intention to create legal relation

• Even when the other requirements of a legally binding contract are present the courts will not enforce an agreement unless there was an intention to create legal relations / to be legally bound.
• DOMESTIC AND SOCIAL AGREEMENTS

  In the case of these agreements the courts presume that there was no intention to create legal relations but in all these cases an objective test is applied and this presumption can be rebutted if the circumstances suggest the contrary.

   
• What was the husband's promise to the wife regarding financial support?


  To pay her £40/month and transfer his share in the house when she paid off the mortgage
• What action did the wife take when the husband reneged on his promise?


  She sued him
• What was the key legal distinction made by Lord Denning in Merritt v Merritt compared to Balfour?


  • The parties were separated or about to separate
  • They bargained keenly and did not rely on honourable understandings
  • It was presumed they intended to create legal relations
• What does Lord Denning's statement imply about the intentions of separated parties in legal agreements?


  It implies that separated parties intend to create legal relations
• What is the citation for the case Merritt v Merritt?


  (1970) 2 All ER 760, CA
• What legal action did C seek against her daughter after their falling out?


  To evict her from the house
• What was the case name associated with this situation?

  Jones v Padavatton
• What did the Court of Appeal hold in Jones v Padavatton?


  It was a domestic agreement with no intention to create legal relations
• What was the implication of the Court's ruling regarding the daughter's right to stay in the house?


  She had no right to stay as there was no enforceable contract
• What was the citation for the case Jones v Padavatton?


  (1969) 2 All ER 616
• Simpkins v Pays (1955) 1 WLR 975

  C was a lodger in D’s house. Together with D’s granddaughter, they entered newspaper competitions and shared the cost of entry. C filled in forms in name of D and promised to share any winnings. On one occasion D won £750 but refused to give c her share of the prize, claiming that she had not intended to be legally bound by the agreement. 

   

  Held: The presumption regarding social agreements was rebutted. The court upheld C’s claim, as they had all contributed with the expectation that any prize would be shared.
• BUSINESS AGREEMENTS

  The courts presume that the parties intend to create legal relations unless the party wishing to rebut that presumption has evidence to the contrary - even then it is difficult to rebut the presumption in a business transaction.

   
• What is the case citation for Edwards v Skyways?


  Edwards v Skyways (1964) 1 All ER 494
• Who was the plaintiff in the case of Edwards v Skyways?


  C was a pilot employed by D
• What type of payment did D promise to make to C?


  D promised to make an ex gratia payment
• What was the condition for C to receive the ex gratia payment?


  C had to agree not to claim his full pension rights
• What was D's argument for refusing the payment?


  D claimed that the words 'ex gratia' showed there was no intention to create legal relations
• What did the Court of Appeal hold regarding the nature of the agreement?


  The CA held that it was a commercial agreement with a strong presumption in favor of creating legal relations
• What did the words 'ex gratia' signify according to the CA?


  They signified that the employers were not admitting any pre-existing liability to make the payment
• Did the CA find that D was bound by the agreement despite the use of 'ex gratia'?


  Yes, the CA found that D was bound by the agreement
• Carlill v Carbolic Smokeball Co. (1893) 1 QB 256

  D argued that their statement was ‘a mere puff’, an advertising gimmick which was never intended to be taken seriously. This contention was rejected by the court, which pointed out that the advertisement stated that the company had deposited £1,000 with their bankers ‘to show our sincerity in the matter’, which was strong evidence that they had intended to be legally bound.
• However, the presumption of business intention to create legal relations has been rebutted in the following circumstances:

   

  1. Binding 'in honour' clauses:

   2. Agreement 'subject to contract'

  3. ‘Letters of Comfort'

  4. Collective Agreements:
• 1. Binding 'in honour' clauses:

  Jones v Vernons Pools (1938) 2 All ER 464

   

  Where a football pools coupon states that it is ‘binding in honour only’, the pools company cannot be sued for payment by a winner.
• What is the case name of the 1925 legal decision involving Rose & Frank Co and Crompton Bros.?


  Rose & Frank Co v Crompton Bros.
• What does the 'honourable pledge' clause in the contract state?


  It states that the agreement is not a formal or legal agreement and is not subject to legal jurisdiction.
• What was the intention of the parties as expressed in the 'honourable pledge' clause?


  To provide a definite expression and record of their purpose and intention.
• What action did D take regarding the agreement?


  D terminated the agreement without giving the specified notice.
• What was C's response to D's termination of the agreement?


  C sued for breach of contract.
• What did the Court of Appeal conclude regarding the obligations of the parties in the agreement?


  The wording of the agreement placed neither side under any obligation to continue giving or accepting orders.
• 2. Agreement 'subject to contract':

  Use of these words on an agreement is usually taken to mean that the parties do not intend to be legally bound until formal contracts are exchanged.

   
• What is the case citation for Eccles v Bryant?


  Eccles v Bryant (1948) 2 All ER 865
• What was the initial agreement between the parties in Eccles v Bryant?


  The agreement was 'subject to contract'
• What did the parties do after signing the agreement 'subject to contract'?


  They consulted their solicitors, who agreed on a draft contract
• What happened after the buyer forwarded his copy of the contract?


  The seller changed his mind and decided to sell to another buyer
• What did the buyer attempt to do after the seller changed his mind?


  The buyer tried to sue for breach of contract
• What was the conclusion of the Court of Appeal in Eccles v Bryant?

  The negotiations were subject to formal contract and no binding obligations arose until contracts were exchanged
• What did the Court of Appeal determine about the parties' intentions regarding the contract?

  The parties had not intended to be bound until they exchanged contracts
• What was the key factor that prevented binding obligations from arising in Eccles v Bryant?

  No binding obligations could arise before the contracts were exchanged