Chapter 4: The intention to create legal relations
Consensus ad A legal binding contract must
idem 1. Parties have an intention to create legal relations
2. Ensure that the agreement of the parties consists of an offer and a corresponding
acceptance
Parties need to agree on the same thing (meeting of minds/ consensus ad idem)
Parties need to agree that what they agree upon is binding in law (each of them can
go to court and enforce the agreement if necessary)
Balfour v Balfour [1919] 2KB 571
An agreement with
Mere agreement intended legal
consequences
morally wrong but has intention to create
nothing to do with the law legally binding
relations
a person who promises his fiancee to take
her to dinner and then does not show up,
no one would go to court
Intention to create legal binding relations
Criterion to distinguish binding promises or agreements from statements that do
not qualify as such
Art. 2:101 (1) PECL
A contract is concluded ‘if the parties intend to be legally bound’ and ‘reach a sufficient
agreement’
Dutch Art. 3:33 BW
‘A juridical act requires an intention to create legal declaration’
The law of contract (English law)
‘intention to create legal relations’
German BGB
‘intention to create a legal commitment’
French Civil Code
‘meeting of intentions’ (‘rencontre des volontés’)
What is the intention of the parties?
The objective Dissensus of intention and declaration (difference of opinions)
approach to You agreed to “clean my house” for £50 (you thought just the interior, but I also
agreement wanted the exterior)
You rented the “the first floor” of my house (I referred to the first level above the
ground, while you believed to have rented the ground floor)
,o Parties disagree as a result of their use of vague terms
o Concluding a contract while being hypnotised or mentally ill, under alcohol or drugs
Problem of diverging intention and declaration in various stages of the contract
Formation
Different intentions may stand in the way of the parties actually having reached an
agreement
A question of mistake
Disagreement about expectations as to the qualities or the value of the good that they
bought possibly leading to avoidance of the contract
A question of interpretation
Disagreement about what parties actually agreed upon in their contract
Different ways towards a similar result
French law
Any dissensus is regarded as standing in the way of the valid formation of a
contract (cf. Art. 1101, 1128 CC)
If the other party could reasonably believe the first party intended to say what it
did, the first party is to compensate the other party for the damages on the basis
of tort (Art. 1240 CC)
German law
Regards a ‘mistake in the declaration’ as a ground to avoid the contract on basis of
§119 I BGB
As in French law, protection of a party’s reasonable reliance
§122 BGB ‘the person declaring must (…) pay damages (…) for the damage that the other
(…) party suffers as a result of his relying on the validity of the declaration’
Dutch law
Art. 3:35 BW (a juridical act is concluded as if there is consensus)
English law
The absence of a meeting of the minds prevents the contract from coming into
being
Reasonable reliance on a party’s declaration will bring the contract about
Objective approach
Responsibility
It is Objective on the person
impossible to meaning of expressing
look into the the used himself when
mind of man words making a
statement
Intention is always imputed (held responsible for the words)
Decisive is what the words or actions of the other party suggest to a reasonable
person in the position of the promisee
A person making statement must always realise that the addressee is likely to rely
, on what he thinks it means
Factors
Art. 2:102 PECL
‘Then intention of a party to be legally bound by contract is to be determined from the
party’s statements or conduct as they were reasonably understood by other party’
English law
Smith v Hughes (1871)
German law
K Speditionsgesellschaft (1956)
Dutch law
Art. 3:35 BW
Circumstances of each individual case
Courts apply the objective approach by looking at factors such as
How easy it is for the addressee to investigate whether the declaration was really
intended to mean what it says
Example
Stichting Postwanorder v Otto (2008) (Dutch)
If a shop offers to sell the latest state-of-the-art television at a price of £99 only, it is fairly
easy for the customer to ask if this a stunt offer or if perhaps a mistake was made
o In such case, a reasonable consumer should doubt the intention of the seller and
without further investigation by the buyer a contract has not come into existence
Culpa in contrahendo (a mistake that is the fault of the buyer, fault in contracting)
o If someone orders a curtain of four metres, while does not have any reason to believe
this was not what the buyer intended
Whether the transaction would be beneficial for one of the parties
o A promise to provide free services or to sell a house far below its value should make
the other party doubt about the true intentions of the promisor
Hajjout v IJmah (1983) (dutch case)
The foreign employee Mr. Hajjout only knew a few words of Dutch was dismissed on the
spot and asked by his employer to sign a piece of paper waiving all rights following from
the termination of the contract
o The Hoge Raad held that ‘the employer will have to investigate with reasonable care
whether the employee understood that he was asked to agree with ending the
employment contract’
o Because of the severe consequences this can have for the employee (such as losing
one’s job without any claim to social security)
What is customary in a certain branch or location
Auction example
o Someone who visits an auction and waves to a friend sitting at the other end of the
room
o It is customary at auctions that raising one’s hand means that one bids on the object
If the auctioneer could reasonably believe that the visitor was making a bid, a contract has
come about
The meaning of the disputed term in everyday speech
o This meaning will prevail unless special circumstances dictate that the term should be
understood differently by a reasonable person in the position of the addressee
“Lada example”
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