Intention to Create Legal Relations

The doctrine of intention to create legal relations is based on considerations of policy - Justin Santiago

The doctrine of intention to create legal intentions is an essential part of any contract and it has become increasingly important especially in contracts where there is no clear indication on paper that the parties have entered into a contract. This is clearly a matter of policy otherwise commercial agreements would not be enforceable and parties would be afraid to enter into commercial contracts.

The importance of this doctrine becomes evident depending on the setting where the agreement was made – was it a domestic or social setting or a commercial setting? In domestic agreements there would have to be clear evidence of an intention to create legal relations whereas in a commercial agreement there is a presumption to create legal relations and strong evidence would have to be adduced to suggest otherwise.

Arrangements between a husband and wife is presumed not to be legally enforeceable : Balfour v Balfour. Similarly agreements between parents and children are similarly not binding : Jones v Padavatton. Social arragements are also presumed not to give rise to legal relations : Lens v Devonshire Social Club. The crux in all these cases is that the parties did not intend their agreement to be attended by legal consequences.

But what exactly is the motivation for keeping such contracts out of the courtroom? Did Lord Atkin in his judgement in Balfour v Balfour inquire into the intention of the parties or did he simply hold that agreements between parties having natural love and affection should be confined to the home and not unleashed into the courtroom otherwise “the courts of this country would have to be multiplied one hundredfold. It was a clear signal that the courts were reluctant to extend the law of contract into the area of matrimonial rights and duties.

While the judgement sends out a signal that the requirement of intention to create legal relations was only a policy, it is not entirely clear that it is appropriate for modern society in which family law ‘has steadily embraced contract as its governing principle’.

Courts genuinely seek to discover the intention of the parties. The courts therefore have devised certain methods to discover the intention of the parties and this intention need not be in the minds of the contracting parties reflecting the objective evaluation of intention. The presumption that domestic and social arrangement did not intend their agreement to be attended by legal consequences would have to be rebutted by objective evidence to the contrary based on the following factors :-

1. Context in which the agreement is made

In Snelling v John G Snelling Ltd it was inferred that an agreement entered into by three brothers who were directors of a family company relating to the running of the company was an intention to create legal relations. In Merrit v Merrit even though it was a husband and wife situation, they were about to separate and the presumption of the intention to create legal relations does not operate beause the parties were bargaining keenly and did not rely on honourable understandings.

2. Regard to any reliance which has been placed upon the agreement

Where one party has acted to his detriment on the faith of the agreement a court may be more willing to conclude that the agreement was intended to have legal consequences. Detriment would mean a major shift in position such as selling of house: Parker v Clark and not merely the payment of a regular weekly sum for a daily lift to work : Coward v Motor Insurers’ Bureau.

3. Certainty of the agreement

There must not be any vagueness : Vaughan v Vaughan

The courts too are reluctant to have as a determining factor of an intention to create legal relations the willingness of the parties to sue to enforce the agreement if one party has performed one side of the bargain and the other side have not : Albert v MIB.

With regard to commercial agreements, there is a presumption that the parties do intend to crate legal relations. The operation of the presumption can be seen in the case of Esso Petroleum Ltd v Commissioners of Customs and Excise where a heavy reliance on the onus of proof is required to rebut the presumption in commercial transactions.

The presumption may be rebutted by an express term of the contract which states that the parties did not intend to create legal relatiosn such as ‘subject to contract’ and honour clauses as decided in Rose and Franck Co v H R Crompton and Bros Ltd where the words used must be clear : Home Insurance co v Administratia Asigularaliror.