On the other hand, in the case of Merrit v Merrit [1970] it is exposed that social agreement between husband and wife can result in an enforceable contract. Here the husband had left his wife to live with another woman. The husband in writing stated that he would pay £40 for maintenance, which she had to pay the mortgage with, and when the mortgage was complete he would transfer the house to her name. After the wife had repaid the mortgage the husband refused to transfer the house. The court of appeal held that there was an intention to create legal relations therefore the agreement was enforceable as a contract. This was mainly due to the fact that negotiation was made as a response to when there was a marital breakdown.
However, it is vital that one does not rely too much into the principle applied in the Balfour case. This is illustrated in the case of Jones v Padavatton [1969]. This involved an agreement between a mother and a daughter. The mother had persuaded the daughter to give up a highly paid job in the US and read for the Bar in England. The mother also agreed to pay her allowance ($200 a month). The daughter commenced her studies in 1962. In 1964 the mother bought her daughter a house. However the mother and daughter had an argument in 1967 and the mother attempted to repossess the house. The mother claimed that she had no intention of creating a legal relation, which majority of the Court of Appeal agreed with. Lord Salmon went one step further in stating that the first agreement was a binding contract, which lasted for a reasonable time in-order for the daughter to pass her bar finals. When the five years had passed and the daughter had not passed her exams the contract had expired.
Clearly the presumption that social agreements are not legally enforceable has been challenged. There have been domestic cases where there has been legal intention.
Moving on to commercial agreements, there is a strong presumption that there is an intention to create legally enforceable relationship. With reference to commercial agreements the advertisers may try to use the defence that they had no intention to legal creations to “avoid being held to the exact words of the advertisement. This can be seen in the famous case of Carlill v Carbolic Smoke Ball Co. [1893]In this case the company stated that if anyone bought the smoke ball and used it in the prescribed and then caught influenza, they would give £100 to the person. They also placed a sum of £1000 pounds in a bank account. However, Mrs Carlill used the Smoke ball in the prescribed manner and caught influenza. This was taken to the Court of Appeal where the judge rejected the view that “the advertisement was just a gimmick, which was intended with no legal consequences.”
Furthermore, another situation which challenges the intention to create legal relations where words have been inserted by one party in an agreement to exclude legal relations. This was demonstrated in the case of Edwards v Skyways Ltd [1964]. Here the plaintiff was a pilot who was told there would be a reduction in staff members and wanted him to leave. The option available, which he took, was that he could withdraw all his contributions to the pension scheme and the defendants would pay him an ex gratia payment. However, the defendants refused to pay the ex gratia. The court held that the wording used was not intended to create legal intentions, therefore, there was no contract.
In commercial transactions the parties may exclude any intention to enter legal relations. In Rose and Frank Co. v Crompton Bros.[1925] the parties entered into an commercial transaction where the defendants agreed to sell tissue to the USA and the document stating the agreement contained an “honourable pledge clause” This stated that the agreement was not a formal legal agreement subject to the juristriction of the courts. The defendants announced that they would not be taking any more orders, the plaintiffs sued in attempt to enforce the agreement. However, the House of Lords upheld the “honourable pledge clause” and stated that there was no legal intention. Nevertheless, the Lord stated the transactions in this agreement gave rise to “ordinary legal rights” which meant that there was an obligation to deliver goods when ordered and for the payment of the goods on delivery. The presumption of intention may in some cases be rebutted.
Moreover, the issue regarding intention as opposed to commercial agreements was revisited in the case of Kleinworth Benson Ltd v Malaysia Mining Corporation Bhd [1989] where the plaintiff agreed to a loan facility for the defendant. During the negotiations the parties were unable to decide upon security for the loan. This forced the defendants to provide a letter of comfort, which stated that “ it is our policy to ensure that he business is at all times in the position to meet its liabilities to you under the above arrangements.” Unfortunately the market collapsed and the company went into liquidation. The plaintiffs attempted to sue in light of the letter being a contractual promise, which was breached. The court held that the “legal effect of a letter of comfort depends upon the precise wording and not some preconceived notion of the legal effects of letters of comfort”
More recently, the concept of legal relations was reconsidered in the case of Edmonds v Lawson [2001], here a pupil barrister claimed that her pupilage amounted to a contract. Nevertheless the court of appeal held that this was more of an educational agreement as opposed to a commercial agreement, therefore there was no contract.
Drawing to a close, the presumptions relating to intention to create legal relations has been clearly challenged in a number of cases. Firstly, the presumption relating social and domestic agreements is that there is no intention to create legal relations. This presumption is satisfied in the case Balfour v Blafour. As lord Atkin stated “one of the most usual forms of agreement which does not constitute a contract, appears to be the arrangement between the husband and wife”. However, this presumption cannot be applied to all cases, for example, in the case of Merrit v Merrit. This was also an arrangement between a husband a wife but nevertheless the court held that there was intention to create legal relations.
In relation to commercial transaction the presumption here is that there is intention to create legal intentions however, these can be rebutted. Taking an example of commercial agreements, which include advertisements. In Carlill v Carbolic Smoke Ball Co. it was held that this was a contract and was therefore, enforceable. However, the court took a different view in the case Rose and Frank Co. v Crompton Bros. where the court held that this was not an enforceable contract due to the wording of the parties involved. The presumption in domestic agreements is intended not to interfere with social situations amongst families, whereas in commercial agreements a presumption is presumed on the basis "that it allows it to operate in a way which is efficient and does not encourage parties to an agreement to become involved in unnecessary disputes as to their alleged intentions"
Bibliography
Law of Contract, 13th Edition- Cheshire and Fifooth, Butterworths, 1996
Davies on Contract, 8th Edition, Robert Upex, Sweet and Maxwell 1999
Casebook on Contract, 4th Edition, Jill Poole,Blackstone 1999
Law of Contract, 3rd Edition, Paul Richards, Pitman 1997
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Textbook on Contract Law, Jill Poole, 6th edition, Blackstone Press 2001
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