Intention to Create Legal Relations

The courts presume that where an agreement is made in a family and social situation, the parties did not intend to contract;
hence their agreement will be unenforceable. Conversely, where an agreement is made in a commercial setting, the courts will
presume that the parties intended to contract.
Agreements between husband and wife
The key case Balfour v Balfour [1919]
Background
A husband and wife had entered into an agreement that stated that the husband would pay the wife a sum of money. The
husband did not honour the agreement. The wife sued for breach of contract. The issue was whether there was a binding
contract between the parties. Crucial to this was whether there had been an intention to create legal relations.
Principle established
The Court of Appeal held that where husbands and wives enter into an agreement, they are deemed by the courts not to have
entered into a contract. This is because the courts presume that they do not have the intention to enter into legal relations.
Therefore, the husband’s promise was unenforceable.
This presumption is a rebuttable one. This means that a party to an agreement can submit evidence to the court that they
actually intended to create legal relations.
 Intention to Create Legal Relations
Social and domestic agreements

Agreements between husband and wife

Merritt v Merritt (1969)

Mr Merritt had left his wife, and subsequently met his ex-wife Mrs Merritt to resolve various financial arrangements.
Sitting in Mr Merritt’s car, they decided that he would pay his wife £40 a month, out of which she was to pay the
outstanding mortgage payments on their house; he would transfer the house to her sole ownership when the mortgage
was paid off. Mrs Merritt then refused to get out of the car until her husband put the agreement in writing. Eventually,
he signed a piece of paper stating what they had agreed. The wife duly paid off the mortgage, but the husband then
refused to transfer ownership of the house to her. The Court of Appeal upheld the wife’s claim. Lord Denning pointed
out that the presumption applied in Balfour v Balfour, that an agreement between husband and wife was ‘a family
arrangement’, was not valid where the parties had separated or were about to do so.
 Intention to Create Legal Relations

Agreements between parent and child

Agreements of a domestic nature between parents and children are also presumed not to be intended to be binding,
though
again the presumption can be rebutted.

The plaintiff,
Jones a Trinidad
v Padavatton resident, encouraged her daughter, who worked as a secretary in Washington, to pursue a
(1969):
career as a barrister
The plaintiff, in England.
a Trinidad To support
resident, this, theher
encouraged mother offered who
daughter, a monthly
workedallowance for the daughter's
as a secretary Bar
in Washington, to
studies, which
pursue a the daughter accepted. Later, they agreed that the mother would buy a house for the daughter to live in
and rent out rooms for income, instead of continuing the allowance. These agreements were never documented in
career as a barrister in England. To support this, the mother offered a monthly allowance for the daughter's
writing. After a dispute arose, the mother sought possession of the house. The majority of the Court of Appeal
Bar
concluded that neither agreement was meant to have legal force
studies, which the daughter accepted. Later, they agreed that the mother would buy a house for the
daughter to live
in and rent out rooms for income, instead of continuing the allowance. These agreements were never
documented
in writing. After a dispute arose, the mother sought possession of the house. The majority of the Court of
Appeal
 Intention to Create Legal Relations
Commercial Agreements

There is a strong presumption in commercial agreements that the parties intend to be legally bound, and,
unless there is very clear contrary evidence, this presumption will not be rebutted.
Esso Petroleum Ltd v Customs and Excise Commissioners (1976)
Esso ran a sales promotion in which ‘coins’ showing members of the England football squad for the 1970 World Cup
were to be given away free, one with every four gallons of petrol. The scheme was advertised on television and by
posters at filling stations. The case arose when for tax purposes it became necessary to decide whether or not there
was a contract of sale – did a motorist who bought four gallons of petrol have a contractual right to one of the coins?
The House of Lords held, by a majority, that the coins were not being sold, and so were not liable for tax, but that there
was intent to create to create legal relations.

J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd (1976)

The Court of Appeal said that the background to the promise meant that an intent to be contractually bound could be
inferred.
 Intention to Create Legal Relations
Commercial Agreements

Exceptions to the commercial agreements presumption

There are three main situations where this presumption will be rebutted.
‘Mere puffs’
Where an offer is extremely vague, or clearly not intended to be taken seriously, the law will not give its acceptance contractual effect.

Honour clauses
In Rose & Frank Co v Crompton Bros (1923) Scrutton LJ commented: ‘I can see no reason why, even in business matters, the
parties should not intend to rely on each other’s good faith and honour, and to exclude all idea of settling disputes by an out- side
intervention . . .’

Agreement ‘subject to contract’

Use of these words on an agreement is usually (though not always) taken to mean that the parties do not intend to be legally bound
until formal contracts are exchanged.

Ambiguity
Where the words of a business agreement are ambiguous, the courts will favour the interpretation which suggests that the parties did
intend to create legal relations, and there- fore find that there is a contract.
 Capacity to Contract
Adults of sound mind have full contractual capacity. On the other hand, minors, the mentally incapacitated and
companies have limited contractual capacity. In the case of minors and the mentally incapacitated, contract law seeks
to protect such persons from the consequences of their own inexperience or inability.
Minors
A minor is a person under the age of 18. The law adopts a particularly protective attitude towards minors, often A minor
is a person under the age of 18. The law adopts a particularly protective attitude towards minors, often at the expense
of those who deal with them in all good faith. The general rule is that a minor is not bound by a contract which he
enters into during his minority. But this general rule is subject to three principal exceptions.
The first is that a contract to supply a minor with ‘necessaries’ is binding upon the minor where the contract as a whole
is for the benefit of the minor; where its terms are harsh or onerous it is not binding upon the minor. The definition of
‘necessaries’ is a wide one as ‘goods suitable to the condition in life of the minor.
Nash v Inman [1908]
FACTS: a student purchased waistcoats from a tailor. However, the student later refused to pay for the waistcoats. The tailor’s
claim for breach of contract failed because this was not a contract of necessaries because the student had no need of the
waistcoats.
Legal Principle: The only contracts binding on a minor are contracts for necessary goods and Services.
 Capacity to Contract
In Chapple v Cooper (1844) an undertaker sued a widow, who was a minor, for the cost of her husband’s funeral. It
was held that this was a necessary service, and so the young woman was obliged to pay.

Contracts of service for the minor’s benefit

Minors are also bound by contracts of service, providing these are on the whole beneficial to them. In practice this
generally means contracts of employment under which a minor gains some training, experience or instruction for an
occupation – an apprentice- ship would be a common example

In Proform Sports Management Ltd v Proactive Sports Management Ltd [2006], a football managing company sued Wayne
Rooney for breaching their contract, when he entered into another contract with a third party. The court ruled that Mr Rooney
was not liable for breach of contract because he was a minor aged 15 when he entered into the contract, and therefore he
lacked capacity. This meant that the contract was voidable and unenforceable against Rooney, because the contract was not one
of necessaries.
At the time of making the contract, Rooney was already signed with Everton Football Club.
While Rooney’s contract with Everton amounted to a contract for necessaries, the contract with Proform did not.
 Capacity to Contract: Minor (case laws)

De Francesco v Barnum (1889)

A 14-year-old girl formed a 7-year agreement to train as a stage dancer. It was said that she was entirely at the
disposal of her stage master, as he did not guarantee her any work, she could not accept any other work
without his agreement, and she could not marry or travel abroad during this time. The contract was held to be
on the whole oppressive, rather than beneficial, and therefore unenforceable.
Aylesbury FC v Watford AFC (1977)
Lee Cook, a 17-year-old footballer, was contracted to Aylesbury but allowed to treat the contract as not
binding on him so that he could form a new contract to play for Watford. A restraint of trade clause in his
original contract was held to be too onerous and the contract not therefore, on the whole, for the minor’s
benefit.
Clements v London & NW Rail Co (1894)
A young porter joined a private insurance scheme, but in return gave up certain statutory rights as an
employee. The court held that despite the benefit which had been given up under the contract, he had
received greater benefit from the employer, so it was on the whole to his benefit, and therefore enforceable.
 Capacity to Contract

Mental incapacity
This category covers people suffering from mental disability (which appears to include both mental
illness and Mental handicap), and those who are drunk when the contract is made.

Corporations
A corporation is a legal entity, usually in fact a group of people, which is treated by the law as having a
Separate identity from \ the person or persons who constitute it. There are four main types of
corporation: registered \ companies, corporations established by statute, chartered corporations and
limited liability partnerships. Each has a different level of contracting ability.
 SUMMARY

•For an agreement to be enforceable, sufficient consideration must move from the

promisee. Consideration need not be adequate and past consideration is generally
not good consideration.
•Performance of an existing duty does not constitute consideration for a promise to
pay more, unless new consideration is provided or the promisor receives practical
benefit. A promise to accept less is generally not good consideration for part
payment of a debt, although there are exceptions to this rule, including promissory
estoppel.
•The parties must intend to create legal relations and have the capacity to contract.
 VOID & VOIDABLE CONTRACT

Some contracts, however, do not obtain the status of a valid contract because the law will not recognize the agreement or it may
miss one of the essential features and so not amount to a contract.
• Void contracts:
A void contract is not a contract that the law will recognize and so has no legal effect. In law such an agreement was never a valid
contract and consequently there are no obligations on either party (example an illegal contract for supplying prohibited drugs).

• Voidable contracts:
A voidable contract is one where the injured party has the option to affirm the contract (he/she can continue with the agreement
and bring about an enforce- able contract) or he/she can avoid the contract (and the contract is terminated). The key element here is
that it is for the injured party to decide if he/she wishes to proceed with the agreement or have it set aside. This must be performed
within a reasonable time to be fair to each party.