Paper 2.2 – Corporate and Business Law
By Ahmed Alasalli
Chapter 6 – Intention to Enter in to Legal Relations
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Explain why social arrangements may lack the necessary legal intention
Identify the key elements of commercial arrangements that do indicate the legal intention
Social arrangements are not intended to be legally binding because their nature being such that a reasonable
person viewing the words and conduct of the parties objectively would not conclude that they intended to
create legal relations, such as an invitation to lunch!
But even though some arrangements are not intended to be legally binding there may be evidence that rebut
that presumption.
Balfour v Balfour
The defendant who was about to go abroad, promised to pay his wife ₤30 per month in consideration of her
agreeing to support herself without calling on him for any further maintenance. The wife contended that the
defendant was bound by his promise.
Held: there was no legally binding contract between the parties. As it was a domestic agreement it was
presumed the parties did not intend to be legally bound.
Jones v Padavatton
Padavatton’s mother, Mrs Jones, persuaded her to leave an overseas job to return to this country and read
for the Bar, she promised her a monthly allowance in exchange. The daughter failed the Bar examinations.
The allowance was not paid, but Mrs Jones bought a house and allowed the daughter to use it, rent free, and
allowed her to claim rent from the other tenants.
Three years later the mother reclaimed the house and the daughter demanded the arrears of allowance
Held: the arrangement may originally have been intended to have legal effect, but that lapsed when a
reasonable time for the daughter’s exam attempts had expired.
The subsequent arrangements had been domestic only, and the mother could therefore recover the house.
Although the previous two cases support the presumption that domestic arrangements are not intended to be
legally binding, the court may reach a contrary conclusion after examining words used and surrounding
circumstances, as we shall see.
Simkins v Pays
Pays and her granddaughter, together with Simpkins, a paying lodger, submitted an entry each week in a
fashion competition appearing in the Sunday Empire News. All three devised a separate solution to the
competition, but they were submitted on one coupon only, in Pay’s name. The entry fees and postage were
shared equally. The granddaughter made a correct forecast and Pays received a prize of ₤750. Simpkins
claimed a one-third share of the prize money.
Held: although this was an arrangement in a domestic context the presumption was rebutted: it was a
legally enforceable joint enterprise and the parties clearly intended to share any prize money. ‘There was
mutuality in the arrangements between the parties and an intention to create legal relations’. It was decided
that on the facts this went beyond a mere friendly agreement and became a joint enterprise.
The presumptions will be rebutted where the evidence shows that the parties made format and/or detailed
financial arrangements.
Parker v Clark
Mrs Clark wrote to her niece Mrs Parker suggesting that she and her husband might consider selling their
own home in Sussex and living with Mrs Clark and her husband in their large house in Torquay. The letter
set out detailed financial arrangements for share household expenses. Mrs Clarke promised that the house
in Torquay and its contents would be devised by will to Mrs Parker. This offer was accepted in writing by
Mrs Parker and the agreement implemented. Following continued unpleasantness between the two couples
the Parkers left.
Held: there was an intention to create legal relations since by selling their home the Parkers had ‘burned
their boats’ and relied on the enforceability of the agreement. Further, when Mr Clark altered his will to
implement the promise made to the Parkers, he clearly regarded their arrangements as legally binding.
₤1,200 damages were awarded to the Parkers jointly, representing the value of rent-free accommodation in
Torquay. Mrs Parker was awarded ₤3,400 assessed as the value of her expected inheritance.
The usual presumption that agreements between spouses living happily together are not legally enforceable
does not apply when they are about to separate, or have already separated.
Merritt v Merritt
A husband, separated from his wife, wrote and signed a document stating that, in consideration of the wife
paying off the outstanding mortgage debt of ₤180 on their matrimonial home, he would transfer the house
standing in their joint name into her sole ownership. The wife implemented her promise, but the husband
refused to transfer title in the house to her, alleging that his promise was a domestic arrangement not giving
rise to legal relations.
Held: The husband’s promise was enforceable, the agreement having been made when the parties were not
living together amicable. A legal relationship is contemplated where a husband deserts his wife and an
agreement is concluded on ownership of the matrimonial home occupied by the wife and children.
In ordinary commercial dealings there is a strong presumption that the parties intend them to be legally
binding.
This presumption can be rebutted if a contrary intention is clearly expressed in the agreement itself.
Jones v Vernon’s Pools Ltd
Jones contended that he had forwarded a winning entry to the defendant company of football pool
promoters, but they denied having received it. In order to deal with this type of eventuality, a clause was
printed on the pools coupon which Jones had signed, stating that ‘any agreement… entered into… shall
not… give rise to any legal relationship… but … is binding in honour only’.
Held: a contract did not exist between the parties, since the wording of the agreement clearly negated any
such intention. Jones could not, therefore, sue the pools company for breach of contract.
Edwards v Skyways
An employer agreed to make a payment to a redundant employee, which is non-contractual and at the will
of one of the parties.
Held: the use of the term ex-gratia was only a denial of a previsous liability and did not rebut the
presumption that the parties intended that the agreement to make the payment was legally binding.
Rose and Frank Co v Crompton & Bros Ltd
A commercial agency agreement stated: ‘this… is not entered into… as a formal or legal agreement, and
shall not be subject to legal jurisdiction in the law courts’. Goods were ordered and supplied in compliance
with the agency agreement. Crompton breached the agreement.
Held: the wording of the agency agreement made it clear that it was not intended to be binding in law, it
could not therefore be enforced. However, goods ordered and supplied in accordance with agreement were
regarded as separate, binding, contracts of sale. It was therefore a commercial agreement.
Conclusion
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Social or domestic agreements and commercial agreements should be dealt with separately.
In social or domestic agreements there is a presumption that there is no intention to enter into legal
relations.
This can be rebutted if the agreement becomes a joint enterprise, where there are financial
arrangements.
This can also be rebutted if the agreement is between two spouses who are separated or about to be
separated.
In commercial agreements, the intention to enter into legal relations is presumed.
This will be rebutted, however, if it was clearly expressed in the agreement that this is not the case.