Contract Act 1950 is silent on the question of intention to create legal relation as an essential element forming a valid contract. However, it is a trite law in England that it is condition to form a valid contract. In view of the above, explain:
a) the importance of its existence in a contract;
b) the arising presumption from the two situation i.e. social, family or other domestic
agreements and commercial agreement
ANSWER (a)
An integral element of a contract at law is that the parties to it must intend their agreement to have legal force in the sense that each party can take legal action to enforce it. Unless there is an express statement in the agreement on this matter, there is a presumption that agreements of a family, social or domestic character are not intended to have legal effect. In all other agreements (commercial agreements) the presumption is that the parties did intend it to have legal intent. In both situations the presumptions can be rebutted by evidence to the contrary.
Example Cases:
Balfour v Balfour [1919] 2 KB 571
Jones v Padavatton [1969] 2 All ER 616
Esso Petroleum Ltd v Commissioners of Customs & Excise [1976] 1 All ER 117
Rose and Frank Co v J R Crompton and Bros [1923] 2 KB 261
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
ANSWER (b)
“Social agreement is not usually legally binding, whilst a business agreement is usually binding”
Business / Commercial Agreement
Ø the law presumes that there is intent for the agreement to be legally binding
A business agreement is legally binding unless it says that it is not. Here the law presumes that there is intent for the agreement to be legally binding. However this presumption can and has been rebutted as in Jones v Vernon's Pools 1938 and Ford v AUEW 1969. It is important to look at Kleinwort Benson v Malaysian Mining Corporation 1989 at both High Court and Appeal Courts for differing views on ‘comfort letters" and intent.
Social and Domestic Agreement
Ø social agreement is not usually legally binding
No intent presumed. See Balfour v Balfour 1919 and Jones v Padavatton 1969 where a mother agreed to finance and house her daughter during studies. Later, after a quarrel the mother went back on her agreement. Held that it was not legally binding as it was a social or domestic arrangement. This last case can be contrasted with that of Merritt v Merritt 1970 where the family circumstances were different, and with Simpkins v Pays 1955.
Consider: A group of student decide to buy 100 lottery tickets. They designate one of the groups to collect the money and purchase the tickets. One of the tickets wins the jackpot. The person who bought the ticket decides to keep the money as there was not a legal agreement.
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