LAW OF CONTRACT 1
KHASEKE M. GEORGIADIS
INTENTION TO CREATE LEGAL RELATIONS
• Intent can be defined as the state of mind, when an individual is performing an act or
acting in a certain manner. It is the reason or aim of the sequence of activities a person
intends to follow.
• In contract law, for a contract to be legally binding, there should be an intention to be
legally bound by the parties.
• This intention should be expressed in unambiguous words and/ or actions by a party,
which should be understood by the other party in the same sense which the former
party had meant to, convey their message in, but this is not always so
INTENTION TO CREATE LEGAL RELATIONS
• Courts will not enforce an agreement, if there is lack of intention to create legal
relations.
• The question of whether there was an intention to create legal arises when one of the
parties disputes that there was no such intention.
• Therefore, the onus of proving that there was no such intention rests with the party who
asserts that no legal effect was intended.
INTENTION TO CREATE LEGAL RELATIONS
• Where the agreement is express, the courts will determine this question with ease by
looking at and considering the words of the agreement.
• However, where there is no express agreement it presents some difficulty.
• Consequently, in deciding whether there was intention, courts normally apply an
objective test/ approach-what a reasonable person would have interpreted.
INTENTION TO CREATE LEGAL RELATIONS
• This is illustrated by the following cases;
i)Raffles v Wichelhaus [1864] EWHC Exch J19 “The Peerless”
ii) Scammell & Nephew Ltd vs Ouston [1941] 1 AC 251, Lord Wright said that;
“The object of the court is to do justice between the parties, and the court will do its best, if
satisfied there was an intention to contract, to give effect to that intention. It will not be deterred by
mere difficulty of interpretation. Difficulty is not synonymous with mere ambiguity so long as any
definite meaning can be extracted.”
iii) Nicolene Ltd v Simmonds (1953) 1 QB 543
INTENTION TO CREATE LEGAL RELATIONS
• Where a sale of a house is not “subject to contract”, both parties are likely to be bound even
though one of them subjectively believed that he would not be bound until the usual
exchange of contracts takes place.
• However, objective test does not apply;
i) In favour of a person who knows the truth;
ii) In favour of a person who did not intend to be bound to hold the other party to contract;
iii)Where the parties have expressed their actual intention in the document alleged to
constitute the contract.
INTENTION TO CREATE LEGAL RELATIONS
• In cases with “honour clauses”, it is generally deemed that there was no intention by the
parties to enter into legal relations.
• Such was the case in Rose & Frank Co. Ltd vs J.R. Crompton & Bros. Ltd[1925] A.C.
445
• Similarly, a statement inducing a contract may be a “ mere puff” if the court considers
that it was not seriously meant to create legal relations, and this should have been
obvious to the person to whom it was made. For example, in Weeks vs Tybald[1605]
Noy 11
INTENTION TO CREATE LEGAL RELATIONS
• Intention in Contexts
(i)Business/ Commercial Agreements;
• An agreement made within a business context is presumed to demonstrate an intention
to be legally binding unless evidence can show a different intent.
• This principle may apply even though the agreement on the face of it appears to be
gratuitous in character as illustrated by Edwards vs. Skyways Ltd [1969] 1 WLR 349.
INTENTION TO CREATE LEGAL RELATIONS
ii) Social & Domestic Agreements
-Many social arrangements do not amount to contracts because they are not intended to
be legally binding. For example, where parties meet make agreements in a social set up like
a get together, etc.
-Equally, many domestic arrangements are not intended to be legally binding. Illustrated by
the case of Balfour vs. Balfour [1919] 2 KB 571
INTENTION TO CREATE LEGAL RELATIONS
• Therefore, generally contracts related to the social aspect of marriage will not be enforced by
the courts.
• However, contracts between spouses related to business relationships can be enforced.
• Courts are also willing to support negotiated divorce settlements and written statements of
support.
• Sometimes, of course, families make arrangements that appear to be business arrangements
because of their character. In such cases, the court will need to examine what the real
purpose of the arrangement was and it is this purpose that will determine whether the
agreement is enforceable or not.
INTENTION TO CREATE LEGAL RELATIONS
• Such was the case in Jones vs Padavatton [1969] 1 WLR 328
• Where husband and wife are already estranged then an agreement between them may be
taken as intended to be legally binding because the couples are at arms length. See
Merritt vs. Merritt [1970] 1 WLR 1211
INTENTION TO CREATE LEGAL RELATIONS
• Intention in Written Agreements
• As already seen, the law requires certain agreements to be in writing. Parties may also
decide to reduce their agreement in writing.
• In such cases, each party will know from the beginning what obligation they are incurring,
and their rights are.
• However, in practice it is impossible for the parties to provide for all contingencies that
may arise in the future.
INTENTION TO CREATE LEGAL RELATIONS
• The language the parties might have used may be unclear.
• The courts in many instances must imply terms used in the contract, to give them
business efficacy.
• The courts may also have to determine whether express clauses in a contract which are
harsh and one sided and seek to exclude liability for breach of contract should be
enforced.
• One of the ways the courts do this is to distinguish between terms of the contract from
mere representations
INTENTION TO CREATE LEGAL RELATIONS
• The courts over the years have developed several presumptions to aid them determining
the intentions of the parties as to what the terms of the contract were and what mere
representations were.
• These are;
i) Time Lapse between the making of the statement and the conclusion of the
contract.
-If a statement was made in the early part of the negotiation and it was not repeated thereafter
there is a presumption that the parties did not intend to be an express term of the contract.
INTENTION TO CREATE LEGAL RELATIONS
-Illustrated in Routledge v McKay [1954] 1 WLR 615;
-See also Bannerman vs.White [1861] 10.C.B (NS) 843
ii)The statement had been made close to the conclusion of the contract.
iii)The attitude of the parties to the contract. If the parties have categorized them as
either a condition or warranty, the courts will consider this categorization in search for the
specific intention of the parties.
iv)If a statement is made by the party with superior knowledge concerning the subject matter of
the contract. There is a presumption that this statement was intended to be a term of the
contract. See Dick Bentley Productions vs Smith [1965] 2 ALL E.R 65
INTENTION TO CREATE LEGAL RELATIONS
v) If the contract is reduced into writing and the statement in issue has been omitted in the
written document, there is a presumption that the statement was not intended to form
part of the contract.
• As a general rule, the courts will only consider the written document for the purpose of
knowing the party’s intention and statements that are not included will be disregarded.
This is known as the Parol Evidence rule.
INTENTION TO CREATE LEGAL RELATIONS
• The implication of the rule however also depends on the intention of the parties
concerning the written document.
• If the parties intended it to constitute the final contract, then, outside evidence will not
be admitted either to verify or to contradict the written document. See Twiga
Chemicals Industries Limited v Allan Stephen Reynolds [2014] eKLR
