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Chapter 2 - Intention To Create Legal Relation

This chapter discusses the legal concept of intention to create legal relations in contracts. There are presumptions made regarding whether parties intended a contract to be legally binding depending on the type of agreement. For domestic/social agreements, there is a presumption parties did not intend legal enforcement unless strong evidence shows otherwise. For commercial agreements, it is presumed parties did intend legal enforcement unless clear language indicates otherwise. Exceptions to these presumptions include cases involving separated couples, mere puffs, honor clauses, and ambiguity in contractual terms.

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390 views3 pages

Chapter 2 - Intention To Create Legal Relation

This chapter discusses the legal concept of intention to create legal relations in contracts. There are presumptions made regarding whether parties intended a contract to be legally binding depending on the type of agreement. For domestic/social agreements, there is a presumption parties did not intend legal enforcement unless strong evidence shows otherwise. For commercial agreements, it is presumed parties did intend legal enforcement unless clear language indicates otherwise. Exceptions to these presumptions include cases involving separated couples, mere puffs, honor clauses, and ambiguity in contractual terms.

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Sair
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We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 2 Intention to Create Legal Relations

Topics:
Chapter Summary
Introduction
Presumption and Rebuttal of Presumption
Domestic and Social Arrangements
Commercial Arrangements
Exceptions to Commercial Agreements: Mere Puffs, Honour Clauses, Agreement
subject to contract, Ambiguity, Collective Bargaining Agreement.
Chapter Summary:
To be enforceable as a contract the parties must have an intention to create legal
relations. This is judged objectively through the use of two presumptions which
are capable of being rebutted although clear evidence is required to do so.

In the context of social or domestic agreements, it is presumed that there


was no intention to be legally bound. This position appears to be a matter
of public policy but the presumption is not irrefutable. However, it is
unlikely to be rebutted in the absence of clear reliance, certainty of terms
and evidence of the seriousness of the promise.
In the context of commercial agreements, it is presumed that the parties
intended to be legally bound unless there are clear words indicating the
absence of a promise or that the parties have agreed to be bound in
honour only.

Introduction:
It is generally accepted that legal systems must have some means of identifying
those agreements which, although to all outward appearances qualify as
contract, are regarded as being beyond the reach of legal remedies. In essence,
therefore the concept of intention to create legal relations is used by the courts
as a device to enable them to deny enforceability to those agreements which
they consider should not be legally enforced.
Presumption and Rebuttal of Presumption:
The conventional view of intention to create legal relations is that agreements
divide for these purposes into two general types: commercial agreements and
social/domestic agreements. For each type there is presumption. The court
requires strong evidence to rebut that presumption. If that evidence is not
available, the court will uphold the presumption.
Domestic and Social Agreements/Arrangements:
The presumption for domestic and social agreements is that they are not legally
enforceable due to the lack of intention of entering into a legal contract. Strong
evidence is required to prove that the parties intended to enter into a legally

enforceable contract. This presumption is adopted primarily due to policy


consideration. If courts start resolving cases of this nature, in Atkins LJs words
the small courts of this country would have to be multiplied one hundredfold.

Case: Balfour v Balfour (1919)


In Balfour v Balfour (1919) defendant (husband) was a civil servant stationed in
Ceylon (now Sri Lanka). While the couple were on leave in England, Mrs Balfour
was taken ill, and it eventually became clear that her husband would have to
return by himself. He promised to pay her a monthly maintenance allowance of
30. They later decided to separate, upon which the husband refused to make
any more payments. The Court of Appeal decided he was not bound to pay the
allowance because at the time when the agreement was made there was no
intention to create legal relations. When this type of agreement was made
between husband and wife, said Atkin LJ, it was a family matter in which the
courts really had no place to interfere.
Legal Principle:
Where a husband and wife living together as one household make an
arrangement the courts will assume they do not intend to be legally bound,
unless there is evidence to the contrary.
Exception to Legal Principle:
The case for separating and/divorcing couples is different which parties are
presumed to enter into legal relations.
Case: Merritt v Merritt (1969)
Mr. Merritt had left his wife to go and live with another woman, and subsequently
met his spouse to resolve various financial arrangements. Sitting in Mr Merritts
car, they decided that he would pay his wife 40 a month, out of which she was
to pay the outstanding payments on their house; he would transfer the house to
her sole ownership when the mortgage was paid off. Mrs Merritt then refused to
get out of the car until her husband put the agreement in writing. Eventually, he
signed a piece of paper stating what they had agreed. The wife duly paid off the
mortgage, but the husband then refused to transfer ownership of the house to
her. The court ruled that the presumption applied in Balfour v Balfour is not valid
here as the parties are about to separate and this stage parties do not rely on
honourable understandings but bargain keenly.
The similar is the case for cases involving parents and children, where the court
will begin with the presumption and if evidence and facts suggest otherwise,
court will continue to uphold the presumption. Case: Jones v Padavatton (1969)
Factors important in Rebuttal:

Factors such as certainty of terms, seriousness and reliance appear to be


important.
Commercial Agreements:
The presumption in the cases of commercial agreements is that the parties do
intend to create legal relations. The presumption can be rebutted if strong
contrary evidence is available.7

Case: Esso Petroleum Ltd. V Customs and Excise commissioners (1976)


Exceptions:
1: Mere Puffs:
This refers to exaggerated advertisement claims which to any reasonable man
would seem non-serious. It may also include extremely vague offers. Case: Carlill
v Carbolic Smoke Ball Co (1893).
2: Honour Clauses:
When the agreement clearly states that the contract is not legally binding and to
which parties honourably pledge themselves.
Case: Rose and Frank v Crompton Bros (1923)
3: Agreement Subject to Contract:
Words such as subject to contract are generally taken to mean that the parties
do not intend to legally bind themselves until the formal contracts are
exchanged.
Case: Confetti Records v Warner Music UK Ltd. (2003)
Ambiguity:
Where the words of a business agreement are ambiguous, the courts will favour
the interpretation which suggests that the parties did intend to create legal
relations and therefore the contract does exist.
Case: Edwards v Skyways Ltd.
Collective Bargaining Agreements:
In English Law, collective bargaining agreements are not intended to be legally
binding.

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