Intention
If parties make an agreement without an intention of being legally bound by it, it won’t
be regarded as a contract. Contracts can be divided into domestic and social
agreements and commercial transactions.
● In commercial agreements, there is a rebuttable presumption that there is an
intention to create a legal relation.
● In social and domestic agreements, there is a rebuttable presumption that
parties do not intend the agreements to be legally binding.
COMMERCIAL AGREEMENTS
It is important that there is consistency and certainty with commercial agreements, as
they often involve large sums of money. This presumption in commercial agreements is
seen in Esso Petroleum Ltd v Customs and Excise Commissioners.
Esso Petroleum Ltd v Customs and Excise Commissioners
Esso ran a sales where one ‘coin’ would be given for every 4 gallons of petrol. The court
held that there was intent to create legal relations, because despite the coins’ negligible
monetary value, Esso would derive commercial benefit from it.
J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd
The defendants argued that the promise to store below deck was not intended to be
legally binding, but the court held that since the parties had previously done business
together, in which goods were always stored below decks, and the claimants would not
have agreed to the change in method if the promise had not been made.
The presumption will even apply where it is gratuitous in character.
Edwards v Skyways Ltd
Skyways argued that the promise to make an ex gratia payment was not intended to
create legal relations, but the courts held that ‘ex gratia’ merely meant that the
employers were not admitting any liability; it did not mean they were not bound.
Exception #1: Mere puffs. The first exception to this presumption is mere puffs, where
an offer is vague or clearly not intended to be taken seriously.
, Weeks v Tybald
It was held that the defendant’s promise to give £100 to any man who would marry his
daughter, was not legally binding.
Carlill v Carbolic Smoke Ball Co
The court held that since the company had deposited £1000 to show their sincerity,
hence their statement was not a mere puff, but was intended to create legal relations.
Exception #2: Honour clauses. The second exception is honour clauses, i.e. where
parties expressly state the agreement to not be legally binding.
Rose and Frank v Crompton Bros
The agreement contained an ‘honourable pledge clause’, which stated: “this agreement
is not entered into as a legal agreement, and shall not be subject to legal jurisdiction in
the courts”. The court rejected the claim for breach, as it held that neither side was
under obligation to go on giving or accepting orders.
Jones v Vernon’s Pools
Where a football pools coupon states that it is ‘binding in honour only’, the pools
company cannot be sued for payment by a winner:
Exception #3: Agreements subject to contract. A third exception is an agreement
‘subject to contract’.
Confetti Records v Warner Music UK Ltd
The defendant sent a fax which was marked ‘subject to contract’, the court held that this
did not amount to a contract.
Exception #4 Collective bargaining agreements. A fourth exception is collective
bargaining agreements which are presumed to not be legally binding, unless they
expressly state otherwise in writing, stated in s.179 Trade Union and Labour Relations
(Consolidation) Act 1992.
If parties make an agreement without an intention of being legally bound by it, it won’t
be regarded as a contract. Contracts can be divided into domestic and social
agreements and commercial transactions.
● In commercial agreements, there is a rebuttable presumption that there is an
intention to create a legal relation.
● In social and domestic agreements, there is a rebuttable presumption that
parties do not intend the agreements to be legally binding.
COMMERCIAL AGREEMENTS
It is important that there is consistency and certainty with commercial agreements, as
they often involve large sums of money. This presumption in commercial agreements is
seen in Esso Petroleum Ltd v Customs and Excise Commissioners.
Esso Petroleum Ltd v Customs and Excise Commissioners
Esso ran a sales where one ‘coin’ would be given for every 4 gallons of petrol. The court
held that there was intent to create legal relations, because despite the coins’ negligible
monetary value, Esso would derive commercial benefit from it.
J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd
The defendants argued that the promise to store below deck was not intended to be
legally binding, but the court held that since the parties had previously done business
together, in which goods were always stored below decks, and the claimants would not
have agreed to the change in method if the promise had not been made.
The presumption will even apply where it is gratuitous in character.
Edwards v Skyways Ltd
Skyways argued that the promise to make an ex gratia payment was not intended to
create legal relations, but the courts held that ‘ex gratia’ merely meant that the
employers were not admitting any liability; it did not mean they were not bound.
Exception #1: Mere puffs. The first exception to this presumption is mere puffs, where
an offer is vague or clearly not intended to be taken seriously.
, Weeks v Tybald
It was held that the defendant’s promise to give £100 to any man who would marry his
daughter, was not legally binding.
Carlill v Carbolic Smoke Ball Co
The court held that since the company had deposited £1000 to show their sincerity,
hence their statement was not a mere puff, but was intended to create legal relations.
Exception #2: Honour clauses. The second exception is honour clauses, i.e. where
parties expressly state the agreement to not be legally binding.
Rose and Frank v Crompton Bros
The agreement contained an ‘honourable pledge clause’, which stated: “this agreement
is not entered into as a legal agreement, and shall not be subject to legal jurisdiction in
the courts”. The court rejected the claim for breach, as it held that neither side was
under obligation to go on giving or accepting orders.
Jones v Vernon’s Pools
Where a football pools coupon states that it is ‘binding in honour only’, the pools
company cannot be sued for payment by a winner:
Exception #3: Agreements subject to contract. A third exception is an agreement
‘subject to contract’.
Confetti Records v Warner Music UK Ltd
The defendant sent a fax which was marked ‘subject to contract’, the court held that this
did not amount to a contract.
Exception #4 Collective bargaining agreements. A fourth exception is collective
bargaining agreements which are presumed to not be legally binding, unless they
expressly state otherwise in writing, stated in s.179 Trade Union and Labour Relations
(Consolidation) Act 1992.
