INTENTION TO CREATE LEGAL RELATIONS:

The requirement of intention to create legal relations in contract law is aimed

at sifting out cases which are not really appropriate for court action. Not
every agreement leads to a binding contract which can be enforced through
the courts. For example, you may have an agreement to meet a friend at a
pub. You may have a moral duty to honour that agreement but not a legal
duty to do so. This is because in general the parties to such agreements do
not intend to be legally bound and the law seeks to mirror the party's wishes.
In order to determine which agreements are legally binding and have an
intention to create legal relations, the law draws a distinction between social
and domestic agreements and agreements made in a commercial context.

Intention to create legal relations in social and domestic

agreements:
In social and domestic agreements the law raises a presumption that the
parties do not intend to create legal relations.

Jones v Padavatton [1969] 1 WLR 328 Court of Appeal

A mother promised to pay her daughter $200 per month if she gave up her
job in the US and went to London to study for the bar. The daughter was
reluctant to do so at first as she had a well-paid job with the Indian embassy
in Washington and was quite happy and settled, however, the mother
persuaded her that it would be in her interest to do so. The mother's idea
was that the daughter could then join her in Trinidad as a lawyer. This initial
agreement wasn't working out as the daughter believed the $200 was US
dollars whereas the mother meant Trinidad dollars which was about less than
half what she was expecting. This meant the daughter could only afford to
rent one room for her and her son to live in. The Mother then agreed to
purchase a house for the daughter to live in. She purchased a large house so
that the daughter could rent out other rooms and use the income as her
maintenance. The daughter then married and did not complete her studies.
The mother sought possession of the house. The question for the court was
whether there existed a legally binding agreement between the mother and
daughter or whether the agreement was merely a family agreement not
intended to be binding.
Held:
The agreement was purely a domestic agreement which raises a
presumption that the parties do not intend to be legally bound by the
agreement. There was no evidence to rebut this presumption.

Balfour v Balfour [1919] 2 KB 571

A husband worked overseas and agreed to send maintenance payments to
his wife. At the time of the agreement the couple were happily married. The
relationship later soured and the husband stopped making the payments.
The wife sought to enforce the agreement.
Held:
The agreement was a purely social and domestic agreement and therefore it
was presumed that the parties did not intend to be legally bound.

This presumption may be rebutted by evidence to the contrary. This evidence

may consist of:

A written agreement:
Errington v Errington Woods [1952] 1 KB 290 Court of Appeal
A father-in-law purchased a house for his son and daughter-in-law to live in.
The house was put in the father's name alone. He paid the deposit as a
wedding gift and promised the couple that if they paid the mortgage
instalments, the father would transfer the house to them. The father then
became ill and died. The mother inherited the house. After the father's death
the son went to live with his mother but the wife refused to live with the
mother and continued to pay the mortgage instalments. The mother brought
an action to remove the wife from the house.
Held:
The wife was entitled to remain in the house. The father had made the
couple a unilateral offer. The wife was in course of performing the
acceptance of the offer by continuing to meet the mortgage payments.
Under normal contract principles an offer may be revoked at any time before
acceptance takes place, however, with unilateral contracts acceptance takes
place only on full performance. Lord Denning held that once performance
had commenced the Mother was estopped from revoking the offer since it
would be unconscionable for her to do so. Furthermore there was an
intention to create legal relations despite it being a family agreement.

Where the parties have separated:

Merritt v Merritt [1970] 1 WLR 1211 Court of Appeal
A husband left his wife and went to live with another woman. There was
£180 left owing on the house which was jointly owned by the couple. The
husband signed an agreement whereby he would pay the wife £40 per
month to enable her to meet the mortgage payments and if she paid all the
charges in connection with the mortgage until it was paid off he would
transfer his share of the house to her. When the mortgage was fully paid she
brought an action for a declaration that the house belonged to her.
Held:
The agreement was binding. The Court of Appeal distinguished the case of
Balfour v Balfour on the grounds that the parties were separated. Where
spouses have separated it is generally considered that they do intend to be
bound by their agreements. The written agreement signed was further
evidence of an intention to be bound.
or where there is a 3rd party to the agreement:
Simpkins v Pays [1955] 1 WLR 975 Queen's Bench Division
A Grandmother, granddaughter and a lodger entered into a weekly
competition run by the Sunday Empire News. The coupon was sent in the
Grandmothers name each week and all three made forecasts and they took it
in turns to pay. They had agreed that if any of them won they would share
the winnings between them. The grandmother received £250 in prize money
and refused to share it with the other two. The lodger brought the action to
claim one third of the prize money.
Held:
There was a binding contract despite the family connection as the lodger was
also party to the contract. This rebutted the presumption of no intention to
create legal relations.

Intention to create legal relations in commercial agreements

Where an agreement is made in a commercial context, the law raises a
presumption that the parties do intend to create legal relations by the
agreement:
Esso Petroleum V Customs & Excise [1976] 1 WLR 1 House of Lords
Esso ran a promotion whereby any person purchasing four gallons of petrol
would get a free coin from their World Cup Coins Collection. The question for
the court was whether these coins were 'produced in quantity for general
resale' if so they would be subject to tax and Esso would be liable to pay
£200,000. Esso argued that the coins were simply a free gift and the
promotion was not intended to have legal effect and also that there was no
resale.
Held: 3:2
There was an intention to create legal relations. The coins were offered in a
commercial context which raised a presumption that they did intend to be
bound. However, the coins were not exchanged for a money consideration
and therefore the coins were not for resale.

Dwards v Skyways [1964] 1 WLR 349 Court of Appeal

The claimant was an airline pilot working for the defendant. He was to be
made redundant. The defendants said that if he withdrew his contributions to
the company pension fund, they would pay him the equivalent of company
contributions in an ex gratia payment. The claimant agreed to this and
withdrew his contributions. The company then ran into further financial
difficulty and went back on their promise relating to the ex gratia payment.
Held:
The agreement had been made in a business context which raised a strong
presumption that the agreement is legally binding. The claimant could
therefore enforce the agreement and was entitled to the money.
Again this presumption can be rebutted by evidence to the contrary:
Binding in honour only clauses:

Rose & Frank Co v Crompton Bros [1925] AC 445 House of Lords

The claimants and defendants entered an agreement for the supply of some
carbonised tissue paper. Under the agreement the claimants were to be the
defendant's sole agents in the US until March 1920. The contract contained
an honorable pledge clause which stated the agreement was not a formal or
legal agreement and shall not be subject to the jurisdiction of the courts in
neither England nor the US. The defendants terminated the agreement early
and the claimants brought an action for breach.
Held:
The honorable pledge clause rebutted the presumption which normally exists
in commercial agreements that the parties intend to be legally bound by
their agreements. The agreement therefore had no legal affect and was not
enforceable by the courts.

Ferrera v Littlewoods Pools [1998] EWCA Civ 618 Court of Appeal

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.
Held:
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.

The distinction between social and domestic agreements and commercial

agreements can be fine.

Compare the case:

Coward v MIB [1963] 1 QB 359 Court of Appeal
Coward was killed whilst riding pillion on a motorcycle driven by a friend and
work colleague on the way to work. The collision was due to the negligence
of the friend. Coward's widow sought to claim damages from the Motor
Insurance Bureau since the rider's insurance did not cover pillion passengers.
The Motor Insurance Bureau would only be obliged to pay if insurance for the
pillion was compulsory. Insurance was only compulsory for pillions if they
were carried for hire or reward. Coward paid the friend a small weekly sum to
take him to and from work each day. The widow therefore argued that this
was a contract for hire or reward. However, the MIB argued that to amount to
a contract for hire or reward there had to be an intention to create legal
relations which was absent in agreements of this nature between friends.
Held:
There was no contract of hire or reward as it was a social and domestic
agreement and therefore no intention to create legal relations. The widow
was therefore not entitled to compensation.

Albert v MIB [1971] 3WLR 291 House of Lords

A docker was killed in a road collision on his way to work. He was a
passenger in a car owned and driven by a work colleague. The driver gave
lifts to the deceased and other dockers in return for payment. He had given
lifts to different dockers over a period of eight years. A claim was made
against the Motor Insurance Bureau (MIB) as the driver had no insurance
cover for passengers. The MIB was only obliged to pay if there existed a
contract between the docker and the driver.
Held:
The lifts were offered in a commercial context as he had given lifts to
different people over a period of time. Therefore, there was an intention to
create a binding contract.