Intention to create legal relations - revision booklet 3 PDF

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INTENTION TO CREATE LEGAL RELATIONS In order for an agreement to be legally enforceable, at the time of contracting, the parties must have had the intention to enter into a legally binding arrangement. This is judged objectively:  Rose and Frank v Crompton Bros – “To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly”.  Lord Clarke JSC in RTS Flexible Systems Ltd v Molkerel Alois Muller – “Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and weather that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded, or the law requires, as essential for the formation of legally binding relations”. Proving that there was no intention to create legal relations falls on the person asserting that position (Volumatic Ltd v Ideas for Life). Performance of the contract is persuasive in indicating intention to create legal relations (Anchor 2010 v Midas Construction). Whether intention to create legal relations exists will be judged on the facts of the case. However, case law has established that in certain situations there will be a rebuttable presumption either for or against intention to create legal relations exists. DOMESTIC/SOCIAL ARRANGEMENTS In social and domestic arrangements there is a presumption that there is no intention to create legal relations.  Balfour v Balfour: in Balfour a promise to pay a wife a retainer whilst abroad was held not to demonstrate intention to create legal relations because the couple were happily married at the time, and marital arrangements are not the place of the law.  However, this presumption may be rebutted by presenting evidence to indicate that the parties did in fact intend to be bound by their agreement. The main grounds for rebuttable include: assessing how much reliance the party placed on the agreement (Parker v Clarke) and the certainty of the agreement (Vaughan v Vaughan). Examples of intention to create legal relations in social/ domestic context:  Gould v Gould: a husband left his wife and children, promising to make maintenance payments “for as long as I can manage it”. The payments stopped and the wife sued. Held: the promise was not binding on the husband, as the promise was insufficiently certain to demonstrate intention to create legal relations.  Merritt v Merritt: a husband promised that he would transfer his house to his wife if she paid off their mortgage. It was held that there was an intention to create legal relations. 

Jones v Padavatton: a mother promised to pay her daughter $200 a month if she would give up her job in the US and move to England to

study. The mother bought a house for her daughter stay in. The parties then fell out whilst the daughter was still studying in England. The mother ceased paying the $200 a month and sought possession of the house. The promise was not enforceable, as there was insufficient evidence to rebut the presumption of no intention to create legal relations in a domestic arrangement. COMMERCIAL AGREEMENTS There is a presumption that intention to create legal relations exists in commercial arrangements (Bunn and Bunn v Rees and Parker). This presumption can be rebutted e.g. with clear words to indicate that the parties have agreed it to be bound in honour only (Maclnnes v Gross). In Blue v Ashley, an offer made in a pub was held not to have been made with an intention to be bound. CAPACITY Certain parties are deemed not to have the necessary capacity to enter into a legally binding agreement. These include the following: Minors –  Children under the age of 18.  Contracts entered into with minors will still be enforceable against the other party.  The other party will be able to claim a reasonable sum for “necessaries”, defined in s. 3 Sale of Goods Acts as “goods suitable to the condition in life of the minor… and to his actual requirements at the time of the sale”. Mentally impaired persons –  Someone who at the time the contract is made is “unable to make a decision for himself in relation to the matter” s. 2(1) Mental Capacity Act 2005. This may be a result of a mental condition such as dementia or could be a temporary result of intoxication.  As with minors, the other party will still be able to claim a reasonable sum for “necessaries”, which has broadly the same definition as s. 3 Sale of Goods Acts....