Essay: How the courts clarify if the parties have an intention to create legal relations

The courts usually are being troubled by arguments relating to agreements, whether they are intended to be legally binding or not. In order to avoid such arguments, the courts have tried to categorize agreements in such a way to be separates to the ones, which are legally enforceable and those which should not be. The agreements are divided into three different forms, which are social and domestic agreements and commercial agreements. Particularly, in order to create a binding contract, it is necessary for the parties to intend to create legal relations between them. In addition, the judges have every right to believe that the existence of a contract is based only on the intention of the parties. “The doctrine of intention to create legal relations” must be concerned that it has the most important role, when it comes to presumption about social and domestic agreements and commercial agreements too.
This essay is establishing how the courts clarify if the parties have an intention to create legal relations, in order to be legally bound by their agreement based on the three different forms of agreements.
The first form of agreement is social and domestic agreement, which covers agreements between family members, friends and workmates. It is known that, when it comes to “a domestic context the presumption is that the parties did not intend to create legal relations.” Although, this presumption might be rebutted. Social and domestic agreements are also divided into categories, which explained whether there is an intention to create legal relations or not.
For instance, in Balfour v Balfour , the couple lived overseas because the husband’s work was there. Although, they came back to England since a rheumatoid arthritis was developed to his wife and her doctor prohibited her return to overseas. Also, the husband promised her to pay £30 per month until he could return overseas. Eventually, the husband decided that it was better to remain separated and then the wife sued his husband to enforce the payment of the £30 monthly. According to the Lord Atkin, “Nevertheless they are not contracts, and they are not contracts because the parties did not intend that they should be attended by legal consequences… 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.” In general, the Court of Appeal mentioned that there is a general presumption that family members do not intend to create legal relations and so the agreement in the case is enforceable. Further, the couple were not separated when they agreed for the monthly payment, so the husband was not legally obliged to perform his promise.
However, in Merritt v Merritt , the general presumption is rebutted. According to Lord Denning in 1213 “It is altogether different when the parties are not living in amity but are separated, or about to separate. They then bargain keenly. They do not rely on honorable understandings. They want everything cut and dried. It may safely be presumed that they intend to create legal relations.” Consequently, in cases such as Merritt v Merritt, ie when the couple is separated then the parties have to sort out their finances in more accurate terms and hence they are likely to have an intention to create legal relations in any agreement they made.
Moreover, domestic agreements between children and parents are not intended to create legal relations. In other words, in the case Jones v Padavatton , the daughter left her job in United States, after her mother promised to provide to her 200 dollars per month maintenance. Although, the mother had brought her daughter a house providing with exchange her daughter had to comply with her wishes. However, the fact that the mother had not made a ‘contractual entitlement’ means that they did not intend to be legally bound but the agreement was based on the confidence between mother and daughter.
It is known that the courts, when it comes to social agreements, are unwilling to find that the parties are intended to be legally binding. “Social arrangements between friends are also presumed not to be contractual. It has been said that to offer a friend a meal is not to invite litigation. Social arrangements that are not contractual have been extended to golf competitions (Lens v Devonshire Club (1914) Times 4 December), and sharing of petrol costs (Coward v Motor Insurance Bureau CH 1963).”
The second form of agreement is commercial agreements, which are presumed that there is an intention to create legal relations between the parties. Otherwise, the presumption “it can be rebutted by the express stipulation of the parties” . In Rose & Frank Co v Crompton Bros Ltd , the claimants were sole agents of the defendants until 1920. However, the defendants terminated the agreement in 1919, without giving any reasonable notice to the claimants. As a result, the claimants sued for breach of contract. Nevertheless, it was held that from the very beginning the arrangement was not a legally binding agreement and that it was based on the parties’ good faith and honor. In addition, the parties did not intend to convert their arrangement into a legally binding contract.
Furthermore, the courts are required to consider how much the parties affected by the words, which are used, in order to have the intention to create legal relations. For instance, in Edwards v. Skyways Ltd the defendants made a promise for an ex gratia payment to employees, who were redundant. But the defendants sought to default their promise, supporting that there was no contract so it was not legally binding. According to Megaw J “It might have desired to avoid conceding that any such payment was due under the employers\’ contract of service. It might have wished — perhaps ironically in the event — to show, by using the phrase, its generosity in making a payment beyond what was required by the contract of service. I see nothing in the mere use of the words “ex gratia,” unless in the circumstances some very special meaning has to be given to them, to warrant the conclusion that this promise, duly made and accepted, for valid consideration, was not intended by the parties to be enforceable in law.” The presumption in cases, which involve an ex gratia payment, sometimes is rebutted sue to the gratuitous in nature.
As it was mentioned before, the presumption, which is existed in commercial agreements, is that there is an intention to create legal relations and it is not easily replaced. “The strength of the presumption is such that the issue does not arise frequently in commercial litigation.” In Esso Petroleum Ltd v. Commissioners of Customs and Excise , Esso offered to give away a World Cup coin with likeness of players of England football team of 1970, to every motorists, who bought four galloons of petrol. The Commissioners of Customs and Excise argued that the coins must have purchase tax change on them and they added that the coins were produced “in quantity for general sale.” However, the appeal was dismissed because there was an intention to create legal relations between the parties. The coins were offered in a commercial context which raised a presumption that they intend to be legally bound. However, the coins were not exchanged for a money consideration and therefore the coins were not for resale. In addition to this, the fact that the coins had inside value is a proof of “the strength of the presumption in favour of legal relations in commercial context.”
Taking everything into consideration, judges are being confused many times when they come across to cases, which are difficult to distinguish if the parties intended to create legal relations or not. In order to avoid such confusion, courts have sought to distinguish agreements that should be legally enforceable and those which should not. Therefore, this decision makes the “life” of the judges much easier since it help them to bring out the best decision and the fairest outcome they are expected to do. Eventually, if the parties are intended to create legal relations between them, then the judges can establish the existence of a contract.