Intention to create legal relations Flashcards
In order for there to be a binding contract, these three elements must be present:
offer and acceptance, intention to create legal relations, and consideration
By intention to create legal relations, we mean…
… an intention to enter into an agreement with legal ramifications – a contract.
Define: intention to create legal relations
An intention to enter into an agreement that has legal ramifications. One of the necessary requirements for a binding contract.
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 suggests, 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?”
What are the two thought processes?
a. Is it a commercial agreement? If so, It is presumed that there is an intention to create legal relations. The next question is whether the presumption has been rebutted.
b. Is it a social / domestic agreement? It is presumed that there is not an intention to create legal relations.
The next question is whether the presumption has been rebutted.
In Commercial/business agreements the ordinary presumption is that…
the parties intend that it should be legally binding. The courts will readily imply this. 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.
If a party to a business agreement wishes to assert that legal relations were not intended when the agreement was entered, the onus is on him to rebut the presumption and the burden of doing so is a heavy one.
It is open to the parties to include wording within the agreement that indicates that the parties do not intend to create legal relations. 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.
In Carlill v Carbolic Smoke Ball Co Ltd (1893), 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.
In some circumstances, it is difficult to ascertain whether a particular promise is intended to have legal effect Example:
In Esso Petroleum Co. v Commissioners of Customs and Excise [1976] 1 WLR 1, specially produced ‘World Cup coins’ were distributed by Esso to their dealers, who offered their customers a free coin with the purchase of four gallons of petrol. 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 with regard to 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. 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. This is not a completely satisfactory analysis as, although it could justify attributing an intention to create legal relations to Esso, it could not be applied equally to the other contracting parties. 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.
Some statutory provisions may stipulate that no intention to create legal relations can be inferred unless there is an express provision to the contrary. For instance…
… by virtue of s179 of the Trade Union and Labour Relations (Consolidation) Act 1992, collective agreements between trade unions and employees are presumed to lack the required intention to be legally binding unless the agreement is in writing and contains a provision to the effect that the parties do intend the agreement to be a legally enforceable contract. Where these conditions are satisfied, the agreement will be presumed to have the necessary legal enforceability.
Define Subject to contract.
Parties who are negotiating a contract may use the label ‘subject to contract’ to ensure that they do not enter into a binding agreement before they are ready to do so
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. The expression ‘subject to contract’ has received judicial recognition for this purpose
In cases of social, family or other domestic agreements, the usual presumption is that there is…
… no intention to create legal relations. 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. 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 (Balfour v Balfour [1919] 2 KB 571).
However, again the presumption can be rebutted and certain social and domestic agreements may be legally enforceable. Example:
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 (Merritt v Merritt [1970] 1 WLR 1211).
Similar problems of intention can arise between other family members. What happened in Jones v Padavatton [1969] 1 WLR 328?
The case shows the difficulty of determining some such cases. 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 with the intention of practising 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.
