What Makes a Contract? Ethiopian Orthodox Tewahedo Church of Canada St. Mary Cathedral v Aga and the Role of Intention in Contract Formation
Faisal Bhabha, 2L, Volume 80 Articles Editor
The Supreme Court of Canada’s recent decision in Ethiopian Orthodox Tewahedo Church of Canada St. Mary Cathedral v Aga, 2021 SCC 22 (CanLII) (Ethiopian Orthodox) may mark a deceptively significant development in Canadian contract law, especially contract formation. The Court appears to take a stand on the existence of an often unmentioned condition of contract formation: the intention to create legal relations. It does so without troubling itself with the relatively underdeveloped yet important critical discussion of the condition.
Despite the Court’s nonchalance and its reaching what is likely the correct result, there are serious problems with its intention-centric approach. A different approach that relies on a richer understanding of the doctrine of consideration can make sense of the issues to which the intentionality condition was meant to respond while avoiding similar pitfalls.
The Unanimous Decision in Ethiopian Orthodox
On May 21, 2021, Rowe J, writing for the unanimous Court, held that the appellants, the Ethiopian Orthodox Tewahedo Church St. Mary Cathedral and three of its members, were not liable for expelling the respondents, five other members, from the congregation. The respondents sought a declaration that the expulsion was null and void as a violation of, among other things, their contractual rights as members of the Church.
The case largely turned on contract formation and whether each of its conditions, especially the intention to create legal relations, was satisfied. Ordinarily, a contract is thought to consist of a request (offer) of something of value (consideration) in return for which the offeror promises something else of value, to which the offeree agrees (acceptance). The contract formation test attends to these three elements: offer, acceptance, and consideration. Rowe J held that whether a voluntary association is constituted by contract must be determined on the facts, following the usual contract formation test (Ethiopian Orthodox at para 33).
According to Rowe J, the objective test must always manifest offer, acceptance, and consideration, with the intention of legal consequences attaching to the relationship (Ethiopian Orthodox at paras 34-37). However, the intention to create legal relations is especially important in cases involving classes of special relationships—including voluntary and, particularly, religious associations—where this intention is regularly absent. Accordingly, the contract formation test often remains unsatisfied in the context of these special relationships (Ethiopian Orthodox at paras 39-42).
For Rowe J, the case at hand provided a relatively straightforward instance of this pattern: The Church and its members did not intend membership to be legally enforceable. A lack of intention to create legal relations meant no contract formation, so no contractual right supporting the appellant’s claim. While there was no specific evidence that the parties did not intend to create legal relations, this failure of the intentionality condition was supposedly inferable from the evidentiary silence as to intention because the Church is a voluntary religious association (Ethiopian Orthodoxat paras 50-52).
The Role of the Intentionality Condition in Contract Formation
The Court echoed Atkin LJ’s seminal decision in Balfour v Balfour, [1919] All ER Rep 860 (CA) (Summary) (Balfour) insofar as it recognized the intention to create legal relations as an independent, positive condition of contract formation. In Balfour, a wife sued her husband for failing to pay her an agreed monthly allowance. Atkin LJ found that the wife had failed to establish any contract because of the spousal context. Arrangements like this “are not contracts because the parties did not intend that they should be attended by legal consequences” even where “there may be what as between other parties would constitute consideration” (Balfour at 864, emphasis added). Thus, Atkin LJ’s reasons presuppose that the intention to attach legal consequences is a condition of contract formation apart from consideration.
Atkin LJ’s view of contract formation is not entirely uncontroversial. The black-letter laws of England and the United States diverge remarkably on the issue of the intention to create legal relations—the former viewing it as necessary for contract formation, the latter as unnecessary [1]. Scholars have occasionally taken a stance one way or the other [2]; however, the issue has received relatively little attention.
Historically, Canada’s Supreme Court appears to have avoided confronting this controversy, more or less blindly accepting Atkin LJ’s view [3]. Ethiopian Orthodox continues this trend. Rowe J does seem to be alive to the history behind the issue (Ethiopian Orthodox at para 38) yet glosses over the diversity of viewpoints.
Although Rowe J did not offer reasons for the intentionality condition, his decision signals that Canadian courts are to focus on the parties’ intention for some classes of relationships but not others. The relevant classes include agreements among spouses, friends, and members of voluntary religious associations (Ethiopian Orthodox at paras 38-39, 41); meanwhile, they exclude arrangements in which property or employment is at stake (Ethiopian Orthodox at para 40), as well as, presumably, ordinary commercial relationships.
The distinction between special and non-special relationships is not principled; rather, it follows from presumptions of fact about what parties are likely to intend regarding legal consequences in familiar factual settings. Specifically, courts are to presume that parties to special relationships did not intend legal consequences, whereas the opposite presumption obtains for all other relationships. The intention to create legal relations is, thus, a universal condition of contract formation but ordinarily presumed to be satisfied. These presumptions place a burden on the party seeking to displace the operative presumption in either case to provide evidence of intention or lack thereof.
The Trouble with the Intentionality Condition
While the unanimous Court was likely correct in concluding that there was no contract between the Church and the expelled members, it muddled the contract formation analysis insofar as it treated intention as a separate positive condition of contract formation.
Rowe J’s approach fails to adequately account for an asymmetry in the parties’ intentionality, resulting in underinclusive legal recognition of valid contracts [4]. The rationale for giving effect to the parties’ intention to create legal relations is, presumably, that contractual obligations are entirely voluntary—a contract must be entered into by choice. Supposedly, it follows that the law should give effect to the parties’ intention to attach or avoid legal consequences. The parties may tacitly or explicitly declare their intention one way or the other. But there is a third possibility: the parties may not have positively intended anything regarding legal consequences (because, for example, they overlooked or consciously disregarded them). On Rowe J’s view, fact patterns in which this third possibility prevails must fail to satisfy the intentionality condition and, so, cannot attract legal enforcement.
In practice, courts in whose footsteps Rowe J has followed have bypassed the difficulties that follow from this asymmetry by making questionable factual findings regarding the parties’ intention in order to arrive at an intuitively attractive result. As previously discussed, since Balfour, courts have often presumed that parties to classes of special relationships, including family arrangements, did not intend to create legal relations.
Jones v Padavatton, [1969] 2 All ER 616 (CA) (Casemine) (Jones) is another such case involving an arrangement whereby a daughter agreed to move to the United Kingdom to begin legal studies at her mother’s request. The mother agreed to provide housing in return. After a dispute arose between the two parties, the mother brought an action to evict her daughter. Two of the three judges found that this case did not depart materially from Balfour, such that there was no intention to create legal relations and, therefore, no contract. Conversely, Salmon LJ affirmed the validity of the Balfour presumption but found it rebutted on the facts, which he found did manifest an intention to create legal relations.
However, none of the evidence that Salmon LJ marshaled in support of his position in Jones went to the parties’ intention. Evidence that the daughter, at age 34, left behind her comfortable life in Washington only after being persuaded by her mother’s promise at best indicates that the parties would have intended to create legal relations had they considered legal consequences. The evidence is entirely compatible with a lack of positive intention. It is not clear why, on the objective test, the reasonable person would suppose that the parties actually considered legal consequences, especially given that neither party was particularly sophisticated, and the interaction occurred in a non-commercial setting. If there was no positive intention, then there should be no contract, at least according to the Balfour approach.
To reinforce the point, imagine a scenario in which there was stronger evidence that the parties objectively did not consider legal consequences—so strong as to displace the presumption that the parties did intend legal consequences. Suppose Sylvestra hails from the land of Anarchia, where there is no recognizable contract law. Sylvestra came to Canada without having learned any Canadian law. She has been told that her best bet to explore the country is by car, for which she has been directed to a rental company. She gets to the rental company, tells them in passing about her recent arrival in Canada and Anarchia’s lawlessness, and, finally, signs an unusually uncomplicated rental agreement: the car for a sum of money on terms X, Y, and Z. Is there a contract?
On these facts, there is simply no room for a Salmon LJ to find a positive intention to create legal relations. Even though this relationship is arguably not special, the situation is one in which the ordinary presumption of an affirmative intention would be rebutted on the facts, so there cannot be a contract on the Balfour approach. But surely, if it looks like a contract and smells like a contract, then it is a contract? And should Sylvestra’s ignorance of her rights really deprive her of those rights?
Special Relationships, the Arms-Length Interaction, and the Doctrine of Consideration
The solution to this puzzle lies in understanding what a court is doing when it enforces a contract: Rather than responding to the parties’ choice to attach legal consequences to their relations, it is giving legal effect to a particular kind of voluntary interaction the normative character of which demands judicial enforcement [5]. A contractual interaction is one manifesting offer, acceptance, and consideration, the (only) three conditions jointly forming the contract formation test. A contract is intentional only in the sense that the parties must be reasonably construed as intending to mutually perform an interaction satisfying these three conditions [6].
In Ethiopian Orthodox and Balfour, there was no contract—not for no intention to create legal relations, but for failure of consideration. The doctrine of consideration requires that something of legally recognizable value pass from person to person. Without this transfer, there is only a gratuitous, unenforceable promise.
The relevance of the classes of special relationships identified by Rowe J is just that parties to these relationships often have not engaged in an arm’s-length interaction; in other words, they cannot be reasonably construed as understanding their interaction as one where two persons’ separate, exclusive interests are served by the mutual promising. There is no consideration because there is no transfer of value between distinct legal personalities. In Balfour, the wife’s monthly allowance was not a purchase, strictly speaking, but rather something that the husband freely promised to the wife in order to serve the unified purposes of their marriage. Similarly, in Ethiopian Orthodox, the members’ donations of money or services to the Church were not things of value transferred to the Church as the (legal) condition of their membership but rather were understood as satisfying their nonlegal covenant with God (otherwise it could not properly be called a donation).
On the opposite end, a contract ought to have been found in Jones because, despite the presence of a mother-daughter relationship, the parties appeared to interact at arm’s-length. Salmon LJ was onto something in drawing attention to the daughter’s age and independence, as well as each party’s “self-interestedness”. These factors indicate an interaction between two persons with separate, exclusive interests.
In cases involving the identified special relationships, the focus should be on whether the parties reasonably understood their interaction as occurring at arm’s length. In the language of contract formation, this interpretive exercise will usually find expression in terms of the doctrine of consideration. There is heuristic value in starting the analysis by referring to the classes of special relationships, given that, as a matter of fact, parties to these relationships often do not interact at arm’s length. Nevertheless, courts cannot lose sight of the only truly determinative question: Does the parties’ interaction objectively manifest offer, acceptance, and consideration?
The practical danger of focusing on the intention to create legal relations is that it distracts from more important considerations. For example, in Ethiopian Orthodox, Rowe J dismissed a motion to adduce fresh evidence regarding the presence of consideration because he was satisfied that there was no intention to create legal relations. The evidence went to whether the members’ financial contributions amounted to membership fees. As this evidence could not have impugned Rowe J’s finding on intentionality, it was, in his eyes, superfluous. While it is doubtful that consideration would have been found in the members’ financial contributions, the fresh evidence was central enough to the relevant analysis such that the motion likely should have been allowed.
The Doctrine of Consideration: No Longer Relevant?
Despite its historical centrality to contract formation in the common law, the doctrine of consideration has of late been under attack. In Williams v Roffey Bros & Nicholls (Contractors) Ltd (1989), [1991] 1 QB 1 (CA) (Casemine) (Roffey Bros), the United Kingdom’s Queen’s Bench decisively undermined the traditional doctrine by allowing that a modification of a pre-existing contract is enforceable so long as the party who pays more than originally agreed secures some kind of benefit regardless of whether that benefit adds to what was already owed under the original agreement. In Glidewell LJ’s words, it is not surprising that the traditional doctrine, “a principle enunciated in relation to the rigorous seafaring life during the Napoleonic wars should be subjected during the succeeding 180 years to a process of refinement and limitation in its application in the present day” (Roffrey Bros). In Canada, the New Brunswick Court of Appeal adopted similar reasoning in NAV Canada v Greater Fredericton Airport Authority Inc, 2008 NBCA 28 (CanLII) (NAV Canada).
So far, the effects of this weakening of the doctrine of consideration are unclear. Will the Supreme Court adopt the reasoning of Roffey Bros and NAV Canada? Will the weakening of the doctrine of consideration spread beyond the post-contractual modification context? The role of the doctrine of consideration is an issue with which Canadian courts will have to reckon if they want to get clear on contract formation and its sub-issues, such as post-contractual modifications and arrangements within special relationships.
The danger with the current ‘anti-consideration’ trend is that the more diluted the conception of consideration, the less courts will be able to rely on consideration as a condition of contract formation to differentiate between enforceable contracts and unenforceable gratuitous promises. This danger is as relevant for arrangements within special relationships as it is anywhere else since, in almost all cases, the parties gain some kind of practical—even if not legal—benefit (just as in Roffey Bros and NAV Canada). In this regard, Williston’s words are uncannily prescient: “In a system of law which makes no requirement of consideration, it may well be desirable to limit enforceable promises to those where a legal bond was contemplated” [7]. Nevertheless, no matter how desirable it may be to limit enforceable promises by imposing an intentionality condition, the latter cannot escape the difficulties inherent in its own fundamental asymmetry.
Endnotes
[1] See Gregory Klass, “Intent to Contract” (2009) 95:6 Va L Rev 1437 at 1443-1453 [Klass] (the situation is more complex in practice).
[2] See e.g., Frederick Pollock, Principles of Contract: A Treatise on the General Principles Concerning the Validity of Agreements in the Law of England, 8th ed (1911); Samuel Williston, The Law of Contracts, 1st ed (1920) [Williston].
[3] See also Highwood Congregation of Jehovah’s Witnesses (Judicial Committee) v Wall, 2018 SCC 26 (CanLII); Scotsburn Co-operative Services Ltd v WT Goodwin Ltd, [1985] 1 SCR 54, 1985 CanLII 57 (SCC); Owners, Strata Plan LMS 3905 v Crystal Square Parking Corp, 2020 SCC 29 (CanLII).
[4] See Klass supra note 1 at 1469-1475 (Klass points out a similar asymmetry).
[5] In the following discussion I draw upon ideas from Peter Benson, Justice in Transactions: A Theory of Contract Law (Cambridge, MA: Belknap Press, 2019).
[6] See ibid at 120-121.
[7] Williston supra note 2 at 21-22.