Intention to create legal relations Flashcards
Which of the following statements best sums up legal principles that govern intentions to create legal relations?
In a commercial context there is a strong presumption that the parties intended legal relations but it may be rebutted if the agreement is stated to be ‘binding in honour only’.
Commercial agreements do not just cover business-to-business contracts; they cover all agreements that are not made between family and friends. The commercial presumption is very strong and difficult to rebut unless clear words are used. The presumption in relation to domestic agreements may be rebutted by a number of factors including how close is the parties’ relationship and the amount of money at stake.
For two years a client and their neighbour have acted on an agreement whereby every other week they each buy a ‘Lucky Dip’ lottery ticket on the understanding that if the ticket wins they will share the prize money. Last week the neighbour bought the ticket and it won £1,000,000. The neighbour refuses to share the prize money and the client believes they are entitled to half of it.
If the client sues the neighbour is the client likely to succeed?
A-No, because it would be irrebuttably presumed there was no intention to create legal relations.
B-No, because the agreement was vague and made in a social context.
C-No, because it would open the floodgates to litigation.
D-Yes, because it was a joint enterprise and an expectation any prize would be shared.
E-Yes, because it would be inequitable for the neighbour to renege on the agreement.
Option D is correct – Simpkins v Pays
Option A is wrong as intention does not hinge on irrebuttable presumptions.
Option B is wrong. The agreement was clear and had been acted on. In this social context there would no doubt be an intention to create legal relations.
Option C is wrong- on the facts it would no doubt be deemed an informal syndicate and upheld- Simpkins v Pays.
Option E is wrong. It is always unfair/inequitable to go back on a promise but that has nothing to do with the common law position.
A parent promises their son £100 if he passes part 1 of the Solicitors Qualifying Examination at the first attempt. The son did so but the parent has refused to pay him the money.
Must the parent pay the son the £100 promised?
A-No, because it is a trivial agreement which the law will not enforce.
B-No, because the son gave no consideration for the parent’s promise to pay.
C-No, because there is no intention to create legal relations between the parties.
D-Yes, because a contract has been formed which the parent must honour.
E-Yes, because the son accepted the parent’s offer of the reward by passing the Examination.
CORRECT ANSWER: C. This is a domestic agreement, where relatively little is at stake and so the presumption is that the parties did not intend to enter into legal relations with each other: Balfour v Balfour.
A is wrong because the law does not discriminate between enforcing different types of contract.
B is wrong because the son did give consideration in meeting his parent’s request.
D is wrong because, without intention to create legal relations, no contract has been formed.
E is wrong because while the son did accept his parent’s offer, offer and acceptance by themselves do not create a validly enforceable contract. Intention (and consideration) must also be present.
A company decides to give away a free toy to customers who send in three receipts showing that the customer has bought its breakfast cereal. A man sends in three receipts to the company but the company refuses to send him a toy, saying that there was no intention to create legal relations in its offering.
Is there intention to create legal relations here?
A-Yes, because there is an inequality of bargaining power between the parties and the law will protect the party with the least bargaining power.
B-Yes, because this is a commercial transaction and the evidence needed to support the presumption that intention exists is small.
C-Yes, because the company has offered its customers the toy and the man has accepted the offer by complying with its instructions.
D-No, because there is no presumption to create legal relations in cases where the monetary value of the contract is small or nil.
E-No, because the company has rebutted the presumption that it intended to create legal relations by stating expressly that there is none in this transaction.
CORRECT ANSWER: B. Esso Petroleum v Commissioners of Customs and Excise shows that, even where products are given away for free, there can be intention to create legal relations in the transaction. This also explains why D is wrong.
A is wrong because although there may be inequality of bargaining power between the parties, it is irrelevant as far as whether there is intention to create legal relations between them.
C is wrong because there needs to be intention in addition to offer and acceptance.
E is wrong because the company only attempts to rebut the presumption of intention after the man sent in the receipts, as opposed to at the very start of the transaction, when it might have done so successfully.
An elderly woman orally agreed with her young niece that if the niece would sell her house and move in with the woman and share expenses, the woman would leave her house to the niece. The niece sold her house and went to live with the woman as agreed; but the relationship broke down and the woman told her niece to leave and find alternative accommodation.
Does the niece have a valid claim against the woman for breach of contract?
A-Yes, because there was agreement (offer and acceptance), consideration and intention to create legal relations.
B-Yes, because the niece had relied on the woman’s promise and it would be inequitable for the woman to renege on it.
C-No, because as a matter of public policy oral agreements made between family members are unenforceable.
D-No, because in domestic situations it is irrebuttably presumed the parties do not intend legal consequences.
E-No, because the agreement lacked certainty and there was no intention to create legal relations.
Option A is correct- Parker v Clarke. This also explains why Option E is wrong.
Option B is wrong. There would be a binding contract at common law.
Option C is wrong. Oral agreements between family members may be upheld depending on all the circumstances eg the amount of money at stake.
Option D is wrong. The presumption of no intention to create legal relations between friend and family is not irrebuttable.
A student rented a flat for one year. To help her do so, her older sister agreed to pay half the rent if she could stay in the flat twice a week. After the first month, and having stayed in the flat as planned, the older sister says she won’t be staying again or paying anything at all.
Which of the following statements best describes the legal position between the sisters?
A-There is an oral contract in existence between the sisters. The younger sister therefore has the right to enforce payment of the agreed 50% rent contribution for the full year.
B-There is no oral contract in existence between the sisters. This was a social or domestic arrangement between them with no intention of creating an enforceable right to accommodation or payment.
C-There is an oral contract in existence between the sisters. The younger sister therefore has the right to enforce payment of the agreed 50% rent contribution for the month in which her sister stayed with her.
D-The agreement between the sisters appears to be a social or domestic arrangement, so it is conclusively presumed there was no intention to create legal relations and therefore there are no enforceable rights.
E-The agreement between the sisters appears to be a social or domestic arrangement, so it is presumed there was no intention to create legal relations. If that presumption is rebutted though, a contract will exist.
Option E is correct. Where an arrangement is made that appears to be social and/or domestic in nature a presumption is raised that there was no intention to create legal relations (without which there cannot be an enforceable contract). That presumption however is rebuttable (by evidence) and if intention to create legal relations is proved a contract will exist. A “presumption” here means a “reasonable expectation”. The burden of proof lies on the party seeking to rebut.
Options A and C are wrong because the arrangement is not immediately clearly a commercial arrangement and it is premature to determine how much might be claimed.
Option B is wrong because it asserts unequivocally that there was no intention to create legal relations. That is only ever a presumption and can be rebutted.
Option D is wrong because although it recognises the presumption it treats it as conclusive and does not explain the presumption is rebuttable.
Does mistakingly undervaluing an item sold allow for the offer to be withdrawn?
No, n the absence of any fraud or undue influence, the mere fact that the selling cousin agreed to sell the piano at a considerable undervalue does not affect the enforceability of the agreement. Consideration need not be adequate – the fact that she has agreed to sell the piano at a discounted price is generally irrelevant.
A client explains to his solicitor that he recently asked a friend of his, who is a qualified and experienced architect, to design and oversee an extension in his house. The client’s friend undertook the project as a ‘personal favour’ to the client and charged no fee. The friend carried out the project during weekends and evenings, outside of his normal employment role. However, the friend used his employer’s office equipment to carry out the project. Once the project was finished, the roof of the extension began to leak when it rained. The client now seeks legal advice on whether he could pursue a claim for breach of contract.
What is the best advice that the solicitor could give regarding whether a contract existed?
A-A contract was formed with the friend because he is a qualified architect.
B-A contract was formed with the friend because he is an experienced architect.
C-A contract was formed with the friend’s employer because the friend used his employer’s office equipment to carry out the project.
D-It is unlikely that a contract was formed with the friend because the project was undertaken during evenings and weekends, outside of the friend’s normal employment.
E-It is unlikely that a contract was formed with either the friend or his employer, because there was no consideration nor any intention to create legal relations with either party.
Option E is correct. The basic elements of a contract do not appear to be present on the facts as stated: there was no consideration (in money or any other kind) and no intention to create legal relations with either the friend or his employer. The project was carried out for the client by his friend for free as ‘a favour’ and on the facts his employer has no knowledge of the project. NB There may be a claim in professional negligence, but not contract.
Options A and B are wrong because they are not relevant for the purposes of establishing whether the basic elements of a contract are present, such as consideration and an intention to create legal relations. NB they may be relevant for a potential professional negligence claim.
Option C is wrong for the same reason. Even if the friend used the office equipment of his employer, there is no evidence on the facts that the employer entered into a contract with the solicitor’s client to perform the services. Its equipment may have been used without its knowledge.
Option D is wrong, because a contract could potentially have been formed between the client and the friend if the requisite legal elements were present. For instance, if the work was done against a promise of payment, then it is likely that a contract would have been formed even though the friend was doing the work outside his usual working hours.
