Elements Of Intention And Consideration In The Formation Of A Contract: Analysis Of Carol And Max Case

(a) Using the four-step process, discuss the elements of intention and consideration required for the formation of a contract. In particular, consider whether these elements have been met in order for there to be an enforceable contract between Carol and Max.

(b) Assume that the elements of intention and consideration required for the formation of a contract exist. Using the four-step process, discuss whether the element of agreement required for the formation of an enforceable contract between Carol and Max can be established. 

Elements Of Intention And Consideration In Carol and Max Case

The Law of Contract holds the core element of the commercial law. Among other elements of an enforceable contract, an English law requires the parties to demonstrate “intention to create legal relations.? Allegedly, since contract law is the law that governs relations between parties to a transaction, this law cannot function without the judges looking at the root part of the agreement. In particular, the intention of the parties.  However, sometimes it becomes a burden to the jury to extract this intention from the mixture of words that the parties said to each other. With that, the English law uses a test that checks whether the parties intended to be bound by the words and actions that they undertook, in addition to the considerations within the agreement. For a thorough analysis, this paper will use a case study of Caro and Max and pinpoint whether the case shows their intention to be bound by their terms.

The law of contract uses the objective theory of contract in determining whether there was the intent to enforce the agreement. According to (Klass, 2009), the objective theory dwells on a “party’s manifest or a publicly observable intent.” In short, the theory looks at the reasonable man's perspective. That is the judgment of a reasonable person. For example, in (Hartog v Colin & Shields [1939]), the Court held that was not enforceable. This was simply because the plaintiff was supposed to reason that it was impossible that the defendant's intention to sell at that low price.

Markedly, the intent should be distanced from the party’s belief, subjective intention or rather secrets. In (Miller and Jentz, 2010), the work suggested that when looking for objective facts, there is a need to look at three aspects. One is the words of the parties while negotiating the agreement. Second is the way both parties acted. Lastly, the circumstances both prevailing and surrounding the transactions in question.

For instance, objective test in the case of Max to Carol can focus on the consultancy plan. Carol scheduled the Tuesday meeting, and she had already prepared the work outline before the meeting. Another point, Carol emailed Max requesting to recounts the terms of the proposal. This part of conduct proves that the objective of both parties was to have a binding agreement with terms and consideration. A reasonable person would not think that Carol was doing this intending to get nothing in return. On the side of Max, He knew the work would engage Carol for four months; He was willing to part with $600 for each of these fortnightly. This part suggests that Max was already aware that he would be paying for her consultancy.

(a) Using the Four-Step Process to Discuss the Elements of Intention and Consideration Required for the Formation of a Contract

While evaluating the conduct of the parties, the acceptance of an offer can be traced from the fact that Mary accepted the offer, “She calls Max the day after their meeting to communicate her acceptance of his proposal and Max is very happy to hear this” Acording to (Ashcroft, Ashcroft and Patterson, 2016), “when an offer has been properly communicated to the party for whom it is intended, and that party accepts, a binding contract is formed. Acceptance is the assent to an offer that results in a contract. The acceptance must be communicated to the offeror, and the acceptance may be made by words—oral or written—or by some act that clearly shows an intention to accept.” As an illustration, Blackburn J summarized the use of objective facts in (Smith v Hughes (1871)]. He held: '"If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms." So following these remarks, Carol accepted the offer.

In the same token, when courts are evaluating the parties intentions, they first differentiate the positions according to two distinctions. And to clarify, those of agreements originating from a domestic or social setting, and those agreements coming from commercial context (O'Sullivan and Hilliard, 2016).  Where the agreement is arising from a business or commercial environment, the presumption is that the parties intended to create a legal relationship (Mason, 2016). On the other side, where the agreement seems to go to the line of social and domestic settings, the presumption is that the parties never meant to create an enforceable contract. In particular, this decision was held in (Balfour v. Balfour, [1919]). The court stated that an agreement between a wife and a husband doesn’t show an intention for a legal enforcement.

Similarly, in (Hadley v Kemp [1999]), the court stated that an oral agreement needed to be spoken with the intention to bind the parties legally, but since the parties had been acquaintances back from their schooldays, their relationship was distancing from that of business. So there was no contract for sharing the defendant’s publishing income.

On the other hand of agreements arising from a business setting, the court will presume that the parties wanted to arrive at a legal relationship. A helpful example is the mirror case of (Esso Petroleum Ltd v Commissioners of Customs and Excise [1976]) This case developed after  Esso started a sales promotion program whereby they offered garage owners a ‘free’ World Cup coin for every four gallons of petrol. The Customs and Excise were concerned with their operation and wanted to claim the purchase tax on the ‘sale’ of the coins. The House of Lords concluded that Esso had adopted the method as a way to gain more sales, meaning there was an intention to create a legal enforcement. So they were supposed to pay tax.

(b) Using the Four-Step Process to Discuss whether the Element of Agreement Required for the Formation of an Enforceable Contract between Carol and Max can be Established

 In comparison to the case of Caro and Max, the whole issue originated from a business context. Even though they met in a social place and the root of their friendship comes from a social network, the primary intention that drove Max to search for Carol was a business. Taking the example of Esso Petroleum, Max wanted to increase his sales. Furthermore, Carol’s letter can be termed as letters of intent. According (Riches and Allen, 2009), the letters of intent "is a mechanism by which a party can use to show the other that it intends to enter into even though these letters are not legally binding.

However, to some extent, a letter of intent can be legally binding. In the case of (British Steel Corporation v Cleveland Bridge and Engineering Co Ltd [1984]). In this case, the defendant had refused to pay for the delivery of steel nodes which the plaintiff had delivered the letter of intent to buy. However, the court held that the letter could have been an executor contract.

It's a good point to note that where a letter of intent is inviting the other party to start performing its obligation, the letter can bring in some legal enforcement. In comparison with Max and Carol case, the letter of intent came days after Carols call to accept the contract, it could have been an executory contract to the already finalized contract; and may be that caused Max to pay her $1200.

In reality, Carol may stand her point and argue on the fact that the negotiations happened on a friendship or social context. But still, unlike the case of (Hadley v Kemp [1999]) who had been friends since school, the friendship of Max and Carol was not long. Also, the friendship was built on a business context where the main concern for Max was to increase his sales.

Furthermore, in cases where family members or friends put their firms or financial interests at stake, the court have higher probabilities of finding that the parties intended to have a legally binding agreement. For example, in (Parker v Clark [1960]), the court held that the parties intended to have a legally binding agreement as they young couple had already disposed of their home. Similarly, in (Bovaird v Frost [2009]), Judge Brereton held that the parties intended to create a legal binding relations. So in the case of Max and Carol, Max was after a legally binding agreement as he had already sent $1200 to Carol. And hence, after analyzing all those facts, the tests qualifies for an intention to have a legally binding agreement.

This question is a matter of testing whether the agreement of Max and Carol contained all the elements that can make it enforceable in law. Contract law administers promises that people make to each other to ensure that the conduct of each party doesn’t frustrate the expectations of the other.  However, for a court to enforce the parties’ promises, it must examine the look for the elements of an agreement to determine whether it is enforceable in law. If one of the major elements is missing, the court will dismiss the case.

First and foremost, an enforceable agreement should have an offer made by the offeror, an acceptance coming from the offeee. An offer constitutes three elements. Common law destines that an offerer must manifest its intention to enter into an agreement (Mann, 2003). In short , the offeror must demonstrate a degree of serious and objective intention to an effective offer.

Notably, intent does not come from the subjective intentions of the offeror, or his beliefs in addition to his assumptions. Rather, intent is determined by that fact that from the point view of a reasonable person, he would see that the offer’s action suggested an offer. For this reason, any offer resulting from anger, duress, or excitement will create a void agreement as held in (Kolodziej v. Mason, [2014]). The court found that the statement "I'll pay them a million dollars" was a statement of excitement that the defendant said which could not amount to an offer.

A clear comparison of Max and Carol case is the judgment held in (Senengal v. Fakouri Electrical Engineering, Inc., ( 2011)]. I this case, both parties to the suit presented to the Judge Jones their decision to settle. They also presented a handwritten document for all their settlement plan and terms. Judge Jones advised to enter into an oral contract which they accepted. The Judge then read aloud their settlement document and both parties consented. Later on, the plaintiff came back disputing the settlement agreement. Regardlessly, the judge denied dismissed his objection. So like the plaintiff, Carol suggested the meeting date with Max. When they met on Tuesday, she even presented the work outline. Like Judge Jones, Max was impressed and offered Carol the consultancy offer, and consideration. This fact then proves Max intent to an offer and fortunately, Carol accepted it.

Another requirement of an offer that should also be in Max should include is the definiteness of the terms. The American Law restatement suggest that “effective offer involves the definiteness of its terms. An offer must have reasonably definite terms so that a court can determine if a breach has occurred and give an appropriate remedy.” (Restatement 2nd of Contracts § 30 (1981))

After an offer has been made, it would need to be accepted by the offeree as presented by the offeror so that it can become an agreement. And like an offer, acceptance should demonstrate a manifestation of the willingness to be bound by the agreement (Meiners, Ringleb, Frances & Edwards, 2016). In addition, the law of contract states that acceptance must be unequivocal and it should be communicated to the offeror. Another rule that applies in general is that acceptance can only come from the offeree to whom the offer was made.

Like as seen above, Carol accepted the offer when she called Max the day after their meeting when she called to tell Max that she has accepted the offer. According to (Entorres v Miles Far East [1955]), where the mean telecommunication is used in relying acceptance, and the methods of acceptance are instantaneous, acceptance is then deemed communicated received as soon as the offero receives the communication from the offeree. That is to say, Carol accepted Max offer the moment she called him and communicated of her acceptance.

Conclusion:

English law, will not only rely upon consideration to prove the existence of a binding agreement. Not only that, but it also looks at the intention of the parties to see whether the parties made the agreement with the intention of binding themselves to its terms. By doing that, the law goes deeper to apply the technical or schematic principles of contract law. In applying such doctrine, the law will never limit itself to the cost of fixing the facts to fit the blanks of an offer, acceptance or those of consideration. It would look at the position of the innocent party, and the entire environment of the agreement. The benefit of this is to save the innocent party from the misconduct of the guilty party. In most cases, this happens when the guilty party's conduct suggest a legally binding agreement to the innocent party. After that, when it comes to performing the obligations, the guilty party distances itself from the agreement. In such circumstances, the law will fill the missing parts to connect the offer, acceptance, and consideration. However, the concept would be more complicated in the social or domestic context.

References:

Mason, J. (2016). Construction Law. 1st ed. Routledge, p.35.

Ashcroft, J., Ashcroft, K. and Patterson, M. (2016). Cengage Advantage Books: Law for Business. 9th ed. . Mason, Ohio [u.a.]: South-Western Cengage Learning, p.63.

Barnes, P. (2008). The JCT 05 Standard Building Sub-Contract. 3rd ed. New York, NY: John Wiley & Sons, p.5.

Klass, G. (2009). Intent To Contract. Virginia Law Review, 95:1437, p.1457.

O'Sullivan, J. and Hilliard, J. (2016). The law of contract. 7th ed. Oxford University Press, p.67.

Miller, R. and Jentz, G. (2010). Business law today. 9th ed. Mason, Ohio [u.a.]: South-Western Cengage Learning, p.220.

Riches, S. and Allen, V. (2009). Business law. 9th ed. Harlow: Longman, p.226.

Mann, R. (2003). Im Ess of Bus Law Legal Env. 8th ed. Thomson South-Western, p.127.

Meiners, R.E., Ringleb A.H., Frances L., & Edwards F.E.,(2016). Legal environment of business. 13th ed. [. Mason, Ohio [u.a.]: Cengage Learning, p.217.

Balfour v. Balfour, [1919] 2 KB 571

Bovaird v Frost [2009] NSWSC 337

British Steel Corp v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504

Entorres v Miles Far East [1955] 2 QB 327 Court of Appeal

Hadley v Kemp [1999] EMLR 589

Hartog v Colin & Shields [1939] 3 All ER 566

Kolodziej v. Mason [2014] 774 F. 3d 736 (11th Cir)

Parker v Clark [1960] 1 WLR 286

Restatement 2nd of Contracts § 30 (1981

Sengal V. Fakouri Electrical Engineering, Inc [2011] (E.D. Va)

Smith v Hughes (1871) LR 6 QB 597