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1. LEARNING OBJECTIVES :

The aim of this topic is to enable students to:
Understand how do the courts infer intentions of parties who have
entered into a contract

2. LEARNING OUTCOME

A successful student will be able to;
Explain when there is an intention to create legal relations in a domestic
situation
Explain when there is no intention to create legal relations in a
commercial situation

1. When an agreement is entered into, it must be supported by consideration before it may
be enforced in courts. Nevertheless, even if all the elements of a contract are present, it is
vital that there is an intention to create legal relations at the time the agreement is entered
into.

2. As an example, if an agreement is entered into between family members, to exchange
benefits, it is unlikely that if one of the parties does not carry out his promise, that the
other party will sue. The family relationship will appear more important than the legal
viewpoint. At the time of the agreement, neither party contemplates court proceedings as
a consequence of a broken promise.

3. Compare this to a commercial relationship. If an agreement is entered into in a business
matter, it is understood that the parties intend the promise to be binding. At the time of the
agreement, both parties understand that if one party does not carry out his promise, the
other party will go to court to ensure the agreement be carried out or to recover
compensation for losses which occur because of the broken promise.

4. Nevertheless, in a domestic relationship, the parties may make it clear that the intention
that the promise is binding is present, while for commercial relationships, the parties may
make it clear that there is no intention to create legal relations. However, certain
conditions must be satisfied before either situation will exist.
The courts assess the parties intentions objectively. Contracts are divided into:
Domestic and social agreements
Commercial transactions.

1. Domestic and Social Agreements

Agreement of a social nature between spouses or other members of the family
presumption no intention to create legal relations.

Case:- Balfour v. Balfour [1919] 2 KB 571.
Maintenance agreement during subsistence of marriage was not enforceable.

Case:- Spellman v. Spellman [1961] 1 WLR 921
Hire purchase agreement negotiated by the husband in the wifes name held not to be binding.
Presumption today does not apply where the parties are separated and negotiating at arms length.

Case:- Merritt v. Merritt [1970] 1 WLR 1121
FOC Husband and wife had separated. It was held in the case that an agreement whereby the
husband was to transfer the house property to the wife in consideration for her paying all out
goings was binding.

Agreements of a domestic nature between parents and children are also presumed not to be
intended to be binding.

Jones v. Padavatton (1969)
Facts: Mother volunteered to give daughter an allowance to study law in England and later on
agreed to buy a house for her to rent out the rooms. Mother sought possession of the house
after quarreling with the daughter.
Held: Neither agreement was intended to create legal relations. Mother entitled to possession of the
house.
2. Social agreements

Where parties are not related. No intention to create legal relations but this can be
rebutted

Simpkins v. Pays (1955)
Facts: The plaintiff enjoyed entering competitions run in the Sunday newspaper. The plaintiff
filled forms in the name of the defendant and promised to share any winnings. Defendant
won 750.
Held: Court upheld plaintiffs claim of one third of the winnings. All who contributed to the
competition had expected that the prize would be shared.

3. Commercial Agreements

Intention to create legal relations will be presumed.

Esso Petroleum Ltd v. Commissioners of Customs and Excise (1976)
Facts: English football team coins were to be given away with every 4 gallons of petrol.
Held: Lord Simon pointed out that the whole transaction took place in the setting of business
relations. It was undesirable to allow companies to make promises in advertisements that they
were not bound to keep.

When will the intention be rebutted?
i. Puffs Where the offer is really vague, or clearly not intended to be taken seriously.
ii. Honour clauses

Rose and Frank v. Crompton Bros (1923)
In this case the clause read . This agreement is not entered into as a formal or legal
agreement, and shall not be subject to legal jurisdiction in the law courts but it is only a
definite expression and record of the purpose and intention of the parties concerned, to which
they each honourably pledge themselves.

Held: the wording of the agreement placed neither side under any obligation to go on giving or
accepting orders.

iii. Agreements subject to contract.
Where the words of a business agreement are ambiguous, the court will favour the
interpretation which suggests that the parties did intend to create legal relations
Edwards v. Skyways Ltd. (1964)
Exception to the rule that parties to a commercial agreement are presumed to intend
to be legally bound Collective bargaining agreements.
Ford Motor Co. Ltd. v. Amalgamated Union of Engineering and Foundry
Workers.
Held: In English law such an agreement was not intended to be legally binding.

TUTORIAL QUESTION

1. Sarah, Emma and Natalie are students at a music academy in London. They are often to be
seen playing their instruments in the Covent Garden shopping centre, to entertain shoppers.
One day, they have just finished playing when Sarah is approached by her uncle Louis who
asks if they would be prepared to play at his daughters wedding party later in the year. Sarah
and her friends decide that this would be a good opportunity for them and agree to do so.
Having played at the wedding, the three girls send Louis an invoice for 300. Louis refuses to
pay them, saying that he had not intended the arrangement to be binding, as he was simply
giving them a formal opportunity to practise in public.
Using case law, advise the parties concerned whether a valid contract was formed and
whether Louis is liable to pay the three girls.

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