Intention to create legal relations
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Even in the presence of offer, acceptance and consideration there must be evidence of an intention to create legal relations between the parties in order to make the resulting contract enforceable. Whether or not there is an intention to create legal relations is determined by the courts and the courts use the circumstances and nature of the contract to determine this
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Intention to create legal relations
- 1. PART 4 SHORT NOTES - CONTRACT LAW 02-Feb-2020 THE LAW GUIDE SERIES P a g e | 1 agatiba INTENTION TO CREATE LEGAL RELATIONS Intention to create legal relations Even in the presence of offer, acceptance and consideration there must be evidence of an intention to create legal relations between the parties in order to make the resulting contract enforceable. Whether or not there is an intention to create legal relations is determined by the courts and the courts use the circumstances and nature of the contract to determine this The law divides agreements into two categories namely: 1. Social and Domestic agreements 2. Business and commercial agreements To determine the presence of an intention to create legal relations however, the courts use the objective test. Thus, using the objective test, the court may still determine against the general presumptions that there is an intention to create legal relations or otherwise irrespective of the relationship between the parties. ESTABLISHING INTENTION IN AN AGREEMENT In the absence of illegality: 1. where the parties expressly declare or clearly indicate in the agreement an intention not to create legal relations, the courts would give effect to their intention 2. where a statutes operates to negate the intention create legal relations. Rose v Crompton Bros (1925) The defendants were paper manufacturers and entered into an agreement with the plaintiffs whereby the plaintiffs were to act as sole agents for the sale of the defendant's paper in the US. The written agreement contained a clause that it was not entered into as a formal or legal agreement and would not be subject to legal jurisdiction in the courts but was a record of the purpose and intention of the parties to which they honourably pledged themselves, that it would be carried through with mutual loyalty and friendly co-operation. The plaintiffs placed orders for paper which were accepted by the defendants. Before the orders were sent, the defendants terminated the agency agreement and refused to send the paper. It was held that the sole agency agreement was not binding owing to the inclusion of the "honourable pledge clause". Regarding the orders which had been placed and accepted, however, contracts had been created and the defendants, in failing to execute them, were in breach of contract. Jones v Vernon Pools (1938) The plaintiff claimed to have won the football pools. The coupon stated that the transaction was "binding in honour only". It was held that the plaintiff was not entitled to recover because the agreement was based on the honour of the parties (and thus not legally binding).
- 2. PART 4 SHORT NOTES - CONTRACT LAW 02-Feb-2020 THE LAW GUIDE SERIES P a g e | 2 agatiba 3. where the terms, nature and circumstances of the agreement would lead the court to infer an intention to create legal relations A. SOCIAL AND DOMESTIC AGREEMENTS The law presumes that social and domestic agreements are not made with the intention to create legal relations or to be legally binding. This involves agreements between family members, friends and worker mates. The kinds of agreements include dinner invitations, games etc. 1. Agreements between Husband and wife living together as one household are presumed not to be intended to be legally binding An exception to the above presumption is where the husband and wife are not living together in amity such as in divorce or separation Section 2 of the Football Pools Authority (Amendment) Decree, 1975 (NRCD 358) Provides that football pool coupons do not give rise to any legal relationship whatsoever Hammond v Ainooson Coward v Motor Insurers Bureau Coward was a pillion passenger on a motor cycle owned and driven by Cole. The was an accident caued by Cole’s negligence which resulted in both of them getting killed. Coward’s widow brought an action against the insurers and it was necessary to determine whether there was a legally binding contract between Coward and Cole. It was held that the arrangement between Cole and Coward whereby Coward paid a weekly sum to Cole for transporting him to and from work was not intended to create legal relations Balfour v Balfour The defendant who worked in Ceylon, came to England with his wife on holiday. He later returned to Ceylon alone, the wife remaining in England for health reasons. The defendant promised to pay the plaintiff £30 per month as maintenance, but failed to keep up the payments when the marriage broke up. The wife sued. It was held that the wife could not succeed because: (1) she had provided no consideration for the promise to pay £30; and (2) agreements between husbands and wives are not contracts because the parties do not intend them to be legally binding. Merrit v Merrit (1970) The husband left his wife. They met to make arrangements for the future. The husband agreed to pay £40 per month maintenance, out of which the wife would pay the mortgage. When the mortgage was paid off he would transfer the house from joint names to the wife's name. He wrote this down and signed the paper, but later refused to transfer the house. It was held that when the agreement was made, the husband and wife were no longer living together, therefore they must have intended the agreement to be binding, as they would base their future actions on it. This intention was evidenced by the writing. The husband had to transfer the house to the wife.
- 3. PART 4 SHORT NOTES - CONTRACT LAW 02-Feb-2020 THE LAW GUIDE SERIES P a g e | 3 agatiba 2. Agreements between parents and children are presumed not made with intention to create legal relations 3. Agreements between persons not related as in husband/wife or parent/child in a domestic or social setting are presumed made with the intention to create legal relations B. BUSINESS & COMMERCIAL SETTING The presumption for agreements in a business/commercial setting is that it is made with the intention to create legal relations Jones v Padavatton (1969) In 1962, Mrs Jones offered a monthly allowance to her daughter if she would give up her job in America and come to England and study to become a barrister. Because of accommodation problems Mrs Jones bought a house in London where the daughter lived and received rents from other tenants. In 1967 they fell out and Mrs Jones claimed the house even though the daughter had not even passed half of her exams. It was held that the first agreement to study was a family arrangement and not intended to be binding. Even if it was, it could only be deemed to be for a reasonable time, in this case five years. The second agreement was only a family agreement and there was no intention to create legal relations. Therefore, the mother was not liable on the maintenance agreement and could also claim the house. Simpkins v Pays (1955) The defendant, her granddaughter, and the plaintiff, a paying lodger shared a house. They all contributed one- third of the stake in entering a competition in the defendant's name. One week a prize of £750 was won but on the defendant's refusal to share the prize, the plaintiff sued for a third. It was held that the presence of the outsider rebutted the presumption that it was a family agreement and not intended to be binding. The mutual arrangement was a joint enterprise to which cash was contributed in the expectation of sharing any prize. Parker v Clarke (1960) Mrs Parker was the niece of Mrs Clarke. An agreement was made that the Parkers would sell their house and live with the Clarkes. They would share the bills and the Clarkes would then leave the house to the Parkers. Mrs Clarke wrote to the Parkers giving them the details of expenses and confirming the agreement. The Parkers sold their house and moved in. Mr Clarke changed his will leaving the house to the Parkers. Later the couples fell out and the Parkers were asked to leave. They claimed damages for breach of contract. It was held that the exchange of letters showed the two couples were serious and the agreement was intended to be legally binding because (1) the Parkers had sold their own home, and (2) Mr Clarke changed his will. Therefore the Parkers were entitled to damages. Edwards v Skyways (1964) The plaintiff pilot was made redundant by the defendant. He had been informed by his pilots association that he would be given an ex gratia payment (ie, a gift). The defendant failed to pay and the pilot sued. The defendant argued that the use of the words "ex gratia" showed that there was no intention to create legal relations. It was held that this agreement related to business matters and was presumed to be binding. The defendants had failed to rebut this presumption. The court also stated that the words "ex gratia" or "without admission of liability" are used simply to indicate that the party agreeing to pay does not admit any pre-existing liability on his part; but he is certainly not seeking to preclude the legal enforceability of the settlement itself by describing the payment as "ex gratia".