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Intention to Create Legal Relationship

Intention to create legal relations is one of the major part of elements in contract. We can define intention to create legal relations as an intention to enter into legally binging contract or agreement. This can be considered as one of the necessary elements in the formation of a contract. As it shows the readiness of parties involved to accept the legal consequences of having entered into such agreement. It should be the motion of each contracting party to enter into a lawfully binding contract.

The following points can be considered as few concepts of intention to create legal relations

  1. The contracting parties must have the obvious mind to enter in a serious contract
  2. To make a contract enforceable, legal and binding, there must be an intention to create legal relations.
  3. In the absence of intention, the parties cannot sue each other.
  4. The contract may become a mere promise if the intention to create legal relations is absent.
  5. The contract may lack the binding effect in the absence of the intention to create legal relations.

Contract Act 1950 is silent on intention. It states that it is not necessary for the partis to contract to have intention in their mind, but they have to decide whether they would draw a complete agreement by words and actions that they want to bound legally.

The Common Law principle states that there is no binding contract unless the involved parties in the agreement have the intention to enter into such relationship under the law.
There are two ways to determine the existence of intention. In the objective test, the court will refer to the opinion of a reasonable man. In the rebuttable presumption test the court establishes the burden of proof.

Two ways to determine the existence of Intention:

  1. Objective test:
    This is also considered as a reasonable man test. The court will refer to the opinion of a reasonable man. If the promisor did not intend to create a legal relation, it is not the promisor to decide, but the court would presume an intention exists if a reasonable man is of the option that intention existed to bind the promisor.

    In Carlill V Carbolic Smoke Ball Company, the court applies the �objective test� and it was examined whether a reasonable man, after knowing all the circumstances of the case, believes that the parties intended to be bound.

    The defendant had made extravagant claims in an advertisement about the efficacy of their smoke ball in preventing influenza. They promised to pay 100 pounds to anybody who used it and yet caught influenza within a given period. They stated that in order �to show sincerity� they had deposited 1,000 pounds with their bankers. The plaintiff bought the preparation, used it and caught influenza.

    As the advertisement pictured stated that the company in accordance to showing their sincerity in the matter had deposited 1,000 pounds in the Alliance Bank. It was held by the court that any objective man who read this would presume an intention to contract.
  2. Rebuttable presumption:
    It establishes the burden of proof that may be rebutted by evidence in the contrary. In rebuttable presumption there exists the requirement for court to presume something is the case until the evidence is mentioned that proofs otherwise.

    There are mainly two types of agreements:

    1. Social, family or other domestic agreements:
      There is a presumption of no contract in family agreements whereas the Social agreements are decided based on the merits and demerits using objective test.

      This is further divided into:
      • Agreement between husband and wife:

        Legal principle states that an agreement between husband and wife have generally been presumed not to be intended to create legal relations, but such presumption may be rebuttable depends on the facts of each case.

        Balfour V. Balfour, this case involved a husband and a wife who lived in Sri Lanka and they went back to England, while they were in England the wife fell ill and was not able to return back to Sri Lanka with her husband and the husband promised to pay the wife a certain amount of money after shifting back to Ceylon. After a while the husband stop paying and the wife insisted for the payment he had promised.

        Judgement: The court decided that he did not have to pay as the court did not find that the wife provided any consideration. The presumption in this case is that there is no intention to create legal relationship.

        Exception where husband and wife are separated:
        In Merritt V. Merritt, the husband had moved out and the wife remained in the house. There was still some mortgage left. They met to decide for the payment of mortgage and the husband said to the wife that he would pay her 40 pounds a week and she would have to pay off the mortgage.

        The wife made husband to sign a piece of paper in that effect after the mortgage was paid of the husband did not transfer his share of house to the wife and he argued that there was no intention to create legal relationship.

        Judgement: The court did not agree and found out that since they were separated and the husband signed a piece of paper showed his clear intention to be bound by legal contract.
      • Agreements between parent and child:

        The principle in Balfour V. Balfour has been applied to an agreement between mother and daughter in Jones V. Padavatton. Mrs. Padavatton lived in Washington, DC and her mother lived in Trinidad.

        The mother was very keen for her daughter to study Law so she offered her if she would give up her post in Washington, DC and move to London to study law. She would provide her with an apartment and pay for her upkeep. The daughter accepted the offer. After few years they fell off and the mother wanted her possession back on her apartment. The daughter refused.

        The court held that there is presumption of no intention to create legal relationship in this case as the daughter and mother are involved.

        Exception where the consequences are serious:
        In Parker & Clark, this case involved an uncle and an aunt on one hand and a niece and her husband on the other hand. The uncle wanted to have their niece and her husband to come and live with them. As they were getting older and frail. It was going to be useful for them to have the niece and her husband around.

        In order to entice them the uncle promised to give them the share of the house that they would then all be living in. The niece and her husband accepted the offer after taking some fairly far-reaching steps, namely they had to move out of their own house and sold it. When they fell off, they were denied the share in the house by uncle and aunty.

        The court held that in this case there was an intention to create legal relationship because the consequences for the niece and the husband were very serious.
      • Agreements between friends

        In Coward v Motor Insurance Bureau, Mr. Coward was the passenger on a motorcycle which was owned and driven by his friend. They had this arrangement for a long time whereby the friend would give Mr. Coward a lift to work on the motorcycle and sometimes Mr. Coward would contribute to the price of petrol.

        There was an accident in which Mr. Coward was hurt and the insurance would only pay out to Mr. Coward if in fact there was a contract for the carriage for hire. Basically, if his friend took him as a paying passenger. In order to support his argument Mr. Coward mentioned that he had paid for petrol.

        However, the court held that there was no enforceable contract between the friend and Mr. Coward because there was no intention to create legal relationship.

        Exception where there is mutuality:
        In Simpkins v Pays, there were three people the grandmother, granddaughter and a lodger living together. They participated in a competition on the weekly basis which involved cutting some portion of Sunday newspapers and send it off. They used to do in turn wise once grandmother did the job and she claimed 750 pounds of winning money.

        The court held that there existed the intention to create legal relationship so the grandmother had to share that money.
    2. Commercial agreements:

      There is presumption that the parties do intend to make a legally binding contract unless presumed otherwise. It is not necessary in the ordinary run of commercial agreements for the plaintiff to supply affirmative evidence that there was such an intention. However, the defendant may rebut the presumption by reference to the words used and circumstances prevailed.

      In Edwards v Skyways, Skyways was the employer and Mr. Edwards the employee. Mr. Edward was let go because of a case of redundancy. He was promised �ex gratia� payment by Skyways. He was not paid and Edward sued Skyways.

      The court agreed that it was an enforceable agreement with valid offer and acceptance and the intention to create legal relationship. As it is of business and commercial nature.

Exception where the offer is a �mere puff�:

In Carlill v Carbolic Smoke Ball, the case has already been mentioned above.
Judgement: The court rejected the defence that the advertisement was �mere puff� and was not intended to create legal relations. The fact of the deposit in the bank was strong evidence that the defendant had contemplated legal liability.

Intention to create legal relationship is necessary to make a contract enforceable, legal and binding. In order to answer the first question raised in this paper, detailed explanation of the two tests is given along with case laws pertinent to them. This subsequently answers other two questions. The last question talks about exceptions to these presumptions. Hence, one exception is stated with each presumption. At the end we can conclude that intention is necessary to create the legal obligation without which an agreement is a mere promise.

It can be identified through objective and rebuttable presumption tests. In objective test, the opinion of ordinary test is taken into account and in rebuttable presumptions, certain presumptions are applied to agreements of Social and Commercial nature which can be rebutted through various exemptions to presumptions.

  1. Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256
  2. Balfour v Balfour [1919] 2 KB 571
  3. Merritt v Merritt [1970] 2 All ER 760, [1970] 1 WLR 1211
  4. Jones v Padavatton [1969] 1 WLR 328
  5. Parker v Clark [1960] 1 WLR 286
  6. Coward v M.I.B. [1962] 1 All ER 531 CA
  7. Simpkins v Pays [1955] 1 WLR 975
  8. Edwards v Skyways Ltd [1964] 1 WLR 349

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