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Contract: Intention to Create Legal Relations
Intention to create legal relations, objective intention.
The fourth requirement of contract formation is that both parties objectively appear to intend to create legal relations. Certain evidential presumptions apply depending on the nature of the party’s relationship and the context in which they are transacting:
Business and Commercial Cases
Intention to create legal relations is presumed if the parties are contracting in a commercial context: Esso Petroleum v Commissioners of Customs & Excise [1976] 1 WLR 1; Edwards v Skyway [1964] 1 WLR 349.
Domestic and Social Cases
Intention to create legal relations is presumed not to exist where the parties are contracting in a domestic or social context: Balfour v Balfour [1919] 2 KB 571; Jones v Padavatton [1969] 1 WLR 328.
Rebutting the Presumption: Domestic and Social Cases
In domestic/social cases, the claimant can try to rebut the presumption with evidence that the parties did intend legal relations. Factors which indicate that intention is present include:
The existence or a written or signed agreement or some other formal basis: Errington v Errington Woods [1952] 1 KB 290.
An unconnected third-party is also a party to the agreement: Simpkins v Pays [1955] 1 WLR 975.
The fact that one party to the contract does the same kind of work professionally or in a non-social context: Albert v MIB [1971] 3 WLR 291.
The parties being separated or estranged: Merritt v Merritt [1970] 1 WLR 1211.
Rebutting the Presumption: Commercial and Business Cases
Similarly, the presumption that intention to create legal relations exists in commercial cases can also be rebutted.
The most common way of showing this is by demonstrating that there was a clause stipulating that the agreement was not intended to be binding or was ‘binding in honour only’: Rose & Frank v Crompton Bros [1925] AC 445;
Agreements stated to be ‘subject to contract’ are also normally not intended to be binding: Regalian Properties v London Dockyard [1995] 1 All ER 1005. However, intention might still exist if the parties begin performing and acting as if there is a contract: RTS Flexible Systems Ltd v Molkerei Alois Müller [2010] UKSC 14.
In some commercial contexts is it broadly understood that some acts are not intended to be binding, such as ‘comfort’ letters: Kleinwort Benson (KB) v Malaysia Mining Corporation BHD (MMC BHD) [1989] 1 WLR 379.
Some commercial statements are taken to be hyperbole or mere sales patter. These statements are sometimes referred to as ‘mere puffs’ and are not legally binding because of the lack of intention to be bound: Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1.
If the context of a conversation is informal and social, this may indicate that there is no intention to create legal relations even between business associates: Blue v Ashley [2017] EWHC 1298 (Comm).
Contract Formation Quiz
Test yourself on the principles which determine when a contract is formed.
Which four of the following scenarios normally involve an invitation to treat and not an offer?
Dennis owes Maureen £1000. Dennis asks Maureen if she will discharge the debt if his sister Dee pays her £600. Maureen agrees. Has Dennis provided consideration for Maureen's promise to discharge the debt?
Incorrect . An offer to pay part of a debt is not normally valid consideration: Foakes v Beer. However, there is an exception where a third-party pays part of the debt: Hirachand Punamchand v Temple .
Dennis owes Maureen £1000. He asks her if she will discharge the debt if he pays her £500. Taking pity on him, Maureen agrees. Has Dennis provided consideration for Maureen's promise to accept the lesser amount?
Incorrect . An offer to pay part of a debt is not normally valid consideration: Foakes v Beer.
Annabelle tells the swim team she is coaching that she will give £500 to the first of them that swims the English Channel. Ricardo begins swimming the English Channel the next day, but before he can finish Annabelle changes her mind and says she will not pay. Has Annabelle revoked her unilateral offer?
Incorrect . Annabelle has made a unilateral offer, and these normally cannot be withdrawn once a potential offeree has begun to perform: Errington v Errington Woods . Since Ricardo has started performing, the offer cannot be withdrawn.
Stephen asks Jameel to help him find a venue for his up-coming book signing. Jameel finds the perfect place, and out of gratitude Stephen offers to give him £100 as a reward. He later changes his mind. Is Stephen bound to pay the money?
Incorrect . While ordinarily a past action cannot be valid consideration, there is an exception where the action was specifically requested by the other party: Lampleigh v Braithwaite.
Kayleigh offers to sell Tom a crate of tomatoes. She asks him to respond by letter with his signature if he accepts. Tom sends Kayleigh a letter accepting the tomatoes, but does not sign it. Is this a valid acceptance?
Incorrect . If the offer states that a signature is needed for acceptance, the courts will normally uphold an acceptance without a signature unless it prejudices the offeror: Reveille Independent LLC v Anotech International (UK) Ltd. In this case, there is no obvious detriment to Kayleigh resulting from the letter not being signed.
How can an offeror validly withdraw their offer?
Incorrect . See Dickinson v Dodds.
Sean offers to sell his collection of nerdy T-Shirts to Chris, for £40. Chris accepts, saying that his father will provide the money. Have Sean and Chris both provided consideration?
Incorrect . Consideration must be given by the promisee, not a third-party. Chris' consideration would be the £40, but it will be his father paying and not him. Chris has therefore not provided proper consideration.
Rod advertises on a website saying he is looking to pay someone to look after his hamster for the weekend. Rosie responds, asking if they can meet up to negotiate terms. The two meet up and reach a written agreement, but the document states that it is 'subject to contract'. Is this agreement a valid contract?
Incorrect . The 'subject to contract' stipulation means that there is no intention to be legally bound in relation to the written document.
Rod advertises on a website saying he is looking to pay someone to look after his hamster for the weekend. Rosie responds, agreeing. The two draw up a written agreement, which includes a clause saying that it is binding in honour only. Is this agreement a valid contract?
Incorrect . The 'binding in honour only' clause means that there is no intention to be legally bound.
On Saturday, Roger offers to sell Tyrone a car. He asks him to respond by next Thursday if he accepts. Tyrone sends Roger a letter by post on Monday agreeing to the deal, but it is lost in the post and never arrives. Has Tyrone accepted the offer?
Incorrect . The postal rule provides that a posted acceptance is valid from the moment it is posted, even if it arrives late or never arrives at all: Adams v Lindsell . Since Tyrone posted on Monday, he accepted the offer within the time-window he was given.
Erica is a software programmer who was contracted to develop systems for Herbert's business. She begins to have money troubles, and asks Herbert for the extra £100 she needs to complete the project on time. Herbert accepts, because if delivery is late he will be liable to pay damages to a third-party. Has Erica provided consideration for the extra money?
Incorrect . While an existing contractual duty cannot normally be used as consideration, there is an exception where proper performance confers on the other party a 'practical benefit'. Avoiding liability to third-parties has been held to be a practical benefit: Williams v Roffey Bros.
For the purposes of demonstrating consideration under the rule in Williams v Roffey Bros, which of the following constitute a practical benefit?
Incorrect . There has yet to be binding authority clarifying the meaning of 'practical benefit'.
Dennis owes Maureen £1000, and is obligated to pay by the 1st of June. He asks her if she will discharge the debt for £600, if he pays by the 1st of May. Maureen agrees. Has Dennis provided consideration for Maureen's promise to discharge the debt?
Incorrect . An offer to pay part of a debt is not normally valid consideration: Foakes v Beer. However, there is an exception where the debtor offers to pay early: Pinnel's Case.
Jubedul lets his office know that he is selling his pet cat Bianca for £50, and that if anyone would like to buy her they should let him know. Liz, his co-worker, immediately calls his work phone and leaves a message on his answering machine saying she will buy the cat. Jubedul never listens to the message. An hour later, Micah tells Jubedul in person that she will buy the cat. Who has validly accepted Jubedul's offer to buy Bianca?
Incorrect . Instantaneous communications, such as answering machine messages and emails, count as an acceptance from the moment they are received (if during business hours) even if they are not read or listened to: Brinkibon Ltd v Stahag Stahl GmbH . Liz left the message before Micah talked to Jubedul, and her acceptance was immediately valid.
The parties have reached an agreement, but have not agreed on an important term such as the price. Is the contract void for uncertainty?
Incorrect . See Sudbrook Trading Estate v Eggleton and Baird Textile Holdings Ltd v Marks & Spencer.
Bob offers to sell a wedding dress to Arthur for $400. Arthur says he is willing to buy the dress for $400, but only if Bob also includes a veil. Has Arthur accepted Bob's offer?
Incorrect . Since Arthur's response does not mirror the terms of Bob's offer, it is a counter-offer and not an acceptance. See Jones v Daniel.
Phil makes a contract with Ingrid for his old shed to be torn down in exchange for £200. His next-door neighbour Andrew, who thinks the shed is an eye-sore, says he will pay Ingrid an extra £100 for taking down Phil's shed. Ingrid accepts and takes down the shed. Has Ingrid provided consideration for Andrew's promise?
Incorrect . While normally existing duties cannot be used as consideration, there is an exception where that duty is only owed to a third-party: Shadwell v Shadwell. Ingrid only owes Phil the obligation to take down the shed, so she can still provide consideration by promising third-parties like Andrew to remove the shed.
Does the postal rule apply to cases where an offeror is seeking to withdraw his offer?
Incorrect . See Byrne & Co v Leon Van Tien Hoven.
Bob offers to sell Arthur a wedding dress for $400. Arthur responds by asking if the veil is included for that price. What is the legal nature of Arthur's response?
Incorrect . Asking for clarification or information does not constitute an acceptance or counter-offer, so it has no legal effect: Stevenson, Jacques & Co v McLean.
Fatima is looking to sell an antique doll, which is worth £3000. Paul offers to buy it for £5. Fatima accepts, as she is in a hurry to get rid of the doll as it spooks her. Have both parties provided consideration?
Incorrect . There is no need for consideration to be adequate, so it does not matter that Paul has provided far less than the economic value of the doll.
Kayleigh offers to sell Tom a crate of tomatoes. She asks him to respond by telephone if he accepts. Tom sends Kayleigh a letter accepting the tomatoes. Is this a valid acceptance?
Incorrect . Where the offer specifies a mode of acceptance, only acceptances by that mode will count: Holwell Securities v Hughes. The exception is where the mode is chosen because it fulfils a particular purpose, in which case any equally good mode will do: Tinn v Hoffman. That exception is unlikely to apply in this case, since Kayleigh likely wanted speedy acceptance to avoid the tomatoes spoiling while she waits for a decision. A letter is a very slow means of communication.
Annabelle tells the swim team she is coaching that she will give £500 to the first member of the team that swims the English Channel. Ricardo, one of the team members, is not present. The next day he decides to swim the English Channel for fun, not knowing about Annabelle's offer. If he completes the challenge, is Annabelle bound to pay him the money?
Incorrect . The reports on the only case addressing this point ( Gibbons v Proctor ) are unclear as to what the case decides. It is therefore not clear whether someone needs to know about a unilateral offer to accept it.
Annabelle tells the swim team she is coaching that she will give £500 to the first of them that swims the English Channel. Ricardo swims the English Channel the next day, and then calls Annabelle asking for the money. Is Annabelle obliged to pay him?
Incorrect . Annabelle has made a unilateral offer, which Ricardo accepted by completing the terms of the offer.
Dennis owes Maureen £1000. He asks her if she will discharge the debt if he pays her £500. Maureen agrees, because she needs the money to avoid being liable to a third-party and therefore thinks the arrangement is practically beneficial. Has Dennis provided consideration for Maureen's promise to accept the lesser amount?
Incorrect . An offer to pay part of a debt is not normally valid consideration: Foakes v Beer. There is no exception for practical benefits.
On Saturday, Roger offers to sell Tyrone a car. He asks him to respond by next Thursday if he accepts. Tyrone sends Roger a letter by post on Monday agreeing to the deal, but it does not arrive until Friday. Has Tyrone accepted the offer?
Dennis owes Maureen £1000. He asks her if she will discharge the debt if he gives her his car, which is worth £800. Maureen agrees because she loves the car. Has Dennis provided consideration for Maureen's promise to discharge the debt?
Incorrect . An offer to pay part of a debt is not normally valid consideration: Foakes v Beer. However, there is an exception where the debtor offers to pay using a chattel: Pinnel's Case.
Clarence offers to sell Pam a table and chairs set for $300. He adds that if Pam does not respond to him within the week, he will assume that she has accepted. Pam does not respond within the week, nor does she positively indicate acceptance in any other way. Has Pam accepted the offer?
Incorrect . Silence cannot be an acceptance: Felthouse v Bindley.
When can an offer be revoked?
Incorrect . An offer can be revoked at any time. A promise to keep the offer open for a given length of time is not enforceable unless there is a separate contract (with consideration) for that promise. Even in that scenario, the offer can be validly withdrawn - the other party will merely have an action for breach of contract. See Routledge v Grant.
What four factors indicate that family members or friends intended to be legally bound by their agreements?
Shira is seriously injured as a result of Quen's negligence. She tells them that if they give her their car, she will not sue. Quen agrees. Have both parties provided consideration?
Incorrect . A promise not to sue or insist on one's legal rights is valid consideration: Horton v Horton (No 2).
Which two of the following factors are relevant to whether a statement is an offer?
Specific proof is required to demonstrate intention to be legally bound where the parties have a business or commercial relationship. True or false?
Incorrect . In business and commercial cases, intention is presumed: Esso Petroleum v Commissioners of Customs & Excise.
Specific proof is required to demonstrate intention to be legally bound where the parties have a family or social relationship. True or false?
Incorrect . Intention is presumed not to exist in these cases: Balfour v Balfour.
In what four circumstances is an offer terminated without the offeror having to withdraw it?
Stephen is struggling to find a venue for his up-coming book signing. Jameel decides to help him on his own initiative. Jameel finds the perfect place, and out of gratitude Stephen offers to give him £100 as a reward. He later changes his mind. Is Stephen bound to pay the money?
Incorrect . Ordinarily a past action cannot be valid consideration: Re McArdle. Jameel cannot rely on his past actions as consideration for the promise of £100, so he has not provided consideration.
Julie offers to pay Ophelia a £1000 allowance in exchange for her continued affection. Ophelia agrees. Have both parties provided consideration?
Incorrect . Consideration must have legal or economic value - abstract promises of love or affection cannot be consideration: Thomas v Thomas.
The parties in a case reached an agreement for the claimant to do some work, but that agreement was stated to be subject to contract. Despite a written contract never being signed, the parties have begun performing as if there were a contract. Do the terms of the 'subject to contract' agreement apply?
Incorrect . See Bieber v Teathers Ltd (In Liquidation).
Jubedul lets his office know that he is selling his pet cat Bianca for £50, and that if anyone would like to buy her they should let him know. Liz, his co-worker, sends him a letter containing £50, saying that she will buy Bianca. However, she puts the wrong address on the envelope and the letter never arrives. Has Liz accepted Jubedul's offer?
Incorrect . The postal rule provides that a posted acceptance is valid from the moment it is posted, even if it arrives late or never arrives at all: Adams v Lindsell . However, the postal rule does not apply if it is the offeree's fault that the letter did not arrive: LJ Korbetis v Transgrain Shipping. Liz's letter did not arrive because she put the wrong address on the envelope, so it is her fault it did not arrive. She has therefore failed to communicate her acceptance to Jubedul.
Frederick is Manuel's employee. One day, Frederick is told by Manuel that he needs him to take on some work which goes beyond his employment duties. Frederick is reluctant, but Manuel tells him that if he does it, Manuel will pay Frederick double. Frederick accepts. Has Frederick provided consideration for the extra payment?
Incorrect . While promises to perform existing duties are not normally good consideration, there is an exception where the claimant goes beyond that duty: Hartley v Ponsonby . In this case, since the task is outside of Frederick's normal employment duties, the exception applies.
John is a Government official who is under a duty to give a license to anyone who fills out the proper application form. Paul fills in the form and offers to give John £300 if he gets a license. John agrees. Have both parties provided consideration?
Incorrect . A promise to perform existing public duties cannot normally constitute consideration: Collins v Godefrey.
What two conditions must be met for an agreement to be sufficiently certain to form a contract?
Incorrect .
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