Intention to Create Legal Relations

1.”The concept of ‘intention to create legal relations’ is used by the courts as a device to enable them to deny enforceability to those agreements which they consider should not be legally enforced” (Jill Poole, Contract Law). 

In order for a legally binding contract to come into existence, there are certain requirements which must be met. Briefly, these requirements include a clear offer and acceptance, consideration moving from the promisee, and an intention on the part of the contracting parties to create legal relations. Why has this concept been included in the prerequisites of a contract? Poole states that it is in order for the courts to deny enforceability to contracts which they do not consider should be legally enforced.

How effective is the imposition of this doctrine is policing the suitability of contracts? What is the basis of the doctrine? The basic doctrine, then, is that in order for a valid and binding contract to exist, the parties to the contract must have had an intention to create legal relations. 

In the vast majority of commercial transactions, this is relatively straightforward, and rarely gives rise to any controversy. It is presumed, in law, that parties to any commercial transaction intend, from the outset, to be legally bound by their agreement. This legal binding offers them security and the possibility of redress if the other party fails to perform their part of the contract. It is in the context of domestic and social agreements that the doctrine plays its most significant role. In this context, the courts make a presumption in the opposite direction; namely that the parties do not intend to be bound by their agreement.

This is based on the policy that the courts should, as a rule, stay out of regulating domestic and social agreements. There are, then, two presumptions used by the courts in the context of the doctrine of intention to create legal relations, both of which are, however, rebuttable. 

The earliest case in which the doctrine was expounded was that of Balfour v Balfour.

The fact that the doctrine first appeared as late as 1919 shows that it was a very late development in the law of contract. Briefly, the case involved a husband and wife, who went abroad to live. When the plaintiff wife decided to stay in England rather than return abroad with her husband, she alleged they made an oral agreement for him to pay her some money each month. The first instance judge said the defendant owed it to his wife to look after her, while the Court of Appeal held that he was not liable to make the payments to his wife.

In the context of Poole’s statement, then, the Court of Appeal used the doctrine of intention to create legal relations to enable them to deny enforceability to an agreement which they felt should not be enforced. 

Domestic affairs, it was thought, should be dealt with privately, or else there would be a ‘flood of litigation’. Atkins LJ’s judgement in this case clearly recognises the doctrine of intention to create legal relations. What is the basis for this presumption? According to McKendrick, Atkins LJ’s judgement suggests that the initial presumption is derived from the law (or public policy) rather than the intention of the parties.[1] In this particular case, Atkins LJ put forward the floodgates argument; that if they afforded binding status to this type of arrangement, the lower courts would be overwhelmed with similar cases. The presumption that domestic agreements are not intended to be binding was first established, then, in Balfour v Balfour in 1919. 

The later case of Merritt v Merritt, however, added a new aspect to this doctrine. The presumption in domestic agreements can be rebutted (that is, it can be found that there was an intention to create legal relations) where the parties have separated, or are about to separate, at the time of the arrangement.

The Court of Appeal found the plaintiff wife was able to enforce her defendant husband’s promise, as they were not happily married at the time of the agreement. Again, this shows the courts’ willingness to use the doctrine of intention to create legal relations to deny or affirm enforceability to those agreements which they consider worthy. Here they were keen to afford a measure of protection to the plaintiff wife, and the presumption was therefore said to have been rebutted for this purpose. This same motivation was evident in the subsequent case of Tanner v Tanner.

This case established that where a party gives up their legal rights in reliance upon a domestic arrangement, that arrangement is legally binding. Again this shows the courts’ willingness to afford the protection of contractual certainty in some domestic arrangements. 

A similar presumption to the one established in Balfour v Balfour was evident in the case of Jones v Padavatton. Here it was established that in family arrangements, there is a presumption that the parties do not intend to create legal relations. Briefly, the plaintiff offered her daughter (the defendant) an allowance if the daughter gave up her job in the USA and studied for the Bar in London. The mother subsequently bought her daughter a house to rent out to provide an income for the daughter.

Three years later the mother claimed possession as the daughter had still not passed her Bar exams. 

The Court of Appeal held that as the parties were close when the arrangement was made, and because the arrangement was vague and uncertain, there was no intention to be bound. This case would seem rather to contradict Poole’s statement, as following Tanner v Tanner, one might have expected the courts to afford some degree of protection to the plaintiff mother who was seeking to rely on the agreement being contractually binding.

The case shows that the courts will not simply use the doctrine to arrive at a just solution at the expense of other relevant doctrines. The presumption established in Jones v Padavatton can also, however, be rebutted. According to Simpkins v Pays, an arrangement between members of the same household can rebut the presumption. 

The case involved a domestic arrangement between three ladies (two of whom were related) who lived in the same house to pool their entries into a newspaper fashion competition and to share any prize money. The entry was sent in the defendant’s name.

It was held that the plaintiff could recover a third of the prize money from the defendant, and that there had been an intention to be legally bound. In commercial agreements, the opposite presumption applies. This is because of the need for certainty in commercial transactions. Parties to any commercial agreement, then, intend to be legally bound, whether it is a corporate contract, or simply a contract to purchase goods in a shop. Although it is more difficult than in the domestic context, it is not impossible to rebut this presumption. 

The case of Rose and Frank Co v JR Crompton established that the presumption can be rebutted by the inclusion of an ‘honour’ clause in the contract.

In this case, a contract clause provided “This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement, and shall not be subject to legal jurisdiction in the law courts.” Where the presumption is sought to be rebutted in the commercial context, the onus of doing so rests with the party claiming it does not apply (Edwards v Skyways Ltd). If there is any doubt as to whether the presumption should apply, following Esso Petroleum Ltd v Commissioners of Customs and Excise, the court should use an objective test to decide the issue. Finally, in deciding whether the presumption has been rebutted, the courts should look at the totality of the evidence (J Evans, etc v Andrea Merzario Ltd). 

The courts, then, throughout the last century, have developed the doctrine of intention to create legal relations in order to differentiate between arrangements which they consider should be enforced, and those which should not. This has been done by establishing various presumptions which will apply, depending on whether the agreement is a domestic, social, or commercial one, unless they can be rebutted. 

2.

Problem question 

There are a number of contractual issues arising in this scenario. Firstly, what is included in the contract which Jack makes with the travel agent? The initial advert promises ‘great deals on your weekend breaks or your money back’. If this is found to be a term incorporated into the contract, Jack and Vera will have redress at the end of their disappointing holiday. Following the case of Bannerman v White, a statement which is merely an incident in preliminary negotiations is not a term of the contract. It must be understood and intended by both parties to be a term of the contract.

It seems that the offer of a money back guarantee would be intended to be a term by Great Escapes. The advert, however, would probably not be considered the offer in the contract. 

Following Partridge v Crittenden, an advertisement is usually considered an invitation to treat as opposed to an offer.

This is because it is clear that in an advert, the advertiser does not intend to be bound. The situation might have been different had Jack noticed the advert displayed prominently in a window (of the tour operator’s office). In this situation, following Bowerman v Association of British Travel Agents Ltd, such an advertisement would have been considered an offer to the world. This is significant as it determines what was involved in the contract.

If the contract was formed at a later time than Jack ‘accepting’ the offer in the newspaper, the money back statement would more likely be considered a representation than a term of the contract. It seems likely in this scenario that the offer was made, not by the tour operators in their advert, but by Jack when he telephoned the travel agent. 

The upshot of this is that he will not be able to rely on the money back guarantee as a term of the contract, but he may be able to bring a misrepresentation claim if the tour operator refuses to pay back their money. Jill’s statement that the Raffles Hotel is an ‘exclusive hotel that meets all of his requirements’ is made over the telephone. It is important to establish at what exact point in the call Jill made her statement. It is significant as it could give Jack another possible cause of action for misrepresentation.

It is unclear from the scenario whether Jack relied on Jill’s statement during negotiations to enter into the contract. If the contract was made and Jill subsequently made the statement, Jack will have no redress on this count (the representee must have relied on the statement following JEB Fasteners Ltd v Marks Bloom & Co). Even if the statement was made prior to concluding the agreement, Jack may have some trouble relying on it. According to Edgington v Fitzmaurice, an actionable misrepresentation is a false statement of an existing fact.

In this instance, there may be some doubt that Jill’s statement was of an existing fact as opposed to an opinion. 

Following Bissett v Wilkinson, a statement of opinion will not usually be considered a statement of fact. A statement made in this situation, however, must be full and frank, not partial and misleading (Curtis v Chemical Cleaning & Dyeing Co). There is no doubt that Jill’s statement is misleading as to the facilities and standard of the Raffles Hotel. On the back of Jack’s receipt, there is a disclaimer by Great Escapes to the effect that ‘we cannot be held liable for any disappointment caused by lack of amenities in any of our partner hotels’. It is possible that Great Escapes could rely on this clause to escape liability for the lack of an ensuite bathroom and poor views.

It seems that Jack would probably be able to defeat this defence, however. Following Parker v South Eastern Railway, an exclusion clause of this sort will be incorporated by giving reasonable notice that the document contained writing.

Whether reasonable notice has been given will be a question of fact which is determined objectively. 

In Thompson v LM & S Rly Co, it was held that the defendant had taken reasonable steps to bring the conditions to the public’s notice. In this scenario, it will have to be determined objectively whether a condition which is displayed on the back of the receipt constituted reasonable notice. Even if it does, however, the disclaimer will probably not be considered a condition of the contract, as it was not brought to Jack’s attention prior to concluding the contract. Following Olley v Marlborough Court, the clause must be brought to the other party’s attention before or at the time of contracting.

Jack will probably be able to disregard this disclaimer as not being part of the contract. The fact that Jack contracts food poisoning, probably from the sea food platter in the hotel restaurant, has little bearing on the contract. It is possible they would have a claim for negligence on the part of the hotel chefs, but it would be difficult to prove. If they were successful in this, however, Jack and Vera would also be able to claim damages in the amount of the value of the tickets for the show they had to miss (300 Euros). With regard to the green algae in the hotel pool, it is again possible that Jack and Vera may have a claim in negligence against the hotel rather than the tour operators. 

The hotel owe a duty of care to their guests, and it would seem they have breached this duty by allowing the pool to become unclean.

Again, however, this is a tort rather than a contract issue. Vera’s specific ailment resulting from her swim would probably not give the hapless couple a cause of action, as the hotel would probably be able to escape liability by relying upon the disclaimer notice displayed prominently above the pool. This notice states that ‘Residents swim at their own risk’. Again, whether this notice amounted to sufficient notice to escape liability would be an objective test.

Such factors as the exact position of the notice (we are told only that it appears on the back wall), the size of the print, and whether it was obscured by anything would all need to be considered. It is likely that a higher degree of notice will be required than usual in this instance, as the term is, perhaps, more unexpected than usual. Following Thornton v Shoe Lane Parking Ltd, if a term is unusual or unexpected (as this particular one might be regarded), the degree of notice is correspondingly higher. There are, then, a number of possible causes of action available to Jack and Vera upon their return from this disappointing holiday. 

Bibliography

1. Cases Balfour v Balfour [1919] 2 KB 571, CA Bannerman v White (1861) 
2. 4 LT 740 Bissett v Wilkinson [1926] All ER 343 Bowerman v Association of British Travel Agents Ltd (The Times, November 24, 1995)
3. Curtis v Chemical Cleaning & Dyeing Co [1951] 1 All ER 631 Edwards v Skyways Ltd [1964] 1 WLR 349 Edgington v Fitzmaurice [1881 – 1885] 
4. All ER Rep 59 Esso Petroleum Ltd v Commissioners of Customs and Excise [1976]
5. WLR 1204 Rose and Frank Co v JR Compton [1925] 2 AC 445 Simpkins v Pays [1955] 1 WLR 975 Tanner v Tanner [1975]
6. WLR 1346 Thompson v LM & S Rly Co [1929] All ER 474 Thornton v Shoe Lane Parking Ltd [1971] 2 WLR 585 Secondary sources cKendrick, E., Contract Law (Oxford, 2003)

Footnotes

1. McKendrick, E., Contract Law (Oxford, 2003), p296

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