Creation of legal relations in English law

Business transactions are presumed to always carry intent to create legal relations, unlike social agreements.

Creation of legal relations is a doctrine in English contract law that states an agreement is legally enforceable only if the contracting parties may be deemed by the court to have intended it. This doctrine operates in addition to consideration.[1] There is with most commercial agreements a strong rebuttable presumption that parties intend to create legally binding relations. However, the reverse is true with most social and domestic agreements.[2]

Whilst most social agreements are not intended to have any legal consequences, this requirement of contracting has been labelled 'fictitious',[3] and 'superfluous'.[2] However, it has been stated that the need for parties to show intent to contract is important, in allowing courts to dismiss frivolous social agreements, which for policy reasons should not be legally enforceable.[4]

Social and domestic agreements

Postnuptial and domestic agreements made between spouses are rarely found to result in legally enforceable contracts.[5] This principle was firmly established at common law by the early 20th century case of Balfour v Balfour,[6] where a husband's promise to pay his wife an allowance of £30 a week - during his absence on business - was deemed unenforceable. Here, it was stated that as a general rule, agreements between spouses would not be legally enforceable:

The matter really reduces itself to an absurdity when one considers it, because if we were to hold that there was a contract in this case we should have to hold that with regard to all the more or less trivial concerns of life where a wife, at the request of her husband, makes a promise to him, that is a promise which can be enforced in law.[7]

This principle is not absolute however, and clearly in cases where spouses are not on friendly terms, it is important they be able to make enforceable agreements. Where a husband who left his wife agreed to transfer title of their house to her, if she paid off the remainder of the mortgage,[8] this was held to be enforceable. This is a necessary distinction; if it were not the case, it would be unduly difficult for divorced couples to make financial provisions, or to divide property.[5]

Agreements made between other family members may also be subject to the question of contractual intention,[5] as shown in the case of Jones v Padavatton.[9] Here, a mother made a promise to her daughter that she would pay her an allowance of $200 a month, and provide her with a house, if she moved to England and studied for the bar.[2] The Court of Appeal held that the mother held title to the house, as the agreement was purely domestic. However, Lord Denning stated in Hardwick v Johnson[10] that where good consideration can be shown for a domestic promise, this may rebut the principle that it is intended not to have legal consequences.[11]

Social agreements between friends, colleagues, and those sharing households, are equally scrutinised when considering intent to create legal relations.[12] Agreements which encompass purely social activities, such as meeting for dinner, are never considered to be legally binding;[13] however, this principle has been extended even where financial bargains have been considered. In Coward v Motor Insurers Bureau,[14] one man's agreement to pay his colleague a sum for transport to work was deemed to be informal enough not to be legally binding.[13] Equally, the winner of a golfing competition failed to recover his prize where no one involved had intended to be legally bound.[15]

Commercial agreements

The particular circumstances of advertisements or offers may show intention to be legally bound, as in Carlill v Carbolic Smoke Ball Company.

Agreements of a commercial nature carry the opposite presumption to social agreements; parties involved are presumed to create legal relations, unless the circumstances or nature of an agreement preclude this. For example, where a contract states expressly that it does not intend to create legal relations, then the courts will not seek to create any.[15] This is demonstrated by the case of Rose & Frank Co v JR Crompton & Bros Ltd,[16] where a contract for distribution stated:

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 either of the United States or England, but it is only a definite expression and record of the purpose and intention of the three parties concerned, to which they each honourably pledge themselves with the fullest confidence - based on past business with each other - that it will be carried through by each of the three parties with mutual loyalty and friendly co-operation.

As a result of this statement, the Court of Appeal held that the contract was not legally enforceable; the intentions of the parties were sufficient to override the presumption of intention to create legal relations.[17] Such language must however be clear and free of any ambiguity; where it is not, it is for the party asserting there was no legal relations to prove it.[18] Where in Edwards v Skyways Ltd[19] a bonus payment, described as 'ex gratia', was promised to an employee, this was found to be legally binding. He had relied upon the promise in accepting a redundancy package, and his employer could not adequately prove that they had not intended their promise to become a contractual term.[20]

Other instances where the presumption for creating legal relations are rebutted include advertisements made by companies, or manufacturers. These may be bold but vague claims about the effectiveness of a product, yet they will often legally be found to have no effect.[21] However, this general rule does not apply where the advertisement in question is constructed in a manner which shows intent to create legal relations, as in Carlill v Carbolic Smoke Ball Co.[22] Here, an advertisement offered a reward of £100, for anyone who purchased a 'Smoke ball', used it correctly, and subsequently contracted certain illnesses (namely influenza).[23] The company was bound by this unilateral offer, as the advert contained several statements which were held to show intent to create legal relations; namely the fact that they had deposited £1,000 into a bank account, to 'show their sincerity.'[24]

In the special case of collective agreements, the Trade Union and Labour Relations (Consolidation) Act 1992 section 179 provides that a collective agreement is deemed to be not legally enforceable unless it is in writing and contains an explicit provision asserting that it should be legally enforceable. This reflects the tradition in British industrial relations policy of legal abstentionism from workplace disputes.

See also

Notes

  1. ↑ Halson, p. 182
  2. 1 2 3 Chen-Wilshart, p. 111
  3. ↑ Unger, p. 96
  4. ↑ Koffman, Macdonald, p. 98
  5. 1 2 3 Koffman, Macdonald, p. 99
  6. ↑ Balfour v Balfour [1919] 2 KB 571
  7. ↑ per Warrington LJ, [1919] 2 KB 571, pp. 574-575
  8. ↑ Merritt v Merritt [1970] 1 WCR 1211
  9. ↑ Jones v Padavatton [1969] 1 WLR 328
  10. ↑ Hardwick v Johnson [1978] 1 WLR 683
  11. ↑ [1978] 1 WLR 683, p. 689
  12. ↑ Halson, p. 183
  13. 1 2 Chen-Wilshart, p. 114
  14. ↑ Coward v Motor Insurers Bureau [1963] 1 QB 359
  15. 1 2 Halson, p. 184
  16. ↑ Rose & Frank Co v JR Crompton & Bros Ltd [1924] UKHL 2
  17. ↑ Halson p. 185
  18. ↑ Furmston, Cheshire, Simpson, Fifoot, p. 150
  19. ↑ Edwards v Skyways Ltd [1964] 1 WLR 349
  20. ↑ Furmston, Cheshire, Simpson, Fifoot, p. 151
  21. ↑ Koffmoon , Macdonald, p. 101
  22. ↑ Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
  23. ↑ [1893] 1 Q.B. 256, p. 256
  24. ↑ Furmston, Cheshire, Simpson, Fifoot, p. 148

References

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