Intention to Create Legal Relations

General Principles of
Contract
Preeti Kana Sikder
Lecturer
Department of Law & Justice
Jahangirnagar University

Intention to Create Legal
Relations

Sir Guenter Heinz Treitel
“A contract is
an agreement
giving rise to
obligations
which are
enforced or
recognised by
law.”

Contract Act, 1872
Section 2
In this Act the following words and
expressions are used in the following
senses, unless a contrary intention
appears from the context –
(e) Every promise and every set of
promises, forming the consideration for
each other, is an agreement:
(h) An agreement enforceable by law is a
contract:

Doctrine of Intention to
Create Legal Relations
The fact that the parties have reached
agreement does not necessarily mean
that they have concluded a legally
enforceable contract, even where the
agreement is supported by
consideration.
Intention to create legal relations has
been held to be an essential element in
any contract.

Balfour v Balfour (1919)
 The husband (defendant) was a civil servant
stationed in Ceylon.
 His wife alleged that, while they were both in
England on leave and when it had become clear
that she could not again accompany him abroad
because of her health.
 Husband promised to pay her 30 pounds a month
as maintenance during the time that they were
thus forced to live apart.
 When the husband stopped paying, the wife
(plaintiff) sued for breach of agreement.

“Each house is a domain into
which the King’s writ does not
seek to run”

Lord Justice Atkin in Balfour v
Balfour (1919)
“Agreements such as these
are outside the realm of
contracts altogether. The
common law does not regulate
the form of agreements
between spouses…The
consideration that really
obtains for them is natural love
and affection which counts so
little in these cold Courts.”

Lord Justice Atkin in Balfour v
Balfour (1919)
“…it would be of the worst
possible example to hold that
agreements such as this
resulted in legal obligations
which could be enforced in the
Courts…the small Courts of
this country would have to be
multiplied one hundredfold if
these agreements were held to
result in legal obligations.”

Merritt v Merritt (1970)
 The husband and wife owned a home jointly which was
subject to a mortgage. The husband left the wife to live
with another woman.
 Later, The husband agreed to pay the wife 40pounds per
month out of which she must pay the outstanding
mortgage fee. The wife made him record this agreement in
writing.
 The husband wrote in a piece of paper: ‘in consideration of
the fact that you will pay all charges in connection with the
house…until such time as the mortgage repayments have
been completed I will agree to transfer the property in to
your sole ownership.’

Merritt v Merritt (1970)
After the wife had paid off the
mortgage, the husband refused to
transfer the house to her.

Court of Appeal held that the
parties had intended to affect
their legal relations and an
action for breach of contract
could be sustained
A departure form Balfour v Balfour was
made

Domestic Agreements
“Clear” evidence is required of an
intention to create legal relations

Commercial Agreements
Presumption is that the parties to do
intend to create legal relations and this
presumption is a ‘heavy’ one.

Esso Petroleum Ltd v Comrs of
Customs and Excise (1967)
 The Esso Petroleum devised a sales promotion
scheme linked to the 1970 World Cup. It involved the
production of many millions of ‘coins’ bearing the
likeness of various members of the English squad.
 The advertisement said in press and in television ‘one
coin given with every four gallons of petrol’
 Their intention was that the coins would be distributed
to Esso retailers and public would be encouraged to
buy Esso petrol in order to collect sets of coins.

Esso Petroleum Ltd v Comrs of
Customs and Excise (1967)
 While the House of Lords was trying to
determine whether these coins would be
subject to a purchase tax, they had to
determine first if the advertisement of coins
was intended to create legal relations.
 The majority of the judges placed heavy
reliance on the onus of proof in commercial
transactions and held that there was an
intention to create legal relations.

Rose and Frank v Crompton
(1923)
 Rose and Frank was a
New York based firm
which produced Carbon
Papers
 Crompton was a
manufacturer company
of tissues used to
carbonise papers

(1923)
 In 1913, both parties
entered into a written
agreement where
Crompton gave rights of
selling their tissues to
Rose and Frank for a
period of three years with
an option to extend.
 This agreement was
extended upto 1920
 This agreement
contained a
“Honourable
Pledge Clause”:
“This arrangement is
not entered into as a
formal or legal
agreement…”

(1923)
In 1919, the agreement was
terminated.
Crompton also refused to execute
orders which had been received and
accepted by them before termination.

Claims in Rose and Frank v
Crompton (1923)
Breach of
Contract
Non-delivery of
goods comprised
in accepted
orders

Do these claims prevail?
Read the portions of the judgment and
explain to your team mates

Blue Pencil Rule
a legal concept in common law countries, where
a court finds that portions of a contract is void or
unenforceable, but other portions of the contract
are enforceable

Presumptions to be rebutted
Domestic and Social
Agreement
Parties to a
domestic
agreement do
not intend to
create legal
relations
Commercial
Agreement
In commercial
agreements the
parties are
presumed to
intend to create
legal relations

Presumptions to be rebutted
 Both the presumptions may be rebutted by
evidence of contrary intention.
 The fact that the initial presumption may be
rebutted does not mean that the presumption
is itself based upon the intention of the
parties.
 Rather, the initial presumption is a matter of
policy.
 The policy is one of “keeping contract in its
place; to keep it in the commercial sphere
and out of domestic cases, except where the
judges think that it has a useful role to play”.

Intention to Create Legal Relations

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