#3106 - Intention To Create Legal Relations And Capacity - GDL Contract Law

Intention to Create Legal Relations (ICLR)

- ICLR: objective test (Smith v Hughes) – can be expressed or presumed.

• ICLR: parties intend their agreement to have force of law + to be bound.

  • ‘common intention to enter legal obligations, mutually communicated expressly or impliedly’ (per Atkin LJ in Rose and Frank).

• objective test: courts seek to give effect to intention of parties.

  • Smith v Hughes [1871]: [Blackburn J] test – a reasonable man believes a party is assenting to the terms proposed by the other party + other party enters contract on that belief.

• broad general distinction (Rose and Frank Co. v Crompton Bros. [1925])

  • commercial agreements: rebuttable presumption for ICLR.

  • domestic agreements: rebuttable presumption against ICLR.

- Contextual approach: Edmonds v Lawson [2000] – modification to Smith v Hughes test.

• facts: barrister pupil suing Chambers (with their support – test case) for minimum wage no application: pupil barrister not a ‘worker’.

• test: objective (Smith v Hughes) + ‘context is all important’ (per Bingham LJ).

  • broadens test: court has regard to whole context.

- Commercial + business agreements: presumption for ICLR – will be implied by courts.

• courts readily imply commercial ILCR: Well Barn Farming Ltd v Backhouse [2005] – ICLR implied from arrangement of ‘slight importance’ + temporary nature – trivial nature of transaction not relevant.

• difficult to rebut presumption:

  • Bunn & Bunn v Rees & Parker [2002]: heads of agreement preliminary to fuller contract enough to establish ICLR.

    • 1. heavy burden for party to commercial agreement to rebut ICLR.

    • 2. terms:

      • typical of commercial agreement intended to be binding.

      • not so vague that parties could not have intended to be bound.

    • 3. ICLR possible even if all details not worked out: expectation of further more detailed agreement not inconsistent with ICLR.

      • comfort letters, letters of intent etc. can be binding.

    • 4. business experience: commercial parties should know effect of signing clear agreement – if not: should not have signed or included further clear provisions.

  • Bowerman v Assoc. of British Travel Agents Ltd. [1996]: objective test – meaning as understood by reasonable member of public binding on ABTA (notice displayed in member’s office).

    • esp. when party benefits from promise: ABTA would not have had business if not for guarantee on members.

- Rebutting presumption of ICLR in commercial agreements.

• Hadley & Others v Kemp & Another [1999]: [Park J]: presumption only a generalisation not law – can be rebutted.

• express clause in agreement: honourable pledge clause (‘binding in honour only’).

  • Rose and Frank Co. v Crompton Bros.: ‘this agreement is not entered into … as a formal or legal agreement, and shall not be subject to legal jurisdiction in the law courts of either the United States or England’.

    • CoA: neither agreement nor subsequent orders/acceptances binding.

    • HoL: agreement not binding but orders/acceptances valid contracts.

    • but problems: (a) clause itself not binding if contract not?; (b) rule against jurisdiction of courts being ousted only if ICLR?

  • wording must be clear: Edwards v Skyways [1964]: employer agreed to make ‘ex gratia’ payment to employee pension not sufficient to show no ICLR.

• ‘subject to contract’: judicially recognised term – no ICLR prima facie.

  • Chillingworth v Esche [1924]; Eccles v Bryant and Pollock [1948].

• statement made in jest or anger (on objective view):

  • Licences Insurance Co. v Lawson [1896]: no ICLR from heat-of-moment statement in angry meeting.

  • Leonard v Pepsico [US, 1999]: no ICLR from mere advertising ‘puffery’.

• comfort letters: can express intention, but no ICLR if not.

  • Kleinwort Benson Ltd. v Malaysia Mining Corp [1989]: comfort letter setting out current ‘policy’ no ICLR as not clear enough.

• collective agreements: agreements formed by labour unions on behalf of employer/employees – Trade Union and Labour Relations (Consolidation) Act 1992 s179.

• advertisements: exception to presumption – rationale: reasonable people do not see advertising claims as contractual promises.

  • but not if ICLR clearly expressed: unilateral offers.

    • Carlill v Carbolic Smoke Ball Co Ltd [1893]: ICLR shown by deposit of money in bank account. (cf. Leonard v Pepsico: must be serious offer).

  • sometimes debatable: Esso Petroleum Co. v Comms. of Customs and Excise [1976]: debate over whether offer of free coin to petrol buyers binding on garage owners.

- Social + domestic agreements: presumption that no ICLR (when relations in amity).

• rationale: common sense – parties would not reasonably envisage right to sue for failure to honour agreement.

• married couples: Balfour v Balfour [1919] – husband promised wife 30 pm when in amity could not be enforced after break-up.

  • [Atkins LJ]: promises of married couples based on ‘natural love + affection’ – cannot be enforced in courts.

  • prenuptial agreements: currently unenforceable (although Granatino v Radmacher [2010]: pre-nup. upheld).

• parent + child: Jones v Padavatton [1969] – mother promised daughter maintenance to study for Bar in UK – allowed daughter use of house to provide income allowed to take possession: no ICLR.

- Rebutting presumption against ICLR in social + domestic agreements.

• estranged couples: Merritt v Merritt [1970] – ICLR when agreement made after separation (to give wife house after she paid off mortgage).

  • factors: no amity; written agreement.

• mutuality of obligations: Simpkins v Pays [1955] – grandmother, granddaughter + lodger all participate (+all play part) in fashion contest together (in grandmother’s name) must share winnings.

• previous conduct of parties: Peck v Lateau [1973] – friends agree to share bingo winnings: ICLR established by long-standing adherence to agreement d. must share large winnings.

Capacity: rules to protect vulnerable + those contracting with them.

- Minors: contract between adult + minor not binding on minor, with some exceptions.

• exception: contracts for necessaries.

  • ‘necessaries’ – Sale of Goods Act 1979, s3(2)-(3):

    • suitable to condition in life of minor + necessary at actual time of sale.

    • must be at reasonable price.

  • Nash v Inman [1908]: waistcoats not necessary – minor not bound to pay tailor.

• exception: beneficial contracts of service/employment.

  • Doyle v White City Stadium [1935]: boxing contract beneficial all terms binding.

  • Aylesbury FC v Watford AFC [2000]: contract not beneficial (too harsh, extra no training) not binding on minor.

  • Proform Sports Management Ltd v Proactive Sports Management Ltd [2006]: Wayne Rooney allowed to leave management co. because contract insufficiently beneficial.

    • beneficial contract: must promote development, not just money.

• minor can ratify/rescind at 18: binding on other party without option to rescind.

  • Steinberg v Scala (Leeds) Ltd [1923]: minor who rescinds not liable for obligations, but cannot recover money paid under contract unless total failure of consideration – liable for continuing obligations.

  • Minor’s Contracts Act 1987 s3(1): court may require minor to transfer to claimant any property acquired by minor under contract, if just + equitable.

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