Intention to create legal relations

The requirement of intention to create legal relations in contract law is aimed at sifting out cases which are not really appropriate for court action. Not every agreement leads to a binding contract which can be enforced through the courts. For example you may have an agreement to meet a friend at a pub. You may have a moral duty to honour that agreement but not a legal duty to do so. This is because in general the parties to such agreements do not intend to be legally bound and the law seeks to mirror the party's wishes. In order to determine which agreements are legally binding and subject to an intention to create legal relations, the law draws a distinction between social and domestic agreements and agreements made in a commercial context.

Social and domestic agreements

In social and domestic agreements the law raises a presumption that the parties do not intend to create legal relations:

Jones v Padavatton [1969] 1 WLR 328 Case summary

Balfour v Balfour [1919] 2 KB 571 Case summary

This presumption may be rebutted by evidence to the contrary. This evidence may consist of:

A written agreement:

Errington v Errington Woods [1952] 1 KB 290 Case summary

Where the parties have separated:

Merritt v Merritt [1970] 1 WLR 1211 Case summary

or where there is a 3rd party to the agreement:

Simpkins v Pays [1955] 1 WLR 975 Case summary

Commercial agreements

Where an agreement is made in a commercial context, the law raises a presumption that the parties do intend to be legally bound by the agreement:

Esso Petroleum v Commissioners of Customs & Excise [1976] 1 WLR 1 Case summary

Edwards v Skyways Ltd [1964] 1 WLR 349 Case summary

Again this presumption can be rebutted by evidence to the contrary:

Binding in honour only clauses:

Rose & Frank v Crompton Bros [1925] AC 445     Case summary

Ferrera v Littlewoods pools [1998] EWCA Civ 618

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Although note the difference with comfort letters:

Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad [1989] 1 W.L.R. 379
Case summary

The distinction between social and domestic agreements and commercial agreements can be fine.

Compare the case:

Coward v Motor Insurance Bureau [1963] 1 QB 359

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Albert v Motor Insurance Bureau [1971] 3WLR 291

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It can be seen that intention to create legal relations therefore seeks to keep agreements between family and friends outside the courts jurisdiction.

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