CHAPTER ONE
1.0 Introduction
The presence of consideration is often indicative of the intention to create legal relations,
though there are situations where the presumption of the intention can be rebutted, thus
determining that there is no contract and no legal liability.
In many domestic agreements, for example those made between husbands and wives and
parents and children, there is no intention to create legal relations and no intention that the
agreement should be subject to litigation. Familial relationships do not preclude the formation
of a binding contract, though to create contractual relations, there must be a clear intention on
either party to be bound.
While there are conflicting legal authorities on whether specific facts involving familial
relations result in binding and enforceable agreements, it seems settled that in domestic
agreements there is a rebuttable presumption that the parties do not have intention to create
legal relations.
In commercial agreements, there is a rebuttable presumption that parties intend to create legal
relations and conclude a contract. In determining whether parties have created legal relations,
courts will look at the intentions of the parties. If in the course of business transactions, the
parties clearly and expressly make an agreement stating that it ought not to be binding in law,
and then a court will uphold those wishes. However, if a court is of the view that there is any
ambiguity of intention, or that such intention is unilateral, such contract will be voided. The
burden of rebutting the presumption of legal relations in commercial agreements lies on the
party seeking to deny the contract. In terms of commercial contracts involving large sums of
money, case law has determined that it is a heavy burden.
Agreements between companies and trade unions have also raised the question of the
intention to create legal relations. Collective agreements are generally not intended to be
legally binding. It has been held that specific provisions of collective agreements can be
incorporated into individual contracts of employment and thus legally binding.
The intention to create legal relations is an essential feature of contract law in Nigeria, and
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the existence of the intention will depend on the nature and form of the contract and the
contracting parties.
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CHAPTER TWO
2.1 Intention to Create Legal Relation
The intention to create legal relations is a major principle of Contract Law. For the purposes
of considering the presence or absence of the contractual intention in agreements, the latter
may be classified into:
2.1.1 Cases of Social / Domestic Nature
According to A.W.B. Simpson this doctrine might date back to the landmark decision of
Carlill v Carbolic Smoke Ball Company [1893], but it was not really established until 1919
by the landmark decision of Balfour v Balfour [1919], husband brought wife to England from
Sri Lanka, husband had to return but wife stayed for medical reasons, he promised to pay her
£30/month until his return when he failed to pay, she sued wife's action failed because no
consideration moved from her no intention to create legally binding agreement found court
stated in husband/wife cases, burden of proof is on plaintiff to prove intention to create
legally binding agreement.
2.1.2 Cases of Commercial Nature
Very strong evidence required to rebut assumption that there's intention to create legal
relationship. One method = put an express statement to that effect in writing.
Appleson v H Littlewood Ltd [1939] / Jones v Vernon's Pools Ltd [1938], plaintiffs tried to
claim pools winnings words 'Binding in honour only' were printed on coupon plaintiffs failed,
court held words were sufficient evidence to rebut assumption of intention to create legal
relationship.
Rose and Frank Co. v J R Crompton and Bros [1925], English firm (defendants) agreed to
sell materials in USA via NY-based firm agreement in writing contained 'Honourable Pledge
Clause': 'This arrangement is not entered into ... as a formal or legal arrangement and shall
not be subject to legal jurisdiction to the law courts' defendants terminated agreement without
notice and refused to fulfil order received before termination notification
Court of Appeal rule clause meant no legally binding consequences existed re: no notice
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period but defendants were bound to fulfil orders already received as they became binding
when accepted.
Two anomalies in above case:
How can clause bind if there is no binding contract as stated by the clause itself?
Clause should be void as contravenes public policy by ousting jurisdiction of the courts
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CHAPTER THREE
3.1 Intention to Create Legal Relations in Building Contract
In commercial transaction the law presumes that the parties intended to create legal relation
unless a contrary intention appears. Not surprisingly, there is hardly a case in which the
validity of a commercial agreement has been challenged for absence of the contractual
intention. Recognition of the existence of domestic and social agreements to which parties do
not mean to be legally bound has resulted in a presumption that, correspondingly, no contract
is recognised. Commercial transactions, on the other hand, are treated with a presumption
that legal relations were intended.
An agreement in building industry like other contractual dealings is not binding as a contract
if it was made without any intention of creating legal relations. The establishment of the
intention to create legal relations is a question of fact and may be established by evidence.
Clarke and Tucker v Tucker (1961)
An agreement, though supported by consideration, is not binding as a contract if it was made
without any intention of creating legal relations.
Mere Puffs
A statement inducing a contract may be so vague, or so clearly one of opinion, that the law
refuses to give it any contractual effect.
Even a statement that is perfectly precise may nevertheless not be binding if the court
considers that it was not seriously meant.
Thus in Weeks v. Tybald the defendant "affirmed and published that he would give £100 to
him that should marry his daughter with his consent." The court held that "It is not reasonable
that the defendant should be bound by such general words spoken to excite suitors."
3.1.1 Letters of Intent or of Comfort
An issue of contractual intention may arise where parties in the course of negotiations
exchange "letters of intent" or where one party gives to the other a “letter of comfort." The
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terms of such documents may negative contractual intention.
The fact that the parties envisage that the letter is to be superseded by a later, more formal,
contractual document does not, of itself, prevent it from taking effect as a contract.
President of the Methodist Conference v. Parfitt
Appointment of a person as a Minister of the Methodist Church did not give rise to a contract
as the relationship was not one "in which the parties intended to create legal relations
between themselves so as to make the agreement . . . enforceable in the courts.
The fact that a statement was made in jest or anger may also negative contractual intention.
Licenses Insurance Corporation v. Lawson
Defendant was a director of the plaintiff company and of another company. The plaintiff
company held shares in the other company and resolved, in the defendant's absence, to sell
them. At a later meeting this resolution was rescinded after a heated discussion during which
the defendant said that he would make good any loss which the plaintiff company might
suffer if it kept the shares. It was held that the defendant was not liable on this undertaking.
Nobody at the meeting regarded it as a contract; it was not recorded as such in the minute
book; and the defendant's fellow-directors at most thought that he was bound in honour.
3.1.2 Proof of Contractual Intention
The question of contractual intention is, in the last resort, one of fact. The test of contractual
intention is normally an objective one.
Esso Petroleum Ltd. v. Commissioners of Customs and Excise [1976]
Evans & Son (Portsmouth) Ltd. v. Andrea Merzario Ltd
The representative of a firm of forwarding agents told a customer, with whom the firm had
long dealt, that henceforth his goods would be packed in containers and assured him that
these would be carried under deck. About a year later, such a container was carried on deck
and lost. At first instance, Kerr J. held that the promise was not intended to be legally binding
since it was made in the course of a courtesy call, not related to any particular transaction,
and indefinite with regard to its future duration. The Court of Appeal, however, held that the
promise did have contractual force, relying principally on the importance attached by the
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customer to the carriage of his goods under deck, and on the fact that he would not have
agreed to the new mode of carriage but for the promise.
In commercial transaction the law presumes that the parties intended to create legal relation
unless a contrary intention appears. Not surprisingly, there is hardly a case in which the
validity of a commercial agreement has been challenged for absence of the contractual
intention. Recognition of the existence of domestic and social agreements to which parties do
not mean to be legally bound has resulted in a presumption that, correspondingly, no contract
is recognised. Commercial transactions, on the other hand, are treated with a presumption
that legal relations were intended.
For instance, in above statement it reflects that in trial where the issue is disputed, the parties
allege to have had a contrary understanding at the time of whether or not the agreement has
legal effect. Also that it is ‘likely’ that the parties’ assertions are honestly what they intended,
so either way, the affect the court gives to the doctrine will not be based simply on the
parties’ intentions. Instead the courts will falsify the real legal intention to give effect to
other considerations although expressed as a finding of fact.
Some benefits of intention to create legal relations in building like other commercial contract
could be summarized below:
 Protecting social relationships
Much importance is given to the policy that private lives of the citizens should be protected
from too much interference from the courts. Chen-Wishart calls this ‘Freedom from contract.’
Adams and Brownsword therefore correctly state that the ‘“sanctioning” presence of courts
might inhibit social relationships.’
The bond of matrimony is the paradigm of social relationships and it is not surprising that the
above mentioned policy can be found in the decision Balfour v Balfour where Atkin LJ said:
“Agreements such as these are outside the realm of contracts altogether. The common law
does not regulate the form of agreements between spouses...The consideration that really
obtains for them is that natural love and affection which counts for so little in these cold
Courts. The terms may be repudiated, varied or renewed as performance proceeds or as
disagreements develop, and the principles of common law...find no place in the domestic
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code...In respect of these promises each house is a domain into which the King’s writ does
not seek to run.”
The case concerned an agreement made between a married couples that the husband would
give his wife £30 per month so that she could provide for herself while he lived abroad. His
wife, Mrs. Balfour, brought an action to enforce the payments after they separated and Mr.
Balfour stopped to pay. It was held that agreements which are made in the domestic sphere
are presumed to be without the intention to create legal relations. This presumption is
rebuttable. This decision was distinguished in Merritt v Merritt where it was held that this
presumption is rebutted if husband and wife were separated when the agreement was made.
Same is applicable to agreements between friends that have been made to enter into
competitions, like in Simpkins v Pays. This idea of keeping the law out of the domestic
sphere might be a characteristic of ‘liberal democratic society’.
However, this attitude towards social agreements seems to have changed nowadays. Freeman
classifies Balfour v Balfour as a ‘Victorian Marriage’ and sees the marriage of today ′less
regulated′ and ′more dependent upon individual choice.′ for him ‘Marriage has become a
‘personal rather than a social institution.’’ He pleads for a change in the treatment of
presumptions in domestic spheres.
 Advancing businesses
Lastly, it is seen as essential that courts should enforce market transactions to guarantee
security and to provide confidence between the contracting parties. Presuming agreements
made in a commercial background to be legally binding makes statements more reliable and
this way supports trading. If law did not do this parties might not enter into contracts as much
as they do. At the end of the day this is the implementation of a free market economy.
As said before the courts presume that a contract is intended in a business or commercial
setting. This presumption was applied in Edwards v. Skyways where an employer had
promised to make the pilot an ‘ex gratia payment’ for his redundancy. Here the term ‘ex
gratia’ could not rebut the presumption that the establishment of legal relations had been
intended as it was in a commercial setting.
This assumption [that agreements in a commercial context are binding] is so that it can only
be rebutted by the express stipulation of the parties as it was decided in Rose & Frank Co v
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JR Crompton & Bros Ltd, or in Jones v. Vernon´s Pools Ltd concerning football pools
coupons, which are stated to be ‘binding in honour’.
This assumption has been distinguished for collective agreements in trade-union matters in
Ford Motor Co v. Amalgamated Union of Engineering and Foundry Workers which are
presumed not to give rise to legal relations, although they have commercial aims.
Kleinwort Benson v. Malaysian Mining Corp provided an answer how to treat so-called
‘letters of comfort’ between parent company and their subsidiaries. Here it was held that they
do not amount to statements that are legally enforceable.
Conclusion
Under the law, an agreement supported by consideration is not enough to create a legally
binding contract; the parties must also have an intention to create legal relations. Often, the
intention to create legal relations is expressly stated by the contracting parties. In other
situations, the law will readily imply the intention, because of the nature of the commercial
dealings between the parties.
It has been exemplified that there are several approaches that judges might follow when
considering the cases brought to court. Decisions in disputes over legal intentions, Collin
suggests, are based on policy considerations rather than simply applying the contextual
presumption. However, this facilitates the judiciary’s completion of an impossible task of
justly giving effect to parties’ intentions. Furthermore, application of the doctrine reflects
how policies govern modern society. The flexibility in application of the doctrine of intention
to legal relations may thereby adapt to the needs of society.
In the law of contract at large, we look at the intention to create a legal relationship has been
discussed, if contracting parties don't consent to the creation of a legal relationship, the
contract is not enforceable.
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References and Bibliography:
Adams, John N & Brownsword, (1995), Roger Key issues in contract Butterworth.
Adams, John N & Brownsword, (2004), Roger Understanding contract law 4th edition, Sweet
& Maxwell (London)
Chen-Wishart, (2005), Mindy Contract Law 7th edition, Oxford University Press
Clarke, Kirsty (1994), A “Near" Contract Experience E LAW | Murdoch University
Electronic Journal of Law Volume 1, Number 3, September
Collins, Hugh (2003) The Law of Contract 4th edition, Butterworth Tolley
Freeman, Michael (1996) Contracting in the Haven: Balfour v Balfour Revisited In
′Exploring the Boundaries of Contract’, Dartmouth
McKendrick, Ewan (2003), Contract law 4thedition, Oxford University Press
O.O. Ogunsote, Lecture note on Building Law
Poole, Jill (2003), Casebook on Contract Law, 6th edition, Oxford University Press
Lias, Antony Domestic arrangements within the law of contract:
Simpson, A. W. B. (1975), Innovations in Nineteenth Century Contract Law 91 Law
Quarterly Review (LQR) 247, 263–5
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