Intention to create are legal relationship

1.1 Intention To Create Are Legal Relationship

Intention to create legal relations is part of elements in contract. Intention to

create legal relations is defined as an intention to enter a legally binding
agreement or contract. Intention to create legal relations is one of the
necessary elements in formation of a contract. It is because, intention to
create legal relations consists of readiness of a party to accept the legal
sequences of having entered into an agreement. Intention to create legal
relations is a motion of every contracting party must have the necessary
intention to enter into a legally binding contract.

2.1 Commercial Agreement

The commercial agreement definition is a contract usually (but not always)

between two business entities. It expresses the contract terms in plain
language yet also includes warranties and boilerplate, or typical contract
provisions. Usually, a business or commercial attorney has reviewed it prior to
the agreement. The majority of commercial contracts are under the
governance of state law. Transactions between businesses differ in their legal
character than transactions between business and consumer. Business-to-
business transactions have less legal protective measures that are intended
to protect uninformed parties or enable such parties to get out of a contract.
This is because the law assumes that business entities are aware of their
legal obligations and can resolve disputes based on the particular terms of
their contracts.commercial ageerement may be written, oral, or implied in
either a formal or an informal way. Although it may be harder to discern the
details and parameters of oral contracts, they are still considered enforceable,
with specific exceptions, such as agreements for the sale of real estate, or
particular agreements related to the sale of goods.
Leading case :

Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1

WLR

The facts of Esso, a petrol company, by which customers would receive one
free World Cup coin for every four gallons of petrol purchased. The World Cup
coins were manufactured coins with the head of a 1970 World Cup English
footballer on one side and the word ‘Esso’ on another for a sales promotion.
Esso ran advertisements The Customs and Excise Commissioners claimed
that the coins were liable to purchase tax as goods “produced in quantity for
general sale,” under the Purchase Tax Act 1963, Sch 1, Group 25. Esso
claimed that the coins were free gifts and, thus, there was no sale with the
intention to create legal relations and produce a legal effect. The held of the
Court held that there was an intention to create a legal obligation by Esso to
supply the coins. The transaction took place in a business setting, and was
itself a legal offer beyond a mere ‘puff’ (p 5) that rendered Esso commercial
advantages, and was accepted by the customers. Secondly, the Court held
that, for a contract of sale, there must be a transfer of the goods for monetary
consideration. The Court held that, despite the intention to create a legal
obligation, there was no consideration for the transfer of the coins as the coins
were transferred under the separate contract for sale of the petrol.
Accordingly, the Court held that there was no contract of sale by Esso, there
was a contract to produce the coins as goods “for general sale.”

Edwards v Skyways [1969] 1 WLR 349

The facts of an airline company in financial difficulties was making a number

of its pilots redundant. The airline company agreed with the British Airline
Pilots Association to pay each pilot an ‘ex gratia payment’ equivalent to the
company’s contribution to the pension fund, upon being made redundant. This
was initially the subject of a resolution of the company’s Board, and agreed
upon at a meeting between the company’s representatives and the
Association’s representatives. The claimant opted to leave the company and
claim the payment of his contributions to the pension fund. The company
conceded that there was consideration, yet held that there was no legally
enforceable obligation, but a mere ‘moral’ one. The held of the Court held that
where an agreement is reached in the course of a business affairs, and not in
a domestic or social context, the presumption is that the parties have intended
to create legal relations and that their legal relations should be affected. The
onus Is on the party rebutting this presumption to show that they expressly
intended to create a mere ‘moral’ agreement and not a legal obligation. The
company’s use of the words “ex gratia” in the promise to pay do not show nor
imply that the agreement is without legal effect. Thus, the company’s
agreement, reached in a business setting with authorised representatives and
conceded consideration, was an intention to create a legal obligation with
legal consequences to that effect.

Rose and Frank Co v JR Crompton and Bros Ltd, [1925] AC 445

The facts of American company and English company entered into a sole
agency agreement in 1913 for the sale of paper goods in the USA. The written
agreement contained a clause stipulating that it was not a formal nor legal
agreement, and an “honourable pledge” between business partners.
Subsequently, the American company placed orders for paper which were
accepted by the British company. Before the orders were fulfilled, the British
company terminated the agency agreement and refused to send the goods,
claiming that the 1913 agreement was not legally binding and that,
consequently, the orders did not create legal obligations. As the held as to the
1913 agreement, the Court gave overriding weight to the provision in the
agreement that expressly provides that it is to be solely an “honourable
pledge”, as demonstrating that the parties did not intend the arrangement as a
legally-binding contract. The Court explained that the argument that clauses
restricting the legal enforceability of a contract apply solely when the
document is otherwise unquestionably of legal force. In this case, the
document and circumstances did not intend to create any legal interest, and
the clause expressly precluding the agreement’s legal enforceability applies.
Secondly, the Court held that the fact that the arrangement does not
constitute a legal contract does not preclude the orders and acceptances from
constituting legally-binding contracts. The lack of enforceability of an express
legal arrangement under an agency agreement does not preclude the legal
transactions. The orders constituted mutual offers and acceptances with each
transaction having ordinary legal significance.

Ferrera v Littlewoods Pools [1998] EWCA Civ 618

The facts were almost identical to those of Jones v Vernon Pools whereby the
claimant filled in a winning entry and sent it off to Littlewoods Pools.
Littlewoods disputed ever receiving the entry and denied the fact that they
would be legally obliged to pay out even if they had received the entry due to
the binding in honour only clause and based on the Court of Appeal precedent
set in Jones v Vernon Pools. The claimant, a litigant in person, argued that
the decision in Jones v Vernons was outdated and should be overruled. The
held of Littlewoods were not bound to pay out. The court was bound by the
decision in Jones v Vernon Pools the existence of the binding in honour only
clause demonstrated an intention that the parties did not intend to be legally
bound.

Coward v MIB [1963] 1 QB 259

The facts of Mr Coward was a pillion passenger on a motorcycle owned and

driven by his work colleague Mr Cole. There was an accident resulting from
Mr Cole’s negligence, and both were killed. Mrs Coward obtained judgement
for damages which was not paid out because Mr Cole’s insurance policy did
not provide cover for him to carry pillion passengers. She sought to recover
damages from the MIB claiming a policy should have been in place
under Road Traffic Act 1930 Part II. The held of Mrs Coward’s claim was
unsuccessful. Neither party intended there was a legal obligation to carry and
be carried to and from work, under a binding contractual agreement. Mr
Coward was not a passenger who Mr Cole was under a duty to ensure and
the MIB, therefore, were not under an obligation to satisfy the judgement.
Albert v Motor Insurers Bureau [1971] 3 WLR 291

The facts of Q regularly gave his co-workers lifts to and from work in his car
over a period of more than eight years, and received payments for this. On
one of these trips, there was an accident in which one of his passengers and
co-workers were killed. Albert (A) brought a claim against the driver under The
Fatal Accidents Acts 1846-1908, and was awarded damages. When Q failed
to meet the order, A brought action against the Motor Insurer’ Bureau (MIB).
The action was brought against MIB on the basis that Q was acting on a
hire/reward basis when giving lifts for remuneration for the purposes of
section 203(4) of the Road Traffic Act 1960. In the held deciding the appeal,
the court considered Coward v Motor Insurers Bureau [1963] 1 QB
259 and Connell v Motor Insurers Bureau [1969] 2 QB 494.The appeal was
allowed. It was held that the actions of the driver went beyond mere social
kindness, and the activities amounted to a business activity, and as such the
vehicle in which the victim was killed was a vehicle for which passengers had
been carried for hire pursuant to section 204(4) Road Traffic Act 1960. This
was held to be true, as the passengers were aware of the expectation of pay
for the service, and as such the lack of contract between the parties was
irrelevant.

2.2 Domestic Or Social Ageerement

A social agreement are made between friends are made without an intention
of being enforceable. Where the contract is of a social nature, the law is
assumed that the both parties did not indent their agreement legally binding.
The majority of social and domestic agreements are not considered to be
serious sufficient to influence the court that the agreement was always
intended to be binding at the time. While the most social agreements are
intended to give rise to legal obligations, agreements to participate in a
competition have been held to be enforceable. 
Leading Case :

Esso Petroleum Ltd v Commissioners of

Customs and Excise [1976] 1 WLR
Intention to create legal relations and consideration for a contract of sale in
the formation of contracts.

Facts

Esso, a petrol company, by which customers would receive one free World
Cup coin for every four gallons of petrol purchased. The World Cup coins were
manufactured coins with the head of a 1970 World Cup English footballer on
one side and the word ‘Esso’ on another for a sales promotion. Esso ran
advertisements The Customs and Excise Commissioners claimed that the coins
were liable to purchase tax as goods “produced in quantity for general sale,”
under the Purchase Tax Act 1963, Sch 1, Group 25. Esso claimed that the coins
were free gifts and, thus, there was no sale with the intention to create legal
relations and produce a legal effect.

Issue

The question arose as to whether, the distribution of the coins were goods
“for general sale,” and thus sold per a legal obligation by Esso to supply the
coins under a contractual relationship with customers.

Held

Firstly, the Court held that there was an intention to create a legal obligation
by Esso to supply the coins. The transaction took place in a business setting,
and was itself a legal offer beyond a mere ‘puff’ (p 5) that rendered Esso
commercial advantages, and was accepted by the customers. Secondly, the
Court held that, for a contract of sale, there must be a transfer of the goods
for monetary consideration. The Court held that, despite the intention to
create a legal obligation, there was no consideration for the transfer of the
coins as the coins were transferred under the separate contract for sale of the
petrol. Accordingly, the Court held that there was no contract of sale by Esso,
there was a contract to produce the coins as goods “for general sale.”

 
Rose and Frank Co v JR Crompton and Bros Ltd,
[1925] AC 445
.

Intention to create legal relations in the formation of contracts.

Facts

An American company and English company entered into a sole agency

agreement in 1913 for the sale of paper goods in the USA. The written
agreement contained a clause stipulating that it was not a formal nor legal
agreement, and an “honourable pledge” between business partners.
Subsequently, the American company placed orders for paper which were
accepted by the British company. Before the orders were fulfilled, the British
company terminated the agency agreement and refused to send the goods,
claiming that the 1913 agreement was not legally binding and that,
consequently, the orders did not create legal obligations.

Issue

The questions arose as to (1) whether the sole agency agreement of 1913
constituted a legally binding contract, and (2) whether the orders constituted
enforceable contracts of sale.

Held

Firstly, as to the 1913 agreement, the Court gave overriding weight to the
provision in the agreement that expressly provides that it is to be solely an
“honourable pledge”, as demonstrating that the parties did not intend the
arrangement as a legally-binding contract. The Court explained that the
argument that clauses restricting the legal enforceability of a contract apply
solely when the document is otherwise unquestionably of legal force. In this
case, the document and circumstances did not intend to create any legal
interest, and the clause expressly precluding the agreement’s legal
enforceability applies. Secondly, the Court held that the fact that the
arrangement does not constitute a legal contract does not preclude the
orders and acceptances from constituting legally-binding contracts. The lack
of enforceability of an express legal arrangement under an agency agreement
does not preclude the legal transactions. The orders constituted mutual offers
and acceptances with each transaction having ordinary legal significance.
Edwards v Skyways [1969] 1 WLR 349
Intention to create legal relations in the formation of contracts in a
commercial context.

Facts

An airline company in financial difficulties was making a number of its pilots

redundant. The airline company agreed with the British Airline Pilots
Association to pay each pilot an ‘ex gratia payment’ equivalent to the
company’s contribution to the pension fund, upon being made redundant.
This was initially the subject of a resolution of the company’s Board, and
agreed upon at a meeting between the company’s representatives and the
Association’s representatives. The claimant opted to leave the company and
claim the payment of his contributions to the pension fund. The company
conceded that there was consideration, yet held that there was no legally
enforceable obligation, but a mere ‘moral’ one.

Issue

The issue arose as to whether there was an intention to create legal relations
and obligations in the agreement between the airplane company and the
Association to pay employee contributions.

Held

The Court held that where an agreement is reached in the course of a

business affairs, and not in a domestic or social context, the presumption is
that the parties have intended to create legal relations and that their legal
relations should be affected. The onus Is on the party rebutting this
presumption to show that they expressly intended to create a mere ‘moral’
agreement and not a legal obligation. The company’s use of the words “ex
gratia” in the promise to pay do not show nor imply that the agreement is
without legal effect. Thus, the company’s agreement, reached in a business
setting with authorised representatives and conceded consideration, was an
intention to create a legal obligation with legal consequences to that effect.
Coward v MIB [1963] 1 QB 259
Workman carried to work on colleague’s motorcycle; whether intention to
create legal relations

Facts

Mr Coward was a pillion passenger on a motorcycle owned and driven by his

work colleague Mr Cole. There was an accident resulting from Mr Cole’s
negligence, and both were killed. Mrs Coward obtained judgement for
damages which was not paid out because Mr Cole’s insurance policy did not
provide cover for him to carry pillion passengers. She sought to recover
damages from the MIB claiming a policy should have been in place
under Road Traffic Act 1930 Part II.

Issues

Under the Road Traffic Act 1930 Part II a passenger who is carried for hire or
reward in the insured’s vehicle must be covered on the driver’s insurance
policy. Mrs Coward contended that her husband and Mr Cole had reached an
agreement whereby he would regularly provide lifts to work on his motor
cycle in return for certain cash payments. She argued this amounted to a
contractual obligation and, therefore, the risk to her husband should have
been covered by Mr Cole’s policy or, failing that, by the MIB under their
agreement with the Ministry of Transport. The MIB argued there was no
legally enforceable contract between Mr Cole and Mr Coward as there had
been no intention to create legal relations. They also argued that a motor
cycle was not a ‘vehicle’ for the purposes of the Road Traffic Act 1930.

Held

Mrs Coward’s claim was unsuccessful. Neither party intended there was a legal
obligation to carry and be carried to and from work, under a binding
contractual agreement. Mr Coward was not a passenger who Mr Cole was
under a duty to ensure and the MIB, therefore, were not under an obligation
to satisfy the judgement.

.
Albert v Motor Insurers Bureau [1971] 3 WLR
291
ROAD TRAFFIC ACT 1960 – INSURANCE – THIRD PARTY

Facts

Facts

Q regularly gave his co-workers lifts to and from work in his car over a period
of more than eight years, and received payments for this. On one of these
trips, there was an accident in which one of his passengers and co-workers
were killed. Albert (A) brought a claim against the driver under The Fatal
Accidents Acts 1846-1908, and was awarded damages. When Q failed to meet
the order, A brought action against the Motor Insurer’ Bureau (MIB). The
action was brought against MIB on the basis that Q was acting on a
hire/reward basis when giving lifts for remuneration for the purposes of
section 203(4) of the Road Traffic Act 1960.

Issue

At the court of first instance, the court found that the actions of the driver did
not amount to that which engaged section 203(4) of the Road Traffic Act
1960. On appeal, the actions of the unofficial driving/lift giving actions of the
driver were considered for whether they could amount to a business activity. If
such a business relationship could be found, the MIB would be liable for
damages.

Held

In deciding the appeal, the court considered Coward v Motor Insurers

Bureau [1963] 1 QB 259 and Connell v Motor Insurers Bureau [1969] 2 QB
494.

The appeal was allowed – it was held that the actions of the driver went
beyond mere social kindness, and the activities amounted to a business
activity, and as such the vehicle in which the victim was killed was a vehicle for
which passengers had been carried for hire pursuant to section 204(4) Road
Traffic Act 1960. This was held to be true, as the passengers were aware of the
expectation of pay for the service, and as such the lack of contract between
the parties was irrelevant.