Prerequisite for a contract that is enforceable

Intention to enter into contractual (or promissory) relations appears to be a prerequisite for a contract that is enforceable. After considering the quotation below, give your opinion, and reasons for that opinion, on whether the concept of 'intention to create legal obligations' is both reasonable and useful for Scots law today.

“It is debatable to what extent, in Scots law, the parties’ intentions are relevant, in the positive sense of requiring intention to create legal relations as a prerequisite for an enforceable contract. Our law, as a general rule, decides questions of contractual (and promissory) intention objectively" (McBryde, para 5-02, 3rd edition, 2007).

In seeking to consider whether intention to enter into contractual (or promissory) relations is a prerequisite for a contract that is enforceable, on the basis of the above quotation, there is a need to determine whether the concept of “intention to create legal obligations" is both reasonable and useful for Scots law today from the discussion undertaken in this essay. With this in mind, as well as showing an understanding of how a contract is generally formed, there is a need to state what McBryde actually means when he says that Scottish law decides questions of intention objectively along with as to how this relates to the doctrine of “intention to create legal relations". [1] Therefore, there is also a need to ascertain whether the quotation is actually an accurate statement of the approach taken by Scottish law on the basis of evidence that serves to either support or reject the proposition from the cases previously decided by the courts in this area that is analysed and evaluated on this basis. In addition, in view of the fact that McBryde claims the “intention to create legal obligations" is an English doctrine, there is a need to compare the approach taken by the Scottish courts with that of the English courts in relation to the cases that have been decided in this regard. [2] Finally, with a view to concluding this discussion, there is a need to not only summarise the key points derived from this discussion but also evaluate the aforementioned proposition and, by association, the current law with a view to determining to what extent McBryde’s evaluation can be considered to accurate and agreeable.

Generally, when looking to assess whether a contractual agreement has been formed, there is a need to look at the negotiations that occurred between the parties in a given case. This can, however, prove to be somewhat problematic in practice where negotiations prove lengthy between the parties because it could prove difficult to determine an agreement was reached. [3] Nevertheless, despite long negotiations, the courts could still be willing to find a concluded bargain so any ongoing negotiations thereafter will not necessarily terminate an agreement. [4] However, three facets have long been recognised as fundamental for a court to find a contractual agreement in place between particular parties that is binding upon them – (a) offer; (b) consideration; and (c) acceptance. First, the offer involves making a written or oral proposal to give or do something as part of an agreement that may be deemed to be a legally binding contract express or implied from the parties conduct since – (a) it must be made to a definite person, class, or even the world at large; (b) it must be communicated to the offeree before acceptance; but (iii) the offer is only considered made when it reaches the offeree. [5] Consideration then refers to what is given or accepted in return for a promise as part of an agreement in the form of a “right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other" [6] executed when the act constituting consideration is performed and is deemed ‘executory’ when it is yet to be performed and must be legal, not past, and move between the parties. [7] Finally, acceptance relates to the idea an offer is made by one party considered acceptable to another without qualification in words or through conduct in conformation with the offer that has been made [8] - although it is also possible to have an acceptance of an offer ‘subject to contract’ where the parties will only be bound with a formal contract. [9] Therefore, it is to be appreciated that, whilst the phrase 'subject to contract' has no real 'magic' under Scottish law, unlike English law, where its use manifests an intention of the parties that their agreement should not have contractual force then it will usually prove to be the case that the Scottish courts will give effect to that intention. [10] 

With this in mind, in view of the crux of this discussion being on McBryde's aforementioned view regarding the “intention to create legal obligations", [11] it is interesting to note that it is arguable that a letter of intent could be considered to be akin to conditional contract, according to the decision in British Steel Corporation v. Cleveland Engineering Co. [12] But, conversely, in the case of Regalian Properties Plc v. London Dockland Development Corporation [13] there was an unsuccessful action for reimbursement of expenses incurred by a property developer regarding preparatory work in respect of a contract that also never materialised. These cases are not analogous, however, because, whilst one party, in British Steel Corporation v. Cleveland Engineering Co, [14] requested the other to perform services and supply goods required under the expected contract, the costs Regalian Properties Plc v. London Dockland Development Corporation [15] sought reimbursements for arose with a view to putting itself in a position to obtain and then perform the contract. At the same time, however, it is possible to draw an analogy with an invitation to treat that is effectively based on the premise of an offer to receive an offer [16] because it has come to be understood that “the display of an article with a price on it in the shop window is merely an invitation to treat. It is in no sense an offer for sale, the acceptance of which constitutes a contract". [17] 

In the English case of Edwards v. Skyways [18] the pilot plaintiff was made redundant on the facts by the defendant but was informed by his pilots association he would receive a payment in ex gratia as part of his redundancy. However, the defendant pilots association failed to make the ex gratia payment and so the pilot plaintiff sued. With this in mind, the defendant then looked to argue on the facts that, at least as far as they were concerned, the use of the words 'ex gratia' served to showed there was actually no intention to create legal relations with regard to the making of the aforementioned payment. However, it was held by the court, on the basis of the facts, that this particular agreement that was related to business matters and was considered to be binding as a result because the defendant pilots association had failed to effectively bring about a rebuttal of this presumption on the part of the plaintiff. On this basis, the court presiding in this case then went on to add that the words 'ex gratia' (or 'without admission of liability' on the facts) are simply utilised with a view to showing the party that is agreeing to make a payment does not want to admit liability and not seeking to preclude the legal enforceability of the settlement by labelling this kind of payment as being 'ex gratia' in practice. [19] 

Such a view was also taken on in Scottish law in the case of Wick Harbour Trs v. The Admiralty [20] where it was recognised that just because a particular payment might be labelled as 'ex gratia' did not serve to exclude a legal obligation to make it. In the case of Robertson v. Anderson [21] it was recognised that the agreement in this case could have occurred following an offer by Mrs Anderson that the two women should share any money that they won at bingo that night which Mrs Robertson then accepted but went unfulfilled and was thus taken to court where it was upheld as a valid agreement. [22] However, it is still to be appreciated that, as with agreements between spouses and close relatives, there are many other social or domestic arrangements where the parties do not intend to establish legal relations between themselves. By way of example, where the two parties in a given case make an agreement to walk together or provide hospitality this does not usually serve to establish legal relations [23] so there is a presumption there is no intention to establish legal relations between the parties in a given case. [24] 

Nevertheless, in the case of Angelika Cawdor v. Cawdor Castle (Tourism) Limited [25] the plaintiff sought payment by the defendant to her of certain sums of money (£77,584 as the outstanding balance on a loan made to the defendants along with 15% interest per year on that sum from 2001, £3,452 due in unpaid salary as a director and £11,219 owed as a payment in lieu of notice with respect to her resignation.). At the same time, however, in a counterclaim the defendants sought payment from the plaintiff of certain sums of money. “They claim that prior to her resignation the pursuer procured that the defenders incurred expenditure in relation to gardens at the pursuer's private residence at Auchindoune. They claim that she was unjustly enriched through receipt of the expenditure. In conclusion 1 of the counterclaim the defenders conclude for payment of the sum of £241,170.65. Alternatively, they claim that between 2000 and 2002 the expenditure on the gardens at Auchindoune constituted action by the pursuer which was in contravention of the articles of association of the company and of the Companies Act 1985, section 317, and that the pursuer was accordingly in breach of her fiduciary duty as a director. This alternative sum is £101,217. The defenders make a similar claim with respect to the expenditure on a greenhouse at Auchindoune. This claim is valued in the sum of £43,519.26. The defenders also claim that the pursuer procured for herself an unauthorised bonus of £39,165" [26] As a result, the plaintiff served to effectively move Lord Bracadale to grant decree de plano and to restrict probation with respect to matters that had been raised by the defendants in defence of the claim for payment in lieu of notice in the circumstances of this case.

To conclude, as has already been seen, as part of this discussion, there are also many cases where there is a prima facie intention to create legal relations in English law because the agreement is clearly commercial. [27] Therefore, where there is an agreement to enter a competition it will usually be labelled as a contractual agreement in the way that was previously recognised in Robertson v. Anderson. [28] Also, where one party gives up their home to look after another party in return for a promise of all the other's property, there was clearly an intention to establish legal relations, [29] whilst a further example arose with an agreement to take premises as a tenant or lodger. [30] There are, however, also other situations where it does not appear possible to establish a presumption so that this then means that everything depends upon the parties intention in a given case and the circumstances around them. Therefore, whilst the recognition of “intention to create legal obligations" may be considered useful to Scottish law because the recognition and understanding of this doctrine can proved to be quite clear and to the point. For example, it would seem there is unlikely to be any intention to create legal relations where a party gives a lift to another on social occasions or for work even where there is a contribution to expenses incurred. [31] Conversely, however, when a person agrees to carry another in his vehicle for payment this may be deemed a contract no matter whether the payment is by way of contribution or reward for the lift. [32] On this basis, it is clear that there is still some substance to the use of the “intention to create legal obligations" where the parties may be said to have involved themselves in an agreement with a commercial nature in view of the fact that it may be argued that there was some tangible gain and loss to the respective parties in much the same way as was recognised in Robertson v. Anderson. [33]