Intention to Create Legal Relations

1. Issue

2. Introduction
For starters, both parties must have had the intention to create legal relations in order for a contract to be
valid. The rationale behind this is that we should not be bound to a contract unless we have the intention to
be bound. To assess the parties’ intention, the courts will generally use an objective test by assessing whether
a “reasonable man” would conclude that the parties intended to enter into a contract. Contracts can be broken
into 3 groups: domestic, social, and commercial agreements. Certain presumption is made as to the different
types of agreements made by different parties. These presumptions can be rebutted. In Merritt v Merritt, a
domestic agreement was made when couple was separated. This type of agreement is presumed not to have
legal intention, however, this presumption has been rebutted where such domestic agreement shows parties’
intention to create legal relations.

3. Types of Agreements; Presumptions

Domestic agreement is an agreement between family members. It is presumed to have no legal intention, in
other words, no legal effect on the agreements made if they sue each other in court. In Balfour v Balfour, an
agreement of a husband to pay allowance to his wife was made while they were together. After they
separated, the husband refused to make any payments. The court held that the agreement made was
considered a domestic agreement, following its presumption. Thus, the wife sues the husband which bears no
liability. In contrast, in Merritt v Merritt, an agreement to transfer a house to the wife’s sole ownership was
made when the husband and wife were separated. However, the husband refused to do so. Despite it being a
domestic agreement, the court rebutted following its presumption so there was legal intention in this
agreement. Hence, the wife’s claim of sole ownership of the house transferred to her is upheld by the court.
Agreements made between cohabiting couples are considered domestic agreements but they have legal
effects. In Morone v Morone, an agreement of a man to financially support a woman in return for her help
was made when they were together. After they separated, the man refused to compensate the woman. The
court held that the agreement made shows intention to be legally bound. Hence, the woman was able to claim
her compensation.
Agreements between parent and child are presumed to have no legal intention to be bound. In Jones v
Padavatton, an agreement of a mother financing her daughter’s bar studies through house rental resolution
was made. After the daughter keeps failing her bar exam, the mother wanted to reclaim the house. The court
ruled that the agreement made was a domestic agreement with the presumption of no legal intention as they
were only family arrangements. Thus, the mother’s claim of what is rightfully hers can be restored to her.
Social agreement is an agreement between friends. It is presumed to have no legal intention, in other words,
no legal effect on the agreements made if they sue each other in court. In Wilson v Burnett, in the event that
parties win in bingo, no legal obligation arises to pay those that are involved in the oral agreement as there
was no legal agreement made orally between parties. However, this presumption can be rebutted as shown in
Simpkins v Pays where the sharing of the cost of entry showed serious intention to be bound by what they
agreed on, which is sharing any proceeds of winning. Thus, any proceeds of winning are given legal effect to
be followed. In Peck v Lateu, the longstanding arrangement to pool their bingo winnings showed serious
 Intention to Create Legal Relations
intention to be bound by what they agreed on. The court ruled that the presumption was rebutted. In the
event, one party won a large prize, the intention to create legal relations rendered to exist between parties.
For commercial agreements, there is a strong presumption that the parties intended to be legally bound. This
is because business dealings are assumed to be made with serious intention of closing a deal. This may be
followed by a formal written agreement. A commercial agreement made orally, on phone, for instance, may
also have legal intention if the deal was closed from a telephone conversation. In Esso Petroleum Ltd v
Customs and Excise Commissioners, an agreement to buy 4 gallons of petrol in exchange for free limited-
edition coins was made. In the event, coins are not given upon purchase. House of Lords held that there was
an intention to create legal relations thus coins bound to be given for free upon purchase of 4 gallons of
petrol. In Bear Stearns’ case, an oral discussion was made and followed by a formal written contract. The
court ruled that the agreement made applies the presumption of commercial agreement where parties are
legally bound by what was discussed.

There are exceptions to presumption of commercial agreements. When an offer is extremely vague or clearly
not intended to be taken seriously, it is known as “mere puffs”. In Weeks v Tybald, the father’s
announcement to pay £100 to any man suitable to marry his daughter was considered a gimmick. Thus, his
promise was not legally binding. This principle was sometimes applied to extravagant language used in
advertisements. However, in Carlill v Carbolic Smoke Ball Co, defendants’ argument on their statement
being a “mere puff” was rejected as the advertisement stated that defendant had deposited £1,000 into
account to show seriousness to award those as agreed.
An honourable pledge clause is also an exception to the presumption. In Rose and Frank v Crompton
Bros, the honourable pledge clause stated “This agreement is not entered into … as a formal or legal
agreement, and shall not be subject to legal jurisdiction in the law courts …” shows the agreement made
between claimant and defendant to have no legal intention despite formalised into a written agreement.
Besides that, an agreement “subject to contract” is also an exception as parties are not intended to be legally
bound until a formal contract is exchanged. This was illustrated in Confetti Records v Warner Music UK
Ltd.

4. Conclusion

Contents (Without Issue and Conclusion): 1010 words