Intention To Create Legal Relations

Front 1

Rose & Frank v JR Crompton (1925)

Express terms

Back 1

The claimants and defendants entered an agreement for the supply of some carbonised tissue paper. Under the agreement the claimants were to be the defendant's sole agents in the US until March 1920. The contract contained an honourable pledge clause which stated the agreement was not a formal or legal agreement and shall not be subject to the jurisdiction of the courts in neither England nor the US. The defendants terminated the agreement early and the claimants brought an action for breach.
Held: The honourable pledge clause rebutted the presumption which normally exists in commercial agreements that the parties intend to be legally bound by their agreements. The agreement therefore had no legal affect and was not enforceable by the courts.

• It is generally assumed that parties in business relationships intend to be bound.
• If parties expressly state in an agreement that they do not wish to be bound, the courts must respect their actual intentions.

ATKIN, in the dissent, agreed that the document did not form a legally binding contract, but held that the orders and responses between the parties in the process of business constituted enforceable contracts of sale.

Front 2

Heilbut Symons v Buckleton (1913)

Express terms

Back 2

An agent of Buckleton purchased shares from an agent of Heilbut, Symons & Co. on two occasions based on what the respondent's claim was a representation that the company was a "rubber company". The company turned out to be sour and Buckleton lost money on the transaction and brought an action for breach of warranty. APPEAL ALLOWED.

Moulton, writing for the majority, says that strictly speaking the contracts in this case were not contracts of sale, as the defendant was only an agent of the rubber company and he was to undertake the necessary action to procure the shares for the plaintiff.

The court holds that in order to establish a cause of action in damages for misrepresentation the statement must have been fraudulent, or it must have been made recklessly. He clearly states that it is a principle of law that a person is not liable for damages resulting from an innocent misrepresentation. This case was an innocent misrepresentation; therefore the appeal must be allowed as no damages can stem from an innocent misrepresentation.

• Parties are not liable for damages arising from their own innocent misrepresentations.
• Damages are only awarded for fraudulent or reckless misrepresentations, or misrepresentations that refer to a material issue that fundamentally change the contract.
• Innocent representations are only referred to as warranties if they have clearly been intended to be warranties by the parties
• Although Heilbut, Symons & Co would today be counted as having made at least a negligent misrepresentation, the case still has relevance for the general principle that representations become part of the contract if (as a very general principle) this is "intended". Later, in another case, the Court of Appeal further clarified that the balance of information between a buyer and seller is relevant to determine what was actually intended, giving preference for the intentions of non-commercial parties who rely on others.

Front 3

Edwards v Skyways Ltd (1964)

"Ex gratia" payments

Back 3

The claimant was an airline pilot working for the defendant. He was to be made redundant. The defendants said that if he withdrew his contributions to the company pension fund, they would pay him the equivalent of company contributions in an ex gratia payment. The claimant agreed to this and withdrew his contributions. The company then ran into further financial difficulty and went back on their promise relating to the ex gratia payment.
Held: The agreement had been made in a business context which raised a strong presumption that the agreement is legally binding. The claimant could therefore enforce the agreement and was entitled to the money. He had relied upon the promise in accepting a redundancy package, and his employer could not adequately prove that they had not intended their promise to become a contractual term.

MEGAW LJ: The company admits that a promise was made and that it intended to carry it out...In this case the matter is business relations. There was a meeting of minds, an intention to agree.

Front 4

Balfour v Balfour (1919)

Domestic Arrangements

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This case involved a husband and wife. The husband was due to return to Ceylon where he had employment, but the wife, on medical advice was to remain in England. The husband promised to pay the wife £30-00 per month until she was able to join him in Ceylon. Later the parties separated and were divorced. The wife brought this action for the money her husband had promised to pay to her but had failed to do so.

HELD- Atkin LJ

Commonly parties to a marriage will make arrangements for personal or household expenses. But they do not amount to contracts, even though there may be present what would amount to consideration if it had occurred between different parties. They are not contracts because the parties do not intend that legal consequences should follow...Agreements such as these are outside the realm of contracts altogether. The consideration here is really the natural love and affection which counts for so little in these cold courts.

• Arrangements made between husbands and wives are not generally contracts as the parties do not intend to be legally bound by the agreements.

Front 5

Merritt v Merritt (1970)

Domestic Arrangements

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A husband left his wife and went to live with another woman. There was £180 left owing on the house which was jointly owned by the couple. The husband signed an agreement whereby he would pay the wife £40 per month to enable her to meet the mortgage payments and if she paid all the charges in connection with the mortgage until it was paid off he would transfer his share of the house to her. When the mortgage was fully paid she brought an action for a declaration that the house belonged to her.
Held: The agreement was binding. The Court of Appeal distinguished the case of Balfour v Balfour on the grounds that the parties were separated. Where spouses have separated it is generally considered that they do intend to be bound by their agreements. The written agreement signed was further evidence of an intention to be bound.

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Spellman v Spellman (1961)

Domestic Arrangements

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Mr and Mrs Spellman's marriage was going through a bad patch. They thought that if they purchased a new car their relationship might improve. Mr Spellman purchased a new car on hire purchase and put his wife's name in the registration book. Mrs Spellman asked if the car was for her and Mr Spellman replied that it was. Within three weeks the parties again fell out and Mr Spellman left his wife taking the car with him.

The issue before the court was who owned the car; this depended on whether Mr and Mrs Spellman had entered into a legally binding contract; had they intended to create legal relations.

Held, as the husband was not the owner of the car but only the hirer under the agreement he could not make a gift of it to his wife and there was no equitable assignment of the benefit of the agreement or declaration of trust of it to or for the wife and there was no intention to create legal relations between them; accordingly the benefit of the agreement remained the husband's and a declaration to that effect should be made; the wife should be ordered to deliver the registration book to him.

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Jones v. Padavatton [1969]

Domestic Arrangements

Back 7

A mother promised to pay her daughter $200 per month if she gave up her job in the US and went to London to study for the bar. The daughter was reluctant to do so at first as she had a well paid job with the Indian embassy in Washington and was quite happy and settled,

however, the mother persuaded her that it would be in her interest to do so. The mother's idea was that the daughter could then join her in Trinidad as a lawyer. This initial agreement wasn't working out as the daughter believed the $200 was US dollars whereas the mother meant Trinidad dollars which was about less than half what she was expecting. This meant the daughter could only afford to rent one room for her and her son to live in. The Mother then agreed to purchase a house for the daughter to live in. She purchased a large house so that the daughter could rent out other rooms and use the income as her maintenance. The daughter then married and did not complete her studies. The mother sought possession of the house. The question for the court was whether there existed a legally binding agreement between the mother and daughter or whether the agreement was merely a family agreement not intended to be binding.
Held: The agreement was purely a domestic agreement which raises a presumption that the parties do not intend to be legally bound by the agreement. There was no evidence to rebut this presumption.

• the presumption against intending legal relations in domestic arrangements - the presumption here being contrary to that of business arrangements

Front 8

Simpkins v. Pays [1955]

Domestic Arrangements

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The defendant, her granddaughter, and the plaintiff, a paying lodger shared a house. They all contributed one-third of the stake in entering a competition in the defendant's name. One week a prize of £750 was won but on the defendant's refusal to share the prize, the plaintiff sued for a third.

It was held that the presence of the outsider rebutted the presumption that it was a family agreement and not intended to be binding. The mutual arrangement was a joint enterprise to which cash was contributed in the expectation of sharing any prize.

Front 9

Zuckerman "Formality and the Family - Reform and the Status Quo" (1980) 96 Law Quarterly Review 248, 249 - 251

Domestic Arrangements

Back 9

To Be Read / Inaccessible

Front 10

Kleinwort Benson Ltd. v. Malaysian Mining Corp. [1989]

Letters of Intent and Letters of Comfort

Back 10

Malaysia Mining Corporation Metals Ltd (MMC Metals) was a wholly owned subsidiary of the defendant, MMC BHD. MMC Metals approached the claimant KB Bank for a loan. MMC Metals was a relatively newly formed company lacking in the size and resources of MMC BHD. The bank approached MMC BHD asking if they would act as guarantor for the loan. MMC refused to act as guarantor but stated they it was their company policy to ensure that their subsidiaries are always in a position to meet their debts. In reliance of this letter of comfort the bank advanced money to MMC Metals. MMC Metals subsequently went into administration having not paid the loan. KB brought an action against MMC BHD to recover their loss based on the assurance given in the comfort letter.
Held: The comfort letter had no legal effect. The fact that MMC BHD had refused to act as guarantor demonstrated they did not intend to be legally bound. The comfort letter referred to company policy at that time. There was nothing to stop the company changing its policy.

"Comfort letters" in which one company assumes a moral but not a legal obligation to help another have no contractual effect.

Front 11

Walford v Miles (1992)

“Agreements to agree”, “agreements to negotiate” and similar devices

Back 11

Unanimously held that a bare agreement to negotiate has no legal content; An agreement whereby one party for consideration agrees for a specified period of time not to negotiate with anyone else in relation to a sale of property can be enforceable but an agreement that is open-ended in terms of time is not enforceable.

The case concerned a lockout agreement whereby the defendants had allegedly agreed not to deal with any third party with regard to the sale of their business for as long as they were negotiating with the plaintiffs. In order to justify claiming lost profit on the transaction, the plaintiffs sought to persuade the court to read into that agreement a positive obligation upon the defendants to negotiate the terms of the sale agreement in good faith. The court found that there was no binding lockout agreement on the facts, and that even if there had been, there were no grounds to imply such an obligation. Lord Ackner, who gave the leading judgment, went on to say that, as a matter of principle, an agreement to negotiate in good faith was not generally enforceable under English law as being ".. unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies."

Front 12

Pitt v PHH Asset Management (1993)

“Agreements to agree”, “agreements to negotiate” and similar devices

Back 12

FACTS:

In Parsonage Lane, Chelsworth, Suffolk, is a residence known as "The Cottage". PHH Asset Management Ltd were undisclosed agents of mortgagees, who were selling The Cottage for £205,000. Mr Pitt and Miss Buckle put in competing bids. Mr Pitt bid £200,000, which PHH accepted ‘subject to contract’. Miss Buckle then increased her bid to £210,000. PHH withdrew its acceptance of Mr Pitt.

Mr Pitt threatened to sue for an injunction, to compel transfer of the cottage to him (it was noted in the Court of Appeal that this probably would have not succeeded, and just caused nuisance). So PHH agreed to sell to him and said they would consider no further offers. This is known as a "lock out agreement". But then, PHH sold to Miss Buckle anyway. Mr Pitt sued. PHH argued in its defence, there was no consideration to not consider further offers (for the lock out agreement), because Mr Pitt had only promised to be ready, willing and able to proceed with exchange of contracts, and he was already obliged to do that.

Held, dismissing D's appeal, that (1) the agreement was not itself subject to contract; (2) there was consideration moving from P, in that he was limiting himself to two weeks in which to exchange contracts and was sparing D the nuisance of the threatened injunction; (3) the agreement was not a contract for the sale of land and was not therefore subject to the formalities required by the Law of Property (Miscellaneous Provisions) Act 1989 s.2; and (4) the agreement was accordingly a valid lock-out agreement (Walford v Miles [1992] 2 A.C. 128 considered).

The vendor and purchaser made a 'lock out agreement'. That was a contract binding on both. The vendor broke it. He was liable to the prospective purchaser for damages to be assessed.