INTENTION TO CREATE LEGAL RELATIONS

A contract will only be formed if both parties intend their agreement to create legal relations between them (i.e. intend the agreement to grant legal rights to and impose legal obligations upon each of them), their intent being judged ‘objectively’ (i.e. without inquiring into their actual beliefs).

GENESIS OF THE DOCTRINE

Carlill v. Carbolic Smoke Ball [1893] crystallised the doctrine. CA held that the Carbolic Smoke Ball Company’s advertisement made plain that prospective customers were intended to believe that the company was making a binding offer to pay 100 pounds if the product did not work, particularly since the company declared that 1000 pounds had been ‘deposited in the Alliance Bank’ as a token of its serious intent.

RATIONALE OF THE DOCTRINE

This doctrine stems from the principle of freedom of contract. The ‘intent’ doctrine allows the parties to contract out of the legal regime through ‘honourable pledge’ clauses and ‘subject to contract’ clauses.

The ‘intent to create legal relations’ doctrine also allows the court to take into account various practical/policy factors. It can be used to deny legal effect to technical bargains (i.e. arrangements would be enforceable if consideration alone determined the question of enforceability)

• There is the objective triviality of any social or domestic promises; it would also be inappropriate for domestic/social promises to be subject to the heavy-handed and intrusive process of the system of contract law.

• There is also the fear of excessive litigation if every technical ‘bargain’ were capable of being sued upon.

DISCOVERING ‘INTENT’ OR ITS ABSENCE

As it may be difficult to tell from parties’ conduct whether they did have an intention to create legal relations, the courts have developed a number of presumptions as to the parties’ intent:

Non-commercial’ context

If the agreement is concluded in a domestic/social context, it is presumed that the parties did not intend to create legal relations unless there is clear evidence to the contrary (Balfour v Balfour [1919])

In Balfour v Balfour (decision approved by Lady Hale in Granatino v Radmacher [2011]), where the wife sued her husband over his promise to pay her money every month during their enforced but ostensibly amicable separation, CA held that there was no contract. Thus Balfour negatives promises between spouses even where consideration is present, only if the promise is made while the marriage is harmonious. Majority in Granatino v Radmacher [2011] held Balfour principle (ie harmonious or not) would apply in ante or post nuptial arrangements and not draw a distinction between them.

• Cf Merritt v. Merritt [1970], the promise was made while the marriage had broken down. The husband left his wife for another woman, and his wife insisted that he write down his promise that the wife would become solely entitled to the matrimonial home if she paid off the remaining mortgage instalments. CA issued a declaration that the property should be transferred from their joint names into the wife’s sole name

• Could also be due to performance of the contract by one party ie the wife paying off mortgage in this case

• Cf Jones v Padavatton (1969) (Mother gave daughter licence, daughter took too long to finish studies, fell out with mother, mother kicked her out), only Danckwerts LJ supports familial presumption in Balfour case. Other judges (Fenton-Atkinson and Salmon LJJ) examined the particular facts (eg contractual licence ended followed by the effluxion of a reasonable period of time which the daughter was expected to complete her legal studies) rather than resorting to mechanical presumptions

• Supports view that Balfour decision confined only to promises during happy matrimonial relations and mostly social and informal undertaking (unlike Jones v Padavatton (1969) where there was no licence)

• Cf Parker v Clark (1960) where a promise between friends was held to be enforceable. Agreement to live in estate and provide “support services”, in return will get one-third joint estate. Friends later fell out. Held the promise was enforceable

• Devlin J emphasis placed that the arrangement occurred over a significant period that resulted in it being enforceable

Displacing the non-commercial presumption

These factors seem to guide the courts in determining whether the presumption will be rebutted:

1. Where one party has performed his side of the agreement and is seeking to hold the other party to their side of the deal, the court will be more likely to find that the presumption is rebutted, because it seems unfair that one party should do something for the other without getting what he was promised in return (Meritt v Merritt [1970], where wife paid off mortgage)

2. Where both sides have performed the alleged contract, it will be unrealistic to suggest that there was no intention to be legally bound

3. The more commercial the context, the more likely it is that the presumption will be rebutted.

4. The closer the parties are to dealing at arm’s length, the more likely the presumption is to be rebutted, so if the relationship was close to breakdown at the time of the agreement, this will point towards rebuttal eg Meritt v Merritt [1970]

In any case an agreement by deed will seal matters in favour of enforcement (in the absence of misrep, duress or undue influence).

Commercial context

If an express agreement is concluded in a commercial context, the onus of demonstrating that there was a lack of intention to create legal relations lies on the party asserting it and it is a heavy one.

If it is alleged that an implied agreement has been reached in the commercial context, it is for the party alleging the existence of the contract to show that there was an intention to create legal relations (i.e. the presumption that there is an intention to create legal relations in the commercial context only applies if there is an express agreement (Baird Textile v M&S [2001] where held...

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