Intention to Create Legal Relations

Question 1

Why is the intention to create legal relation vital in contract law?

Answer 1

The law/ Cts will NOT get involved unless there is an intention from the parties to get the law involved

Question 2

What are the 2 presumptions surrounding ICLR?

Answer 2

1. Domestic + social arrangements - there isn’t ICLR

2. Commercial agreements - there is ICLR

Question 3

Are the presumptions about an ICLR rebuttable?

Answer 3

Yes, generally they are

If you can provide evidence to the suggest otherwise, the law can change its mind

Question 4

Is there a presumption that there is an ICLR between husbands + wives?
Cases?

Answer 4

No - unless the agreement itself states that it does

Balfour v Balfour (1919)
Jones v Padavatton (1969)

Question 5

Balfour v Balfour (1919)

Answer 5

Husband worked overseas
Agreed to send maintenance payments to his wife
At the time of the agreement the couple were happily married
Relationship later soured + the husband stopped making the payments
Wife sought to enforce the agreement

Held: Agreement = purely social + domestic agreement
= presumed that parties didn’t intend to be legally bound

Question 6

Jones v Padavatton (1969)

Answer 6

Mother promised to pay her daughter $200 a month
If she gave up her job in the US + went to London to study for the bar
Daughter = reluctant but her mother persuaded her
Mother actually meant Trinidad dollars - less than 1/2 of what she = expecting
Mother then agreed to purchase a house for the daughter to live in - could rent out other rooms (maintenance)
Daughter didn’t complete her studies
Mother sought possession of the house

Held: agreement = purely a domestic agreement
= presumption that the parties didn’t intend to be legally bound by the agreement
= no evidence to rebut this

Question 7

What did Lord Atkin state in the case of Balfour v Balfour (1919)?

Answer 7

Agreements of this kind are outside the realm of contracts altogether

Question 8

Why is there a presumption that there is no ICLR in domestic/ social agreements?

Answer 8

Prevent the Cts from overflowing

Question 9

Name 2 cases that illustrate that the presumption for domestic agreements can be rebutted

Answer 9

1. Merritt v Merritt (1970)

2. Radmacher v Granatino (2010)

Question 10

Merritt v Merritt (1970)

Answer 10

Husband left his wife
Went to live with another woman
= £180 left owing on the house which was jointly owned by the couple
Husband signed an agreement
Would pay £40 per month, enable her to meet mortgage payments
+ if she paid all charges connected to mortgage until = paid, he would transfer his share of the house to her
Mortgage = fully paid
She brought an action for a declaration that the house belonged to her

Held: agreement = binding
CA distinguished Balfour v Balfour
Grounds that the parties were separated
Where spouses have separated = generally considered that they do intend to be bound
Written + signed agreement = further evidence of ICLR

Question 11

Why was the case of Merritt v Merritt (1970) distinguished from Balfour v Balfour (1919)?

Answer 11

On the grounds that the parties were separated
Where spouses have separated = generally considered that they do intend to be bound
Written + signed agreement = further evidence of ICLR

Question 12

Radmacher v Granatino (2010)

Answer 12

French investment banker married a very wealthy German national
Prior to marriage an anti-nuptial agreement = signed by both parties
Agreement provided that each party forego any interest/ benefit from the other’s property acquired either before/ during the marriage
Had 2 children
Divorced after 9 years
Husband claimed ancillary relief against wife’s assets

Held: anti-nuptial agreement = valid
If freely entered into, with all information available to both parties + in the absence of pressure, such agreements should be upheld, unless it would be unfair to do so

Question 13

Are domestic agreements between parents + children presumed to create legal relations?
Case?

Answer 13

No - Jones v Padavatton (1969)

Question 14

Parker v Clark (1960)

Answer 14

Ds = elderly married couple
Mrs P = Mrs C’s niece
Mr C suggested they move into their home with them
Mr P expressed concern that = mean their selling own house
Mr C wrote to Mr P stating the C would bequeath their home to Mrs P, her sister + her daughter on their death
P sold their home + moved in with the C
C told P the arrangement = not working, they would have to move out
P brought an action for breach of contract

Held: P = successful
Language used in the letter + surrounding circumstances indicated both parties intended to be bound
Mr C’s letter = sufficient to satisfy s40(1) Law of Property Act 1925
Amounted to contractual offer
Ps = entitled to damages for the loss of the prospect of inheritance + the loss of the value of the benefit of living in the house

Question 15

Simpkins v Pays (1955)

Answer 15

Grandmother, granddaughter + a lodger entered into a weekly competition run by the Sunday Empire News
Coupon = sent in the Grandmothers name each week
All three made forecasts
Took it in turns to pay
Had agreed that if they won, would share the winnings between them
Grandmother received £250 prize + refused to share it
Lodger brought the action to claim 1/3rd of the prize

Held: = binding contract despite the family connection as the lodger was also party to the contract
This rebutted the presumption of no ICLR

Question 16

What is the starting point for social/ domestic agreements?

Answer 16

That there is no ICLR

BUT, this can be rebutted if there is evidence to the contrary

Question 17

Give 3 factors that may be considered when deciding to rebut the presumption of domestic/ social agreements

Answer 17

1. Relationship between the parties
2. Subject matter of the agreement
3. Significance + importance of the actions undertaken by the parties

Question 18

How easy is it to rebut the presumption for commercial agreements?

Answer 18

Very difficult

Explicit language may be needed to rebut
Rose & Frank Co v JR Crompton and Bros (1925)

Question 19

For commercial agreements, who is the burden of proof placed on?

Answer 19

Burden of proof is on the party who is claiming that there was no ICLR

Question 20

Edwards v Skyways (1964)

Answer 20

Claimant = airline pilot working for D
He = to be made redundant
D: if he withdrew his contributions to the company pension fund, they would pay him the equivalent of company contributions in an ex gratia payment
Claimant agreed
Withdrew his contributions
Company then ran into further financial difficulty
Went back on their promise relating to the ex gratia payment

Held: agreement had been made in a business context
Raised a strong presumption that the agreement is legally binding
Claimant could enforce the agreement + = entitled to £

Question 21

Esso Petroleum v Commissioners of Customs & Excise (1976)

Answer 21

Esso ran a promotion
Any person purchasing 4 gallons of petrol would get a free coin from their World Cup Coins Collection
Customs and Excise Commissioners: coins = liable to purchase tax
“Produced in quantity for general sale,” under the Purchase Tax Act 1963, Sch 1, Group 25
Esso: coins = free gifts, there was no sale with ICLR + produce a legal effect

Held: = ICLR
Coins = offered in a commercial context
Raised presumption that they did intend to be bound
There was no extra consideration given by the petrol buyers (separate contract)
Coins were not for resale

Question 22

Can advertisements intend to create legal relations?

Case?

Answer 22

Yes

Esso Petroleum v Commissioners of Customs & Excise (1976)

Question 23

Rose & Frank Co v JR Crompton and Bros (1925)

Answer 23

US company + English company entered into a sole agency agreement in 1913 for the sale of paper goods in the USA
Written agreement contained clause - = not a formal nor legal agreement, and an “honourable pledge” between business partners
Subsequently, US company placed orders for paper which were accepted by the British company
Before the orders were fulfilled, British company terminated the agency agreement + refused to send the goods, claiming that the 1913 agreement was not legally binding
Orders didn’t create legal obligations

Held: honourable pledge clause rebutted the presumption which normally exists in commercial agreements
Agreement had no legal effect + = not enforceable by the Cts

Question 24

What does the Rose & Frank Co v JR Crompton and Bros (1925) indicate might be needed to rebut the presumption in commercial agreements?

Answer 24

That the ICLR may only be rebutted in commercial agreements if there is an express provision in the contract

In this case - ‘honourable pledge clause’

The will of the parties (freedom to contract) will prevail over the desire of some judges to control commercial agreements

Question 25

What are letters of comfort?

Answer 25

Provide comfort to a lender that he will get his £ back
Aimed at encouraging a lender to advance funds to a third party
Used by businesses + frequently framed in ambiguous language

Question 26

Kleinworth Benson Ltd v Malaysia Mining Corp (1989)

Answer 26

Claimants agreed to make a loan of £10 million to Metals Ltd - a wholly owned subsidiary of the Ds
Ds denied to guarantee repayment by Metals Ltd
BUT offered instead a comfort letter to the claimant
In he letter, D stated: that it = their ‘policy to ensure’ that Metals Ltd = at all times in a position to meet its liabilities
CA: Ds = at liberty to change their ‘policy’ at any time + didn’t intend to be contractually bound to keep that policy in place
Consequences of the repudiation by the D of any ‘moral responsibility’ = not a matter for the Ct

Question 27

What did Kay LJ state in Associated British Ports v Ferryways NV (2009)?

Answer 27

‘I regard a letter of comfort, properly called so, as one that does not give rise to contractual liability. The label used by the parties is not necessarily determinative. It = matter of construction of the document as a whole’

Question 28

Do letters of comfort give rise to contractual obligations?

Case?

Answer 28

No
Kleinworth Benson Ltd v Malaysia Mining Corp (1989)

Key LJ in Associated British Ports v Ferryways (2009)

Question 29

What are letters of intent?

Do they express an intention to be bound?

Answer 29

Letters that envisage the possibility of entering into a contract
Letters may expressly state ‘subject to contract’ - no binding agreement

BUT where the envisaged contract had been performed on both sides, it will often be ‘unrealistic’ to argue that there was no ICLR
Confirmed by the SCt in RTS Flexible

Question 30

RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH (2010)

Answer 30

Claimant = negotiating a contract for construction + installation of equipment to be used by the D
Detailed negotiations took place
Work began on the basis of a letter of intent
Letter expired, claimants continued to supply goods + services to D
D paid some, but not all of the envisaged contract price
Original negotiations were said to be ‘subject to contract’
BUT SCt: any intention not to be bound before signatures on a contract could be ‘waived’
SCt: parties own conduct indicated that they must have ICLR
No longer required a signed contract
‘any other conclusion makes no commercial sense’

Question 31

Do collective agreements between trade unions + employers give rise to legal relations?

Answer 31

No
= regonsied at CL

Now by statute - s179 Trade Union and Labour Relation (Consolidation) Act 1992
UNLESS the agreement is in writing + states that the parties intent that the agreement should be a legally enforceable contract

Question 32

What does s179 Trade Union and Labour Relation (Consolidation) Act 1992 state?

Answer 32

Collective agreements are conclusively presumed not to be intended to be legally binding

They are only enforceable when the agreement is in writing and expressly stated to be legally enforceable

Question 33

Ford Motor Co Ltd v AEF (1969)

Answer 33

Ford Motors + trade unions reached agreements on employment conditions
Signed by their representatives
Union strike took place about conditions
Company sought injunction pursuant to the agreements - legally binding
Unions argued = no legally enforceable contract resulted from the collective agreements

Ct: reiterated that when agreements are reached in commercial context - presumption parties intended to be legally binding
Unless, an express provision declares otherwise
Ct: even when in commercial context + with no express provision, = still important to exam the context + surrounding circumstances IOT ID intention of the parties to be legally bound
Rel circumstances inc: wording of agreements, nature, background in which they = reached, knowledge + opinions of parties reps, other facts that show the parties ICLR
Held: collective agreement constituted the parties optimistic aspirations
Didn’t contemplate legal enforceability
Parties didn’t have the intention to make the collective agreements binding at law

Decision = based on context

Question 34

Blue v Ashley (2017)

Answer 34

D = founder of sports direct
D: would pay the claimant £15mill if sports direct share price reached £8 per share
Agreement had been made in a pub after a large amount of alcohol had been consumed
Social vs commercial?

Held: there was no ICLR
While the visit to the pub had been for business purposes, it was not for the claimant to get a contractual bonus
Evening had been light-hearted, full of ‘banter’

Question 35

Preston v President of the Methodist conference (2013)

Answer 35

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Question 36

Percy v Board of National Mission of the Church of Scotland (2005)

Answer 36

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