Tutorial 3 answers PDF

Preview

Summary

Tutorial 3 of contract...

Description

Teacher Resource 4 Developing the required skills using Intention to Create Legal Relations - answers Answer these simple questions. 1. To help the courts decide if an agreement is intended to be legally binding they have developed guidelines including two key presumptions regarding intention to create legal relations. State the two presumptions

2. Explain factors which might be used as evidence to rebut the two presumptions.

In social and domestic agreements, the presumption is that there is no intention to create legal relations. The presumption can be rebutted with evidence to the contrary. In commercial agreements, there is a strong presumption that there is intention to create legal relations. This presumption can be rebutted with evidence to the contrary. In social and domestic agreements, the presumption may be rebutted where the following factors are present:



Where there has been reliance placed on the agreement.



Where a married/cohabiting couple are separating and a separation agreement is made.



Where the agreement is in writing and/or made in a business context.



In gambling situations where there is evidence to show, for example, intention to divide winnings.

In commercial agreements, the presumption may be rebutted where the following factors are present:



Where the agreement states ‘subject to contract’.



Where letters of comfort and/or honour clause have been used.

Where the agreement is in respect of collective bargaining. 3. Why should an agreement within a family not be legally binding?

Version 1 Law of contract

If all agreements between family and friends were enforceable the courts would be faced with a huge number of claims that they would have to resolve. The courts are reluctant to interfere with private and domestic agreements. Lord Atkin L.J. stated 1

© OCR 2017

in Balfour v Balfour that ‘the small Courts of this country would have to be multiplied one hundredfold if these arrangements were held to result in legal obligations. They are not sued upon, not because the parties are reluctant to enforce their legal rights when the agreement is broken, but because the parties, in the inception of the agreement, never intended that they should be sued upon’. 4. Why were Balfour v Balfour and Merritt v Merritt decided differently?

It was felt that the agreement in Merritt v Merritt fell outside the realm of a social and domestic agreement and took on more of the form of a business agreement between the parties. Lord Denning stated that ‘the circumstances in Merritt were such that the parties do not rely on honourable understandings but bargain keenly and so it is could be presumed that any agreement between them was intended to be legally binding’.

5. What made the court, in Simpkins v Pays, decide that this was not a social and domestic agreement. Surely, they were just friends doing competitions?

The dispute arose when the defendant refused to share the prize from a newspaper competition with two others. The three parties entered newspaper competitions rotating the costs of entry and postage between them. The competition was entered in the name of the defendant. The defendant argued that their agreement to enter the competition was a purely social one and as such there was no intention to create legal relations. The court disagreed. There was mutuality in the arrangement between the parties and an intention to create legal relations could be inferred from this fact. The prize had to be shared between the three parties in line with their intentions.

6. What are the implications of Simpkins v Pays for members of a lottery syndicates, particularly if one party forgets to pay one week?

Case law suggests that where friends contribute regularly to, for example, the purchase of a lottery ticket the court will decide along the same lines as Simpkins v Pays and hold that winning must be shared – if legal intent can be evidenced from the agreement. Cases such as Trevey v Grubb and Wilson v Burnett illustrate this point.

7. What are the justifications for finding intention to create legal relations in commercial and business agreements?

The main reason for commercial and business agreements is to promote business and make a profit. The presumption stops a business using this element as a means of escaping a bad bargain. It also protects consumers. It provides certainty as strong evidence is needed to rebut the presumption.

8. What is the reasoning behind making, for example, free gift prizes

The reasoning can be seen in cases, for example Esso Petroleum Co v Customs and Excise

Version 1 Law of contract

2

© OCR 2017

in competitions part of a legally enforceable agreement?

Commissioners and McGowan v Radio Buxton. Often the purpose of offering prizes is to promote a product/company and to encourage consumers to purchase a particular product. Lord Simon of Gaisdale in Esso Petroleum stated that ‘It would be most undesirable to allow a commercial promotor to claim that what he has done is a mere puff’. In Esso, the offer was a free World Cup coin with every four gallons of petrol. Whilst the coins themselves had very little intrinsic value to Esso it was felt the offer of the coin was attractive to motorists and would result in a large commercial advantage to Esso.

Basic application scenarios Consider whether the courts would identify an intention to be legally bound in the following situations.

Version 1 Law of contract

3

© OCR 2017

Discussion/evaluation Using your knowledge of intention to create legal relations discuss the extent to which legal relations is no longer significant in the formation of contract.

  

  

It is very rare for a case to come before the court on the sole basis of legal intent therefore an unnecessary element of formation? Consideration (or lack of) is sufficient to illustrate intention and therefore intention to create legal relations is no longer required? Different common law countries have different requirements. Whilst both the United Kingdom and the United States of America require intention to create legal relations, India for example, does not. Why is there a difference? The fact that the presumptions are rebuttable causes too much confusion and gives too much discretion to the court? Should agreements be based on the relationships of parties or the context of the agreement? The rules mean that, at times, the true intention of the parties is not followed taking away freedom to contract?

Version 1 Law of contract

4

© OCR 2017...