Intent to create legal relations

• basic rules

  -> in a social/ domestic situation the law presumes there is no legal intent

  ->court considers subject matter/relationship when reaching a decision

  -> in a commercial/business situation the law presumes there is legal intent unless there is evidence to the contrary
• social arrangements

  -> if money has changed hands, even if made socially, is more likely to be a business arrangement and legally binding

  • simpson v payes - joint understanding so successful
  • wilson v burnett - casual conversation so unsuccessful

  -> if parties put their financial security at risk then it must have been intended that the agreement would be legally binding

  • parker v clarke - older couple asked younger couple to sell house and move in -> when they fell out the arrangement was legally binding
• domestic arrangements1

  -> usually not legally binding between family members

  -> where husband and wife already separated, agreement may be legally binding

  • meritt v meritt - paid wife monthly to pay off house to then transfer the house into her name-> financial plan in place so successful
  • balfour v balfour - worked abroad and agreed to pay allowance- marriage failed and payments stopped-> agreement made at a friendly time so unsuccessful
• domestic arrangements 2

  -> families make arrangements appearing to be business arrangements so courts must decide the real purpose

  • jones v padavattan - mother persuaded daughter to give up studying for the bar and provided her a house- later fell out and mother sought possession of the house

  -> arrangements made when they were close, did not intend to create legal relations

  -> key is to have clear intention for an arrangement to be legally binding- financial involvement and clarity of terms play a key role
• business and commercial arrangements 1 


  -> presumed to be legally binding unless proven otherwise e.g. a gentleman's agreement which is binding in honour only

  • Jones v Vernons Pools - based on honour of parties and not legally binding, no intent to create legal relations and no contract

  -> burden of proof is on the person seeking to establish there is no legal intention

  • edwards v skyways - promised an ex gratia- voluntary payment but the court saw it as a business arrangement
• business and commercial arrangements 2

  -> offer of a free gift creates problems- where this is to promote a business it can still be held to be legally binding

  • esso petroleum co v customs and excise - gave away World Cup coins for every 4 gallons of petrol-> little value but customs wanted to charge tax

  -> legal intention to provide the coin so tax was payable

  • mcgowan v radio buxton - offered a renault clio as a price but winner was given 4 inch model of the car ->there was legal intention
• business and commercial arrangements 3

  -> same issue arises with letters of comfort- not intended to be legally binding

  ->written assurances often come from big companies to a bank about its smaller companies money responsibilities

  • klienwork benson v malaysian mining - lent £10mil to subsidary of malaysian mining- later sent a letter to ensure it had sufficient funds to to repay the loan but would not guarantee

  -> when subsidary went out of business, klienworkt tried to claim and failed due to lack of legal relations