company, and this undertaking took the form of a comfort letter. A ‘Comfort Letter’ means an express assurance which by its own terms makes clear that it is NOT intended to be legally binding. Example, a parent company might say, "It is our usual practice to ensure that our subsidiary company is supported by us but we make clear that on this occasion, this is not a legally blinding commitment." Such an undertaking is sometimes called a comfort letter, and it is the explicit rebuttal of the usual inference, the explicit undertaking that this is not meant to be legally enforceable which disapplies the normal presumption. 4.1 The Intention to Create Legal Relations In Topic 2 we examined the importance of intention in relation to an offer: for a statement to be an offer, it must be made with the intention that it be binding upon acceptance. It is also essential that all the parties to an agreement have an intention to create legal relations. What this means is that the parties intend that legal consequences attach to their agreement. In short, the parties intend that the agreement will be binding with recourse to some external adjudicator (a court or arbitrator) for its enforceability. The necessity for intention is most evident in domestic and social agreements. These are agreements between friends (e.g. A agrees to host the bridge club at her house if B will bring the food to feed the club) or agreements made between family members (e.g. sister agrees with brother that she will not play her radio loudly if brother will keep his hamster securely in its cage). In this context there is generally an offer by one party, which is accepted by the other party and supported by consideration. So far, the agreement looks like an enforceable contract. The parties, however, probably do not intend a breach of the agreement to result in legal action. Their agreement lacks an intention to create legal relations and is thus not a contract because they did not intend it to be. The agreement has no legal effect at all. Traditionally, the law has distinguished between, on the one hand, domestic and social agreements and, on the other, commercial agreements. In the case of domestic and social agreements, it is presumed that there is NOT an intention to create legal relations. In the case of commercial agreements, it is presumed that there is an intention to create legal relations. In either instance, the facts of the case may displace the presumption the law would otherwise make. For example, it may be that when neighbour A agreed to mow neighbour B’s lawn in exchange for the apples on B’s apple tree, both parties intended that this agreement would be legally enforceable. The determination of whether or not the parties intended to enter into legally binding relations is an objective one and context is all-important. What this means is that the courts will NOT examine the states of mind of the parties to the agreement (a subjective approach), but WILL ask whether or not reasonable parties to such an agreement would possess an intention to create legal relations. See Edmonds v Lawson  EWCA Civ 69. In President of the Methodist Conference v Preston  UKSC 29 the Supreme Court held that it was necessary to consider the appointment of a Methodist minister in the context of the factual background. In so doing, the Court found that there was no contractual intention. This ‘objective’ approach applies regardless of whether the agreement is a social or domestic one or a commercial one. 4.1.1    Social and Domestic Agreements The leading case is Balfour v Balfour  2 KB 571. Here, because the husband would be working overseas, he promised to pay his wife an amount of money each month. When the parties separated, the wife sued the husband for this monthly amount. The court refused to allow her action on the grounds that the agreement was not an enforceable contract because, at the outset of their agreement, it ‘was not intended by either party to be attended by legal consequences’. The parties did not intend that the agreement was one which could be sued upon. The judgment of Atkin LJ really seems to rest upon public policy arguments – that as a matter of policy, domestic agreements, commonly entered into, are outside the jurisdiction of the courts. His judgment also highlights a judicial concern that if such agreements could be litigated in the courts, the courts would soon be overwhelmed by such cases. Similar reasoning was applied in the case of Jones v Padavatton  2 All ER 616 to find that the agreement between a mother and her adult child did not create a contract. See also Coward v MIB  1 QB 259 where the court found that an agreement to take a friend to work in exchange for petrol money was an arrangement which lacked contractual intention. Increasingly in the modern world, domestic arrangements are beginning to take on a basis in contract law. Balfour v Balfour must be seen as a case which establishes a rebuttable presumption that domestic agreements are not intended. An example of a situation in which the presumption was rebutted can be found in the decision in Merritt v Merritt  2 All ER 760. In this instance the spouses were already separated and the agreement was found to have an intention to create legal relations. A similar result followed in Darke v Strout  EWCA Civ 176 as the court found that an agreement for child maintenance following the breakdown of a couple’s relationship did not lack an intention to create legal relations given the formality of the letter. Nor could it be said to be unenforceable for want of consideration since the woman had, in entering the agreement, given up statutory rights to maintenance. In Soulsbury v Soulsbury  EWCA Civ 969 the Court of Appeal found that there was an intention to create legal relations between two former spouses when one agreed to forgo maintenance payments in return for a bequest in the other’s will. A ‘Rebuttable Presumption’ is a presumption made by courts as to a certain state of facts until the contrary is proved. It can be seen that in many of these cases between spouses the usual presumption is rebutted after the breakdown of the marriage relationship. A modern development concerns the legal enforceability of an agreement that precedes, rather than follows, the entering of a marriage known as a pre-nuptial agreement (colloquially a ‘pre-nup’). In Radmacher v Granatino  UKSC 42 the Supreme Court upheld a decision that the husband was not entitled to an award of £5.5 million after the breakup of the marriage because such an award would give insufficient weight to the pre-nuptial agreement. This agreement acknowledged that neither party would acquire any benefit from the other’s property during the marriage and its execution was a condition of a substantial transfer of family wealth to the wife. Lady Hale dissented, arguing that there remained important policy considerations sufficient to justify a different approach to agreements made before and after marriage. When agreements are entered between non-family members with respect to what might be considered more trivial subjects such as the division of the proceeds of joint betting, the cases are less clear. In Simpkins v Pays  3 All ER 10 it was found that there was a contract where three co-habitees entered a competition together, whereas in Wilson v Burnett  EWCA Civ 1170 it was held that there was no binding agreement to share bingo winnings. Study task 1 Think of the last three promises you have made to friends or family. Did these promises form agreements intended as contracts? Why (or why not)? Show feedback To answer this question you need to consider the essential nature of your agreements. Study task 2 How does Simpkins v Pays differ from Coward v MIB? Show feedback In Simpkins v Pays, the judge finds that there was a ‘mutuality in the agreement’ between the parties. The women entered the contest together in the expectation that, should they win, the winnings would be shared amongst them. This seems to be sufficient to establish an intention to create legal relations. In contrast, in Coward v MIB, the Court of Appeal regards the lift to work as a much more irregular occurrence: it might happen or it might not. Consequently, the agreement was regarded as too informal to demonstrate an intention to create legal relations. Study task 3 A and B are married to each other. They agree that A will make all the mortgage payments on the marital home and that B will pay all other household bills. This arrangement carries on for two years whereupon A refuses to make any more mortgage payments. Can B sue A? Show feedback The leading cases which deal with agreements in the context of a family are Balfour v Balfour and Jones v Padavatton. You need to do three things here. First, you need to consider what criteria the court established in these cases to determine whether or not an intention to create legal relations is established. Second, you need to apply these criteria to the facts given. Third, you need to provide an outcome to your problem. Study task 4 A and B are married to each other. They agree that A will pay all the household expenses and that B will remain at home to care for their children. B subsequently takes up paid employment outside the home and another person cares for the children. Must A continue to pay the household expenses? Show feedback You need to apply the same process as that set out in relation to Study task 3. The purpose of giving this example is for you to contrast it with the example in Study task 3. Applying the criteria set out above, this instance is much less likely to give rise to a contract. The requisite intention is most likely lacking at the inception of the agreement. The reason for this is that the promises from both A and B are directed at the care of their children – financially and physically. This strikes at the very core of the family and, without strong evidence to the contrary, is an arrangement which is unlikely to give rise to the necessary intention. 4.1.2    Commercial Agreements In relation to commercial agreements, courts will generally presume that an intention to create legal relations is present. An argument that the parties did not intend to enter contractual relations was dismissed in Athena Brands v Superdrug Stores  EWHC 3503 (Comm) when, in the course of an email exchange, the defendant company’s employee agreed to purchase minimum annual quantities of cosmetics from the claimant company. This is an especially strong inference when the commercial context is an ongoing employment relationship (Dresdner Kleinwort Ltd v Atrill  EWCA Civ 394) or, as the Supreme Court noted, a standard commercial transaction such as that between an estate agent and an owner who wants to sell property (Devani v Wells  UKSC 4). Exceptionally, the facts may disprove such an intention. In many contracts, in particular, a sale of land, agreements are normally made ‘subject to contract’. This wording expressly displaces any presumption of contractual intention and the Court of Appeal in Joanne Properties v Moneything Capital  EWCA Civ 1541 emphasised the ‘force’ of this phrase. In other situations, courts have found that the specific wording of the agreement in question displaced any contractual intention. See, for example: A ‘Comfort Letter’ – Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad  1 All ER 785 An ‘Honour Clause’ – Rose and Frank Company v JR Crompton and Brothers Ltd  AC 445. In most cases where the parties deal at arm’s length (i.e. they have no existing ties of family, friendship or corporate structure) the court will find a contractual intention. See Edmonds v Lawson (2000). However, in two recent cases agreements concluded between business people in informal settings were held NOT to be supported by an intention to create legal relations. In Blue v Ashley (2017) the claimant said he was owed £14 million under an oral contract for business services entered with the defendant when they were drinking in a pub. Leggatt J relied ‘Inter Alia’ upon the unusual location and general atmosphere of the meeting place, as well as subsequent events and a lack of certainty to support his conclusion. A similar result was reached by Coulson J in MacInnes v Gross (2017) where the discussion took place over dinner in an expensive Mayfair restaurant and subsequent communications indicated that a formal agreement was still to be concluded. Study task 5 Why might a commercial party not want an agreement to be an enforceable contract? Is such an agreement of any practical value? Show feedback There are many reasons why a commercial party might not want an agreement to be an enforceable contract. The parties may be negotiating and wish to finalise their agreement at a later date. Or a party may wish to indicate what their present intention is, without committing themselves to a particular course of action. A representor’s statement of present intention is not as valuable to a representee as a promisor’s binding commitment to future action. This was explicitly recognised in Kleinwort Benson v Malaysia Mining (1989) where the rate of interest charged for a loan to a subsidiary company was increased when the parent company, in respect of the loan to its subsidiary, offered the creditor bank a ‘comfort letter’ instead of the contractual guarantee originally proposed. Self-assessment questions To what extent are courts examining whether or not the parties intend to take any dispute to a court for resolution? To what extent are the courts determining whether or not the agreement has certain terms? Are courts influenced by the reliance of one party upon the promise of another in determining that a contractual intention is present? Is the reasoning of the judges in Balfour v Balfour and Esso Petroleum v Commissioners of Customs and Excise based on public policy considerations or on the intentions of the parties to the agreements? What factors do courts consider important in negativing contractual intention? Summary Ultimately, the question of contractual intention is one of fact. The agreement in question must be carefully scrutinised to determine the nature of the parties’ agreement. Without an intention to create legal relations, there will not be a contract. 4.2 Certainty of Terms and Vagueness An enforceable contract requires certainty of terms. That is to say, for an agreement to be a contract, it MUST be apparent what the terms of the contract are. If an important term is NOT settled, the agreement is NOT a contract. A statement cannot be an offer unless it is sufficiently certain. In Scammell v Ouston  AC 251 the court found that the agreement was not enforceable because the terms were uncertain and required further agreement between the parties. Viscount Maugham explained that because the terms were uncertain, there was no real agreement (a consensus ad idem) between the parties. The underlying rationale for this area of law can be seen in that if the terms cannot be determined with certainty, there is no contract for the court to interpret. It is not the role of the court to create the terms of the contract – for this would be to impose a contract upon the parties. Courts WILL nonetheless try to give legal force to the parties’ attempt to make a contract unless it is ‘legally or practically impossible to give [it] any sensible content’ (Scammell v Dicker  EWCA Civ 405 at ). On this basis in Durham Tees Valley Airport v bmibaby (2010) it was held that an agreement to operate two aircraft from an airport for 10 years was not void for uncertainty because it did not specify a minimum number of passengers or flights. In some circumstances, particularly where the parties have relied upon an agreement, courts will more readily imply or infer a term or find that the essentials of a contract have been established. This can be seen in the decision in Hillas v Arcos  All ER Rep 494. Here, the agreement had been relied upon and the court was able to infer the intention of the parties based upon the terms in their agreement and the usage in the trade. Similarly, in RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh & Co KG  UKSC 14 agreement had been reached on all terms of ‘economic significance’ and performance commenced. The Supreme Court said that an objective interpretation of the parties’ words and deeds suggested that they intended to enter a binding contract despite the fact that certain terms were not yet confirmed. Even if performance is almost complete and the parties throughout confidently expected to agree upon key terms, their actual failure to do so will mean that no contract comes into existence (British Steel Corp v Cleveland Bridge and Engineering Co Ltd  1 All ER 504). Study task 6 You agree with Z that you will buy a shirt from Z’s summer collection for £25. No size is specified in your agreement. Have you a contract? Explain. Show feedback In some circumstances, particularly where the parties have relied upon an agreement, courts will more readily imply or infer a term or find that the essential terms of a contract have been concluded. This can be seen in the decisions in Hillas v Arcos (1932) and RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh & Co (2010). In both cases the agreement had been relied upon and the court was able to infer the intention of the parties based upon the terms in their agreement and the usage in the trade or partial performance. It may be that the agreement provides a mechanism, or machinery, to establish the term. In such a situation, there is certainty of terms. Thus, if interest on a loan is to be set at 1 per cent above the Bank of England’s base rate on a certain date, then this is a certain term. It cannot be stated at the outset of the contract what the interest rate is, but certainty of terms exists because, on the relevant date, the interest rate can be determined by an agreed mechanism. There is a difference between a term which is meaningless and a term which has yet to be agreed. Where the term is meaningless, it can be ignored, leaving the contract as a whole enforceable. See Nicolene Ltd v Simmonds (1953). In this case, it is likely that a court will either imply that the size of the shirt is your size or, alternatively, find that this term is meaningless. Study task 7 What is the difference between the decisions in Hillas and Scammell? Are there convincing reasons for deciding these cases differently? Show feedback In Hillas, the agreement had already been relied upon by the parties. In addition, the wording of the agreement made it clear that the parties intended to make, and believed that they had made, a concluded bargain. Related to this is that in Scammell’s case, the uncertainty surrounded the nature of another agreement, the hire purchase agreement, which had to be entered into. It was not possible to ascertain or imply the terms of this agreement in the way that the courts could ascertain the meaning of the term in Hillas’s case. The most convincing reason for distinguishing these cases is likely that in Hillas’s case the agreement had been relied upon; this indicates that there was sufficient certainty present to perform the agreement. It may be that the agreement provides a mechanism, or machinery, to establish the term. In such a situation, there is certainty of terms. Thus, if interest on a loan is to be set at 1 per cent above the Bank of England’s base rate on a certain date, then this is a certain term. It cannot be stated at the outset of the contract what the interest rate is, but certainty of terms exists because, on the relevant date, the interest rate can be determined by an agreed mechanism. There is a difference between a term which is meaningless and a term which has yet to be agreed. Where the term is meaningless, it can be ignored, leaving the contract as a whole enforceable. See Nicolene Ltd v Simmonds  1 QB 543. Self-assessment questions Would an agreement to ‘use all reasonable endeavours’ to achieve a certain objective be enforceable? What are the arguments in favour of allowing a court to establish the essential terms of an agreement? Summary If the terms of an agreement are uncertain or vague, courts will not find a contract exists. Courts will not create an agreement between the parties. In a number of circumstances, courts will use various devices to ensure that terms which might appear uncertain are, in fact, certain. It may be possible to determine what the term is from the usage in the trade. A vague or meaningless term may be ignored. 4.3 A Complete Agreement To create an enforceable contract, parties must reach an agreement on all the major elements of their contract. The agreement must, in other words, be complete. There must be nothing left outstanding to be agreed upon at a later date. Completeness is an aspect of certainty of terms: unless an agreement is complete, a court is unable to state with certainty what agreement has been made between the parties. If there is no agreement on all of the essential elements of a bargain, there is no contract. There must be an agreement on matters such as price, either by fixing the price or establishing a mechanism to fix the price. There is no such thing as an agreement to agree. In Courtney & Fairbairn Ltd v Tolani Brothers (Hotels) Ltd (1975) it was held that there was no contract where the parties had simply agreed to negotiate. Their agreement was not enforceable as a contract. In Barbudev v European Cable Management Bulgaria EOOD  EWCA Civ 548 a communication offering investment on ‘terms to be agreed’ was said to be no more than an unenforceable ‘agreement to agree’. The reason for this probably lies in the practical consideration that if the agreement is incomplete, it is not for the court to complete the agreement because the court would then be creating, rather than interpreting, the contract. In Walford v Miles  2 AC 128 Lord Ackner noted that the parties to negotiations had diametrically opposed aims and so their opposing interests could not be reconciled sufficiently to support in Walford an implied obligation to continue to negotiate in good faith with a particular party. In contrast, an undertaking not to negotiate with third parties (called a ‘lock-out’ agreement) is sufficiently certain to be enforceable (Pitt v PHH Asset Management Ltd  1 WLR 327) as is an undertaking to use ‘reasonable endeavours’ to achieve something (Astor Management AG v Atalaya Mining plc  EWHC 425). Study task 8 Your milkman leaves you a note to ask if you would like an order of bread at some point in the future. You reply that you would and you agree to pay his price of £1 per loaf. Is your agreement a contract? When will the bread be delivered? Show feedback In this instance you need to determine whether you have an agreement to agree – that is to say you would like to buy bread and he would like to sell bread – but this may not be a contract. Are all of the terms necessary for a contract to be present? In this case, it is not certain when the bread is to be delivered. That is to say, when will the bread delivery start – right away, next week or next month? A court may be able to imply a term that the delivery will begin in the week the order is placed. A court will, however, have more trouble in establishing how frequently the bread is to be delivered. The court will not want to write the terms of the contract between you and your milkman. Study task 9 You offer to pay £200,000 for a house ‘subject to contract’. Although the house looks fabulous on a first viewing, subsequent inspection of it reveals that it suffers badly from damp. The vendor insists that you must buy the house as she has accepted your offer. Must you? Show feedback In this instance, you do not have to buy the house. The offer was accepted ‘subject to contract’. There has been no contract to purchase and there is, therefore, no obligation upon you to purchase. Only in the most exceptional cases will courts displace the inference that arises from the use of these or equivalent words that the parties did not at that time intend a binding contract to come into existence (RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co (2010)). In some instances, legislation or case law will enable the court to add the necessary term to the agreement. An example of this can be seen in s.8(2) of the Sale of Goods Act 1979 which provides that where the price in a contract for the sale of goods has not been determined the buyer must pay a reasonable price. Where this occurs, the agreement can be completed and an enforceable contract exists. In other instances, where the parties have acted in reliance upon what otherwise might be considered to be an incomplete agreement, courts have found that they were able to imply the necessary terms. For examples of this, see the decisions in Foley v Classique Coaches Ltd  2 KB 1 and British Bank for Foreign Trade Ltd v Novinex Ltd  1 KB 623. There are two different ways of rationalising what courts are doing in these instances. The first is that courts are protecting the parties’ reasonable reliance upon an agreement The second is that, because the parties have relied upon the agreement, it is easier to imply with certainty what the parties would originally have agreed upon as the essential terms. Study task 10 What elements have courts found essential in determining whether the agreement is complete? Why are these elements essential? Show feedback It is impossible to compile an exhaustive list of essential terms because what is essential will depend upon the particular case. The following are suggested by way of guidance: (a) the identity of the parties involved; (b) price or a mechanism by which price can be determined; (c) the time at which the contract is to be performed. Of these, price is the most important – probably because a bargain is the essence of a contract. Study task 11 In what instances have courts been prepared to ‘imply’ or ‘insert’ what appears to be an otherwise missing essential element? Why was the court prepared to do this? Show feedback You will need to come back to this area after you have reviewed the section on implied terms (Section 5.2). Courts will imply terms to give a contract efficacy; that is to say, to make it work. In some instances this can be done because legislation allows it to be done (see, for example, s.8 of the Sale of Goods Act 1979). In other cases, it can be done because the parties are able to determine a mechanism established by the parties within the contract. In other instances, the contract has been executed, that is to say, the contract has been performed. See, for example, Foley v Classique Coaches Ltd (1934). Self-assessment questions Once the parties have begun to perform an agreement, are courts concerned to protect the reliance of the parties? How do the previous dealings of the parties or the custom within a particular trade assist the court? See Scammell v Ouston (1941). Summary The agreement must contain all the essential terms necessary to execute the agreement with certainty. If the agreement does not contain all the necessary terms, it will not be an enforceable contract. Courts will not create the contract between the parties. Examination tips The matters considered in this topic are unlikely to appear as a separate question on the examination paper. This does not mean that they are not important. They must be present in order to form an enforceable contract. The fact that the law insists upon their presence (and the circumstances in which the law ‘creates’ these elements) tells us a lot about the consensual nature of contract law. For examination purposes, however, the matters covered in this topic are likely to appear as issues in a larger question involving a bigger issue. You must think about how these smaller issues fit within the larger issue. Thus, for example, does an intention to create legal relations also indicate a greater problem with the adequacy of consideration? When you read examination questions that refer to an agreement, check to see if the agreement is domestic or social in nature – will intention to create legal relations be an issue in the context of that question? A party seeking to avoid contractual liability may do so on the ground that there was no intention to create legal relations. Where the agreement is between commercial parties, consider whether or not there are factors which displace the presumption of intention. With respect to ‘certainty’ and ‘completeness’, situations will arise where the words may be ambiguous. You must ask yourself whether this ambiguity creates a problem of certainty, or possibly a mistake. Always check to make sure an agreement is complete. Is there anything essential which remains outstanding? If there is, can a court imply or infer what this term should be? Sample examination question 1 Question A promises her son B £1,000 per month if he begins his engineering studies at university. A’s brother, C, offers B a place in his house if B promises to finish his studies. B offers his girlfriend D £50 per month if she will drive him to the university each morning. Are any of these agreements enforceable? Tutor guidance Using the guidance below, think about how you would answer the question. When you are ready, read the feedback. The best approach to an examination question of this nature is to break it down into its component parts. There are three agreements in the question. Before looking at the feedback consider each in turn: Agreement between A and B  Agreement between C and B  Agreement between B and D.  Feedback The best approach to an examination question of this nature is to break it down into its component parts. There are three agreements in the question. Consider each in turn. Do not be afraid to use sub-headings to assist the clarity of your answer. Agreement between A and B  A is B’s mother and automatically creates an issue of intention. You should consider the general nature of the test set out by Lord Atkin in Balfour v Balfour. Next, consider the similar facts of Jones v Padavatton. Without some element to distinguish it from Jones, it is likely that a court would reach the same outcome. Is such an element present? Note, however, the more general focus of intention (as opposed to the relationship of the parties) in Edmonds v Lawson. Agreement between C and B C is B’s uncle; again, intention to create legal relations becomes an issue. However, an uncle is one step removed from a parent or a spouse and courts might more readily infer such an intention. You need to consider what is established by the cases cited above in (1). An additional problem present here is that the agreement may not be certain in its terms. How long can B stay in the house? What part of the house can B occupy? How does Scammell v Ouston apply to this situation? This lack of certainty suggests that this is not a complete agreement. Is there a way for the court to infer what these terms (such as the length of B’s tenure) are? See Foley v Classique Coaches Ltd. Agreement between B and D D is B’s girlfriend – the agreement thus occurs within a social context. In this sense, it is similar to Coward v MIB. Here, the House of Lords found that, in the absence of evidence to the contrary, they would be reluctant to infer that agreements to take one’s friend to work in exchange for remuneration gave rise to a contract. The relationship lacked intention – neither party contemplated that they were entering into legal obligations. Note, however, Lord Cross’s judgment in Albert v MIB – does it provide a ground for allowing that the B/D arrangement is a contract?