Intention to Creat Legal Relations

Another way of distinguishing between contracts that should and should not be enforced and protected by law.

  • Floodgates- distinguish between enforceable/non-enforceable and serious/non-serious contracts.
  • Promoting market transactions- creates certainty in commerce that business arrangements are given importance.
  • Freedom from contract- parties should be able to make promises without it resulting in binding contracts.

Domestic Arrangements

Balfour v Balfour (1919)- general position is that there is no intention to create legal relations in domestic arrangements, and therefore such arrangements are not enforceable as contracts.

“Agreements such as these are outside the realm of contracts altogether. The common law does not regulate the form of agreement between spouses”

Atkin LJ

BUT Merritt v Merritt (1970)- Denning argues that Balfour does not apply to an agreement made at separation, i.e. following the breakdown of a marriage. The test for intention is an objective one, i.e. not what the parties themselves concluded.

Jones v Padavatton (1969)- court in this case found a lack of intention in domestic arrangements, but the minority decision leaves the door open for intention to create legal relations to be found if the duration of the agreement was certain.

Social Arrangements

Builds from Balfour that there is no intention in such circumstances. It is also argued that quasi-legal arrangements (i.e. an arrangement that appears to have legal importance) will also lack intention.

  • Coward v Motor Insurance Bureau (1963)- paying of petrol expenses by passenger on motorbike did not make an arrangement between friends a legal arrangement, though it perhaps looked like it. Too many variables and too vague an arrangement to be legally binding.
  • Similar decision in Hadley v Kemp (1999)- song-writing arrangement went back to school days, did not give rise to contract re the paying of royalties.

Whether there is intention or not is generally an OBJECTIVE test (what would the reasonable person conclude?) However this presumption can be rebutted in three circumstances:

  • An ongoing relationship based on reward – e.g. Albert v Motor Insurance Bureau (1972)- regularity of an arrangement coupled with the regular expectation of reward was enough to transform a social arrangement to one with the intention to create legal relations (acc Lord Cross).
  • Detrimental reliance by one party on the actions of the other- the relationship between the parties is only explicable by the fact that one relies on the other – e.g. Parker v Clarke (1960)- the only reason that the social arrangement developed was because of the expectation of a financial reward, and thus the arrangement should have legal effect.
  • Contract entered into in the hope of reward- generally speaking a lottery syndicate arrangement is deemed social and therefore not enforceable. BUT Simpkins v Pays (1955)- as the arrangements were fixed with the intention of benefitting everyone, it should be enforceable.

John Sadler v George Reynolds (2005)- burden of proof when rebutting the presumption that there is no intention lies with the person looking to prove that there IS an intention to create legal relations.

Commercial Arrangements

General presumption is that there IS intention in commercial arrangements- Edwards v Skyways Ltd (1964).

Esso Petroleum Ltd v Commissioners of Customs and Exise (1976)- Esso gave customers a free World Cup coin with 4 gallons of petrol.
Question- were they liable for VAT on the coins?

- Clear that it was a commercially viable scheme even though coins themselves had no intrinsic value

  • But tax was payable on a sale- which is where money is exchanged for goods. Here, money was paid for petrol, and the coins were collateral to this primary contract.

- Really an exception to commercial arrangements general point? Or refining of consideration issue?