#15526 - Iclr Capacity - GDL Contract Law

Contract Law: Intention to Create Legal Relations & Capacity

Intention to Create Legal Relations (ICLR)

• Need for ICRL to make valid contract: Rose and Frank v Crompton Bros)—‘To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly’ (Atkin LJ).

• Objective assessment of parties’ intentions in making an offer, would a reasonable man think ICLR? (Smith v Hughes)

  • ‘reasonable man’/objective test (Bowerman v ABTA): would reasonable man have thought ICLR.

Presumption 1—commercial agreements, presumption of ICLR

• Commercial agreements:

  • Presumption = ICLR (Well Barn Farming v Backhouse; Bunn & Bunn v Rees & Parker): ‘heavy burden’ to show no ICLR in commercial relations. Well Barn Farming: ‘slight importance’ and temporary nature of arrangements still evidence of ICLR.

  • Bowerman v ABTA: apply ‘reasonably man’ test; re ABTA document in the window saying ‘ABTA arranges re-imbursement’, was unilateral offer to contract; ‘reasonable man’ would read the document as an offer of a promise.

• Rebutting presumption of commercial setting = iCRL

  • Express rebuttal: if specific wording/express clause to that effect, ‘honourable pledge clauses’ (Rose & Frank v Crompton): headnote said: ‘this agreement is not entered into ... as a formal or legal agreement’. Must use clear words, express clause will rebut presumption.

    • Language to show no ICLR must be sufficiently clear (Edwards v Skyways: expression ‘ex gratia’ was insufficient to show lack of ICLR, presumption hard to rebut, not rebutted).

    • Objective assessment of evidence enough to rebut presumption (Baird Textile v M&S).

  • Statements said in anger/jest (on an objective view): Licences Insurance Corp v Lawson: feisty board meeting; Lawson, angry, says vote with me on this and if it goes wrong, I will personally reimburse you not minuted, no ICLR, made in heat of moment—objective view, reasonable man wouldn’t have thought ICLR.

  • Adverts:

  • Generally ITTs, a prior negotiating step, no ICLR. Non-binding sales talk.

  • If ITT arises in business context: presumption = any offer in response to that invitation = ICLR.

  • Carlill v Carbolic: hELD: unilateral offer was legally binding—deposit of 1000 showed ICLR.

  • CF Leonard v Pepsico: was a joke, no ICLR.

  • Difficult facts in Esso Petroleum v Commissioners of Customs & Excise: objects offered as an inducement to buy goods; HL—majority said ICLR, minority not. Majority held ICLR due to the business context and large commercial advantage Esso expected to derive from promotion by attracting extra customers. Overall principle: where an object is given as a reward for buying goods, there is ICLR.

  • Comfort letter no ICLR (Kleinwort Benson v Malaysia Mining Corp: the comfort letter stated D’s current policy (‘it is our policy to ensure that our subsidiary is able to meet its liabilities in respect of the loan’ subsidiary lost the money, Malaysia Mining changed policy; was not a promise as to future conduct, not a contractual promise. Was only a representation of fact (giving rise to a moral responsibility); no ICLR.

  • ‘Subject to contract’ clauses no ICLR

    • An agreement ‘subject to contract’, prima facie, is not binding.

    • Eccles v Bryant & Pollock: parties agreed on sale of property ‘subject to contract’—HELD: no contract, no ICLR.

    • Chillingworth v Esche: agreed to sale of property ‘subject to contract’: no ICLR.

    • Air Studios v Lombard North Central

    • Strong and exceptional case can mean rejection of prima facie meaning of ‘subject to contract’: Alpenstow v Regalian Properties: agreed binding despite ‘subject to contract’ term—duty to submit a contract within the particular timetable.

  • Agreements to agree no ICLR (Barbudev v Eurocom Cable)

  • First Refusal Clauses: Not an offer to contract per se; but an offer to inform the other on what terms they would contract. AstraZeneca UK v Albemarle: right of first refusal had legal effect in this context; but meaning will always depend on context.

  • Best Endeavours—is an enforceable term: Jet2Com v Blackpool Airport: Blackpool Airport ‘best endeavours’ clause to promote Jet2 Com’s business: breached, was a breach of contract, was ICLR.

Presumption 2, no ICLR in social & domestic agreements

• Married couples, Balfour v Balfour: no ICLR between married couple, who, at time of agreement, in situation of amity.

• Parent & child, Jones v Padavatton: no ICLR re agreement between mother/daughter, cause no jurisdiction over arrangements.

• Rebutting this presumption:

  • (1) Where no longer in amity (separating couples), Merritt v Merritt: separating couple, Mr Merritt left to live with another woman; at point of agreement, married, but not in amity; so written agreement (that he would transfer property to her sole ownership after mortgage paid off) was ICLR.

  • Apply objective ‘reasonable man’ test (Lord Denning MR): ‘would reasonable people regard the agreement as intended to be binding?’

  • Denning: It is altogether different when the parties are not living in amity but not separated, or about to separate ... .it may safely be presumed that they intend to create legal relations’.

  • (2) Social arrangements (not purely family), mutuality of obligations, Simpkins v Pays: grandmother, granddaughter, lodger all lived in a house; separate obligations re filling out a weekly competition re fashion in Sunday Empire News; grandmother’s name went on slip; granddaughter bought stamp; lodger posted it. Held: ICLR—mutual obligations rebutted presumption of no ICLR, reward should be split between them. Sellers J: there was a ‘mutuality in the arrangement between the parties’—a clear understanding prize money would be split three ways.

  • (3) Previous conduct of the parties, Peck v Lateau: Two old ladies, play bingo together; had always divided any money they won between them previous conduct created ICLR, intention to share the money now.

A contextual approach—important addition to ‘objective man test’, Edmonds v Lawson (2000):

• Bingham LJ, context is all important, re whether parties had ICLR: ‘[whether ICLR] is an issue to be determined objectively and not by inquiring into their respective states of mind. The context is all-important’.

• So not ‘reasonable man’ test; but putting into shoes of parties, context, eg a reasonable surgeon, a reasonable hospital.

• So broadens test: objective (Smith v Hughes) + context all important (Bingham LJ)—court regard to whole context.

CAPACITY

Children (under 18)

• Not binding, even if other party does not know or minor has lied about age.

• Contract becomes binding if minor ratifies once reaches majority.

• Exceptions:

  • (1) Contracts for necessaries:

  • Minor is bound by a contract to supply necessaries to them, if contract is for their benefit.

  • SGA s3(1): ‘reasonable price’.

  • SGA 1979, s3(3): ‘necessaries’ = goods suitable to condition in life, and to actual requirements at time of sale & delivery.

  • Nash v Inman: minors only under legal obligation to pay for things necessary for their maintenance, even then only required to ‘pay a reasonable price’. (re waistcoat, Oxford student).

  • (2) Beneficial contracts of service (i.e. contract of employment, but only if for their benefit):

    • Doyle v White City Stadium: minor bound by contract of employment, but only if for their benefit. Re boxing licensing agreement, was enforceable.

    • CF Aylesbury FC v Watford Association FC: not beneficial to the minor, not enforceable.

    • Proform Sports Management v Proactive Sports Management: the contract must be ‘analogous to a contract of employment, apprenticeship or education’. Re Wayne Rooney—was not analogous in this case, no contract. So you ask, two-fold test: (1) whether analogous to contract of employment, apprenticeship or education’; (2) If so, whether the contract is beneficial to the minor.

  • (3) Contracts of continuing obligations

    • Certain contracts made by a minor, may be voidable rather than void. Minor may ratify on turning 18, or reasonable time after.

    • Steinberg v Scala (Leeds): the minor who rescinds will not be liable to perform in future, but will only be able to recover any...