Contract: Intention to Create Legal Relations

Intention to Create Legal Relations

For a contract to be legally binding and enforceable by the courts both parties must agree at the time the contract is made for it to be legally binding upon them. If this is not present the courts will not enforce the contract. The courts have two presumptions to find legal relations, domestic and business.

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Exaggerated claims/statements in advertisements are usually regarded as ‘mere puff’ not intended to form the basis of a binding contract. However, if there is contractual intent the court will deem the contract to be binding.

Carlill v Carbolic Smoke Ball Company: Where the fact that the Company had deposited £1000 in a bank as ‘proof of their sincerity’ was evidence that they intended to be legally bound and could not argue that their advert was ‘mere puff’.

Weeks v Tybold [1605]: The defendant was not bound when he offered £100 to the man who would marry his daughter.

Social and Domestic Agreements

These are agreements made between married couples who are living together, and social agreements between parents and children. The courts will presume that these agreements are not intended to be legally binding. Unless, words or terms state otherwise.

Balfour v Balfour [1919]: A husband agreed to pay his wife a monthly allowance. He stopped paying and she tried to enforce the agreement in the courts. It was held that the agreement was not legally binding. The court stated where the parties were married the burden was on the Claimant to rebut the presumption that there was no intention to create a legal relationship.

Merritt v Merritt [1970]: The defendant left his wife and set up home with another woman. He agreed to pay £40 per month to the wife. He told her to use the money to pay off the mortgage and once it was paid off she could have the house. She paid off the mortgage and he refused to transfer the house to her. Held, this is not a domestic relationship and there was intention.

Jones and Padavatton: A mother wanted to support her daughter in becoming a barrister and agreed an allowance whilst she was studying for her BAR exam. They later modified the agreement as the mother purchased a house for the daughter to live in and rent out the spare rooms instead of an allowance. The daughter failed her exam 5 times. The mother wanted to repossess the house. Held, this was a contract based on trust and good will.

Coward v Motor Insurers Bureau [1965]: Coward was taken on the back of Coles motorbike insured by Motor Insurer Bureau. Coward paid petrol money every week for the lift to work. Cole crashed the bike, Coward suffered injuries and wanted compensation. The insurance refused to pay on the basis that the vehicle was being used for hire or reward. Held, this was a social and domestic arrangement and did not constitute a contract.

Connell v Motor Insurance Bureau [1969]: Connell obtained a lift on three different occasions. He paid 10 shillings and the promise of a drink on each occasion. The driver crashed and Connell sued. The insurance refused to pay. Held, there was a contract in existence and the vehicle was being used for hire or reward.

Simpkins v Pays [1953]: Involved three people who all took part in a competition and took turns posting the entry form. On this occasion the Claimant posted the form but wrote the defendant’s name on the coupon. The defendant won and refused the share the winnings. This was held to be a legal relationship.

Wilson v Burnett [2007]: Three women played bingo every week. One won the jackpot, the other two wanted to share. They claimed that there were discussions that stated if anyone won more than £10 then they would share equally. The defendant admitted that these discussions had occurred but that there had been no conclusion reached. Held, there was no intention as the agreement had not been finalised.

Business and Commercial Arrangements

The courts will presume that the agreement is intended to be legally binding. Unless, words or terms state otherwise.

Jones v Vernon’s Pools [1938]: Football pools which were to be ‘binding in honour only’ were not held to be legal contracts, therefore a participant could not recover his winnings.

Rose and Frank & Co v Crompton Bros Ltd [1925]: Where an agreement was ‘not to be subject to legal jurisdiction in the law courts’ was held not to have legal consequences.

McGowan v Radio Buxton: Held the courts presumed that there was intention to create legal relations as there was no indication that the prize was a toy car.