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The husband had to return to Sir Lankan but his wife stayed in England for medical reasons. He promised to pay her 30 pounds per month until his return. When he failed to pay, the wife sued her husband. The wife’s action failed because there was no consideration moved from her and there was no intention to create legally a binding agreement found. Here, it was stated that as a general rule, agreements between spouses would not be legally enforceable.
The presumption can be easily rebutted if parties in a familiar relationship are contracting in a business manner or if a husband and wife enter into an agreement in circumstances where they are no longer living together. This can be seen in the case of Merritt v Merritt (1972) where the spouses were already separated and the husband agreed to pay the wife 40 pounds per month maintenance, out of which the wife would pay the mortgage. When the mortgage was paid off he would transfer the house into the wife’s name.
He wrote this down on paper and signed it but later refused to transfer the house. It was held that when the agreement was made, the parties were no longer living together, therefore there was intention for the agreement to be binding and so the husband had to transfer the house to his wife. In cases where the courts finds that the presumption has been rebutted, they will look at the seriousness f the conduct involved, the expense involved, the closeness of the family relationship and the nature of the agreement, domestic or business.
Agreements made between other family members may also be subject to the question of contractual intention, as shown in the case of McKay v Jones (1959). In McKay v Jones (1959) an uncle employed his nephew on his farm on the basis that when the uncle died the farm would become the property of the nephew. On the death of the uncle, the nephew was not included in the will and an action was brought against the estate of the deceased. The court held that this was purely a family arrangement and therefore a contract did not exist.
In term of general rules of social friend’s relations, there is no presumption to be legally binding. However, there is a case where the presumption is rebutted which is seen in the case of Sinking V Pays in 1955. In this case the defendant, her granddaughter and the plaintiff (paying lodger) regularly took part in newspaper competition. All contributed but entered in defendant’s name. There is no set of arrangement that state payment of postage etc. When the entry of the competition was successful the defendant refused to share the prize with the plaintiff.
The plaintiff sued for his share and the court ruled a legally binding relationship as there was sufficient mutuality in the arrangements between the parties. 3. COMMERCIAL OR BUSINESS RELATIONS In the context of commercial contracts, the intention to create legal relations is presumed. This presumption can be rebutted by circumstances indicating absence of intention such as honor clauses, promotional puff and free gifts, ex- gratin payments, letters of comfort and letters of intent and understanding the inclusion. 3.
HONOR CLAUSES The presence of an honor clause in contracting parties’ agreements will indicate that the parties entering the agreement did not intend the agreement to have legal consequences which is seen in the case of Co. V Crampon & Brothers Ltd. In this case the former company entered into an agreement with the latter company, by means of which Rose Company was appointed as the agent of Crampon Company. The agreement contained one clause which stated “this agreement is not entered into as a formal or legal agreement, and shall not be subject to legal jurisdiction in the law courts”.
It was held there was no intention to create legal relations on the part of the parties to the agreement and hence there was no contract. 3. 2 PROMOTIONAL PUFF AND FREE GIFTS For the purposes of attracting custom, exaggerated claims in adverts may be used. Such statements are “mere puffs” and not intended to form the basis of a binding contract. There may be a tendency to think that a person who acts in response to the advertisement may not intend legal consequences to follow. To determine this, the court will look not only at the words used, but at the entire context in which the advertising takes place.
For example, if such language is used in a business setting, or to promote a commercial end such as a gift of free coins with the purchase of petrol, a court may be persuaded that the necessary intention existed which was the case in Sees Petroleum Co Ltd v Customs & Excise Commissioners. Here the Petroleum Company organized a promotion scheme to give to purchasers of four gallons of petrol, a free world cup coil. The company was bound to give to every purchaser of the specified quantity this free gift, although it was merely an advertisement scheme.
Also, if the language used envoys intention as in the case Cargill v Carbolic Smoke Ball Co. Carbolic Smoke Ball Co. Manufactured and sold The Carbolic Smoke Ball. The company placed ads in various newspapers offering a reward of 100 pounds to any person who used the smoke ball three times per day as directed and contracted influenza, colds, or any other disease. After seeing the ad Cargill purchased a ball and used it as directed. Cargill contracted influenza and made a claim for the reward. Carbolic Smoke Ball refused to pay and Carla” sued for damages arising from breach of contract.
Judgment for 100 pounds was entered for Cargill. . 3 EX GRATIN PAYMENTS AND WITHOUT PREJUDICE OFFERS Parties who offer to make an ex-gratin payment or who write a ‘without prejudice’ letter which is accepted, are still seen to posses the intention to create legal relations. Both of these situations were referred to by Manage in Edwards v Skyway. The plaintiff was a pilot who had been made redundant. As part of the arrangements for this, he was offered and accepted a payment which was stated to be “ex-gratin”.
The company then found that the terms which had been offered would be more expensive for it and denied that there was any legal obligation to make the payment. The judge held that the “ex-gratin” did not mean “not legally binding” but simply recognized that, prior to the offer being made, there had been no obligation to make such a payment. Once it had been made, however, and accepted as part of a redundancy package it was capable of being legally binding and that there was no evidence to overturn the presumption that this should be the case and the pilot won his case. 3. LETTER OF COMFORT Where an advance is made, for example to a subsidiary company, the lender may request the holding company to guarantee performance of the borrowers obligation. Fifth holding company is not prepared to give a guarantee, the lender my instead request that a letter of comfort be provided which gives an assurance that the subsidiary company will be able to meets its obligations when they fall due. Central to the determination of whether a letter of comfort gives rise to legal intent is whether the parties intended to create legal obligations by the giving and receiving of the letter.
To determine this, the courts look at the construction of the document and the circumstances surrounding its sending. In Banquet Brussels Lambert AS v National Industries Ltd the following points were considered in assigning legal intent to the letter of comfort: On a construction of the letter, the terms were sufficiently promissory in nature. The letter was part of a commercial transaction in which there is a presumption that legal relations were intended. Intention is deduced from the document as a whole seen against the background of the practices of the particular trade or industry. . 5 LETTER OF INTENT AND UNDERSTANDINGS Generally, a letter of intent or understanding will represent something short of n intention to enter a concluded agreement. In the case of Tariff Construction Ltd. V Regalia Knitting Mills Ltd. (1971) a letter of intent was issued by Regalia knitting to Tariff Construction to urgently commence construction of a factory with the intention that Regalia award a contract to Tariff subject to an agreement and acceptable contract.
Tariff agreed to commence work provided that Regalia undertake liability for its work done. The court held that Regalia was still liable to Tariff because a subsequent contract was made in that Regalia had greed to undertake liability for Tariffs work done and it could not be construed as part of the subject to an agreement of an acceptable contract as stated in the letter of intent pending the acceptable contract. The letter of intent was merely an expression of an intention to enter into an acceptable contract and therefore, not a binding contract. . COLLECTIVE Agreements between trade unions and employers relating to contracts are not usually legally binding. However, if the court finds that the parties intended to create legal relations through such a collective agreement it will hold that the entrant is enforceable. A trade union can be bound by a collective contract but an individual member of the union or a non-union worker is not bound by the provisions of a collective agreement, unless they are expressly incorporated into the employment contract.
In the case of Resource and Others v. Tallboy (Ireland) Ltd (1993) the defendant company had given an assurance in writing to “guarantee “protection for four of its workers against compulsory redundancy up to 1984. When the plaintiffs were made redundant in 1980, they sued for breach of contract. Although the defendant company may not have intended the elective agreement with the four workers to create legal relations between both parties, this had not been made known to its workers.