Wednesday, March 16, 2016

Things, not Words: Disambiguating Intention to Create Legal Relations

(The following guest post is contributed by Shivprasad Swaminathan, who is Associate Professor at the Jindal Global Law School)

“We must think things not words, or at least we must constantly translate our words into the facts for which they stand, if we are to keep to the real and the true.”

 Oliver Wendell Holmes Jr
The Source of the Confusion: English Law

Contemporary textbooks on the English law of contract enumerate intention to create legal relations as a distinct and separate hurdle, besides consideration, to be overcome for an agreement to be granted entry into the “charmed circle of contract”.  The common law of contract in the early nineteenth century, however, did not possess a distinct category of intention to create legal relations alongside the doctrine of consideration. The category, under its Latin label animus contrahendi, was imported from the civil law jurists, amidst the whirl of the doctrinal imports in contract law from the Continent in the nineteenth century [A.W.B.  Simpson, Innovation in Nineteenth Century Contract Law (1975)91 LQR 247, 264]. In the absence of a doctrine of consideration, the category of intention to create legal relations plays the role of filter in a Civil Law system on agreements that are to be enforced as contracts. In the common law system, the doctrine of consideration traditionally played this role, to some extent, along with the concept of “puffery” --which cautioned against taking seriously, extravagant claims by the offeror [D. Ibbetson, A Historical Introduction to the Law of Obligations, 233-4]. In Carlill v Carbolic Smoke Ball Co. [1893] Q.B. 256, however, the “puff”, “was analysed in terms of intention to create legal relations.” [Ibbetson op. cit. 233].  In Balfour v Balfour [1919] 2 KB 571, intention to create legal relations was pressed into service to deny enforceability to an agreement of a domestic nature between a husband and wife.  Then came, Rose & Frank v Crompton & Bros [1925] AC 445, where the category was expanded to deny effect to an agreement of honour which two businesses had mutually agreed to be not legally binding as a contract.

It would be incorrect to suppose that all these three cases are natural, organic instantiations or extensions of a single doctrine or that they are all logically subsumed under it. The fact is that a label-intention to create legal relations--came to be attached to various different legal consequences unconnected by a common theme. The law could very well have brought about those legal consequences without invoking the label intention to create legal relations and the contract law jurisprudence would not have suffered any doctrinal debilitation for the lack of it.  As Stephen Smith’s reductionist account of intention to create legal relations amply demonstrates, there is perhaps no need for invoking the label intention to create legal relations as cases purportedly decided under its rubric “are more easily explained on other grounds” [ S. Smith, Atiyah’s Introduction to the Law of Contract p. 99].  Puffs and statements in jest  hardly need to be subsumed under a distinct category of intention of legal relations to be denied enforceability—amply demonstrated by the fact that adequately dealt with before the category arrived; if domestic arrangements of the Balfour variety are not enforced, it is so because of the policy of the courts to not enforce such agreements and not because of intention of the parties (express or implied) to not be bound; intention to create legal relations has no role to play in the Rose & Frank variety of cases either because all the court is doing is to give legal effect to an exemption of liability clause [ Smith op cit.  pp. 98-106]. There is thus, strictly speaking, no such thing as a free standing doctrine of intention to create legal relations independent of these individual instances. The label is just a way of conveniently referring to a compendium of the aforesaid rules evolved by the courts.

If one bears in mind Smith’s reductionist account of the requirement of intention to create legal relations, any talk of abolishing the doctrine in English law—of the sort proposed by Samuel Williston—just because English law has a distinct doctrine of consideration, would be completely off the mark, attacking as it does, only the label and not the separate situations the label is applied to. Assuming one wants to retain the rules with respect to puffs, domestic arrangements and agreements of honour of the Rose & Frank variety—and it might be added that there is a great deal going in favour of their retention--it is not immediately obvious how the English doctrine of consideration alone could do the job. Consider agreements of honour or letters of comfort, for instance. The parties could intend to be unenforceable an agreement of honour which is otherwise supported by consideration in the traditional benefit/detriment/exchange sense. Indeed, there was consideration in the traditional sense in the Rose & Frank case. The law with puffs cannot obviously be dealt with by the doctrine of consideration alone either. Perhaps the domestic arrangement case could be thought to be one area where the doctrine of consideration could do the job alone (see White v Bluett ‎(1853) 23 LJ Ex 36 which achieved with the doctrine of consideration what would now in all probability be accomplished by the doctrine of intention to create legal relations), but even here one can no longer rest on such certainties for qua doctrine, much water has flown under the bridge since. As Ewan McKendrick reminds us,  post William v Roffey Bros [1991] 1 QB 1, the restrictive ambit of the doctrine of consideration has been greatly curtailed as any potential benefit or detriment in fact, is more likely to pass muster of the doctrine as the courts become more willing to infer consideration “so as to reflect the intention of parties”. [E. McKendrick, Contract Law: Text, Cases and Materials 5th ed. P 288]. If Jack and Jill agree to “split the bill”, to borrow Steve Heldey’s example, and Jill welches at the till, the doctrine of consideration which considers peppercorns as sufficient consideration is not enough to act as a filter which prevents the enforceability of this agreement. And yet a de minimus filter there must be for this kind of an agreement, whether or not one refers to it with the label intention to create legal relations—for, to not have one would be to invite a deluge of litigation by opening the floodgates. To make consideration do this job would be to further convolute a doctrine that has already, for long been considered a morass of conflicting aims and hence “senseless” and “illogical” to use Henry Ballantine’s description [H. Ballantine, ‘Is the Doctrine of Consideration Senseless and Illogical?’ (1913) 11 Michigan Law Review 423]

Confounding the Confusion: Indian Law
The utility of teasing out the doctrinal strands tousled together under the casing of the label intention to create legal relations cannot be overstated. Its need is most acutely felt when one glances at the scholarly treatment of the subject in the Indian literature.  Let us, as a sample, consider the discussion in Avtar Singh’s, Contract and Specific Relief 10th ed.  After having summed up the English cases falling under the doctrine, Avtar Singh points to one Indian case in which the Supreme Court supposedly invoked it, namely, Banwari Lal v Sukhdarshan Dayal  (1973) 1 SCC 294. Banwari Lal was, in fact, a case involving a puff and Chandrachud J had dealt with it on those lines, without invoking the doctrine of intention to create legal relations. Avtar Singh argues that “a limited recognition of the applicability of this principle [intention to create legal relations] in India could be inferred from the decision of the Supreme Court in Banwari Lal v Sukhdarshan Dayal” (Avtar Singh Contract and Specific Relief 10th ed. 16 emphasis added).  Two points about this analysis are worth noting. First, Avtar Singh subsumes the Banwari Lal case under the category of intention to create legal relations. Second, he points out that applicability of the doctrine of intention to create legal relations in India has “limited” applicability. Why is its applicability “limited”? That is because, Avtar Singh argues that in another case,  CWT v Abdul Hussain (1988) 3 SCC 562, the Supreme Court of India calls into question the applicability of the doctrine of intention to create legal relations in India, which has a separate requirement of consideration.  

“the separate element of intention is foreign to the common law, imported from the Continent by academic influences in the nineteenth century and useful only in systems which lack the test of consideration to enable them to determine the boundaries of contract .....” [CWT v Abdul Hussain (1988) 3 SCC 562, 569 quoting Cheshire & Fifoot; reproduced by Avtar Singh op cit p.16]
Commenting on this judgment Singh notes, the “Supreme Court expressed its reservation about the need of this separate requirement” [Singh op cit p.16]. The court did indeed express its reservation, but what was the reservation directed against? It turns out that Cheshire and Fifoot’s reservation, which the court relies on, is directed against the label intention to create legal relations, but not against any of the individual doctrines the label compendiously refers to. Avtar Singh’s treatment of the subject, which refuses to peer beneath the label means that all the doctrines the label refers to are automatically in jeopardy when the label is brought in question in such a manner. As a way reconciliation, Avtar Singh argues that the doctrine of intention to create legal relations has “limited applicability”—limited, presumably only to the case of puffery because that is what the Banwari Lal case was about. But this is an uneasy compromise, unprincipled even. What good reason is there to deny enforceability to contracts of the Rose & Frank variety, a great deal of which are in the nature of letters of comfort—a common feature of modern commerce? Surely, the answer cannot be because they lack consideration.

One might do away with the label intention to create legal relations, but the job done by the real doctrines that it refers to would have to be outsourced to other existing doctrines, as McKendrick points out. Any abolition would be only of the label—the words, as it were—not the real things that stand behind it.  And as O.W. Holmes reminds us, it is things we should be bothered about, not words.

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