Intention to Create Legal Relations

Learning Objectives:
Students will learn about the doctrine of intention to create legal relations

1. General Principles of Contract Preeti Kana Sikder Lecturer Department of Law & Justice Jahangirnagar University

2. Intention to Create Legal Relations

3. Sir Guenter Heinz Treitel “ A contract is an agreement giving rise to obligations which are enforced or recognised by law . ”

4. Contract Act, 1872 Section 2 In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context – ( e) Every promise and every set of promises, forming the consideration for each other, is an agreement : (h) An agreement enforceable by law is a contract:

5. Doctrine of Intention to Create Legal Relations The fact that the parties have reached agreement does not necessarily mean that they have concluded a legally enforceable contract, even where the agreement is supported by consideration. Intention to create legal relations has been held to be an essential element in any contract.

6. Balfour v Balfour (1919) The husband (defendant) was a civil servant stationed in Ceylon. His wife alleged that, while they were both in England on leave and when it had become clear that she could not again accompany him abroad because of her health. Husband promised to pay her 30 pounds a month as maintenance during the time that they were thus forced to live apart . When the husband stopped paying, the wife (plaintiff) sued for breach of agreement.

7. “Each house is a domain into which the King’s writ does not seek to run”

8. Lord Justice Atkin in Balfour v Balfour (1919) “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 natural love and affection which counts so little in these cold Courts.”

9. Lord Justice Atkin in Balfour v Balfour (1919) “…it would be of the worst possible example to hold that agreements such as this resulted in legal obligations which could be enforced in the Courts…the small Courts of this country would have to be multiplied one hundredfold if these agreements were held to result in legal obligations.”

10. Merritt v Merritt (1970) The husband and wife owned a home jointly which was subject to a mortgage. The husband left the wife to live with another woman. Later, The husband agreed to pay the wife 40pounds per month out of which she must pay the outstanding mortgage fee. The wife made him record this agreement in writing. The husband wrote in a piece of paper: ‘in consideration of the fact that you will pay all charges in connection with the house…until such time as the mortgage repayments have been completed I will agree to transfer the property in to your sole ownership .’

11. Merritt v Merritt (1970) After the wife had paid off the mortgage, the husband refused to transfer the house to her.

12. Court of Appeal held that the parties had intended to affect their legal relations and an action for breach of contract could be sustained A departure form Balfour v Balfour was made

13. Domestic Agreements “Clear” evidence is required of an intention to create legal relations

14. Commercial Agreements Presumption is that the parties to do intend to create legal relations and this presumption is a ‘heavy’ one.

15. Esso Petroleum Ltd v Comrs of Customs and Excise (1967) The Esso Petroleum devised a sales promotion scheme linked to the 1970 World Cup. It involved the production of many millions of ‘coins’ bearing the likeness of various members of the English squad. The advertisement said in press and in television ‘one coin given with every four gallons of petrol’ Their intention was that the coins would be distributed to Esso retailers and public would be encouraged to buy Esso petrol in order to collect sets of coins.

16. Esso Petroleum Ltd v Comrs of Customs and Excise (1967) While the House of Lords was trying to determine whether these coins would be subject to a purchase tax, they had to determine first if the advertisement of coins was intended to create legal relations. The majority of the judges placed heavy reliance on the onus of proof in commercial transactions and held that there was an intention to create legal relations.

17. Rose and Frank v Crompton (1923) Rose and Frank was a New York based firm which produced Carbon Papers Crompton was a manufacturer company of tissues used to carbonise papers

18. Rose and Frank v Crompton (1923) In 1913, both parties entered into a written agreement where Crompton gave rights of selling their tissues to Rose and Frank for a period of three years with an option to extend. This agreement was extended upto 1920 This agreement contained a “ Honourable Pledge Clause”: “This arrangement is not entered into as a formal or legal agreement…”

19. Rose and Frank v Crompton (1923) In 1919, the agreement was terminated. Crompton also refused to execute orders which had been received and accepted by them before termination.

20. Claims in Rose and Frank v Crompton (1923)

21. Do these claims prevail? Read the portions of the judgment and explain to your team mates

22. Blue Pencil Rule a legal concept in common law countries, where a court finds that portions of a contract is void or unenforceable, but other portions of the contract are enforceable

23. Presumptions to be rebutted Domestic and Social Agreement Parties to a domestic agreement do not intend to create legal relations Commercial Agreement In commercial agreements the parties are presumed to intend to create legal relations

24. Presumptions to be rebutted Both the presumptions may be rebutted by evidence of contrary intention. The fact that the initial presumption may be rebutted does not mean that the presumption is itself based upon the intention of the parties. Rather, the initial presumption is a matter of policy. The policy is one of “keeping contract in its place; to keep it in the commercial sphere and out of domestic cases, except where the judges think that it has a useful role to play”.