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The Importance of Intention

Question

“The Common law does not require any positive intention to create legal obligation of an element of contract – A deliberate promise seriously made is enforced irrespective of the promiser’s views regarding his liability.” Comment on the above statement and indicate whether intention to contract is an independent requirement for a valid contract.

Answer:
Intention is a crucial and important element to the formation of a binding and enforceable contract.
Parties may enter into an agreement, but unless they intend their agreement to be legally enforceable they have not entered into a contract. If Party A offers to take Party B to be introduced to a Party C and Party B accepts, then the consideration is the execution of the promise. But if in the offer Party A expressly says that the proposal is “not intended to be legally binding and enforceable upon Party A” then this lack of intention to be legally bound renders the agreement to be non-contractual.

The leading case concerning whether a document executed with the intention of executing further documents is Masters v Cameron (1954) 91 CLR 353 where the High Court of Australia divided such cases into 3 categories. These categories can be paraphrased as:

• cases where the parties intend to be bound immediately but also intend to execute a further more detailed document defining the details of their relationship;
• cases where they intend to bind themselves to execute the further document and
• cases where there is no intention to be bound until the further document is executed.

In the absence of any prescriptive rules the courts have identified a number of relevant factors to be considered in determining whether the parties intended to be bound. 

The Court looks at the following relevant factors in ascertaining the parties objective intention:

  • The importance and complexity of the transaction (See See especially G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601, 611 (Bingham J); and Vass v Commonwealth (2000) 169 ALR 486, 495; Banking & Trading Corporation v Floete, 257 F 2d 765 (2nd Cir, 1958); and Horst Lucke, ‘Arrangements Preliminary to Formal Contracts’ (1967) 3 Adelaide Law Review 46, 60).
  • The degree of formality or informality and the terminology of the agreement (eg was there a signed agreement, an exchange of correspondence or only an oral exchange?)
  • The expression or lack of expression as to the parties intention to be bound by the preliminary agreement (See especially Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101; Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444; SVI Systems Pty Ltd v Best & Less Pty Ltd (2001) 187 ALR 302; Fletcher Challenge Energy Limited v Electricity Corporation of NZ Limited [2005] 2 NZLR 433, Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149, Factory 5 Pty Ltd v State of Victoria [2010] FCA 1229 and Winston v Mediafare Entertainment Corp, 777 F 2d 78 (2nd Cir, 1986) 80.)
  • The parties previous dealing and their conduct at the time of and following the agreement (See Fletcher Challenge Energy Limited v Electricity Corporation of NZ Limited [2005] 2 NZLR 433, Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149, Factory 5 Pty Ltd v State of Victoria [2010] FCA 1229 G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; Marek v Australasian Conference Association Pty Ltd [1994] 2 Qd R 521; and Sheehan v Zaszlos [1995] 2 Qd R 210).
  • Any actions taken in reliance upon or part performance of the agreement (See especially Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101; Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444; SVI Systems Pty Ltd v Best & Less Pty Ltd (2001) 187 ALR 302; and Winston v Mediafare Entertainment Corp, 777 F 2d 78 (2nd Cir, 1986) 80).
  • The fact that the agreements is one of a series of inter related agreements between the parties .
  • Whether the preliminary document is sufficiently certain to be enforce?  When looking at this the following issues are considered:
  • Does the preliminary document lack agreement on essential terms (See especially Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Winston v Mediafare Entertainment Corp, 777  F  2d  78  (2nd   Cir,  1986)  80;  and  Woodside Offshore Petroleum Pty Ltd v Atwood Oceanics Inc [1986] WAR 253, 273 (Kennedy J), Courtney & Fairbain Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 WLR 297; and R & J Dempster v Motherwell Bridge and Engineering Co [1964] SC 308.)
  • Does the preliminary document leave necessary terms for future agreement? (See Calvan Consolidated Oil & Gas Co Ltd v Manning [1959] SCR 253; Foley v  Classique Coaches Ltd [1933] 2 KB 1; Mamidoil-Jetoil Greek Petroleum Co v Okta Crude Oil Refinery [2001] 2 Lloyd’s Rep 76; and Summergreene v Parker (1950) 80 CLR 304)

More information on the Importance of Intention can be found in the iBook “Preliminary Documents and Overview” by Steven John Brown. Available in the iBooks store for the small price of US$11.99.