Contract: Intention to Create Legal Relations

Intention to Create Legal Relations

Objective Intention

The fourth requirement of contract formation is that both parties objectively appear to intend to create legal relations. Certain evidential presumptions apply depending on the nature of the party’s relationship and the context in which they are transacting:

Business and Commercial Cases
Skyscraper, business, commercial

Intention to create legal relations is presumed if the parties are contracting in a commercial context: Esso Petroleum v Commissioners of Customs & Excise [1976] 1 WLR 1; Edwards v Skyway [1964] 1 WLR 349.

Domestic and Social Cases
Domestic, laughing couple

Intention to create legal relations is presumed not to exist where the parties are contracting in a domestic or social context: Balfour v Balfour [1919] 2 KB 571; Jones v Padavatton [1969] 1 WLR 328.

Rebutting the Presumption: Domestic and Social Cases

In domestic/social cases, the claimant can try to rebut the presumption with evidence that the parties did intend legal relations. Factors which indicate that intention is present include:

Written and signed agreement

The existence or a written or signed agreement or some other formal basis: Errington v Errington Woods [1952] 1 KB 290.

Third party to a contract

An unconnected third-party is also a party to the agreement: Simpkins v Pays [1955] 1 WLR 975.

Professional service

The fact that one party to the contract does the same kind of work professionally or in a non-social context: Albert v MIB [1971] 3 WLR 291.

Separation, estrangement

The parties being separated or estranged: Merritt v Merritt [1970] 1 WLR 1211.

Rebutting the Presumption: Commercial and Business Cases

Similarly, the presumption that intention to create legal relations exists in commercial cases can also be rebutted. 

Honour

The most common way of showing this is by demonstrating that there was a clause stipulating that the agreement was not intended to be binding or was ‘binding in honour only’: Rose & Frank v Crompton Bros [1925] AC 445;

Subject to contract, light bulb

Agreements stated to be ‘subject to contract’ are also normally not intended to be binding: Regalian Properties v London Dockyard [1995] 1 All ER 1005. However, intention might still exist if the parties begin performing and acting as if there is a contract: RTS Flexible Systems Ltd v Molkerei Alois Müller [2010] UKSC 14.

Comfort letter

In some commercial contexts is it broadly understood that some acts are not intended to be binding, such as ‘comfort’ letters: Kleinwort Benson (KB) v Malaysia Mining Corporation BHD (MMC BHD) [1989] 1 WLR 379.

Hyperbole

Some commercial statements are taken to be hyperbole or mere sales patter. These statements are sometimes referred to as ‘mere puffs’ and are not legally binding because of the lack of intention to be bound: Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1.

Informal context, arm wrestling

If the context of a conversation is informal and social, this may indicate that there is no intention to create legal relations even between business associates: Blue v Ashley [2017] EWHC 1298 (Comm).

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Contract Formation Quiz

Test yourself on the principles which determine when a contract is formed.

1 / 42

Annabelle tells the swim team she is coaching that she will give £500 to the first of them that swims the English Channel. Ricardo begins swimming the English Channel the next day, but before he can finish Annabelle changes her mind and says she will not pay. Has Annabelle revoked her unilateral offer?

 

2 / 42

Bob offers to sell Arthur a wedding dress for $400. Arthur responds by asking if the veil is included for that price. What is the legal nature of Arthur's response?

3 / 42

For the purposes of demonstrating consideration under the rule in Williams v Roffey Bros, which of the following constitute a practical benefit?

4 / 42

Dennis owes Maureen £1000. He asks her if she will discharge the debt if he pays her £500. Maureen agrees, because she needs the money to avoid being liable to a third-party and therefore thinks the arrangement is practically beneficial. Has Dennis provided consideration for Maureen's promise to accept the lesser amount?

5 / 42

Annabelle tells the swim team she is coaching that she will give £500 to the first of them that swims the English Channel. Ricardo swims the English Channel the next day, and then calls Annabelle asking for the money. Is Annabelle obliged to pay him?

 

6 / 42

Clarence offers to sell Pam a table and chairs set for $300. He adds that if Pam does not respond to him within the week, he will assume that she has accepted. Pam does not respond within the week, nor does she positively indicate acceptance in any other way. Has Pam accepted the offer?

 

7 / 42

What four factors indicate that family members or friends intended to be legally bound by their agreements?

8 / 42

Kayleigh offers to sell Tom a crate of tomatoes. She asks him to respond by telephone if he accepts. Tom sends Kayleigh a letter accepting the tomatoes. Is this a valid acceptance?

 

9 / 42

Does the postal rule apply to cases where an offeror is seeking to withdraw his offer?

 

10 / 42

Jubedul lets his office know that he is selling his pet cat Bianca for £50, and that if anyone would like to buy her they should let him know. Liz, his co-worker, sends him a letter containing £50, saying that she will buy Bianca. However, she puts the wrong address on the envelope and the letter never arrives. Has Liz accepted Jubedul's offer?

 

11 / 42

The parties have reached an agreement, but have not agreed on an important term such as the price. Is the contract void for uncertainty?

12 / 42

Dennis owes Maureen £1000. Dennis asks Maureen if she will discharge the debt if his sister Dee pays her £600. Maureen agrees. Has Dennis provided consideration for Maureen's promise to discharge the debt?

13 / 42

Julie offers to pay Ophelia a £1000 allowance in exchange for her continued affection. Ophelia agrees. Have both parties provided consideration?

 

14 / 42

Specific proof is required to demonstrate intention to be legally bound where the parties have a family or social relationship. True or false?

 

15 / 42

Which two of the following factors are relevant to whether a statement is an offer?

16 / 42

Sean offers to sell his collection of nerdy T-Shirts to Chris, for £40. Chris accepts, saying that his father will provide the money. Have Sean and Chris both provided consideration?

 

17 / 42

Dennis owes Maureen £1000. He asks her if she will discharge the debt if he gives her his car, which is worth £800. Maureen agrees because she loves the car. Has Dennis provided consideration for Maureen's promise to discharge the debt?

18 / 42

Jubedul lets his office know that he is selling his pet cat Bianca for £50, and that if anyone would like to buy her they should let him know. Liz, his co-worker, immediately calls his work phone and leaves a message on his answering machine saying she will buy the cat. Jubedul never listens to the message. An hour later, Micah tells Jubedul in person that she will buy the cat. Who has validly accepted Jubedul's offer to buy Bianca?

19 / 42

Rod advertises on a website saying he is looking to pay someone to look after his hamster for the weekend. Rosie responds, agreeing. The two draw up a written agreement, which includes a clause saying that it is binding in honour only. Is this agreement a valid contract?

 

20 / 42

Stephen is struggling to find a venue for his up-coming book signing. Jameel decides to help him on his own initiative. Jameel finds the perfect place, and out of gratitude Stephen offers to give him £100 as a reward. He later changes his mind. Is Stephen bound to pay the money?

 

21 / 42

Dennis owes Maureen £1000. He asks her if she will discharge the debt if he pays her £500. Taking pity on him, Maureen agrees. Has Dennis provided consideration for Maureen's promise to accept the lesser amount?

22 / 42

Annabelle tells the swim team she is coaching that she will give £500 to the first member of the team that swims the English Channel. Ricardo, one of the team members, is not present. The next day he decides to swim the English Channel for fun, not knowing about Annabelle's offer. If he completes the challenge, is Annabelle bound to pay him the money?

 

23 / 42

Dennis owes Maureen £1000, and is obligated to pay by the 1st of June. He asks her if she will discharge the debt for £600, if he pays by the 1st of May. Maureen agrees. Has Dennis provided consideration for Maureen's promise to discharge the debt?

24 / 42

Shira is seriously injured as a result of Quen's negligence. She tells them that if they give her their car, she will not sue. Quen agrees. Have both parties provided consideration?

25 / 42

Rod advertises on a website saying he is looking to pay someone to look after his hamster for the weekend. Rosie responds, asking if they can meet up to negotiate terms. The two meet up and reach a written agreement, but the document states that it is 'subject to contract'. Is this agreement a valid contract?

 

26 / 42

The parties in a case reached an agreement for the claimant to do some work, but that agreement was stated to be subject to contract. Despite a written contract never being signed, the parties have begun performing as if there were a contract. Do the terms of the 'subject to contract' agreement apply?

27 / 42

How can an offeror validly withdraw their offer?

28 / 42

John is a Government official who is under a duty to give a license to anyone who fills out the proper application form. Paul fills in the form and offers to give John £300 if he gets a license. John agrees. Have both parties provided consideration?

 

29 / 42

Kayleigh offers to sell Tom a crate of tomatoes. She asks him to respond by letter with his signature if he accepts. Tom sends Kayleigh a letter accepting the tomatoes, but does not sign it. Is this a valid acceptance?

 

30 / 42

In what four circumstances is an offer terminated without the offeror having to withdraw it?

31 / 42

Fatima is looking to sell an antique doll, which is worth £3000. Paul offers to buy it for £5. Fatima accepts, as she is in a hurry to get rid of the doll as it spooks her. Have both parties provided consideration?

32 / 42

What two conditions must be met for an agreement to be sufficiently certain to form a contract?

33 / 42

Erica is a software programmer who was contracted to develop systems for Herbert's business. She begins to have money troubles, and asks Herbert for the extra £100 she needs to complete the project on time. Herbert accepts, because if delivery is late he will be liable to pay damages to a third-party. Has Erica provided consideration for the extra money?

 

34 / 42

Which four of the following scenarios normally involve an invitation to treat and not an offer?

35 / 42

Bob offers to sell a wedding dress to Arthur for $400. Arthur says he is willing to buy the dress for $400, but only if Bob also includes a veil. Has Arthur accepted Bob's offer?

36 / 42

On Saturday, Roger offers to sell Tyrone a car. He asks him to respond by next Thursday if he accepts. Tyrone sends Roger a letter by post on Monday agreeing to the deal, but it is lost in the post and never arrives. Has Tyrone accepted the offer?

 

37 / 42

When can an offer be revoked?

38 / 42

Specific proof is required to demonstrate intention to be legally bound where the parties have a business or commercial relationship. True or false?

 

39 / 42

Frederick is Manuel's employee. One day, Frederick is told by Manuel that he needs him to take on some work which goes beyond his employment duties. Frederick is reluctant, but Manuel tells him that if he does it, Manuel will pay Frederick double. Frederick accepts. Has Frederick provided consideration for the extra payment?

 

40 / 42

Stephen asks Jameel to help him find a venue for his up-coming book signing. Jameel finds the perfect place, and out of gratitude Stephen offers to give him £100 as a reward. He later changes his mind. Is Stephen bound to pay the money?

 

41 / 42

Phil makes a contract with Ingrid for his old shed to be torn down in exchange for £200. His next-door neighbour Andrew, who thinks the shed is an eye-sore, says he will pay Ingrid an extra £100 for taking down Phil's shed. Ingrid accepts and takes down the shed. Has Ingrid provided consideration for Andrew's promise?

42 / 42

On Saturday, Roger offers to sell Tyrone a car. He asks him to respond by next Thursday if he accepts. Tyrone sends Roger a letter by post on Monday agreeing to the deal, but it does not arrive until Friday. Has Tyrone accepted the offer?

 

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