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
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
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:
The existence or a written or signed agreement or some other formal basis: Errington v Errington Woods [1952] 1 KB 290.
An unconnected third-party is also a party to the agreement: Simpkins v Pays [1955] 1 WLR 975.
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.
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.
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;
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.
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.
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.
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).
