Contract | Formation
Legal Relations: Intention
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Introduction
- agreement is only legally binding if parties intended it to be legally enforceable
- can be difficult to establish parties intention so courts use rebuttable presumptions to determine intention
Domestic agreements
- domestic agreements are made between family or friends
- general presumption: parties did not intend to create legal relations
Balfour v Balfour [1919] 2 KB 571
Facts:
- plaintiff (P) sued her husband, the defendant (D), for money owed under an alleged verbal maintenance agreement
Issue:
- was a verbal agreement between spouses legally enforceable?
Held:
- agreement was not enforceable as there was intention to be legally bound
- Atkin LJ: .
. [spousal agreements] are not contracts because the parties did not intend that they should be attended by legal consequences... The consideration that really obtains for them is that natural love and affection which counts for so little in these cold Courts...
- policy reasons for the presumption also exist, Atkin LJ:
.. the small courts of this country would have to be multiplied one hundredfold if these arrangements were held to result in legal obligations...
- the presumption is rebuttable
Merritt v Merritt [1970] 1 WLR 1211
Facts:
- D agreed to pay P, his ex-wife, £40 per month if P paid the mortgage owing on their family home
- P agreed if D signed a document stating, in consideration of her paying the debt, she would own the house
Issue:
- was there a legally binding agreement between the parties?
Held:
- it was a formal agreement which the parties clearly intended to be legally binding
- Denning LJ:
.. It is altogether different when the parties are not living in amity but are separated, or about to separate. They then bargain keenly. They do not rely on honourable understandings. They want everything cut and dried. It may safely be presumed that they intend to create legal relations...
- onus for rebutting the presumption is not heavy, especially if parties are dealing at arms' length or if large sums of money are involved
Simpkins v Pays [1955] 1 WLR 975
Facts:
- D, her granddaughter & P, her lodger, lived together & entered a weekly newspaper competition
- entry coupon was sent in D's name & parties agreed winnings would be shared equally, D won £250 but refused to share it
Issue:
- was the agreement legally enforceable?
Held:
- agreement was enforceable because there was a clear understanding of how winning would be divided, P entitled to a third
- Sellers Jthere was:
..a mutuality in the arrangement between the parties...
Commercial agreements
- general presumption: the parties intended the agreement to be legally binding
- more difficult to rebut the presumption in commercial arrangements compared to domestic arrangements
Edwards v Skyways [1964] 1 WLR 349
Facts:
- P was made redundant by D and accepted an ex-gratia payment as part of his redundancy arrangements
- D refused to pay
Issue:
- did the term ex-gratia imply D did not intend to be legally bound?
Held:
- there was a presumption the parties intended it to be legally binding & term ex-gratia merely meant D did not admit any pre-existing liability to make the payment, D had not rebutted the presumption
Esso Petroleum Ltd v Commissioners of Customs & Excise [1976] 1 WLR 1
Facts:
- Ds ran a promotion involving World Cup coins with posters stating:
We are giving you a coin with every four gallons of Esso petrol you buy
- Ps claimed coins were subject to purchase tax because were
produced in quantity for general sale
& therefore D was liable to pay £200 000 - Ds argued coins were a free gift & promotion was not intended to have legal effect so there was no tax liability
Issue:
- was there an intention to create legal relations?
Held:
- HoL majority found deal was a commercial transaction & there was an intention to create legal relations
- posters were an offer of a unilateral contract & the required acceptance & consideration were met on purchase of four gallons of petrol
- Lord Simon of Glaisdale (majority):
.. The whole transaction took place in a setting of business relations... The coins may have been themselves of little intrinsic value; but all the evidence suggests that Esso contemplated that they would be attractive to motorists and that there would be a large commercial advantage to themselves from the scheme...
- Lord Russell (dissenting) argued that coins were more of a gift than a sale:
.. benevolence is not a necessary feature of a gift, which may well be motivated by self interest...
- Viscount Dilhorne (dissenting):
.. True it is that Esso are engaged in business. True it is that they hope to promote the sale of their petrol, but it does not seem to me necessarily to follow or to be inferred that there was any intention on their part that their dealers should enter into legally binding contracts with regard to the coins...
- parties to a commercial transaction may expressly rebut the presumption
Rose & Frank Co v Crompton Bros [1923] 2 KB 261
Facts:
- P supplied D with tissues used for carbonising paper, with a written arrangement that P would be the sole supplier
- agreement contained an
honourable pledge clause
:This arrangement is not entered into, nor is this memorandum written, as a formal legal agreement and shall not be subject to legal jurisdiction in the Law Courts... but is only a definite expression and record of the purpose and intention of the... parties to which they each honourably pledge themselves...
Issue:
- could the clause rebut the presumption to create legal relations?
Held:
- clause was capable of expressly rebutting the presumption
- Atkin LJ:
.. If the intention may be negatived impliedly it may be negatived expressly... the clause in question expresses in clear terms the mutual intention of the parties not to enter into legal obligations in respect to the matters upon which they are recording their agreement... I see nothing necessarily absurd in business men seeking to regulate their business relations by mutual promises which fall short of legal obligations...