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Contract Law – Unassessed essay
‘To what extent do judges establish the existence of a contract based solely on the intention of
the parties?’
In order for contracts to be valid and binding on both the parties in agreement, the ‘doctrine of
intention to create legal relations’1 must be presumed to have been considered, particularly
with regard to commercial agreements, in which there is a strong presumption, that of which
is difficult to rebut, that the concerned parties intended the agreement in question to have
legal effect
...
This essay will
consider how the courts interpret whether parties within these three forms of agreements
intend to be legally bound by their correspondence and the ways in which this is distinguished
and determined
...
2
The first form of agreements recognized as being more or less formed on an ‘ex gratia’3 basis
is those made by parties within a domestic setting
...
4 The primary case
in which this presumption was established was during the ruling of Lord Justice Warrington,
Lord Justice Duke and more significantly Lord Atkin in Balfour v Balfour5 in which it was
held that, the defendant (husband) was not under any legal obligation to perform his promise
of paying £30 per month to the plaintiff (wife)
...
6 In the ruling of Duke LJ, issue was
detailed with the legal significance of agreements made between parties within a domestic
setting that have otherwise separated, which, at the time the promise was made by the
defendant, the Balfours had not – ‘In the Court below the plaintiff conceded that down to the
time of her suing in the Divorce Division there was no separation’ further, the absence
between them ‘was a period of absence as between husband and wife living in amity’
...
9 He also detailed issues that would come as a result of enforcing
the doctrine in similar domestic cases, that of which would involve a wife being able to sue
her husband for failure to supply payment for trivial expenses within the household, and,
similarly, a husband would be entitled to ‘sue her (wife) for non-performance of the
obligation (e
...
maintenance of the household and children), express or implied’10 This would
multiply the number of cases brought on the basis of domestic agreements and increase the
burden on the courts
...
In
Merritt v Merritt11, Lord Denning contended that, in cases where an agreement occurs
between parties who’re separated, or about to separate, it is safe to rebut the presumption and
conclude they intended to create legal relations, as rather than living in amity12 it is suggested
the parties are instead taking care of their own individual interests
...
14 Further, the issue as to whether a ‘promise’ or ‘arrangement’ should be
considered legally binding was also addressed in Jones v Padavatton15 whereby it was held
that a mother, who had bought her daughter a house providing she complied with her wishes,
hadn’t issued a ‘contractual entitlement’16 to her daughter, and the intention of the parties was
rather through ‘trust placed in one another to honour their promises
...
The first of which was established in
8

Vide footnote 5
Vide footnote 5
10
Vide footnote 5
11
[1970] 1 WLR 1211, CA
12
Vide footnote 11
13
[1970] AC 777, 816
14
Ewan McKendrick, Contract Law (6th edn, OUP 2014) ch 7; page 272
15
[1969] 1 WLR 328
16
Vide footnote 15
17
Vide footnote 15
9

Granatino v Radmacher18 that stated the presumption may be displaced ‘where a husband
and wife enter into an “agreement to share the ownership or tenancy of the matrimonial
home, bank accounts, savings or other assets’19 Similarly, where the basis of the agreement is
concerned with commercial grounds, for example, those concerned with a ‘family business’20
like that within the case of Snelling v John G Snelling Ltd21 it is likely the presumption won’t
apply
...
23 Lastly, as stated earlier
the presumption may also be easily rebutted where the parties are on the verge or are in the
process of a separation
...
Similarly, the courts
uphold a presumption that the parties hadn’t intended to be bound by intention to form legal
relations, further, this presumption can be rebutted using the same objective factors provided
for rebuttal within domestic agreements
...

All three took turns to pay the entry fee and the entry was submitted in the defendant’s name,
who, subsequently won and refused to share the money three-ways as was originally agreed
...
This succeeded, despite the
dispute involving family members, which clearly excluded the lodger
...

Another scenario in which the doctrine has been deliberated for social agreements is within
cases in which a party, offers a fellow workmate regular transport to work on the proviso the
costs of travel are shared
...
This issue has been approached in various ways, in the case of
Coward v Motor Insurers Bureau25 The Court of Appeal ruled that due to issues such as
‘temporary indisposition, the incidence of holidays, the possibility of a change of shift, etc’26

18

[2010] UKSC 42, [2011] 1 AC 534, [142]
Ewan McKendrick, Contract Law (6th edn, OUP 2014) ch 7; page 273
20
Vide footnote 19
21
[1973] 1 QB 87
22
Ewan McKendrick, Contract Law (6th edn, OUP 2014) ch 7; page 273
23
[1960] 1 WLR 286
24
[1955] 1 WLR 975
25
[1963] 1 QB 259
26
Vide footnote 25
19

it is not appropriate to assume there is a contractual relationship between the parties in these
situations
...
In these
cases, the courts harbour a strong presumption that the parties concerned do intend to form
legal relations, primarily due to the nature of context of the agreement and the parties
intended relationship as being on the basis of a commercial nature
...
However, in the case of Esso Petroleum Ltd v Commissioners
of Customs and Excise27 in which it was ruled that the arrangements of the defendant party
constituted that of a business arrangement with ‘commercial advantage’, in such a way that
meant the defendants actions were interpreted to have formed the basis of intention to form
legal relations, which was argued otherwise by the defendant
...

Clearly, it is of importance that the wording used within the honour clause is considered,
objectively, by the courts, to satisfy express stipulation of legal obligation or effect of the
agreement and thus, sufficient to rebut the presumption
...
Justice Megaw rejected this claim, ruling that
‘ex gratia’ should be considered in regard of the employers lack of ‘pre-existing liability on
his part’ rather than on the settlement of the payment
...
A defendant would then possibly seek to claim that a contract was not initially
formed, meaning it not be possible to intend legal relations, due to ‘(a) the agreement being

27

[1976] 1 WLR 1
[1925] AC 445
29
Ewan McKendrick, Contract Law (6th edn, OUP 2014) ch 7; page 282
30
Vide footnote 28
31
[1964] 1 WLR 349
32
Vide footnote 31
28

too vague or uncertain to amount to a contract’ and ‘(b) the parties did not intend to create
legal relations’33 in such a case, the burden of proof is on the claimant to prove that a legally
binding and valid contract has been formed, then with regard to the formation of legal
intention and displacing this, the onus is then on the defendant to prove that intention to be
legally bound by said contract did not occur
...
On the contrary, the presumption upheld within domestic and
social agreements allows the judiciary to distinguish between ‘favours’ or ‘promises’ made
between parties, that constitute moral, rather than legal obligation and that would otherwise
form a legally binding contractual relationship between family members and friends

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