Chapter 2: Intention to create legal relations Flashcards
What is the final essential element in a valid contract?
The intention to create legal relations
Intention to create legal relations
If a contract is to be created both parties must intend to enter into a legal relationship. If the situation is not obvious there are two rebuttable presumptions which can be applied.
What are the two rebuttable presumptions which can be applied if it not obvious that that both parties intend to enter into a legal relationship.
Domestic Agreements
Commercial Agreements
Domestic Agreements
It is presumed there is no intention to be legally bound in a social or domestic arrangement.
This presumption can be rebutted or overturned by showing that there was clear evidence that the parties did intend to create legal relations.
Balfour v Balfour (1919)
The presumption is also rebutted if the agreement is between spouses where the parties were not living together happily at the time of the agreement.
Merritt v Merritt (1970)
Facts of ‘Balfour v Balfour (1919)’
Mr. Balfour, who was about to go abroad, promised to pay his wife £30 per month in consideration of her agreeing to support herself without calling on him for any further maintenance. The wife said the husband was contractually bound by the promise.
Held by ‘Balfour v Balfour (1919)’
There was no legally binding contract between the parties. It was a domestic arrangement and it was presumed the parties did not intent to be legally bound.
Facts of ‘Merritt v Merritt (1970)’
A husband who was separated from his wife promised to transfer the house into her name if she paid off the outstanding mortgage debt. The wife paid off the debt but the husband refused to transfer the house.
Held by ‘Merritt v Merritt (1970)’
In this case, the husband’s promise was enforceable, the agreement having been made when the parties were not living together amicably.
Commercial Agreements
It is presumed that there is an intention to enter into legal relations in a commercial agreement.
Again, it is possible to rebut this presumption if a contrary intention is clearly expressed in the agreement itself, but the courts are very reluctant to do so.
Jones v Vernons Pools Ltd (1938)
Facts of ‘Jones v Vernons Pools Ltd (1938)’
J said he had sent a winning entry to Vernon’s but they denied having received it.
The company had inserted a clause on the pools coupon to deal with this problem which stated that
‘any agreement …entered into …shall not give rise to any legal relationship …but …is binding in honour only’.
J had signed this coupon.
Held by ‘Jones v Vernons Pools Ltd (1938)’
A contract did not exist between the parties since the wording of the agreement clearly negated such intention.
J could not sue the pools company for breach of contract.
Subject to Contract
Where ‘subject to contract’ is included in an agreement, there is a strong presumption that there is no intention to create an immediately binding contract.
Exemption to ‘subject to contract’
However, an agreement stated to be ‘a personal agreement until a fully legalised
agreement drawn up by a solicitor and embodying all of the considerations hereby
stated is signed’ was held to be a binding agreement in itself, notwithstanding that it
would eventually be replaced by a more formal document (BRANCA v CABARRO
1947).
