contract law - intention to create legal relations

• Intention to Create Legal Relations

  The final step where the law formally recognises the contract; the contract is now legally binding
• Contract law sets out differences between business, domestic and social arrangements / agreements
• Intention to Create Legal Relations

  • When contracting, there is a presumption in business agreements that the contract is legally binding
  • This presumption is not held in agreements that are of a social and domestic nature
  • However, these presumptions can be rebutted
• Business agreements are presumed to be legally binding

  However, these can be rebutted e.g., in 'gentleman's agreements' where the contract is 'binding in honour' only
• Business agreements presumed to be legally binding

  • Jones v Vernons Pools (1938): The agreement was not legally binding as it stated the transaction was 'binding in honour only'
• The burden of proof is on the person seeking to establish there is no legal intention (and that the presumption should be rebutted)


  Edwards v Skyways Ltd (1969): Arrangements were all made as part of business, and business agreements have a strong presumption that the agreement intends to be legally binding
• Gifts and competition prizes that form part of promoting a business

  Can still be held to be legally binding
• Gifts and competition prizes that form part of promoting a business

  • Esso Petroleum Co. Ltd v Commissioners of Customs and Excise (1976): Esso's World Cup coin giveaway was presumed to be legally binding
  • McGowan v Radio Buxton (2001): Radio Buxton's competition prize of a Renault Clio car was presumed to be legally binding
• Letter of Comfort

  A letter from a parent company, regarding their subsidiary company, to a bank, regarding financial obligations. This letter gives assurance that the subsidiary company will pay but does not place any obligation on the parent company to pay
• Letters of comfort, within business arrangements, will not usually be intended to be legally binding
• Letters of comfort not intended to be legally binding

  • Kleinwort Benson Ltd v Malaysian Mining Corporation (1989): Malaysian Mining Corporation's letter of comfort to Kleinwort was not legally binding
• 'Halfway House' (Business/Domestic) Agreements


  Situations that sit 'halfway' between business and domestic will affect the presumptions made and the burden of proof required
• 'Halfway House' (Business/Domestic) Agreements

  • Sadler v Reynolds (2005): The agreement fell 'somewhere between an obviously commercial transaction and a social exchange', so the burden was on the journalist to prove it was a business agreement
• Social and domestic arrangements are presumed not to be legally binding
• Social and domestic arrangements presumed not to be legally binding

  • Balfour v Balfour (1919): The husband's promise to pay his wife £30 a month was a domestic arrangement, not a legally enforceable one
• The presumption in social and domestic arrangements can be rebutted
• Social and domestic arrangements can be legally binding

  • Merritt v Merritt (1970): The agreement between the separated couple to pay the mortgage was legally binding
• The Courts may have to carefully examine social arrangements to check the real purpose of the arrangement
• Examining social arrangements to determine intention

  • Jones v Padavatton (1969): The arrangement between the mother and daughter was purely social, with no intention to create legal relations
• Where money is involved, then even if the arrangement is made socially, the Courts are more likely to find it to be a business agreement and therefore legally binding
• Monetary social arrangements can be legally binding

  • Simpkins v Pays (1955): The agreement to share competition winnings was more than just a social arrangement
• Without sufficient evidence of a binding agreement, the Courts may be unable to enforce monetary agreements
• Lack of evidence for monetary social agreements

  • Wilson v Burnett (2007): There was no intention to create legal relations as there was no evidence of anything legally binding
• If parties put their financial security at risk for an agreement, the Courts will more likely find an intention to create legal relations
• Financial risk indicates intention to create legal relations

  • Parker v Clarke (1960): The agreement between the couples was legally binding due to the financial risks involved