The Promises

The promises, made between at least two parties to express the willingness to do or not to do certain things are basically deemed as agreements. On the whole, contracts begin as agreements. Nevertheless, it becomes much more complicated when an agreement is upgraded to the level of a contract bound by law. Though ‘the agreement goes to the heart of contract’ (Gibson & Fraser, 2009: 268), the creation of an apparent simple contract requires 2 more elements, intention and consideration. Further, for validity, the parties related to the contract must have legal capacity and be genuine consent; meanwhile the legitimate purpose and form are necessary. Concisely, the gap between contracts and agreements is caused by those criteria.

As mentioned, an arrangement lays the foundation of a contract. An agreement emerges as a result of an unequivocal delivered offer and acceptance, while it can also appear in the form of the acts and conduct of the parties. In Harrison v Nickerson [1873] LR 8 QB 286, Harris saw an advertisement for an auction in a newspaper and traveled to the sale, ended up with being informed of the withdrawal of the item in his favor. Ultimately, the auctioneer was not to blame since the advertisement was simply an invitation to treat not an offer, and Harris did not prove the agreement existed with any file or relevant conduct. Therefore, it is not legally enforceable if the requirements of ‘arrangement’ are not met. However, the Quasi-contract, like the third party car insurance, is an exception which is compulsorily implemented by law, irrespective of the wishes of the parties (Gibson &Fraser, 2009: 243). In brief, a contract is nonexistent without an agreement admitted by the parties in most cases.

Notwithstanding a contract is based on an agreement, legally binding contracts comprise more specific and rigorous criteria, amongst which the most essential term is the intention to establish juristic relations. Intention can be express or implied. Mackinnon (2005) pointed out that ‘Whether an agreement was intended by the parties to have legal effect is determined at law according to objective criteria and not the subject intention of the parties at the time the agreement was reached’. In other words, wording and conduct of the parties during the consultation are crucial. Express intention albeit rare, referring to any direct statement about the intention to contract within the contract itself, provides definite evidences about the question. The exemption clauses as examples, such as ‘binding in honor only’, or ‘subject to contract’, are mostly presented in commercial agreements. For instance, in Rose and Frank Company v JR Crompton and Bros Ltd [1925] AC 445, the American firm suffered due to the ‘honors clauses’ in the arrangement which excluded the jurisdiction of the court, when the British firm suddenly terminated the relations. However, for the majority of agreements, the intention of the parties is vague, which attracts most difficulties because the court must primarily determine if the arrangement was intended to be legally bound during the trial. For the purpose of helping making objective decisions, the agreements are divided into two categories, commercial or non-commercial. After classification, reputable presumptions of facts are applied to resolve the issue. In the case of business agreements, the inference strongly indicates that the parties intended to create legal nexus. Referring to the case of Edwards v Skyways Ltd [1964] 1 WLR 349, the pilot successfully got the ex gratia payment back, as the court declared that the agreement between the pilot and the airline company was ‘commercial in nature’ and there was ‘a meeting of minds – an intention’; with no prove to rebut. However, by demonstrating the exemption clauses clearly, the presumption about commercial agreements can be refuted. Specially, some government dealings involving political or administrative activities are simply not contractual. On the other hand, the law presumed that the social, family and voluntary agreements were prima facie unenforceable. Although the assumption is helpful, each case must be treated on the merits, signifying that plaintiffs can controvert the deduction by showing ample evidences. To be specific, in Cohen v Cohen (1929) 42 CLR 91; [1929] HCA 15, where there was actually a domestic arrangement, the wife failed to get the rest dress allowance, because the facts illustrated that the promise was made before the separation, albeit at the point of engagement. In comparison, the wife confirmed that her husband had an affair and they were separated at the time the agreement was reached, and succeed in maintaining the lawful rights, in Merritt v Merritt [1970] 2 ALL ER 760. In addition, if the consequences for the plaintiff are that serious when the defendant breaks the promise, the court may announce that the intention to be bound existed. Hence, the courts consider about the nature of the agreements, the parties’ relations, and the seriousness of the consequences, or any other relevant circumstances, in dealing with non-commercial agreements in practice. In conclusion, it is the element of ‘intention’ which chiefly distinguishes legally binding contracts from other types of arrangements (Gibson & Fraser, 2009: 250).

Apart from the intention issue, other elements can also differentiate onerous contracts from gratuitous agreements. First, valuable consideration is one requirement for an agreement to become a contract, except formal contracts which get validity from the form alone. People can accept gifts freely, while the electricity bills must be paid. Secondly, if the parties have a restricted contractual capacity, such as infants and bankrupts, agreements may not be enforceable. Furthermore, agreements still exist if the parties are threatened or cheated to consent, or the statutory procedures required are not satisfied, even the purposes are illegal, like the drug trade, but contracts with legal obligations never will.

To sum up, lacking one or more of the 6 legal restrictions, an agreement is not legally binding as a contract. Those 6 prerequisites, must presented in contracts with binding nature, are intention to create onerous relations which prevails as the first considered element, valuable consideration, and legal capacity to contract, genuine consent of both parties, lawful objects and complete form required.

References:

Book

Gibson, A. & Fraser, D. 2009. Business Law, 4th ed. Pearson Education Australia

Contract law cases

Harrison v Nickerson [1873] LR 8 QB 286

Rose and Frank Company v JR Crompton and Bros Ltd [1925] AC 445

Edwards v Skyways Ltd [1964] 1 WLR 349

Cohen v Cohen (1929) 42 CLR 91; [1929] HCA 15

Website

Mackinnon, M. 2005. Contract versus Agreement.

http://www.horseforce.com.au/documents/ContractversusAgreement.pdf

viewed 13 October 2009