CONTRACT- Intention to create legal relations (Intention to be bound is…
CONTRACT- Intention to create legal relations
Intention to be bound is essential
test for intention is objective
courts seek to give effect to the intentions of the parties, whether expressed or presumed
Rose and Franke Co v Crompton Bros (1925)
Honourable pledge clause - stated ' this agreement is not entered into, nor is this memo written as a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts..' The Ds terminated this agreement without notice. HELD: 1) the court unanimously agreed that the agreement was not legally binding 2) the orders and acceptances did not constitute legally bidning contracts. HOL overturned the CofA on the second point
Aspects unresolved by this case - the clause could have no legal force if the agreement in which it was contained was found not to be a contract and secondly, since it seems clear that the main agreement would have been regarded as a contract but for the clause, it is also slightly surprising that the clause did not fall foul of the rule against ousting the jurisdiction of the courts
Language used to denote lack of ICLR can also become under scrutiny as in
Edwards v Skyways
. Held that an employee air pilot was entitled to enforce his employer's promise to make an ex gratia payment equivalent to the employer's contribution to a pension fund on termination of employment. Employer failed in his contention that the use of the expression ex gratia was sufficient to show that the parties did not intend to create legal relations
An objective test is enough to rebut the presumption.
Baird Textile Holdings v M&S plc 
there was evidence that revealed that the parties did not want a formal contract as to retain a flexible relationship. Contracture inteniton may also be negatived if made in jest or anger
Licences Insurance Corporation v Lawson (1896)
where the ITT arises in a business context, the presumption is that any offer in response to that invitation (and any acceptance in response to that offer will be intended to create LR.
Bowerman v Association of British Travel Agents Ltd 
plaintiffs had booked a skiing holiday for a school through a travel agent who was a member of ABTA. The agent became insolvent. ABTA provided an alternative holiday but refused to reimbuse the £10 per head travel insurance premium on the basis that this was not covered by their protection scheme. Plaintiff's relied on a notice which was headed 'Notice describing ABTA's shceme of protection against the financial failure of ABTA members'. HELD: there was a direct contractual relationship between ABTA and the members of the public who booked their holidays with ABTA members
Esso Petroleum Co v Commissioners of Customs & Excise 
where the specially produced world cup coins were distributed by Esso to their dealers who offered their customers a free cin with the purchase of 4 gallons of petrol. One argument put forward by HOL was that the coins could only be for sale if there was ICLR in respect of the transfer of coins between garage proprierors and motorists. The majority felt that there was such an intention, relying on the business ocntext and the large commercial advantage Esso expected to derive fro the promotion by attracting extra customers. The minority found no ICLR relying on the language used for the offer, the trivial value of the coins and the unlikelihood that any motorist denied a coin would believe that a legal remedy was available to rectify the default
'Comfort Letters' -
Kleinwort Benson Ltd v Malaysia Mining Corporation 
. PLaintiff bank agreed with the Def company to grant a loan facility of up to £10mil to the wholly owned subsidiary of the Def company. The Wholly owned subsidiary traded in tin on the London Metal Exchange. Loan facility stated in 2 'comfort letters that 'it is our policy to ensure that the business of the subsidiary is at all times in a position to meet its liabilities to you under the local facility arrangements. in 1985, the tin market collapsed. Did comfort letters constitute a contractual promise? HELD: CofA stated that the comfort letters had stated the defendants current policy: there was no express or implied promise that the policy would remain. The statement was one of present fact regarding the parent company's intentions. It was not a promise for future conduct and thereforenot a contracrual promise.
s179 of Trade Union and Labour Relations (cosolidation) Act 1992 collective agreements between TUs and employees are presumed to lack the required intention to be legally binding unless the agreement is in writing and contains a provision to the effect that the parties do intend the agreement to be legally enforceable contract
Commercial and business agreements
in this setting, the parties intend that it should be legally binding
Well BArn Farming Ltd v Backhouse 
- the temporary arrangement allowing the cutting back of the woodland in return for a license to occupy was still seen as evidence of legal intention
If a business agreement wants to assert that legal relations were not intended, the onus is on them to rebut the assumption (heavy burden)
Bunns & Bunns v Rees & Parker 
court had to consider whether a document signed by the Cs and the Ds relating to the purchase by C's company H of the entire share capital of Ds company, was legally binding. C argued that it was legally binding but D argued that there was no ICLR. A document was drawn up at a meeting between the parties. C issued a cheque to D for the first instalment of the share purchase price but it was returned by D. C then took advice on the Enforceability Of the agreement and at another meeting informed D that the agreement would be enforced, By litigation if necessary.The cheque was returned to D and was paid into Ds account but D maintained that it was not a binding agreement.
Held: 1) open to a party to adduce evidence to show that an agreement was made without any intention to create legal relations 2) The terms of the document were typical of a commercial agreement intendning to be binding 3) documents could be binding even if some finer details still needed to be worked out 4) the terms agreed were not so vague that the parties could not have intended to create legal relations 5) D were experienced business people and understood the consequences of signign such a document 6) D had failed to discharge the evidential burden
'Subject to Contract'
creates a strong inference that the parties do not intend to be bound until the execution of a formal contract.
IN a sale of land, it is usual to express tentative preliminary agreement to be 'subject to contract' to give the parties the opportunity to reflect of seek legal or other advice before entering into a binding contract.
Eccles v Bryant and Pollock 
the parties agreen on the sale of certain property 'subject to a proper contract to be prepared by the vendor's solicitors. HELD: there was no contract. An instance where the prima facie meaning of 'subject to contract' took effect
Social and Domestic Agreements
assumption that there is not intention to create legal relations
Balfour v Balfour (1919)
Atkin LJ outlined the test based upon the intention of the parties. the husband worked in Ceylon and his wife was unable to continue living there.At the time, the husband agreed to pay the wife £30 per month for her living expenses. Couple became estranged and the wife sued to enforce the promise of financial support. HELD" not legally binding and no ICLR
Merritt v Merritt (1970)
Husband and wife were married in 1941 nad had 3 children. In 1966 the husband left home to live with another woman. The matrimonial home was in both names and subject to outstanding mortgage sum of £180. To make arrangements for the future, the wife met husband in car and he said he would pay her £40 a month out of which she would pay off the oustandin gmortgage. He gave her the building soc mortgage book. Wife insisted he put into writing. HUsband signed and dated . When mortgage was paid off, husband refused to transfer. HELD: written agreement was intended to create legal relations
Jones v Padavatton 
agreement between mother and daughter for daughter to move to England from USA and do bar course. Began legal studies in November 1962. Mother offered $200 trinidad a month. in 1964, because daughter was finding it difficult to live on this allowance, a house was found and the purchase price of £6000 was rovided by the mother. The varied agreement was that the daughter should live in one part of the house and let the other to a lodger using the rent for expenses and maintenance in place of the $200 a month. in 1967, the daughter had still not taken her exams and the parties argued. Mother brought action for possession of house on the grounds that the agreement between them was not made with ICLR. HELD: majority of court held that the arrangement of 1964 was lacking contactual intent. The mother was entitled to possession. Lord Salmon held that when the 5 years elapsed he consider the contract to have lapsed.
Simpkins v Pays 
grandmother shared her property with her grandmother and a lodger. They all regularly entered into a fashion competition on a Sunday newspaper and all contributed equally. Entry was made in name of D. On one occasion, the combined entry was successful but the D refused to hand over a one third share to the plaintiff, claiming that there was no ICLR. HELD: there was sufficient mutuality in the arrangements to demonstrate intent to be bound.
Peck v Lateau (1973)
two women played bingo together and had struck an agreement to always share the prize money. When the D won £11k, the court held that she was obliged to share her winnings. The previous conduct of the parties was sufficient to rebut the presumed lack on intention.
Persons over the age of 18 have full contractual capacity if they are of sound mind and not suffering from a factor ruling out capacity such as drunkenness
generally minors are not bound even if the other contracting party does not know they are under 18 of the minor has lied about their age
1) a minor is bound by a contract to supply necessaries to them if the contract is for their benefit
Nash v Inman (1908)
2) A minor is also bound by a contract of emplouyment but only if it is for their benefit
Doyle v WHite City Stadium  and Aylesbury Football Club v Watford Association Football Club (2000)
. The latter contract wasonerous and restricted the main interest of Lee Cook
Cetrain contracts made by a minor may be voidable rather than void. Minor may ratify within a reasonable time of reaching 18. The minor who rescinds will be liable to recover any money paid under the contract if there has been a total failure of consideration
Steinberg v Scala (Leeds) Ltd 
Mental incapacity and intoxication - s 2 Mental Capacity Act 2005 'unable to make a decision for himself in relation to the matter' at the time the contract is made.s3(1) impairment is: a) Unable to understand the info relevant to that decision b) unable to retain that info c) unable to use or weight that info as part of the decision making process d) communicate that decision
However, under s7(2) a mentally impaired person still remains liable to pay a reasonable price for the necessaries
IN any case not covered by the 2005 Act, the position is that the contract is binding unless the person claiming incapacity can establish first that he did not understand what he was doing and second if that other party knew that to be the case -
Imperial Loan Co v Stone 
Similar rules apply to contracts entered into by drunken persons. The individual who becomes so intoxicated that he does not understand what he is doing will have to pay reasonable price for necessaries but will not be bound by any contract made
Gore v Gibson (1843) and Matthews v Baxter (1873)
An incorporated company may enter into contracts as it is a legal person distinct from its shareholders. The company must act within the limits of its memoradum of association otherwise it is said to be acting ultra vires.
Ashbury Railway Carriage and Iron Co v Riche (1875)
This rule caused harship to innocent third parties and consequently, the law has changed Section 39 (1) of the Companies Act 2006