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Chapter 3: Intention To Create Legal Relations

1. Purpose of this element:

● The doctrine is based on an objective interpretation of the parties’ intentions.
● However, the presumptions exist for policy reasons.
● The law of contract must be restricted from intervening in domestic situations, lest the floodgates
of litigation be opened to allow trifling domestic disputes.
● The courts will determine whether the agreement is entirely social and hence not legally
enforceable.

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2. Social agreements; Balfour v Balfour
Presumption:
● There is no intention to create legal relations.
● To hold otherwise would mean that ‘the small Courts of this country would have to be multiplied

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one hundredfold if these arrangements were held to result in legal obligations.’ (Atkin LJ)
● In other words, this presumption is justified mainly on the floodgates argument;
● However, the law of contract has steadily expanded over time to be included in agreements
between family members (Freeman, 1996)

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● Common situations:
○ Husband and wife
■ Balfour v Balfour;
n ● There was no ITCLR
● The parties were living in amity when the agreement was made.
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■ Vaughn v Vaughn
● A vague promise was held to contain no ITCLR.
● Uncertainty of agreement is evidence supporting the presumption.

*Rebuttals to the presumption:

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■ Merritt v Merritt ;
● Spouses were already living separately;
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● The agreement was made in writing;

● This was sufficient to rebut the presumption.
■ Darke v Strout;
● Formality of the letter was indicative that there was ITCLR.
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● The woman had also provided sufficient consideration, which was

indicative that there was a contractual agreement.
■ Soulsbury v Soulsbury
● There was ITCLR for a promise to forgo maintenance payments in return
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for a bequest in the other’s will.

● There was consideration.
● Again, spouses were already separate.
■ Radmacher v Granatino;
● Husband was not entitled to award 5.5mil following the breakup of
marriage.
● To hold otherwise would place insufficient weight to the prenuptial
agreement.
● Where an agreement was entered between family members in a
‘business context’, courts will readily infer that there is a rebuttal.
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○ Parent and child; between friends
■ Jones v Padavatton;
● There was no ITCLR due to the uncertainty of the agreement.
● The presumption was also applied.
● Even if it was, the mother was entitled to possession of the house.
● This was in spite of the fact that there was evidence of detrimental
reliance.
■ Coward v MIB
● There was no ITCLR in an agreement to bring one’s friend to work in
exchange for petrol money.

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● This undetaking was in the future.
● Contrast with Albert v Motor Insurer’s Bureau; there is ITCLR for
journeys that have already been undertaken.
○ Social arrangements

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■ Lens v Devonshire Social Club
● The winner of a competition in a golf club was prevented from suing for
his prize because no one involved in the competition intended that legal
consequences shouldd flow from it.
● This is subject to exceptions, such as O’Brien v MGN Ltd.

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*Rebuttals:
■ Parker v Clarke
n● The courts will have regard to any reliance placed on an agreement.
● If one party acted to his detriment on the faith then it is indicative of an
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ITCLR.
■ Simpkins v Pays
● There is ITCLR because considedration was provided.
● Party had acted to his detriment following the making of the agreement.
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3. Commercial agreements:
Presumption:
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● There is an intention to create legal relations; this presumption is a heavy one to rebut.
● Where parties deal at an arm’s length, court will find contractual intention (Edmonds v Lawson)
● Esso Petroleum v Comrs of Customs and Excise;
○ Free coins were given for customers who bought their petrol.
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○ Although these coins were not supplied under a contract of sale, it was held that there
was an ITCLR for tax purposes.
○ There is a heavy onus of proof on the D to rebut to presumption.
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● Desdner Kleinwort Ltd v Atrill;

○ The presumption is especially strong when it involves an ongoing employment
relationship

Rebuttals:
● Rose and Frank v Crompton and Bros;
○ An honor clause was included in the agreement.
○ The arrangement was founded upon an honorable pledge.
○ No ITCLR due to the clear words used as a rebuttal.
● Kleinwort Benson v MMC;
○ A comfort letter was insufficient to be said to have ITCLR.
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○ The wording of the letter displaced the presumption.
● Blue v Ashley;
○ There was an oral contract for business services.
○ Due to the unusual location and general atmosphere of the place (pub), as well as
subsequent uncertainty, the courts refused to recognize an ITCLR.
● MacInnes v Gross;
○ Discussion took place in expensive restaurant.
○ The communication was uncertain, and indicated that there had yet to be a formal
agreement.
○ Court found no ITCLR.

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4. Certainty of terms and vagueness
● A statement cannot be an offer unless it is sufficiently certain.
○ Scammel v Ouston;

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■ Agreement unenforceable due to uncertainty of terms and evidence indicating
that further agreement was expected.
■ There was no real consensus ad idem, thus no agreement.

● Parties acting in reliance of an agreement is evidence suggesting that there is a valid contract.

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○ Hillas v Arcos;
■ Agreement had been relied upon.
■ The intention of parties was inferred from the agreement terms and usage of
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trade.
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○ RTS Flexible Systems v Molkerei Alois Muller;
■ Agreement had been reached on all terms of ‘economic significance’.
■ Performance had commenced.
■ UKSC said that an objective interpretation of the parties’ words and deeds
suggested that there was an intention to enter into a binding contract even
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though the certain terms were yet to be confirmed.

● Performance may be almost complete but failure to agree on key terms will result in no contract.
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○ British Steel Corp v Cleveland Bridge & Engineering

● A term which is meaningless can be ignored, leaving the contract as a whole enforceable
○ Nicolene v Simmonds
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5. Complete Agreement
● To create an enforceable contract, parties must reach an agreement on all the major elements of
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their contract.
● There must be nothing left outstanding to be agreed upon at a later date.
● If there is no agreement on all of the essential elements of a bargain, there is no contract.
● It is not possible to turn an incomplete bargain into a legally binding contract by merely adding
together express and implied terms.
● A complete bargain must exist which may be supplemented by further implied terms Wells v
Devani [2016].
● There is no such thing as an agreement to agree. In Courtney & Fairbairn Ltd v Tolani
Brothers (Hotels) Ltd (1975) it was held that there was no contract where the parties had simply
agreed to negotiate.
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● In Barbudev v European Cable Management Bulgaria EOOD [2012] a communication offering
investment on ‘terms to be agreed’ was said to be no more than an unenforceable ‘agreement to
agree’.
● In Walford v Miles [1992] Lord Ackner noted that the parties to negotiations had diametrically
opposed aims and so their opposing interests could not be reconciled sufficiently to support in
Walford an implied obligation to continue to negotiate in good faith with a particular party.
● An undertaking not to negotiate with third parties (called a ‘lock-out’ agreement) is sufficiently
certain to be enforceable (Pitt v PHH Asset Management Ltd [1994]) as is an undertaking to
use ‘reasonable endeavours’ to achieve something (Astor Management AG v Atalaya Mining
plc [2017]

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