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Elements in a Contract VI - Intention to Create Legal Relations

Updated on July 11, 2017

The next element in a contract is an intention to create legal relations. In most commercial transactions, there is a presumption that the parties intended to create a legal agreement unless it can be proved otherwise.

In Sandler v Reynolds (2005) the plaintiff had entered into an oral agreement with the defendant in that the plaintiff should be the ‘ghost writer’ of the defendant’s autobiography. The plaintiff had gone as far as proposing the title and outlining the first chapter when the defendant changed his mind and entered into an agreement with another writer. In was held that there was an intention to create legal relations based on the facts of the case and that the advance of £70,000 was to be shared equally between the plaintiff and the defendant.

However, if it is clearly stated or stipulated that the agreement was binding in honor only and that there was no intention to create legal relations than it would be deemed that there was no intention to create legal relations as in the case of Jones v Vernon Pools (1938).

The onus of proving that there wasn’t an intention to create legal relations is on the party that intends to establish that a contract did not come into existence.

In Edwards v Skyways Ltd. (1964) the plaintiff was a pilot in the defendant company and a member of the company’s pension fund. The plaintiff was later made redundant by the company but it informed the plaintiff that he would receive payments equivalent to his contribution to the pension fund.

The company failed to make the payments and the plaintiff sued. It was held that there was a contract in place and that the onus of disproving an intention to create legal relations rested on the party that sought to dispute the existence of a contract.

Not all agreements however are legally enforceable or mature into contracts. Despite the willingness of the parties to be bound by a contract, at the time the agreement was made, the courts may infer for public policy reasons, that there was no intention to create legal relations especially when it comes to contracts made within households. Therefore, certain agreements even if they do resemble contracts, may not be legally enforceable.

In the case of the husband who agreed to send his wife a certain amount of money, monthly, while working overseas and then refused to do so when the relationship broke down, it was held that there was no contract in place and that the agreement between the husband and the wife was a purely social agreement that could not be enforced - Balfour v Balfour (1919).

Agreements such as the one made in Balfour v Balfour (1919) are agreements between parties that do not result in contracts within the meaning of the term in law and the most common example of such agreements are agreements between husband and wife or partners.

Similarly, in the case of the kindly benefactor who had agreed to pay £4,000 per year to a chapel, for 5 years, to help it pay off its debts, it was held that the promise to assist was merely a gratuitous promise that did not amount to a contract - Re Hudson (1885).

The ratio or reasoning in Balfour v Balfour also extends to the parent child relationship. In Jones v Padavatton (1969) a mother persuaded her daughter to leave her high paying job in the US and move to London to complete her bar. In addition to giving her a certain amount of money each month the mother also purchased a house for her to help her financially until she completed her exams. The daughter subsequently moved to London but did not complete her bar as agreed but chose to marry and settle down instead. The mother then sought possession of the house and the court held that there wasn’t a legally binding agreement in place and that the agreement between the mother and daughter was not intended to have legal consequences.

The situation however is slightly different when it comes to former partners who are legally separated. In Merritt v Merritt (1970) - a husband and wife separated and there was an outstanding debt owing on the house which the couple had jointly purchased. The couple entered into an agreement whereby the husband would pay the wife a certain amount each month until the mortgage was fully paid off and once the mortgage was out of the way, the house would be transferred to the wife. The husband failed to transfer his interest in the house to the wife once the payments were complete and the wife brought an action against the husband. It was held that there was a binding agreement and that it was enforceable at law.

When it comes to social agreements, intention is inferred if there is some certainty that the parties intended to create a binding contract i.e. the element of certainty needs to be satisfied. In Simpkins v Payns (1955) a tenant, landlady and her granddaughter entered into a weekly competition run by a newspaper. A coupon was sent in, in the landlady’s name each week and all three took turns to send in the entries and the nominal sum which accompanied the entries based on an agreement that should any of them win the prize, it would be split or shared three-ways. The landlady won the prize and upon winning refused to give the tenant his share of the winnings. The tenant brought an action in court against the landlady and it was held that there was indeed a valid contract.

In the more recent case of Wilson v Burnett (2007) three friends came to an agreement that if they were successful at bingo on a particular evening, they would split the prize money three-ways. One of the friends was extremely successful and won in excess of £100,000. The other two friends brought an action to claim their share of the prize money. It was held that the issue before the courts was to decide whether there was a binding agreement made between the friends, prior to playing bingo that evening and if the agreement was of sufficient certainty. The plaintiffs were unsuccessful in their claim.

© 2017 Kathiresan Ramachanderam and Dyarne Jessica Ward

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