Contract Law in Hong Kong

5: Intention to Create Legal Relations

5 Intention to Create Legal Relations OVERVIEW While it is well established that agreement (offer and acceptance) and consideration are essential to the formation of a contract, the requirement of an intention to create legal relations is more problematic, with a minority of academics arguing that intention is not, or should not be, a necessary contractual element. The basis of the minority view is that, since consideration is a token of the intention to be bound, to require a separate element of intention is unnecessary. Given the considerable overlap with consideration, there is some merit in the argument that intention should not be a separate requirement. However, the clear pronouncements of the courts in a number of cases lead inevitably to the conclusion that the denial of the need for intention cannot be supported except to the extent that intention must be judged objectively, rather than subjectively. The major argument produced by the courts for the separate requirement of intention is that, without it, the courts would be faced with a deluge of cases involving petty domestic agreements which, though probably supported by consideration in the technical sense, were never intended to be anything other than friendly, or domestic, arrangements. Given the requirement of intention, it is normal to divide agreements into those of a domestic or family nature and those which are “commercial”. In the case of the former category, the courts normally adopt the presumption that there is no intention to create legal relations. However, this presumption is rebuttable if there is clear evidence to the contrary. In the area of commercial arrangements the opposite applies: there is a presumption of an intention to create legal relations. Again, this presumption is rebuttable but the cases strongly emphasise that this will be a heavy burden to discharge. It has also been recognised, in Hong Kong, that there are exceptional cases where the agreement in question ts into neither the “social” nor “commercial” category. 110 Contract Law in Hong Kong 5.1 Is Intention Necessary? It is generally stated that, in addition to the need for agreement and consideration, the common law also requires proof of intention to create legal relations. The element of intention is far less often crucial than agreement or consideration. The main reason for this is that, since the major function of consideration is to show evidence of the parties’ intention to make a binding agreement, where consideration is present intention will invariably follow. Indeed, some writers, notably Professor Williston,1 have argued that common law systems should not require both consideration and intention. Williston states: . . . there is no apparent reason why mere social promises should not create a contract if the requisites for the formation of a contract . . . exist . . . Naturally, the very existence of a social relationship might be a persuasive indicium that one or more of the elements ordinarily found in a contract are absent. However, Williston appears to have gone further in stating that the common law simply does not demand a separate requirement of intention: if all the other elements are present, he says, a contract is formed even in social situations. He writes:2 The common law does not require any positive intention to create a legal obligation as an element of contract. The argument that intention should be unnecessary given the function of consideration, has much to commend it. Indeed, most of the cases apparently decided on the basis of lack of intention could equally well have been decided on the basis of absence of consideration.3 The major justication for the additional requirement of intention, however, is that, without it, the oodgates would be opened to many domestic and social arrangements where consideration can be identied. Thus: the small Courts of this country would have to be multiplied one hundredfold if these arrangements were held to result in fact in legal obligations. They are not sued upon, and the reason they are not sued upon is not because the parties are reluctant to enforce their legal rights when the agreement is broken, bur because the parties, in the inception of the arrangement, never intended that they should be sued upon.4 Williston’s proposition that an intention to create legal relations is not essential is difcult to sustain except in the narrow, literal sense that intention is judged objectively rather than subjectively. There are cases, admittedly rare, where consideration and all the other elements appear to be present but where there has been held to be...