Chapter 3: Intention to Create Legal Relations Flashcards
1 Introduction to intention to create legal relations
Definition: Intention to create legal relations: Is an intention to enter into an agreement that has legal
ramifications. It is one of the necessary requirements of a binding contract.
In order for there to be a binding contract, offer and acceptance, intention to create legal
relations and consideration must be present. This chapter focuses on intention to create legal relations.
The intention to create legal relations is an essential element in the formation of a contract. Where
no intention to be bound can be attributed to the parties, there is no contract. By intention to
create legal relations, we mean an intention to enter into an agreement with legal ramifications –
a contract.
The Test of Intention is Objective
The test of intention is objective, by which we mean that the intention of the parties is to be
determined more by what the actions of the parties in the particular circumstances suggest,
rather than by taking evidence from the parties of what was actually in their minds.
As Lord
Denning MR puts it in Merritt v Merritt [1970] 1 WLR 1211
In all these cases the court does not try to discover the intention by looking into the minds of
the parties. It looks at the situation in which they were placed and asks itself: would reasonable
people regard the agreement as intended to be binding?
2 Commercial agreements are generally legally binding
The ordinary presumption is that in a commercial agreement, the parties intend that it should be
legally binding.
Examples of commercial agreements: Commercial agreements are not limited to agreements between two businesses. Commercial agreements would include agreements between
individuals and businesses and agreements between individuals, eg if you bought a car through
an online advert.
Commercial agreements need to reassert that legal relations are not established
Commercial agreements are not limited to agreements between two businesses. Commercial agreements would include agreements between
individuals and businesses and agreements between individuals, eg if you bought a car through
an online advert.
The process to rebut presumption
However, clear words will need to be used, as the language is
likely to come under scrutiny, and ambiguous wording is unlikely to rebut the presumption that
parties to commercial/business agreements intend those agreements to be binding.
Carlill v Carbolic Smoke Ball Co Ltd (1893) as a commercial agreement
The company argued that the advertisement was not binding because it was simply ‘spin’ or a ‘mere puff’. The court, however, rejected this line of defence, holding that the assurance that the company had deposited £1,000 in a named bank was a demonstration of its intention to be bound and would be understood by a reasonable
person to have that effect. The same reason justified holding that the advert was a unilateral offer
to contract, not simply an invitation to treat
Esso Petroleum Co. v Commissioners of Customs and Excise [1976] 1 WLR 1,
The House of Lords were divided
in their opinion as to whether the offer of the free coin could amount to a ‘sale’ and, if so, whether there was any contract about the coins. One argument put forward was that the coins could only be for sale if there was an intention to create legal relations in respect of the transfer of the coins between garage proprietors and motorists
Esso Petroleum Co. v Commissioners of Customs and Excise [1976] 1 WLR 1,
Majority Decision: The majority felt that there was such an intention, relying on the business context and the large commercial advantage Esso expected to derive from the promotion by attracting extra customers.
Minority Decision: Conversely, the minority found no intention to create legal relations relying on the language used in the offer, the trivial value of the
coins and the unlikelihood that any motorist denied a coin would believe that a legal remedy was available to rectify the default.
2.1 Subject to contract
The expression ‘subject to contract’ creates a strong inference that the parties do not intend to be bound until the formal execution of a contract. An agreement ‘subject to contract’, prima facie, is
not binding. In a sale of land, it is usual to express tentative preliminary agreement to be ‘subject to contract’, so as to give the parties an opportunity to reflect/seek legal or other advice before entering a binding contract.
3 Social and domestic agreements
It is common sense that these types of agreements (eg in relation to family agreements as to the allocation of domestic chores or social arrangements to
meet friends for a drink or a meal) do not amount to legally enforceable agreements. Such a conclusion is derived from the fact that none of the parties would reasonably envisage the right to
sue the other for failure to honour the commitment.
Balfour v Balfour [1919] 2 KB 571
An example from the case law includes
agreements made between spouses. If the parties reach the agreement before any breakdown in the relationship occurs, the courts have shown an unwillingness to find an intention to create legal relations
Seperated Spouses (Merritt v Merritt [1970] 1 WLR 1211)
One situation where the courts have shown a willingness to rebut the usual presumption is in relation to agreements made between spouses who were in the process of separating or are separated
when the agreement was reached
Problems of Intention with Family Members (Jones v Padavatton [1969] 1 WLR 328 s)
The claimant and defendant were mother and daughter respectively. There was an agreement between the parties to the effect that if the daughter gave up her very satisfactory pensionable job in the USA and came to London to read for the Bar to practice law in Trinidad (where the mother lived), the mother would pay an allowance of 200 dollars a month to maintain the daughter and her small son while in England.
4 Summary
- The intention to create legal relations is an essential element in the formation of a contract.
Where no intention to be bound can be attributed to the parties, there is no contract. - In the case of commercial agreements, it is presumed that there is an intention to create legal
relations. - In the case of social/domestic agreements, it is presumed that there is not an intention to
create legal relations - Either presumption can be rebutted.
- The use of the expression ‘subject to contract’ when negotiating a contract creates a strong
inference that the parties do not intend to be bound until the formal execution of a contract.
