INTENTION TO CREATE LEGAL RELATIONS

Intention to create legal relations is a doctrine used in contract law, particularly English Contract Law and related common law jurisdictions. The
doctrine establishes whether a court should presume that parties to an agreement wish it to be enforceable at law, and it states that an agreement is
legally enforceable only if the parties are deemed to have intended it to be a binding contract.
A contract is a legally binding agreement. Once an offer has been accepted, there is an agreement, but not necessarily a contract. The element that
converts any agreement into a true contract is ‘intention to create legal relations’.
In English law, there are two judicial devices to help a court to decide whether there is intent.
1. Objective Test;
2. Rebuttable presumption
Both tests are used together in combination.
THE OBJECTIVE TEST: in order to discover whether the parties intended to contract is NOT to ask them, (which is a ‘Subjective Test’) as
this would give the rogue an easy loophole to escape liability. Instead, the court applies the ‘Objective Test’ as in Carlill v Carbolic Smoke Ball
Company [1893] and asks whether the reasonable bystander, after taking into account all the circumstances of the case, thinks that the parties
intended to be bound.
THE REBUTTABLE PRESUMPTION: the rebuttable presumption establishes a burden of proof; but the burden may be rebutted by evidence to
the contrary. The civil standard of proof is ‘a balance of probabilities’, while the criminal standard of proof is ‘beyond reasonable doubt’. Here,
different presumptions will apply, according to the class of agreement. For these purposes, there are four classes of agreement.
1. Family agreements – a presumption of NO contract
2. Social agreements (i.e. agreements between friends) – NO presumption (case decided on its merits, using the objective test)
3. Commercial agreements – a presumption of a VALID contract
4. Collective agreements – a presumption of NO contract

FAMILY AGREEMENTS – a presumption of NO contract

Family agreements are presumed NOT to give rise to legal relations, unless there is clear evidence to the contrary. The courts will dismiss
agreements which for policy reasons should not be legally enforceable. In Balfour v Balfour [1919] Lord Atkin held that there was no ‘intention to
be legally bound’, even though the wife was relying upon the payments.
The judge stated that as a general rule, agreements between spouses would not be legally enforceable.
In Jones v Padavatton [1969], the court applied Balfour v Balfour and declared that a mother’s promise to allow her daughter an allowance plus
the use of a house provided that she left the USA to study for the English Bar was not an enforceable contract.
The following cases show that if there is clear intent to be contractually bound, the presumption is rebutted. In Merritt v Merritt [1970], a
separation agreement between estranged spouses was enforceable. In Beswick v Beswick [1967] an uncle’s agreement to sell a coal delivery business
to his nephew was enforceable. In Errington v Errington [1952], a father’s promise to his son and daughter-in-law that they could live in (and
ultimately own) a house if they paid off the balance of the mortgage, was an enforceable unilateral contract.
SOCIAL AGREEMENTS – NO presumption, the case being decided solely on its merits
INTENTION TO CREATE LEGAL RELATIONS
Many sources consider ‘Social and Domestic Agreements’ to be a single class, it is better to regard ‘Family Agreements’ as a class separate from
‘Social Agreements’, as the latter invokes NO presumption, and only the OBJECTIVE TEST applies.
In Simpkins v Pays [1955], an informal agreement between a grandmother, granddaughter and a lodger to share competition winnings was binding.
Sellers J held, applying the objective test, that the facts showed ‘mutuality’ between the parties.
In Coward v MIB [1962], the Court of Appeal held that when a motorcyclist regularly gave a friend a pillion life in return for some remuneration
in cash or in kind, there was NO CONTRACT. In Connell v MIB Lord Denning said that he was not satisfied by the decision in Coward. He thinks
that when one person regularly gives a lift to another in return for money, there is a CONTRACT. In Albert v MIB (a similar case regarding
‘lifts for friends’), the House of Lords approved Denning’s decision in Connell (so that Coward may be considered bad law).
COMMERCIAL AGREEMENTS – business transactions incur a strong presumption of a VALID contract
These agreements where the parties deal as though they were strangers are presumed to be binding. However, in Jones v Vernons Pools [1938]
where the clause ‘this agreement is binding in honor only’ was effective, the ‘Gentlemen’s Agreements’ will be recognized as negating intention to
create legal relations. In Baker v Jones [1954] it was stated that one must be careful not to draft a clause so as to attempt to exclude a court’s
jurisdiction, as the clause will be void. In Rose and Frank v Crompton [1925] it was stated that if a contract has both an ‘honor clause’ and a clause
that attempts to exclude a court’s jurisdiction, where the court may apply the blue pencil rule, which strikes out the offending part. The court will
then recognize the remainder, provided it still makes sense, and remains in accord with the parties’ bargain.
The party asserting an absence of legal relations must prove it, and any terms seeking to rebut the presumption must be clear and unambiguous.
Where in Edwards v Skyways Ltd a bonus payment, described as ‘ex gratia’, was promised to an employee, this was found to be legally binding. He had
relied upon the promise in accepting a redundancy package, and his employer could not adequately prove that they had not intended their promise to
become a contractual term.
COLLECTIVE AGREEMENT – a presumption of NO contract (unless parties agree otherwise in writing)
A collective agreement is a special type of commercial agreement, such as one negotiated through collective bargaining between management and trade
unions. At common law, in Ford v A.U.E.F [1969], the courts held that collective agreements were NOT binding. The Industrial Relations Act
1971, introduced by Robert Carr provided that collective agreements were binding, unless a contact clause in writing declared otherwise. After the
demise of the Health Government, the law was reversed. The law is now contained in the Trade Union and Labor Relations (Consolidation) Act 1992,
s.179 states that ‘any collective agreement made after the commencement of this section shall be conclusively presumed not to have been intended by
the parties to be a legally enforceable contract, unless the agreement:
(a) is in writing, and
(b) contains a provision which states that the parties intend that the agreement shall be a legally enforceable contract’.
INTENTION TO CREATE LEGAL RELATIONS

CASES
1. Balfour v Balfour [1919]

Fact – the Balfours, a married couple, where the husband was an engineer employed by the Ceylonese Government. They travelled to
England in 1915 during the husband’s period of leave. On medical advice, the wife decided to delay her return to Ceylon when her
husband’s leave was finished. Just before his departure, the couple came to a verbal agreement that the husband would send his wife 30
pounds per month as maintenance while she remained in England. After some time, the husband stopped payments and suggested they continue
living apart. Although the couple later divorced, it was generally agreed that they were not separated when the husband agreed to pay a
monthly maintenance to the wife while he was overseas. Mrs. Balfour brought an action to recover the money allegedly owed by her
husband.

ISSUE – the issue before the Court of Appeal was whether the Balfours had entered into an enforceable contract in relation to the
monthly payments that Mr. Balfour had agreed to make to his wife.

DECISION – the Court of Appeal (Warrington, Duke and Atkin LJJ) unanimously held that the alleged agreement did not amount to a
legal contract, but on differing grounds. According to Duke LJ, the wife in this case had not provided consideration to make her husband’s
promise enforceable. Warrington LJ relied on the absence of express or implied terms to back the wife’s claim. Atkin LJ held it was
merely an ordinary domestic arrangement between husband and wife, with mutual promises in such situations not containing the necessary
intention to be legally bound.

ATKIN LJ’S VERDICT REGARDING Balfour v Balfour CASE

The defence to this action on the alleged contract is that the defendant, the husband, entered into no contract with his wife, and for the
determination of that it is necessary to remember that there are agreements between parties which do not result in contracts within the
meaning of that term in our law. The ordinary example is where two parties agree to take a walk together, or where there is an offer
and an acceptance of hospitality. One of the most usual forms of agreement which does not constitute a contract appears to Atkin LJ to be
the arrangements which are made between husband and wife. It is the natural and inevitable result of the relationship of husband and wife,
that the two spouses should make arrangements between themselves – agreements such as are in dispute in this action – agreements for
allowances, by which the husband agrees that he will pay to his wife a certain sum of money, per week, or per month, or per year, to
cover either her own expenses or the necessary expenses of the household and of the children of the marriage, and in which the wife
INTENTION TO CREATE LEGAL RELATIONS
promises either expressly or impliedly to apply the allowance for the purpose for which it is given. Atkin LJ thinks those agreements, or
many of them, do not result in contracts at all, and constitute consideration for the agreement.

They are not contracts because the parties did not intend that they should be attended by legal consequences. Atkin LJ considers these
sorts of agreements to be stated as worst examples as this resulted in legal obligations which could be enforced in the Courts. It would
mean this, that when the husband makes his wife a promise to give her an allowance of 30s or 2 pounds a week, whatever he can afford to
give her, for the maintenance of the household and children, and she promises so to apply it, not only could she sue him for his failure in
any week to supply the allowance, but he could sue her for non-performance of the obligation, express or implied, which she had
undertaken upon her part. 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 arrangement, never intended that they should be sued upon.
Agreements such as these are outside the realm of contracts altogether. The common law does not regulate the form of agreements
between spouses. The consideration that really obtains for them is that natural love and affection which counts for so little in these cold
Courts. It appears to Atkin LJ appears to me to be plainly established that the promise here was not intended by either party to be
attended by legal consequences. Atkin LJ thinks the onus was upon the wife, and the wife has not established any contract.

2. Jones v Padavatton [1969]

Facts – Jones was the mother of Padavatton, who was a divorced woman employed at the Indian Embassy in Washington DC, where she
lived with her son. The daughter accepted her mother’s suggestion that she should relocate to London and read for the Bar if her mother
paid the tuition fees and an allowance of 42 pounds per month. There was a misunderstanding about the amount of the allowance, although
the daughter accepted the smaller monthly amount as paid by her mother.
Also, there was no clearly identifiable arrangement about how long the allowance was to be paid. During her stay in London, the daughter
raised the issue of her accommodation. In response to this issue, the mother and daughter agreed to vary the existing arrangement. After
the mother and daughter had a falling out and the daughter remarried, the mother sought possession of the house. Her daughter counter-
claimed for an amount of money she had spent on the house.

ISSUE – The issue before the Court of Appeal was whether the presumption against contractual intention could be applied to the
arrangements entered into between the mother and daughter, and whether a contract had on the facts been entered into between them.