Intention to Create Legal Relations

Notes: Intention to create legal relationsintention-to-create-legal-relations.ppt

The law will not enforce a contract if there is no intention to create legal relations. Everyone expects to have some legal rights should goods bought turn out to be defective or services ordered not provided. The law presumes that there is an intention that such contracts will be legally binding. These are in situations where the law presumes legal relations are required, known as commercial agreements.

 

However it is equally clear that we do not expect our domestic arrangements to be legally binding, with the prospect of a court case in the event of failure. I do not expect my children to sue me if I am late in paying their pocket money, if a friend fails to turn up and give me a lift to a venue for an evening out in their car, I, again, will consider that I have no legal right to claim damages. In these situations the law presumes there is no intention to create legal relations.

 

Important: The law allows both domestic and commercial presumptions over intention to create legal relations to be challenged (rebutted) by using evidence to show there was an intentions to create legal relations, in a case of a domestic agreement, or there wasn’t an intention to create legal relations, in a commercial agreement.

 

 

Commercial agreements

 

The general principle is that an intention to create legal relations is presumed in commercial agreements. This can be rebutted by the words used in the agreement. The agreement must be quite clear as to the nature and effect of this restriction and the courts are very strict in interpreting these agreements. A clear express statement excluding legal intention can be seen to have been effective in two situations:

 

  1. A football coupon

  2. A sale of a house subject to contract: This is reflecting the situation that an agreement has been reached between the owner of the house and the prospective purchaser; but that a written contract has not yet been completed. The delay may occur while the purchaser checks financial and other details. A contract to sell land, and therefore a house, has to be evidenced in writing to be legally valid under the Law of Property Act 1925. The idea of ‘sold, subject to contract' is common practice in such transactions but can still lead to unpleasant disputes where a house seller ignores the agreement and then sells to another person for more money.

 

Social and Domestic agreements

Social and domestic arrangements are not usually legally binding. There are three exceptions to the rule where there is a more formal situation:

 

  1. Agreements made linked to a marriage break up


  2. Agreements made between parents and children: Support for students by parents at university and other situations can be classed as an intention to create legal relations. For such an agreement to be a contract there needs to be something much more formal, such as a deed (a formal written and witnessed document).


  3. Agreements based on social arrangements: an agreement to share winnings in a lottery syndicate. These arrangements are usually set out in writing and signed, which again helps the evidence that the agreement is meant to be legally binding.

 

Intention to create legal Relations?

Case

Facts

Legal point

N

Ferrera v Littlewoods Pools 1998

Claims were made by claimants who believed they had a winning coupon.

 

The pools coupon clearly stated ‘binding in honour only' and the claimants had signed the coupon.

 

The court said the Claimant could not enforce the contract as the football pool coupon clearly stated it was ‘binding in honour only’. The word honour was interpreted, as meaning there was no intention to create legal relations. And the claimants had signed in agreement to this.

Intention to create legal Relations?

Case

Facts

Legal point

N

Balfour v Balfour

Mr Balfour worked in Ceylon, and came to England with his wife on holiday. He later returned to Ceylon alone but his wife stayed in England for health reasons. He promised to pay her £30 per month as maintenance whilst she stayed in England, but he stopped paying her when the marriage broke down.

The court decided she could not take legal action for the promised maintenance payments as, amongst other reasons, the agreement was a purely domestic arrangement that they did intend to be legally binding.

Y

Merritt v Merritt

Mr Merritt left his wife. Shortly after he left, they met to make arrangements for their future. He agreed to pay £40 per month maintenance, out of which she would pay the mortgage. When the mortgage was paid off he would transfer the house from joint names to the wife’s name. He wrote this down and signed the paper, but later refused to transfer the house

A more formal written agreement between husband and wife as to some financial arrangements following a marital split can be legally binding.

Y

Simpkins v Pays

Mrs Pays, her granddaughter, and Mr Simpkins, a lodger, shared a house. They all contributed one-third of the stake in entering a weekly competition in the Sunday Empire News. On 27 June 1954, the competition was to place, in order of merit, eight women’s fashions. They took it in turns to pay the entry fee and fill in the form and send it off. On that week a prize of £750 was won for correctly placing the fashion items in order but as Mrs Pays had entered the form that week, she refused to share the prize.

An agreement to share winnings in any prizes won in a competition or lottery is legally binding as the exercise is a sort of joint enterprise.

 

Thus each was entitled to a one-third share of the winnings.

 

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