Chapter 3: Intention to Create Legal Relationship PDF

CHAPTER 3: INTENTION TO CREATE LEGAL RELATIONSHIP BY NATHAN MARAN GOT INTENTION OR NOT?  There is not necessarily a legally enforceable contract even if parties have reached an agreement.  A valid contract will only be formed if both parties intend their agreement to create...

CHAPTER 3: INTENTION TO CREATE LEGAL RELATIONSHIP BY NATHAN MARAN GOT INTENTION OR NOT?  There is not necessarily a legally enforceable contract even if parties have reached an agreement.  A valid contract will only be formed if both parties intend their agreement to create legal relations between them.  The parties need to have an objective intention to create a legal relationship in order to make their agreement or contract binding on each other  The law states – in order for a contract to be legally binding, there MUST BE an intention to create legal relation  If the parties, based on objective test, have intended to have the terms of the agreement legally binding – is sufficient  If there is no ‘ intention to create legal relations’ there is no contract that can be legally enforceable.  The parties did not intend a breach of that agreement to result in a legal action  INTENTION – is the ULTIMATE keyword.  The maker of the statement did not intend for their offer to be legally binding.  The courts have basically come up with a few presumptions to tackle the issue of ITCLR.  What is a presumption? - To presume a particular fact without the aid of proof in some situations These presumption apply in two different types contracts or agreements (i) Agreement made in a social or domestic setting (ii) Agreement made in a commercial and business setting However these presumptions can be REBUTTED! What is a rebuttable presumption? - A rebuttable presumption is assumed true until a person proves otherwise SOCIAL AND DOMESTIC AGREEMENT Presumption : Parties DO NOT INTEND to be legally bound by one another Can it be rebutted : YES! COMMERCIAL AND BUSINESS AGREEMENT Presumption : Parties DO INTEND to be legally bound by one another Can it be rebutted : YES! These presumptions can be rebutted by the courts if there is enough evidence to show that the parties DID/DID NOT intended to be legally bound  WHAT IS THE DIFFERENCE BETWEEN ITCLR AND INVITATION TO TREAT? - In both these situations, the maker of the statements claims that his statement did not intend to be legally bound on acceptance of its terms. - However the main difference is that : ITT – maker of statement appears to contemplate to enter into a binding contract at a later stage. (he is inviting the other party to make a contract) - ITCLR : Maker of statement did not contemplate to create legal relations with the other party at any stage. social and domestic agreements PRESUMPTIONS : DO NOT INTEND TO CREATE LEGAL RELATIONS DOMESTIC ARRANGEMENTS Presumption stemmed from the case of Balfour v Balfour (1919) as per Atkin LJ - Husband was a civil servant in Sri Lanka and the wife moved in together with him after marriage. - They went back to England for a holiday but wife couldn’t follow him back as she fell sick - Husband promised to pay maintenance of 30 p until she could return - They had disagreement and separated and husband stopped the payments - Wife sued the husband and claimed that there was a contractual obligation to pay since he promised - CoA held that there was NO CONTRACT coz wife did not provide any ‘consideration’ for H’s promise - Also - Atkin LJ’s judgement held that there was NO ITCLR  Atkin LJ’s three points - Inappropriate for contracts to enter into a domestic sphere because home is a private place - Floodgates of litigation - Parties don’t intend domestic agreements to have legal consequences REBUTTED PRESUMPTION : Meritt v Meritt (1970) - 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. - 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. - Husband refused to transfer ownership of the house  Courts held that there was an intention to create a legal relation! Both these cases involve agreement between husband and wife, why did the courst arrive at different decisions? Jones v Paddavaton (1969) - Agreements between family members are generally not binding on each other - D claimed there had been ITCLR and she had provided consideration for her mother’s maintenance by studying for the bar. - M argued there was merely an informal family arrangement, there had been no ITCLR and she was, therefore, entitled to recover possession of the house. - Even if there was an enforceable contract, she asserted the terms of the arrangement were too vague for the court to enforce. - Courts upheld mother’s claim. Family arrangements are based on family ties and affection  This doctrine is based on public policy  As a matter of policy – law of contract ought not to intervene in domestic situations  Scottish Law Commission states that : - SOCIAL ARRANGEMENTS - It is also presumed not to give rise to legal relations - This presumption may of course be rebutted by proving evidence to the opposite of the presumption - Courts have no complete list when presumption can be rebutted here but will look at some circumstances and factors  These are the following factors courts will take into account (i) Context in which agreement was made - if family members in ‘business scenarios’ Granatino v Radmacher (2010) - husband & wife agreement to share ownership of tenancy of matrimonial home and bank accounts Snelling v John G Snelling Ltd (1973) - Three brothers who were directors of a family company entered into an agreement Separated couples or about-to-separate couples generally bound to ITCLR when making agreements. Because they want to ‘bargain’ and not rely on ‘honourable understandings’ (ii) Court will have regard to any reliance which has been placed upon the agreement - When one party believed a promised of another and acted to his disbenefit, court will be willing to conclude agreement got ITCLR Simpkins v Pays - there was mutuality in the arrangement between the Parties - they agreed to the manner of the submission of the forecast in Ms. Pays name on a weekly basis and that, if there was a success, all three persons would share the prize money equally - filling out coupon by Ms. Simpkins was not a voluntary service to Ms. Pays but rather pursuant to an agreement to share the prize - ITCLR – YES!  Coward v Motor Insurance Buerau - An agreement between workmates under which one is to provide the other with transport to work in return for cash payments or petrol money does not have ITCLR - Mrs Coward’s claim was unsuccessful. Neither party intended there was a legal obligation to carry and be carried to and from work, under a binding contractual agreement (iii) Certainty of agreements - Courts will consider certainty of terms of agreement between parties Vaughan v Vaughan - Husband promise wife to stay in matrimonial home - However promise no contractual force – b’coz never state how long she can stay and on what terms she could stay Jones v Paddavaton - Mother’s promise to pay maintenance cannot be treated as everlasting commercial agreements PRESUMPTION : INTENDS TO CREATE A LEGAL RELATIONSHIP COMMERCIAL AGREEMENTS There is a strong presumption that parties intended to be legally bound when they make a commercial agreement, and this presumption can only be rebutted with clear contrary evidence Esso Petroleum v Customs and Excise Commissioners (1976) - Esso produced World Cup coins featuring 1970 England World Cup football team as ‘promotion scheme’ - Esso supplied garages with World Cup coins instructing to give away one coin for every 4 gallon purchased - CCE argued that Esso should pay tax on the coins as they were produced for sale - CCE argued coins supplied by Esso was ctt w motorist - Esso argued ‘coins were not sold but were given away’ - Courts held – there was ITCLR Bear Steams Bank v Foram Global Equity (2007) - Both parties had a phone conversation where price and product was agreed upon - Details of further dealing were left to be decided by lawyers - Court ruled there was ITCLR as parties deemed the dealing was ‘closed’ as both had agreed over the telephone - There was sufficient certainty and the parties did have the intention to make a legally binding contract - Mr Justice Andrew Smith reaffirmed the basic principle that “my word is my bond”. - The judge also demonstrated the extent to which the law seeks to uphold commercial transactions and is wary of technical attempts by parties to avoid their contracts. REBUTTED PRESUMPTION : 1. Mere puffs : Not enforceable because not intended to be taken literally Weeks v Tybald (1605) - Man offered to give 100 p to any suitable man to marry his daughter - Court ruled that man’s offer is not intended to be serious - It was unreasonable that the defendant should be bound by such general words which may be “spoken to excite suitors. - NO ITCLR Carlil v Carbolic Smoke Ball Co (1893) - D tried to argue that advertisement was ITCLR - They argued 100 p to be given was not intended to be serious; sales gimmick - Court rejected ; 1000 p deposited in bank showed sincerity of D to pay 2. Honour clauses : ITCLR can be rebutted by including a clause in the contract to exclude the courts and states that the agreement is binding in honour only Rose and Frank v JR Crompton Bros (1923) - Contract in question contains an ‘honourable pledge clause’ - Courts ruled that the terms mean – NO FORMAL or LEGAL agreement Jones v Vernon’s Pool Ltd (1938) - Similar to the case of Rose as contract states that it is binding in ‘honour’ only. 3. Agreement subject to contract : Parties don’t intend to be legally bound until a formal contract is exchanged. Example: Sale of land - They are made ‘subject to contract’ Confetti Records v Warner Music UK (2003) - C owned the copyright in a track of garage music (‘the track’). - D wanted to use the track on a compilation album and after negotiations sent a fax to the C containing deal terms, marked “subject to contract”. - The courts held the use of “subject to contract” on the fax prevented it from constituting a contract. Edwards v Skyways - If there was ambiguity in the contract, court would favour the interpretation which suggest there was ITCLR - C enforced the D employer’s promise