3-2. Intention to Create Legal Relations

Question 1

The General Rules

Answer 1

For a contract to exist, both parties must have the intention to be legally bound. This must be mutually communicated expressly or impliedly (Rose and Frank Co v Crompton Bros).

Whether intention exists is judged objectively (Smith v Hughes) and will depend on the context (Edmonds v Lawson).

Question 2

Commercial Agreements

Answer 2

GR: Intention is presumed (Bunn & Bunn v Rees and Parker)

Importance nor duration effect the presumption of intent (Well Barn Farming v Backhouse)

Onus to disprove intent is HEAVY and on the PARTY ATTEMPTING TO REBUTT the presumption.
- Factors considered are how TYPICAL the terms are, their CLARITY and the EXPERIENCE of the parties.

If language ambiguous, interpreted against the party trying to rebutt presumption (Edwards v Skyways).

Question 3

Commercial Agreements: Exceptions

Answer 3

1. Ads - no intention unless clear that BOTH parties intended it to be binding. Contrast (Carlill v CSB Co.) and (Leonard v Pepsico).
2. Comfort Letters
3. Honourable Pledge Clauses
4. ‘Subject to (formal) contract’
5. Where agreement originally made in social setting (Hadley & Others v Kemp & Another).
6. Statements made in jest or anger (Leonard v Pepsico)

Question 4

Non-Commercial, Social, Domestic and/or Family Agreements

Answer 4

GR: Presumption against intent (Balfour v Balfour).
- whether this can be rebutted depends on the circumstances and language used. A written agreement is a strong aid to rebuttal. Like in (Merritt v Merritt)

EXCEPTIONS

1. Where previous conduct suggests otherwise (Peck v Lateau).
2. ‘Mutuality of Obligations’ (Simpkins v Pays).
3. Separating couples (Meritt v Meritt).

Question 5

Capacity for Intention

Answer 5

MUST have capacity to enter into legal relations.

Must be:

• over 18.
• sound mind.
• not suffering from a capacity excluding factor (such as intoxication).