intention to create legal relations

Question 1

Intention to create legal relations

Answer 1

Whether the parties intend to enter into a legally binding contract

Question 2

Presumption of ITCLR

Answer 2

ITCLR is presumed in a business agreement and is presumed not to exist where the agreement is purely of a social and domestic nature (friends and family)

Question 3

Business agreements

Answer 3

• Presumed to be legally binding
• party who doesn’t want a contract has to rebut the presumption by proving that no intention exists

Question 4

Adverts promising a reward (itclr)

Answer 4

This generally shows ITCLR
- Carlill v Carbolic Smokeball - court held there was intention because they deposited an amount in the building society ‘to meet any claims’

Question 5

Promotions giving away a collectible in return for a sale

Answer 5

Generally shows intention to create legal relations
Esso Petroleum v Commissioners of Customs and Excise - held that because there was a clear commercial gain and the customer expected to receive the coin - there was legal intent

Question 6

Competition prizes

Answer 6

Shows intention to create legal relations
McGowan v Radio Buxton - court decided that there was legal intention in the agreement to get Renault Clio car

Question 7

Clear wording in a contract

Answer 7

If a business uses very clear wording that makes it clear there is no intention then the courts will generally accept this

E.g gentlemen’s agreement - involves a term stating that the contract is binding in honour only

Jones v Vernon Pools - not entitled to have his claim decided in court as the agreement was based on the honour of the parties and thus not legally binding

Rose & Frank Co v Crompton - wording used was ‘this arrangement is not entered into…as a formal or legal agreement…’. The court held this wording was enough to rebut the presumption of intention

Question 8

Letters and wording (itclr)

Answer 8

A letter of comfort generally indicates that the party did not intend to form a legally binding contract

A letter of comfort is a written assurance from a parent company to a lender giving assurance that a subsidiary of the company will be able to repay a loan (but has no obligation to pay it)

Contrasting cases - Kleinwort Benson v Malaysian Mining Corp and Edwards v Skyward

Question 9

Kleinwort Benson v Malaysian Mining Corp

Answer 9

Held a letter of comfort does not show intention to create legal relations

Question 10

Edwards v Skyways

Answer 10

• employee was promised a sum of money to be paid on being made redundant, stated in letter that payment was ‘ex gratia’
• Court decided that the letter suggested a legal intention to pay the sum and the words ‘ex gratia’ were irrelevant

Question 11

Halfway house + cases

Answer 11

It has been suggested in Sadler v Reynolds that there may be situations which fall into a sort of ‘halfway house’ between domestic and commercial, and that in this case the burden of overturning the presumption may be affected.

Sadler v Reynolds - ghost writer to write autobiography for friend. Burden was on the journalist to prove that there was ITCLR, that it was a business agreement not social one

Snelling v Snelling - 3 brothers, directors of family company, entered into agreement regarding business. Court held it was a contract as it was a commercial agreement. Irrelevant that the were brothers in context

Question 12

Social and domestic agreements

Answer 12

Presumed not to be legally bindings but presumption can be rebutted

Most usual distinction can be seen in Balfour v Balfour and Merritt v Merritt

Question 13

Balfour v Balfour

Answer 13

• husband worked abroad, promised to pay wife £30 per month. Later divorced.
• Court held that as it had been made at an amicable point in their relationship, not in contemplation of divorce, it was a purely domestic arrangement and not legally enforceable

Question 14

Merritt v Merritt

Answer 14

Husband left wife. An agreement to pay the wife an income if she paid the outstanding mortgage was held to be intended to create legally binding relations and obligations were enforced by court.

They had written it down and it was made when they were seperated

Question 15

Jones v Padavatton

Answer 15

Mum promised to allow daughter to stay in house to study for the bar. Later mum wanted to evict her

At the time the first agreement was made the two were very close, so the court was satisfied that neither party at the time intended to enter into a legally binding contract. Held there was no contract and was a domestic agreement, no ITCL

Question 16

Parker v Clarke

Answer 16

Young couple persuaded by an older couple to sell their house to move in with them, with the promise that they would inherit the property on their death. Later couple fell out and couple asked to leave.

Young couple successfully argued that they had a legally binding agreement. Intention was shown by the Parkers giving up their financial security (selling their house), giving some of this money to their daugher - all on reliance of the promise that they would eventually own the Clarke’s house

Question 17

Friends - ITCLR + cases

Answer 17

Starting point is there is no intention

Buckpitt v Oakes - friends had arrangement to share lifts to work and share petrol money. On one of the journeys, B was injured due to O’s negligence. He could only get compensation money if he could show he had a contract - court held there was no contract as no intention to be legally bound.

CONTRAST WITH
Albert v Motor Insurers Buraeu - 3 work colleagues, for 8+ years one colleague drove the other two to work and they paid him. One colleague killed in accident. Court held it was a contract - it was a well-established agreement with established set-out payments. Agreement had become a ‘business’ agreement over time

Question 18

Competitions, bingo, lottery etc (ITCLR)

Answer 18

Wilson v Burnett- had casual convo before going to a bingo session agreeing to split any prize money. 1 colleague won 100k but refused to split it.

Court held there was no contract. CoA said casual conversations cannot be elevated into binding agreemnts

BUT, if money has changed hands, then even if the agreement is made socially. It’s more likely to be a business arrangement and therefore legally binding.

Simpkins v Pays - lodger and two members of the household entered competition in the lodger’s name but paid equal shares of the entry money on the understanding that they would share any winnings. Their action succeeded as this was more than just a social arrangement - it was a regular arrangement rather than a one off casual chat