Intention to create legal relations

Valid Contract = agreement + enforceability at law

Agreement +
Enforceable
1. Lawful agreement,
2. Consent,
3. Capacity,
4. Consideration,
5. Intention to create legal relations,
6. performance must be possible.

Agreement, on its own is insufficient. There must be intention to create legal

relations & Consideration.

A contract is an agreement enforceable at law. No legal system treats all agreements

as enforceable contracts. In every legal system, there exist rules that identify the type
of agreement that are to be treated as enforceable contracts.

English law requires a number of formative elements to be present to recognise an

agreement as a binding contract. One of these is an intention to create legal relations;
that the parties to a contract intend legal consequences to attach to their agreement.
In this area, courts have traditionally distinguished between commercial agreements
and domestic or social agreements.

Agreements are of three types

1) Domestic agreements
2) Social agreements
3) Commercial agreements – Business & Consumer
For a contract there must be an agreement between two or more parties and there
must be an intention to create legal relations. This means that the parties must intend
that legal consequences be attached to their agreement. The necessity for intention is
most evident in domestic and social agreements.

Domestic agreements

è These are agreements between family members.

è E.g. Sister agrees with brother that she will not play her radio loudly if brother
will keep his hamster securely in its cage.) The parties however probably do not
intend a breach of the agreement to result in legal action. Thus, the agreement
between the parties lacks an intention to create legal relations. Therefore, there
is no contract between the parties.

è General rule: It is presumed that in domestic agreements there is no intention

to create legal relations (Balfour v Balfour).
 è Domestic agreements + minor issues which can solved at home = do not enter
the court room

Social agreements

è These are agreements between friends.

è E.g. ‘A’ agrees to host the bridge club at her house if ‘B’ will bring the food to
feed the club. The parties however probably do not intend a breach of
agreement to result in legal action. Thus, the agreement between the parties
lacks an intention to create legal relations. Therefore, there is no contract
between the parties.

è It is presumed that in social agreements there is no intention to create legal

relations.

è Social agreements + minor issues which can solved at home = do not enter the
court room

APPROACH/ TEST in DOMESTIC & SOCIAL AGREEMENTS : OBJECTIVE

INTENTION
The determination of whether or not the parties intended to enter into legally binding
relations is an objective one and context is all-important.

è This means that the courts will not examine the states of mind of the parties to
the agreement (Subjective approach).
è The courts do not take a subjective approach. The courts examine whether
reasonable parties to such an agreement would possess intention to create
legal relations (Edmonds v Lawson).

‘Whether reasonable parties would take the matter to a court of law?’

In Balfour v Balfour, it was held that domestic agreements for example, monthly pocket
money or honey moon trips every year, lacked intention to create legal relations.

In the leading case of Balfour v Balfour the husband who was working overseas
promised to pay his wife an amount of money each month. When the parties separated
the wife sued the husband for this monthly installment. The court refused to allow her
action, as it was not intended by either party to be attended by legal consequences.

Lord Justice Atkin stated that domestic agreements as a matter of public policy are
outside the jurisdiction of the courts. Lord Justice Atkin also highlighted that if such
agreements could be litigated in the courts, then the courts soon would be
overwhelmed by such cases.

Similar approach has been followed in the case of Jones 1969 and the case of Coward
v M.I.B where the court found that an agreement to take a friend to work in exchange
for petrol money was an arrangement that lacked contractual intention. – problem qs
– past consideration
Rebuttable presumption
REBUTABLE PRESUMPTION : sometimes domestic and social agreements do enter
the court room
è This presumption was rebutted in the case of Merritt v Merritt.
è In the case of Darke v Strout (2003) the court found an agreement for child
maintenance following the breakdown of a couple’s relationship did not lack an
intention to create legal relations.
è Another recent case includes Soulsbury v Soulsbury.

Family cases:

1. Child maintenance

Commercial agreements
In relation to commercial agreements courts generally presume that an intention to
create legal relations is present (Esso Petroleum Limited).

In most cases where the parties deal at arm’s length (i.e. they have no existing ties
of family, friendship or co-operate structure) the courts will find a contractual
intention (Edmonds v Lawson).

In the case of social or domestic agreements courts will generally presume that there
is not an intention to create legal relations. In the case of commercial agreements,
courts will generally presume that there is an intention to create legal relations. In both
forms of agreement the general presumption can be rebutted by the facts of a
particular case.

Even if parties are related, they may enter into a commercial agreement, rather than
a domestic or social agreement.

It was in the context of a commercial agreement that the Court of Appeal recently
considered the issue of an intention to create legal relations. The case, Maple Leaf
Macro Volatility Master Fund v Rouvroy [2009] EWCA Civ 1334, involved attempts to
fund a corporate takeover. The Court of Appeal held that the subjective intention of
the defendants was irrelevant to the question of an intention to create legal relations.
‘It is trite law that, although no contract can be made without an intention to be legally
bound, that intention has to be ascertained objectively, not by looking into the parties'
minds’. [per Longmore LJ para 17] An examination of the facts indicated that the
behavior of the defendants indicated that they had an intention to contract.

Social occasions In another recent case, Blue v Ashley [2017] EWHC 1928 the
claimant was a financial consultant advising Mike Ashley the majority shareholder in
Newcastle FC. The Judge accepted as ‘more likely than not’ that at a meeting in a
pub, when all present were consuming alcohol, Mr Ashley offered to pay the claimant
£15M if the claimant caused the share price of the defendant’s company to double in
value. When the share price exceeded this figure Mr Ashley paid the claimant £1M but
the claimant then sought the balance he said he was owed, some £14M.

Leggatt J held that, notwithstanding evidence that Mr Ashley routinely served alcoholic
drinks at senior management meetings, a statement made in an informal pub meeting
when all were drinking alcohol was not intended to be contractually binding. This
conclusion was supported by the joking nature of the conversation and the lack of any
agreed timescale within which the increase must occur. Further the failure to specify
any time period meant the undertaking lacked the necessary certainty and there was
no evidence that it was the claimant’s work which caused the increase in the share
price.

The setting for the meeting in the second case MacInnes v Gross [2017] EWHC 46
(QB) was distinctly more ‘upmarket’. The claimant alleged that over dinner at Zuma,
an exclusive restaurant in Mayfair, London the defendant promised that if the claimant
gave up his current job to provide services to the defendant he would be paid a sum
of money when the defendant sold his business. This sum was calculated to be 13.5M
euros. After the dinner the claimant sent an email expressing delight that they were
‘agreed on headline terms’. Nine months later the defendant replied positively but
saying that at their next meeting ‘let’s make a proper contract’.

The judge began by recognising that a contract can be made anywhere in any
circumstances. However when the meeting takes place in a ‘highly informal and
relaxed setting’ courts will closely scrutinise the suggestion that despite the setting
there was an intention to create legal relations. No such intention could be found on
this occasion and this was further corroborated by the lack of detail and certainty in
the parties discussions and perhaps crucially that the subsequent correspondence
indicated that at the earlier meeting the parties did not consider themselves to be
contractually bound.

In conclusion it seems that whether your preference is for ‘gourmet dining’ or ‘pub
grub’, or indeed ‘a drink with no grub’ an agreement concluded at an informal meeting
will not readily be found to evidence an intention to legal relations.