Acceptance and Intention to Create Legal Relations

• Acceptance


  Final and unqualified assent to all the terms of the offer
• Elements of Acceptance


  • Acceptance may be in writing, or oral, or may be inferred from conduct
  • Acceptance must be unqualified and must correspond to the terms of the offer
  • A counter-offer is insufficient and causes the original offer to lapse
  • A conditional assent is not enough, e.g. when an offer is accepted 'subject to contract'
  • Where it is intended to make a contract by means of sealed competitive bids, a submission by one bidder of a bid dependant for its definition on the bids of others is invalid
• Communication of Acceptance


  • Acceptance is not effective until communicated to and received by the offeror
  • Acceptance must be communicated by the offeree or by someone with his authority
  • The method of communication may expressly or impliedly be prescribed by the offeror, but there will be valid acceptance if the offeree adopts an equally expeditious method unless the offeror has made it clear that no method other than that prescribed will be adequate
  • A condition that silence shall constitute acceptance cannot be imposed by the offeror without the consent of the offeree
  • Acceptance is not effective if communicated in ignorance of the offer, however if a person knows of the offer, the fact that he has a motive for acceptance, other than that contemplated by the offeror, does not prevent the formation of a contract
  • There is no contract if two offers identical in terms cross in the post
• Unilateral contracts


  Contracts where the offer consists of a promise to pay money in return for the performance of an act. Performance of the act is sufficient acceptance but consideration is not complete until performance has finished
• Postal rule


  Acceptance occurs as soon as the letter is posted. There is a contract which makes acceptance possible when the letter gets posted.
• The 'postal rule in Adams v Lindsell has since been confirmed in Household Fire and Carriage Accident Insurance Co v Grant (1879) 4 EX D 216 where the defendant applied for some shares in a company. These were then allotted to him but he never received the letter of allotment. It was held that a contract existed.
• If the letter is lost or delayed in the post because the offeree addressed it incorrectly, the 'post rule' will not apply
• Instantaneous communication rule


  Formation of a contract occurs when and where the acceptance is actually received by the offeror
• The post rule will also be excluded if it is clearly inconsistent with the nature of the transaction and/or the words used by the parties
• Intention to Create Legal Relations


  Requirement for a legally binding and enforceable agreement between parties
• Types of Domestic contracts

  • Cohabitation agreements
  • Marriage contracts
  • Separation agreements
• The relation of husband and wife does not preclude the formation of a contract and the context may indicate a clear intention on either side to be bound, as in the case of a separation agreement In Merritt v Merritt and in Balfour v Balfour
• Merritt v Merritt


  A husband left his wife and went to live with another woman. There was £180 left owing on the house which was jointly owned by the couple. The husband signed an agreement whereby he would pay the wife £40 per month to enable her to meet the mortgage payments and if she paid all the charges in connection with the mortgage until it was paid off he would transfer his share of the house to her. The agreement was binding as the parties were separated.
• Balfour v Balfour


  A husband worked overseas and agreed to send maintenance payments to his wife. At the time of the agreement the couple were happily married. The agreement was a purely social and domestic agreement and therefore it was presumed that the parties did not intend to be legally bound.
• Agreements between parent and child


  May present problems similar to those of husband and wife. In Jones v Padavatton, the court held that there was no intention to create legal relations and that the present case was one of those family arrangements which depend on the good faith of the promises which are made and are not intended to be rigid, binding arrangements.
• Adult members of a family in the same household

  Where adult members of a family (other than the husband) share a household, the financial arrangements which they make may be intended to have contractual effect. In Parker v Clarke, a young couple were induced to sell their house and move in with elderly relatives by the latter's promise to leave them a share of the home. It was held that legal effect was intended.
• Adult Roommates (not blood-related)

  An agreement between persons who share a household, but which has nothing to do with the management of the household will probably be intended to be legally binding. In Simpkins v Pays, the court gave judgement in favour of the plaintiff noting that there was a mutuality in the arrangement between the parties.
• Commercial Agreements


  Intention to create legal relations is presumed. In ESSO PETROLEUM V COMMISSIONERS OF CUSTOMS AND EXCISE, the court held that a petrol station offering a 'world cup coin' for every 4 gallons of petrol bought was a commercial undertaking/agreement, so there was a contract.
• Where the parties have not expressly denied an intention to create legal relations, what matters is not what the parties had in their minds, but the inferences that reasonable people would draw from their words or conduct. It is an objective test.
• Agreements 'subject to contract'


  Neither party intends to be bound until a formal contract is made; and each party reserves the right to withdraw until such time as a binding contract is made.
• In Jones v Vernons Pools, the plaintiff claimed that he had sent the defendant a football coupon on which the draws he had predicted entitled him to a dividend. The defendant relied on a clause printed on the coupon which stated that the transaction should not 'give rise to any legal relationship..but..be binding in honour only'. It was held that this clause was a bar to an action in court.
• Letter of comfort


  A communication from a party to a contract to the other party that indicates an initial willingness to enter into a contractual obligation absent the elements of a legally enforceable contract. Depending on its wording the comfort letter may amount to a binding guarantee of the loan, a legally binding agreement short of a guarantee, or no agreement at all.
• In the case of Malaysia Mining Corporation Metals Ltd (MMC Metals) v KB Bank, the comfort letter had no legal effect as MMC BHD had refused to act as guarantor, demonstrating they did not intend to be legally bound.
• Commercial Agreements

  A contract written between business entities or agreements regulating the business relationship between persons engaged or involved in business with each other. Intention to create legal relations is presumed.

  ESSO PETROLEUM V COMMISSIONERS OF CUSTOMS AND EXCISE [1976]

  Facts: A petrol station offered a ‘world cup coin’ for every 4 gallons of petrol bought by a customer

  Held: The court held that this was a commercial undertaking/agreement, so there was a contract
• Domestic contracts are...

  a written, legal document that can be entered into by a couple living together, for instance, cohabitation agreements, marriage contracts and separation agreements.
• A social agreement 


  is made between friends without the intention of being enforceable. Where the contract is of a social nature, the law is assumed that both parties did not indent their agreement legally binding.
• Intention to Create Legal Relations 

  Refers to the requirement for a legally binding and enforceable agreement between parties.
• Husband and Wife


  the relation of husband and wife does not preclude the formation of a contract and the context may indicate a clear intention on either side to be bound, as in the case of a separation agreement
• Parent and Child

  Agreements between parent and child may present problems similar to those of husband and wife
• Adult members of a family in the same household

  Where adult members of a family (other than the husband) share a household, the financial arrangements which they make may be intended to have contractual effect.
• Adult Roommates (not blood-related)

  An agreement between persons who share a household, but which has nothing to do with the management of the household will probably be intended to be legally binding.
• Merritt v Merritt (Husband and Wife)


  the court will enforce a clear agreement where the parties are separating or separated
• Balfour v Balfour

  where a husband accepted a government post overseas and promised his wife that he would give her an allowance of £30 a month until he returned, it was held that the wife could not sue for the money, as the promise was not intended to be legally binding.
• Simpkins v Pays


  three ladies who lived in the same house took part in a competition in a newspaper, the entry being sent in the name of one of them, D. When the entry won, D refused to share the prize as agreed. It was held that there was an intention to create legal relations, and D was bound to share the money
• Jones v Padavatton

  The Court of Appeal held that there was no intention to create legal relations and that the present case was one of those family arrangements which depend on the good faith of the promises which are made and are not intended to be rigid, binding arrangements.
• Parker v Clark

  a young couple were induced to sell their house and move in with elderly relatives by the latter’s promise to leave them a share of the home. It was held that legal effect was intended, otherwise the young couple would not have taken the important step of selling their own home.
• Commercial Agreements

  
  

  A contract written between business entities or agreements regulating the business relationship between persons engaged or involved in business with each other. The intention to create legal relations is presumed.
• ESSO PETROLEUM V COMMISSIONERS OF CUSTOMS AND EXCISE

  Facts: A petrol station offered a ‘world cup coin’ for every 4 gallons of petrol bought by a customer

  Held: The court held that this was a commercial undertaking/agreement, so there was a contract
• Jones v Vernons Pools

  the plaintiff claimed that he had sent the defendant a football coupon on which the draws he had predicted entitled him to a dividend. The defendant denied having received the coupon. They relied on a clause printed on the coupon which stated that the transaction should not ‘give rise to any legal relationship..but..be binding in honour only’. It was held that this clause was a bar to an action in court.
• Depending on its wording the comfort letter may amount to: 

  • A binding guarantee of the loan 

  • A legally binding agreement short of a guarantee, or 

  • No agreement at all