Intention to Create Legal Relations

Topics: Contract, Contractual term, Gentlemen's agreement Pages: 8 (2363 words) Published: November 14, 2010
Intention to create legal relations

Statement of the Rule
To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly (Rose and Frank Co v JR Crompton & Bros Ltd).

It is open for the parties to use express language to indicate an intent (or lack of) to impose legal obligations on each other. Alternatively, this intention can be impliedly from the circumstances.

The courts use an objective test in making a determination about the intention of the parties. In making an objective determination of the parties, intention the court looks at the surrounding circumstances and asks if a reasonable person would regard the agreement as intended to be binding.

Domestic and social relationships

The presumption is that domestic and social agreements are not intended to have legal force.

Rebutting the presumption
The presumption can be easily rebutted for example if parties who are in a familial relationship are contracting in a business context or if a husband and wife enter into an agreement in circumstances in which they are no longer living in harmony. Similarly, if the words used in the contract indicate a legal intention, the presumption that may otherwise have arisen may be rebutted.

Case Examples
a) Husband and Wife (Balfour v Balfour)
Parties intended involved in a domestic relationship, will generally not have intended legal consequences to follow their arrangement thus a contract will not be enforceable. Given many couples now choose to cohabit without marrying, the same presumption should apply where an agreement is entered into between ac acouple living ain a de facto relationship.

b) Separated husband and wife (Merrit v Merrit)
Where parties are divorced, separated, or in the process of separating, the negotiation do not take place in the context of natural love and affection therefore there is no room left for the application of such a presumption and the court will generally find that the requisite contract intent existed.

c) Other familial relationships (Jones v Padavatton)
Parties in other familial relationships are considered the same as married or de facto couples, and it is presumed that they do not intend to cerate legal relationships as the agreement is made in this context are based on natural love and affection. The bond of natural love and affection is likely to weaken according to the remoteness of the tie and will subsequently be easier to rebut. In fact, those cases where the court finds that the presumption has been rebutted, one or more of the following factors are often relevant • The seriousness of the conduct involved (such as moving countries or giving up full time employment) • The expense involved, especially if the relevant party is not wealthy • Whether there is or has been a degree of hostility in the relationship • The closeness of the family ties

• Whether the subject matter of the agreement is business or commercial in nature

Jones v Padavatton
A resident of England invited her daughter who lived and worked in the United States to move to England to study. They agreed that the mother would let the daughter stay in the house rent free. A dispute arose and the mother brought an action to evict the daughter from the house.

The court found for the mother in that there was no legally binding agreement between the parties regarding the offer to live in the house in reliance on the presumption that family members do not intend to enter into legal relations. This was the case, notwithstanding the seriousness and expense of the daughters actions in moving.

Wakeling v Ripley
An elder many of considerable wealth invited his sister and her husband, who gave up paid employment, to come to Australia to live with him and care for him until his death in which he agreed to give consideration of this of an income for life provided by...
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