Intention to create legal relations Flashcards
Intention to create legal relations
In order to prevent the courts from being troubled by disputes concerning agreements which
are not intended to be legally binding, the courts have sought to distinguish agreements that
should be legally enforceable and those which should not.
Intention to create legal relations categories
■ social and domestic agreements
■ commercial agreements
■ advertisements.
Social and domestic arrangements
Most social and domestic arrangements do not amount to binding contracts since they are
not intended to be such. To agree to take a friend out for a meal or a drink is clearly not
intended to confer on the friend a right of action before the courts should one fail to carry
out one’s commitment. Cases that amount to social/domestic arrangements tend to fall into
two broad areas: Family arrangements and Other social arrangements
Balfour v Balfour [1919]
This case forms a leading authority in this area. In the case, a husband, who was a civil servant based
in Sri Lanka, brought his wife to England. Eventually he had to return but his wife had to stay in England
for medical reasons. He agreed to pay her £30 per month maintenance during his absence. When he
failed to pay the allowance, she sued. Her action failed on two grounds: first, she had not provided any
consideration for the £30 per month and, second, the parties had no intention of creating a legally
binding agreement. The court stated that where the parties were husband and wife, the burden was
on the plaintiff, the wife, to rebut the presumption that there was no intention to create a contract.
Merritt v Merritt [1970],It should be noted that agreements between husband and wife can, from time to time,
produce legally binding consequences.
A husband left his wife and went to live with another woman. There was £180 left owing on the house which was jointly owned by the couple. The husband signed an agreement whereby he would pay the wife £40 per month to enable her to meet the mortgage payments and if she paid all the charges in connection with the mortgage until it was paid off he would transfer his share of the house to her. When the mortgage was fully paid she brought an action for a declaration that the house belonged to her. Held: The agreement was binding. The Court of Appeal distinguished the case of Balfour v Balfour on the grounds that the parties were separated. Where spouses have separated it is generally considered that they do intend to be bound by their agreements. The written agreement signed was further evidence of an intention to be bound.
Jones v Padavatton [1969],Similar problems of intention also occur in relations between parents and children.
A mother promised to pay her daughter $200 per month if she gave up her job in the US and went to London to study for the bar. The daughter was reluctant to do so at first as she had a well paid job with the Indian embassy in Washington and was quite happy and settled, however, the mother persuaded her that it would be in her interest to do so. The mother’s idea was that the daughter could then join her in Trinidad as a lawyer. This initial agreement wasn’t working out as the daughter believed the $200 was US dollars whereas the mother meant Trinidad dollars which was about less than half what she was expecting. This meant the daughter could only afford to rent one room for her and her son to live in. The Mother then agreed to purchase a house for the daughter to live in. She purchased a large house so that the daughter could rent out other rooms and use the income as her maintenance. The daughter then married and did not complete her studies. The mother sought possession of the house. The question for the court was whether there existed a legally binding agreement between the mother and daughter or whether the agreement was merely a family agreement not intended to be binding. Held: The agreement was purely a domestic agreement which raises a presumption that the parties do not intend to be legally bound by the agreement. There was no evidence to rebut this presumption.
Other social agreements
Questions such as those discussed above may also occur in agreements other than those
between husband and wife and parent and child, that is, in everyday social arrangements.
Similarly, the presumption is against a finding of an intention to create a legal relationship,
though this may also be rebutted by evidence to the contrary.
Simpkins v Pays [1955]
A Grandmother, granddaughter and a lodger entered into a weekly competition run by the Sunday Empire News. The coupon was sent in the Grandmothers name each week and all three made forecasts and they took it in turns to pay. They had agreed that if any of them won they would share the winnings between them. The grandmother received £250 in prize money and refused to share it with the other two. The lodger brought the action to claim one third of the prize money. Held: There was a binding contract despite the family connection as the lodger was also party to the contract. This rebutted the presumption of no intention to create legal relations.
Commercial agreements
In these types of agreements, there is a strong presumption that there is an intention to create a legally binding relationship. This presumption can, of course, be rebutted, but in fact very strong evidence is required to do this.
Rose & Frank Co v Crompton Bro (Commercial agreements)
The claimants and defendants entered an agreement for the supply of some carbonized tissue paper. Under the agreement the claimants were to be the defendant’s sole agents in the US until March 1920. The contract contained an honorable pledge clause which stated the agreement was not a formal or legal agreement and shall not be subject to the jurisdiction of the courts in neither England nor the US. The defendants terminated the agreement early and the claimants brought an action for breach. Held: The honorable pledge clause rebutted the presumption which normally exists in commercial agreements that the parties intend to be legally bound by their agreements. The agreement therefore had no legal affect and was not enforceable by the courts.
Edwards v Skyways 1964
The claimant was an airline pilot working for the defendant. He was to be made redundant. The defendants said that if he withdrew his contributions to the company pension fund, they would pay him the equivalent of company contributions in an ex gratia payment. The claimant agreed to this and withdrew his contributions. The company then ran into further financial difficulty and went back on their promise relating to the ex gratia payment. Held: The agreement had been made in a business context which raised a strong presumption that the agreement is legally binding. The claimant could therefore enforce the agreement and was entitled to the money
Kleinwort Benson (KB) v Malaysia Mining Corporation BHD (MMC BHD) [1989(Commercial agreements)
Malaysia Mining Corporation Metals Ltd (MMC Metals) was a wholly owned subsidiary of the defendant, MMC BHD. MMC Metals approached the claimant KB Bank for a loan. MMC Metals was a relatively newly formed company lacking in the size and resources of MMC BHD. The bank approached MMC BHD asking if they would act as guarantor for the loan. MMC refused to act as guarantor but stated they it was their company policy to ensure that their subsidiaries are always in a position to meet their debts. In reliance of this letter of comfort the bank advanced money to MMC Metals. MMC Metals subsequently went into administration having not paid the loan. KB brought an action against MMC BHD to recover their loss based on the assurance given in the comfort letter. Held: The comfort letter had no legal effect. The fact that MMC BHD had refused to act as guarantor demonstrated they did not intend to be legally bound. The comfort letter referred to company policy at that time. There was nothing to stop the company changing its policy.
Advertisements ‘Mere puffs’
Where an offer is extremely vague, or clearly not intended to be taken seriously, the law will not
give its acceptance contractual effect.
Weeks v Tybald (1604) ‘Mere puffs’
The defendant announced that he would give £100 to any suitable man who would marry his daughter, but it was held that his words were not intended to be taken seriously, and his promise was not legally binding.
