The common law, recognizes that an intention to create legal relations is an independent element, which must be proved in addition to offer, acceptance and consideration, to ensure the enforceability of a contract.
How Do You Establish an Intention to create legal relations?
First, where the parties have expressly declared or clearly indicated in their agreement an intention not to create legal relations between them, the agreement will not be enforceable in a court of law, provided that neither the agreement nor the stipulation is itself illegal.
In Rose & Frank Co. v. Crompton Bros: The defendants were an English firm which manufactured tissue paper. They entered into an arrangement with the plaintiffs, an American firm whereby the plaintiffs were made sole agents of the defendants for het sale in the US of the tissue paper manufactured by the defendants. The arrangement was to last for 3 years with an option for extension. The document contained the following clause described as an “honourable pledge clause” : “This arrangement is not entered into , nor is this memorandum written as a formal or legal agreement. It shall not be subject to legal jurisdiction in the law courts either in the US or England, but it is only a definite expression and record of the purpose and intention of the parties concerned to which they each honourably pledge themselves.” A dispute arose between the parties and the defendants terminated the agreement without notice and refused to fulfil or execute a number of orders it had already accepted from the plaintiffs. the plaintiffs sued for damages for breach of the agreement and for non-delivery of the goods comprised in the orders.
With regards to the plaintiffs’ claim for the damages for breach f the written agreement under which the defendants gave the plaintiffs selling rights, the court held that the claim must fail since the parties had specifically declared that the document was not to have any legal consequences. Since the parties had so declared there was no legally binding obligation on the parties to give orders or accept them or to perform any of the obligations under the agreement.
With regard to the plaintiff’s second claim for damages for non-delivery of the goods comprised in the order they had made, the court found that the claim was based on the terms contained in the original agreement, which was not legally enforceable, but was based on the specific orders which had actually been accepted by the defendants before they terminated the agreement. The court held with respect to this second claim, that each individual order made by the plaintiffs and accepted by the defendants created a new and separate contract, (inferred from the conduct of the parties), which was enforceable without reference to the original agreement itself. The court held , therefore , that there was no liability for breach of the written agreement since it was stated to be legally unenforceable. However the specific orders given and accepted constituted legally binding contracts, which had to be performed , and for which an action could lie for breach.
In Jones v Vernon’s Pools Ltd : The plaintiff claimed that he had sent in a pools coupon to the defendants who denied having received it. The conditions on the pools coupon stated that the “sending in of the coupon in respect of the pool should not give rise to any legal relationship, rights or duties whatsoever…All such arrangements and transactions should be binding in honour only.” The court held that this express condition prevented any action in relation to the pools coupon. There was no intention to create legal relations.
Where there is no express exclusion of the intention to create legal relations, the courts consider the nature of the agreement, its terms and the circumstances surrounding the agreement to determine whether such an intention can be inferred.
In Hammond v Ainoonson , the defendant an owner of a fishing boat which had become unserviceable, verbally agreed with the plaintiff to supervise the repairs for a fee and that the plaintiff would be responsible for the sale of all the fish that would be caught by the boat. An attempt was made to draw up a written contract but the defendant promised to abide by the terms whether reduced into written or not. The defendant , contrary to the terms of the agreement employed another person to sell the fish caught by the boat. The plaintiff brought an action for a sum for the services rendered to the defendant. The defendant denied there was an agreement and contends that on the evidence, there was no agreement sufficiently certain or definite to be enforced and that if there was an arrangement for the plaintiff to supervise the repairs for a fee, that cannot amount to an enforceable contract because the parties did not intend to crate a legal relationship
The court held, upon considering all the circumstances that there was a contract between the parties resulting in legal obligations which could be enforced.
The courts distinguish between two broad categories of contracts :
(i) Social, family and other domestic agreements
(ii) agreements of a business or commercial nature
WHAT ARE AGREEMENTS MADE IN THE DOMESTIC OR SOCIAL SETTING?
Generally, engagements of pleasure such as invitations to dinner, games or other kinds of social engagements made in every day life are usually not treated as given rise to enforceable obligations because it is presumed that the parties do not contemplate the creation of legal obligations or creations between them. In individual cases however, the courts apply the objective test to determine whether there was an intention to create legal relations or not.
In Coward v Motor Insurers Bureau : Coward was a pillion passenger on a motor cycle owned and driven by one Cole. There was an accident , caused by Cole’s negligence which resulted in both of them getting killed. Coward’s widow brought an action against the insurers and it was necessary to determine whether there was a legally biding contract between Coward and Cole. It was held that the arrangement between Coward and Cole, whereby Coward paid a weekly sum to Cole for transporting him to and from work ,was not intended to create legal relations between them. The court was of the view that it was unlikely that the parties engaged in such an arrangement contemplating that one was legally bound to carry and the other bound to be carried to work.
In the case of agreements made in the domestic setting, especially between family members it is presumed form the nature of the agreement that there is no intention to create legal relations. It must be noted however that even in these categories of agreements there will be deemed to be an enforceable contract if there is objective evidence to support such a conclusion.
Agreements Entered into Between Husband and Wife :
In this case of agreements entered into between a husband and wife in the domestic setting, it is generally presumed that there is no intention to create legal relations between them and, therefore, such agreements are usually not enforceable in a court of law.
In Balfour v Balfour : The defendant was a civil servant stationed in Ceylon. His wife alleged that while they were both in England on leave, he had promised to pay her 30 pounds a month as maintenance during the time they were forced to live apart. She sued for breach of this agreement.
The court held that no legal relations were contemplated and the wife’s action must fail.
However, the presumption that legal relations are not intended between spouses does not apply where the spouses are not living together in amity i.e. where they are divorced, separated or about to be separated.
In Merritt v Meritt : The husband had left the matrimonial home to live with another woman. the matrimonial home, which was subject to a mortgage was in the joint names of the husband and wife. the husband and wife met and the husband agreed to pay wife 40 pounds a month out of which the wife was to make the outstanding mortgage payments on the house. The wife insisted that husband put it in writing. The husband signed a piece of paper , which stated that he would transfer the house to the wife if she paid off the mortgage as agreed. The wife paid off the mortgage and the husband refused to transfer the house to the wife.
The court held that the application of the objective test led to the conclusion that the parties intended that their agreement would create legal relations and an action for breach of contract could be sustained.
In Pettit v Pettit, the husband had applied for a declaration that he had a beneficial interest in the proceeds of the sale of a house. The parties were married with two children. They lived in a house devised to the wife by her deceased grandmother until 1960, when the wife sold the hosue and bought the cottage which is the subject matter of this case, with the money realized from the sale. The parties lived in the cottage until 1965 when the wife left the husband because of cruel treatment. She presented a petition for divorce and obtained a decree on the ground of cruelty. The husband left the cottage and the wife returned. The husband claimed that whiel they lived there he had done work to the premises which he valued at 723 pounds and that his work had enhanced the value of the cottage by 1000 pounds. the court held that the wife was entitled to the full beneficial interest in the house. the court was of the view that the improvements made by the husband were of an ephemeral character and that t would be unreasonable for a spouse to obtain a permanent interest in the house in return for making improvements of this character.
In Acheampong v Acheampong, the parties were married under customary law. The wife instituted an action against the husband for a breach of a promise to marry her under the Marriage Ordinance, Cap 127 (1951 Rev). Counsel for the defendant raised a preliminary objection as to whether a spouse married under customary law could, while that marriage was subsisting , sue the other spouse for breach of promise to marry under the Ordinance.
the court held that a woman married under customary law was capable of suing her husband in contract or in tort in the same way as she could sue any other person. The court noted further that a customary marriage was distinct from Ordinance marriage. The incidents of the two types of marriage were different. Therefore if a woman married under customary law had given consideration for the promise to convert the marriage into an Ordinance one, she was entitled to sue for breach of that promise.
Agreements Entered into between Parent and Child
Generally, it is presumed by the law that agreements made between a parent and a child within the domestic setting are not intended to create legal obligations. An illustration can be found in the case of Jones v Padavatton : Mrs. Jones lived in Trinidad. Her daughter worked at the Indian Embassy in Washington. Her mother requested her to go to England and study law and offered her a monthly allowance while she read for the Bar. the daughter reluctantly accepted the offer and moved to England in 1962. In 1964, Mrs. Jones bought a house in England. The daughter lived in the house with other tenants using the rents to cover her expenses . In 1967, Mrs. Jones and her daughter quarreled and Mrs. Jones brought the action claiming possession of her house. at the time of hearing the daughter had passed only a portion of Part I of the Bar examinations. the issue was whether in entering into this agreement the parties intended to create legal relations.
The court held that the agreement was not intended to create legal relations between the mother and daughter, noting that this was one of those family arrangements which depend on the good faith of the promises, which are made an are not intended to be rigid, binding agreements.
Other Domestic Arrangements
Where the agreement was made in the domestic setting but not between spouses or between a parente and a child, the courts look at the terms of the agreement and the circumstances in which it was made , in order to determine whether or not there was an intention to create legal relations. The courts will infer the existence of an intention to create legal relations, if it is found that the agreement , although made in the domestic setting, has a commercial flavour to it.
An illustration can be found in the case of Simpkins v Pays. The defendant in this case owned a house in which she lived with X, her granddaughter and the plaintiff, who was a tenant. The three of them took part together each week in a competition organized by a Sunday newspaper. The entries were made in the defnedant’s name but there were no regular rules as to who paid for postage and other expenses. One week the entry was successful and defendant obtained a prize of 750 pounds. Plaintiff claimed 1/3 of the sum but defendant refused to pay on the ground that there was no intention to create legal relations between them. It was held that even though there are many family agreements which do not create enforceable contracts between the parties, on the present facts there was a “mutuality in the arrangements between the parties” which led to the conclusion that the parties intended to create legal relations between them. It was a joint enterprise to which each contributed in the expectation of sharing any prie that was won. There was therefore, a legally binding contract between the parties.
Parker v Clark : The defendants , an elderly couple , agreed with the plaintiffs, who were 20 years younger, that if the plaintiffs would sell their cottage and come and live with them the husband would leave the plaintiffs a portion of his estate in his will. The agreement provided for the sharing of household expenses etc. The plaintiffs sold their house and moved in with the defendants. Later difficulties developed between the two couples and the defendants repudiated the agreement and asked the plaintiffs to move out. The plaintiffs claimed damages for breach of contract. It was argued on behalf of the defendants that the agreement amounted to no more than a family arrangement of the type considered in Balfour v Balfour and that there was no intention to create legal relations. It was held that even though the agreement was one made in the domestic setting, the circumstances clearly indicated that the parties intended to create legal relations between them.
In the American case of Hamer v Sideway, an uncle promised his nephew: “ If you will refrain from drinking, smoking, swearing and playing cards form money until you attain the age of 21 years, It will pay you 5000 pounds”. The nephew complied and claimed the sum. The court held that the contract was legally enforceable since it required the promise to refrain from doing things which he was entitled to do.
COMMERCIAL AGREEMENTS:
In commercial or business agreements, the courts presume that there is an intention to create legal relations. this presumption is only rebutted where the parties have expressly stated in their agreement that it is not to be binding in law or where the parties are able to prove the contrary. In the absence of any express stipulation in the commercial agreement to the contrary, the burden of rebutting the presumption lies on the party who claims that there was no intention to create legal relations.
In Edwards v Skyways Ltd : The defendant , an airline company, agreed with the British Airline Pilots Association to pay certain “ex gratia” payments to a number of pilots who had been made redundant. The plaintiff , a redundant pilot, brought the action to recover the amount. The company refused to pay, arguing that the agreement was not intended to create legal relations because of the use of the term “ex gratia” to describe the payments. The court held that the subject mater of the agreement related to business matters and therefore, the onus of establishing that there was no intention to create legal obligations was on the defendant. The defendant company had not discharged this burden. The use of the words “ex gratia” simply referred to the fact that the company had no pre-existing duty to make the payments, but the use of those words did not mean that eth offer made, when accepted would not create any legal relations.