ITCLR Lecture

Lecture
Contract Law - LLB

The Intention to Create Legal Relations
BY,
R.SARAVANAN LLB,CLP
SENIOR LECTURER
Domestic
Commercial
Acceptance
Offer
ITCLR
AGREEMENT
CONSIDERATION
OTHER ISSUES
REVOLVING CONTRACT
AROUND IN
CONTRACTS
ABSENCE of
Capacity VITIATING
FACTORS
Undue
Influence
Duress
Misrepresentation Mistake
Learning Outcome
This chapter introduces the formative requirements: intention to create legal

relations, certainty and completeness to enable you to discuss and apply in problem
analysis and its key components (with supporting authorities) including:
1. Why courts require an intention to create legal relations.
2. The difference between domestic agreements and commercial agreements with

regard to an intention to create legal relations.
3. The key factors in determining whether or not an intention to create legal

relations exists.
4. A summary of this chapter as so eloquently put by Lord Stowell in Darymple v

Darymple (1911) 2 Hag Con 54:
 “[Contracts] must not be the sports of an idle hour, mere matters of pleasantry
and badinage, never intended by the parties to have any serious effect
whatever”.
1. It is essential that all the parties to an agreement have an intention to
create legal relations.
2. What this means is that the parties intend that legal consequences
attach to their agreement.
3. The necessity for intention is most evident in domestic and social

agreements.
4. Traditionally, the law has distinguished between domestic or social

agreements and commercial agreements.
5. In the case of domestic and social agreements, it is presumed that there

is no intention to create legal relations.
6. In the case of commercial agreements, it is presumed that there is an

intention to create legal relations.
7. The determination of whether or not the parties intended to enter into

legally binding relations is an objective one and context is all-
important - Edmonds v Lawson [2000] EWCA Civ 69.
1. The leading case is Balfour v Balfour [1919] 2 KB 571.
 Here, because the husband would be working overseas, he promised to pay
his wife an amount of money each month. When the parties separated, the
wife sued the husband for this monthly amount.
 The court refused to allow her action on the grounds that the agreement was
not an enforceable contract because, at the outset of their agreement, it ‘was
not intended by either party to be attended by legal consequences’.
 The judgment of Atkin LJ really seems to rest upon public policy arguments
– that as a matter of policy, domestic agreements, commonly entered into,
are outside the jurisdiction of the courts.
 His judgment also highlights a judicial concern that if such agreements

could be litigated in the courts, the courts would soon be overwhelmed by
such cases.
2. Jones v Padavatton [1969] 2 All ER 616 to find that the agreement between a
mother and her adult child did not create a contract.
 Two agreements fell to be considered;

a) The daughter agreed to leave her job in Washington and read for the Bar
in London, and the mother agreed to pay her a fixed monthly allowance.
b) The mother allowed the daughter to live in the house, which the mother
had bought, and the rent collected from the tenants was used to maintain
the daughter.
 Danckwerts and Fenton Atkinson LJJ. thought that neither agreement was
intended to create legal relations. The presumption failed to be rebutted.
This is because the agreement was "one of those family arrangements
which depended on the good faith of the promises which are made and
are not intended to be rigid, binding agreements."
3. See also Coward v MIB [1963] 1 QB 259 where the court found that an
agreement to take a friend to work in exchange for petrol money was an
arrangement which lacked contractual intention.
1. The decision Merritt v Merritt [1970] 2 All ER 760.
 The husband left the matrimonial home, which was in the joint names of
the husband and wife. The house was subject to a mortgage. The couple
was on the verge of separation. During a conversation in a car, the
husband promised to pay the wife 40 pounds a month. In return, the wife
must pay the outstanding mortgage payments on the house. The wife
refused to get out of the car until the husband recorded his promise in
writing. The husband then wrote and put down his signature on a piece of
paper which read 'in consideration of the fact that you would pay all
charges in connection with the house ... until such time as the mortgage
repayment has been completed I will agree to transfer the property in
your sole ownership.' After the wife had paid, the husband refused to
transfer the house to her.
 Held [CA]: The parties had intended legal relations.
 LORD DENNING MR:

 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.
2. A similar result followed in Darke v Strout [2003] EWCA Civ 176
 the court found that an agreement for child maintenance following the
breakdown of a couple’s relationship did not lack an intention to create
legal relations given the formality of the letter.
 Nor could it be said to be unenforceable for want of consideration since the
woman had, in entering the agreement, given up statutory rights to
maintenance.
3. In Soulsbury v Soulsbury [2007] EWCA Civ 969 the Court of Appeal found
that there was an intention to create legal relations between two former
spouses when one agreed to forgo maintenance payments in return for a
bequest in the other’s will.
 there was an agreement that if the ex-wife did not seek to enforce the
county court order for maintenance, the ex-husband would leave her
£100,000 on his death.
1. A post-nuptial agreement making provision for future separation is now valid
and enforceable in the same way as any other contract between spouses
(MacLeod v MacLeod [2008] UKPC 64; [2010] 1 AC 298)
2. A modern development concerns the legal enforceability of an agreement

that precedes, rather than follows, the entering of a marriage known as a pre-
nuptial agreement
 In Radmacher v Granatino [2010] UKSC 42 the Supreme Court upheld a

decision that the husband was not entitled to an award of £5.5 million after
the breakup of the marriage because such an award would give insufficient
weight to the pre-nuptial agreement.
 Baroness Hale stated, at [142]:

 There is nothing to stop a husband and wife from making legally binding
arrangements, whether by contract or settlement, to regulate their
property and affairs while they are still together (type (a) agreements).
These days, the commonest example of this is an agreement to share the
ownership or tenancy of the matrimonial home, bank accounts, savings
or other assets. Agreements for housekeeping or personal allowances,
on the other hand, might run into difficulties.
1. When agreements are entered between non-family members with respect to
what might be considered more trivial subjects such as the division of the
proceeds of joint betting, the cases are less clear.
 In Simpkins v Pays [1955] 3 All ER 10 it was found that there was a contract
where three co-habitees entered a competition together, whereas in Wilson
v Burnett [2007] EWCA Civ 1170 it was held that there was no binding
agreement to share bingo winnings.
2. In President of the Methodist Conference v Preston [2013] UKSC 29 the

Supreme Court held that it was necessary to consider the appointment of a
Methodist minister in the context of the factual background. In so doing, the
Court found that there was no contractual intention.
1. The presumption of an ITCLR is a ‘heavy one’ (McKendrick)
 Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All

ER 117 (MP Pg 7)
 The majority, Lord Simon, Lord Wilberforce and Lord Fraser, held that
there was an ITCLR. They placed heavy reliance on the onus of proof in
commercial transactions.
2. This is an especially strong inference when the commercial context is an
ongoing employment relationship
 Dresdner Kleinwort Ltd v Atrill [2013] EWCA Civ 394.
 where it was held that an employee who continued to work after his
employer had promised to establish a guaranteed minimum bonus pool
had arguably provided consideration for the promise to set up the fund.
3. An argument that the parties did not intend to enter contractual relations was
dismissed in Athena Brands v Superdrug Stores [2019] EWHC 3503
(Comm) when, in the course of an email exchange, the defendant company’s
employee agreed to purchase minimum annual quantities of cosmetics from
the claimant company.
 This case highlights that courts are willing to find the existence of a
contract even in casual, informal emails.
3. Exceptionally, the facts may disprove such an intention.
 In a sale of land, agreements are normally made ‘subject to contract’ (see
Home Insurance Co v Administratia Asiguraliror [1983] 2 Lloyd’s Rep
674, 677).
4. In other situations, courts have found that the specific wording of the
agreement in question displaced any contractual intention.
 comfort letter – Kleinwort Benson Ltd v Malaysia Mining Corporation
Berhad [1989] 1 All ER 785 (MP pg 6)
 honour clause – Rose and Frank Company v JR Crompton and Brothers
Ltd [1925] AC 445 (MP pg 5)
5. In two recent cases agreements concluded between business people in
informal settings were held not to be supported by an ITCLR.
 In Blue v Ashley (2017) The claimant under an oral contract for business
services entered with the defendant when they were drinking in a pub.
Leggatt J relied inter alia upon the unusual location and general
atmosphere of the meeting place.
 A similar result was reached by Coulson J in MacInnes v Gross (2017)
where the discussion took place over dinner in an expensive Mayfair
restaurant.

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Lecture

Contract Law - LLB

This chapter introduces the formative requirements: intention to create legal

1. Why courts require an intention to create legal relations.

2. The difference between domestic agreements and commercial agreements with

3. The key factors in determining whether or not an intention to create legal

4. A summary of this chapter as so eloquently put by Lord Stowell in Darymple v

3. The necessity for intention is most evident in domestic and social

4. Traditionally, the law has distinguished between domestic or social

5. In the case of domestic and social agreements, it is presumed that there

6. In the case of commercial agreements, it is presumed that there is an

7. The determination of whether or not the parties intended to enter into

 His judgment also highlights a judicial concern that if such agreements

 Two agreements fell to be considered;

 Held [CA]: The parties had intended legal relations.

 LORD DENNING MR:

2. A modern development concerns the legal enforceability of an agreement

 In Radmacher v Granatino [2010] UKSC 42 the Supreme Court upheld a

 Baroness Hale stated, at [142]:

2. In President of the Methodist Conference v Preston [2013] UKSC 29 the

 Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All

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