Intention

Both parties must manifest an intention to be legally bound: **//__AWM__//**. Courts will look to the surrounding circumstances, including actions and statements of each party, to determine the **//objective//** manifestation of their intention: **//__Merritt v Merritt__//**.

This topic looks at circumstances where parties may reach a clear and certain agreement that satisfies the consideration element, but may not be intended to create legal relations


 * (I) Objective approach **

Objective test: **//“Would a reasonable person regard the agreement as intended to//**
 * // be legally binding?”: __Merritt v Merritt__ //**

(a) where the other party denies that the parties manifested an intention to create legal relations then the person alleging the existence of a contract must satisfy the court that the parties manifested an intention to create legal relations. (b) ‘subject matter of agreement, the status of the parties to it, the relationship to one another, and other surrounding circumstances need to be taken into account.
 * The court may also take into account the surrounding circumstances, including the actions and statements of the parties, as well as the terms of the document
 * ** BUT **, Mahoney JA in **//__Air Great Lakes__//** suggested that a subjective intention by one party not to be bound **//will//** prevent a contract arising where that subjective intention is **//known to the other party//**.
 * The objective nature of the inquiry as to intention and the circumstances that should be taken into account were stated in the joint judgment of Gaudron, McHugh, Hayne and Callinan JJ in **//__Ermogenous v Greek Orthodox Community of SA Inc__//**//.//
 * The admissibility and relevance of evidence as to actual intentions of parties was considered in **//__Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd__//**


 * (II) Presumptions **

Where the parties do **//not//** expressly state their intentions to be bound by the contract, the courts have relied on two presumptions. BUT, utility of presumptions now doubted: **//__Ermogenous__//**


 * Family, Domestic & Social Arrangements **
 * are presumed **//not//** to be intended to be legally binding
 * thus, onus here rests on the person seeking to enforce such an agreement to convince the court the parties did manifest an intention to be bound


 * Commercial Transactions **
 * are presumed to be intended to be legally binding
 * thus, burden of disproving intention is thus on a person denying the enforceability of a such a transaction


 * (c) Status of presumptions now **
 * ** BUT **, presumptions approach probably no longer applicable in Australia – HC (Gaudron, McHugh, Hayne, Callinan JJ) in **//__Ermogenous__//**__.__
 * HC said **//no presumptions guiding intention to create legal intentions//**, because they do little more than establish onus of proof, need to look at every cases facts
 * HC: “At best, the use of that language does no more than **//invite attention to identifying the party who bears the onus of proof//**.”


 * (III) Commercial Transactions **


 * Commercial Transactions are presumed to be intended to be legally binding
 * There are usually no problems with establishing ITCLR, e.g. there is a presumption of legal enforceability; a presumption that the parties intended to create legal relations
 * The party denying the existence of a contract bears burden of proof: must convince the court that the parties did not manifest an intention to create legal relations.
 * **// Letters of Comfort //** present particular problems.

**//Letter of comfort//** = is a document given to a financier in a situation in which a guarantee might otherwise be given. Parent company reluctant to give a guarantee, so provides a letter of comfort instead, which offers some **//assurance to the bank but without creating a clear liability//**
 * (a) Letters of comfort **


 * (b) Two ways of construing letters of comfort **

**__Moral obligation__**
 * Regarded merely as statements of intention giving **//no more//** than a **//moral responsibility//** on the part of the bank or the parent company
 * **//__ Kleinwort Benson v Malaysia Mining Corp __//** : held, on appeal, that the letter contained **//no//** such contractual undertaking but was merely a representation that only carried with it a moral obligation
 * **//__ Commonwealth Bank v TLI Management __//**// : // held, the letter contained no promissory language but merely statements of intention, the D had **//not//** bound itself by any undertakings made to the bank

**__Contractual obligation__**
 * ** BUT **, where the parties make it clear that a **//contractual undertaking//** **//is being given//**, such letters **//will//** bind the parties to their undertakings
 * **//__ Banque Brussels Lambert SA v Australian National Industries Ltd __//**__ : __ the argument based on estoppel was successful; as Rogers J found that it was unconscionable for the D to allow the P to believe it had an enforceable security and that they had failed to advise the P to the contract.
 * Rogers J stated: //‘If the statements are appropriately **promissory in character**, courts should enforce them when they are **uttered in the course of business** and there **is no clear indication that they are not intended to be legally enforceable**’//


 * (c) Non-binding commercial agreements (honour clauses) **
 * When an agreement is made in a commercial context, a question may arise whether the parties intend to make an honourable, rather than legal commitment
 * Parties can enter into a non-binding commercial agreement- the courts will give effect to an express stipulation that an agreement is **//not to be legally binding//**
 * Aka known as **//honour clauses//**- they expressly or implicitly provide that the agreement will be binding in honour only: //**__Rose and Frank v Crompton Ltd__**//


 * (IV) Domestic and social agreements **

EG: note of course **//__Ermogenous__//** and its questioning of this: while a minister of religion’s relationship with the relevant religious body is concerned with spiritual matters this does not mean that the relationship cannot also be contractual.
 * These arrangements have traditionally been approached on the basis that the parties are **//presumed not to intend legal obligations//**: **//__Jones v Padavatton; Balfour v Balfour__//**
 * ** BUT **, this is inconsistent with the neutral approach to the intention requirement in **//__Ermogenous__//**
 * Also, the court is **//not//** predisposed to conclude that the parties did not intention to create legal relations: See **//__Todd v Nicol__//** (held- **//was//** ITCLR despite family relationship)
 * A person claiming that a contract has arisen in a non commercial context (including a family or social context) bears the onus of showing that the parties manifested an intention to create legal relations.


 * (a) Agreements between spouses who are separating **
 * Courts more willing to find an intention to create legal relations where the parties are separated or about to separate, with arrangements about property and maintenance agreements
 * In **//__Merritt v Merritt__//**, court held that: although domestic arrangements between spouses are not ordinarily intended to create legal relations, it is altogether different when the parties are separated or about to separate. It may then be safely presumed that they **//do//** intend to create legal relations


 * (b) Commercial agreements between family members **
 * The intention requirement will easily be satisfied where a transaction between family members is essentially **//commercial in nature//**
 * In **//__Roufos v Brewster__//**, Bray CJ held that the agreement (between Mrs Brewster and her son in law Roufos) created a legal relationship because the whole setting of the arrangement was commercial rather than social/domestic and thus the parties were bound (thus presumption rebutted)

How close was the family relationship? What did the parties say to one another? What were the surrounding circumstances when the statements were made? Do the parties have commercial interests involved? How serious are the consequences of one party acting on the promise?
 * (c) **** Guidelines to determine parties’ intentions in social/ domestic arrangements **


 * (V) Government agreements **

An intention to create legal relations **//is likely to be manifested//** when a government enters into a commercial transaction expressed in contractual language: **//__Placer Development v__//**
 * //__ Commonwealth __//****__, Windeyer __**** J **

Where the administrative or political activities of the government are concerned (eg: policy announcement by governments, including reduction of taxes, offer of assistance, subsidies) the courts are likely to find that an intention to create legal relations **//does not exist//**: **//__Australian Woolen Mills Pty Ltd__//** (no intention); c.f. **//__Administration of Papua__//**
 * //__ New Guinea v Leahy __//** (government policy/social service)

It is likely to be viewed as a statement of government policy rather than a contractual commitment, **//IF//** the purpose of the agreement was to provide some assistance to the other party or the community in general

The fact that the individual is providing something in return for that assistance does not necessarily mean that the parties intend to make a contract


 * (VI) Preliminary agreements **

Preliminary agreements = Parties who have negotiated the **//principle terms//** of a proposed transaction may enter into a preliminary written agreement, with the **//intention of recording their agreement//** in a more **//formal way//** at some future time
 * (a) What are preliminary agreements? **

 If one parties wishes to withdraw from the transaction **//after//** the preliminary agreement has been signed, necessary to determine whether the preliminary agreement was intended to be binding

 Did the parties intend to be **//bound immediately on the signed preliminary agreement//**?  Did they intend to **//defer any legal commitment until a formal contract//** had been made?
 * __Need to Ask:__ **
 * OR **

 A party may argue that the parties had only reached a preliminary agreement.  In these cases, it is generally assumed that a contract has **//not yet formed//**.  The onus will normally be to prove that a contract had been formed.  A preliminary agreement will be binding if it appears the parties intended it to be binding: leading case **//__Masters v Cameron__//**  This is a question of intention as disclosed by the language: **//__Masters v Cameron__//**
 * (b) Preliminary agreements different from the “final” contract **

 agreement **//binding//** regardless of whether a contract is formed: **//__Godecke__//**  Parties have settled **//all essential terms//**, it appears they intend to be bound; merely desire the finality of a formal contract: **//__Branco__//**//__.__//  This **IS** a binding contract, holding both parties to their obligations: **//__Godecke__//**
 * (c) The three types of preliminary agreements articulated in //__Masters v Cameron__// **
 * (1) The parties may have finalised all the terms of their bargain and intend to be immediately bound- but wish to state terms in a more precise way. Thus: **

 parties are **//bound to create//** a contract: **//__Neismann__//**
 * (2) The parties may have completely agreed upon all the terms of their bargain and don’t intend to vary/change those terms, but have made the performance of one or more of those terms conditional on the execution of a formal document. Thus: **

 **// Not //**** //binding// ** unless a **//formal contract is signed//**.  The fact that a formal contract is intended to include further terms won’t prevent a PA from being binding, so long as those terms can be settled without agreement between the parties  An agreement cannot be binding if it depends on further agreement between the parties; an **//agreement to agree is not enforceable//**  Often **“subject to contract”** or there may be many terms missing- The use of expressions (‘subject to contract’, ‘subject to a formal contract’) prima facie indicate that the parties have done no more than establish a basis for a future agreement and that the preliminary agreement is not intended to be binding
 * (3) The parties may not intend to make a binding agreement at all unless and until they execute a formal contract. Thus: **