The intention to create legal relations is very important as we know a statement to be an offer, it must

be made with the intention that it will be binding upon acceptance. Intention is essential for a valid
contract that all the parties participating in an agreement have an intention to create legal relations. The
intention is the willingness of a party, to enter into a legally binding contract. The intention to create
legal relations is basically an intention to enter into a legally binding contract where parties can sue each
other in court and are ready to accept the legal consequences of the binding contract. In order to
ascertain the intention of the parties, the law has developed two presumptions.

In the case of domestic and social agreements, it is presumed that there is no intention to create legal
relations. In the case of commercial agreements, it is presumed that there is an intention to create legal
relations. The presumption in both types of agreements is rebuttable. Even if all other essentials are
present but an agreement will not be binding without intention. If the intention is not present then
parties are not serious and without intention, the arrangement becomes a mere promise and promises
are not enforceable in the courts.

In practice, it is rare for contract cases to involve problems with the requirement of intention to create
legal relations. The courts will only consider intent to create legal relations if an offer, acceptance, and
consideration have already been established. In the view of the American academic, Professor Williston,
the contractual requirement that there should be an intention to create legal relations is superfluous
because English Law has the test of consideration to determine the boundaries of a contract. In his view,
the separate element of intention serves no purpose in our system and is useful only in legal systems
which do not have the test of consideration to help them to determine the boundaries of a contract. But
the case of Balfour v Balfour is an example of offer, acceptance, and consideration existing but still,
there being no contract, and the only explanation for this lack of contract seems to be that there was no
intention to be legally bound.

It's not possible to read the minds of the parties so the parties intended to enter into legally binding
relations is an issue to be determined objectively and not by enquiring into their respective states of
mind. When it's not possible to find out the intention then courts divide the agreements into two types
while considering the context. The context is very important such as the contracts made on the
domestic side are presumed to be not binding but on the commercial side, they are presumed to be
binding. The division is not so strict and the presumption in both types is rebuttable.

In fact, when it's not possible to read the minds of the parties and the court's general policy is to uphold
agreements in the commercial sphere of life, and not to interfere within the private sphere. Moreover, it
doesn't look nice to ask each party that do they have the intention or not. To resolve this problem the
agreements are divided into two types to make it clear that in domestic generally parties don't have the
intention to enter into binding relations but on the commercial side they do.

Domestic agreements are those made between family members and friends. In social and domestic
agreements the law raises a presumption that the parties do not intend to create legal relations. When a
husband and wife are together in one home and make an agreement, the courts will assume that they
do not intend to be legally bound, unless there is evidence to prove the contrary. The leading case in this
area is Balfour v Balfour (1919); where the husband promised to pay maintenance to his wife but later
refused to pay and thus his wife sued him. The court held that an agreement between a husband and a
wife is a domestic agreement and not legally enforceable because the parties do not intend to be legally
binding.
It seems that agreements of domestic nature between a parent and his child are likewise presumed not
to be intended to be binding unless rebutted such as in Jones v Padavatton (1969), where Jones
(mother) persuaded Padavatton (daughter) to leave her job and study for barrister and she promised to
pay her fee and expenditure during studies.

Due to accommodation problems Mother later bought a house for her where she can live and can rent
out one portion for other expenditures. The daughter was unable to complete her bar exam and the
mother sued for the possession of the house as she breached the contract with the mother regarding
the completion of the Bar. It was held that the agreement was only a family agreement and there was
no intention to create legal relations.

In general, arrangements of a social nature agreement are presumed not to be legally binding, while
commercial arrangements are presumed to be intended as binding contracts. Of course, these
presumptions can always be rebutted, in court by producing evidence to the contrary. In terms of the
general rules of social friend relations, there is no presumption to be legally binding.

Otherwise, in terms of exception, the presumption is rebuttable such as in Simpkins V Pays(1955], where
Pays granddaughter and their tenant Simpkins jointly entered a series of competitions run by a
newspaper on the name of Pays. They won, but Pays refused to share the prize claiming that no contract
existed. It was held that the presence of the outsider rebutted the presumption. So Pays
is bound to share. The law presumes that such social agreements are not intended to be legal, binding
which cover agreements between family members, friends, and colleagues. In Lens v Devonshire club
(1914), where the winner of a competition held by a golf club could not sue for his prize where no one
concerned with that competition ever intended that there should be any legal results flowing from the
conditions posted, and the acceptance by the competitor of those conditions.

An agreement to take a friend to work in exchange for petrol money was an arrangement that lacked
contractual intention. In Coward v MIB [1963] where Coward was killed whilst riding an extra seat on a
motorcycle driven by a friend due to his negligence. Coward's widow sought to claim damages from the
Motor Insurance Bureau since the rider's insurance did not cover extra seat passengers. Insurance was
only compulsory for extra seats if they were carried for hire or reward. Coward paid the friend a small
sum to take him to and pick him up from work each day. It was held that; there was no contract of hire
or reward as it was a social and domestic agreement since there was a clear lack of an intention to
create legal relations.

In Buckpitt v Oates (1968) where Buckpia: was injured as a passenger in Oates' car due to Oates' careless
driving. Buckpitt claimed for injuries against Oates' car insurance. It was held that there was no contract,
only a friendly agreement to go on the journey. Buckpitt could not recover damages for his injuries
under the contract law.

A rebuttable presumption is an assumption made by a court, one that is taken to be true unless
someone comes forward to contest it and prove it otherwise. The presumption that domestic
agreements are not binding is rebuttable such as in Merritt v Merritt [1970], where the husband agreed
to pay maintenance to his wife out of which his wife would pay the mortgage, and after the complete
payment, the husband would transfer his share to his wife. He wrote this down and signed the paper,
but later refused to transfer the house. The court held that its rebuttal presumption was based on it was
writing and that they were not living together. So intention was present and the husband is bound to
transfer the title to his wife's name.

In Parker v Clarke (1960); where Mrs Clark invited her niece Mrs Parker to live with her after selling their
house and they will share the bills with them and later transfer the house to them as per will. They
moved with them and shared the letters regarding the details of expenditures which confirmed the
agreement. Later Mrs. Clarke changed her will leaving the house to the Parkers and the Parkers were
asked to leave. It was held that; the agreement was intended to be legally binding as they sold the house
and shared letters of expenditures. Therefore the Parkers were entitled to damages.

In Tanner v Tanner (1975); where a man promised a woman that the house in which they had lived
together (without being married) should be available for her and the couple's children. It was held that
the promise had contractual force because, in reliance on it, the woman had moved out of her rent-
controlled flat.

Agreements which are made in the commercial market and not deemed to be domestic are commercial.
In relation to commercial agreements, courts will generally presume that an intention to create legal
relations is present. It is more difficult to rebut the presumption in commercial arrangements as
compared to domestic agreements.

There is a strong presumption in commercial agreements that the parties intend to be legally bound,
and, unless there is very clear contrary evidence, this presumption will not be rebutted such as in Esso
Petroleum Ltd. v Commissioners of Customs and Excise (1976), where Esso a sales promotion in which
coins were to be given away free, one with every four gallons petrol. Did a motorist who buy four
gallons of petrol have a contractual right to one of the coins? The deal was a commercial transaction and
therefore there was an intention to create legal relations.

In Evans v Andrea Merzario Ltd. (1976); where D gave oral assurance that goods would be carried below
deck but they were placed above deck and were consequently washed overboard during a storm. There
was a breach of contract because the intention is present in commercial transactions.

In O'Keefe v Ryanair Holdings (2002); where O'K was told by the airline that she might be its 1 millionth
passenger. She won and would have "unlimited travel for herself and her nominee for the remainder of
her life. One issue was whether, in making the original arrangement, the parties had intended to create
legal relations. It was held that; both parties did intend the arrangement to be legally binding.

Parties to a commercial transaction may expressly rebut the presumption that there is an intention to be
bound. In business agreements, the presumption is that the parties intend to create legal relations and
make a contract. This presumption can be rebutted by the inclusion of an express statement to that
effect in the agreement such as in Rose & Frank Co. V Crompton Bros. (1923); the defendants were
paper manufacturers and entered into an agreement with the plaintiffs. The written agreement
contained a clause that it will not be entered into a formal or legal agreement and would not be subject
to legal jurisdiction in the Courts. The plaintiffs placed orders for paper which were accepted by the
defendants. Before the orders were sent, the defendants terminated the agreement and refused to
send the paper.

It was held that the agreement was not binding owing to the inclusion of the "honorable pledge clause".
The presumption was rebutted by a clause. In terms of general rules of commercial or business relations,
there is a presumption or intention to be legally binding. Otherwise, in terms of exception, the
presumption is rebuttable.

In Kleinwort Benson (KB) v Malaysia Mining Corporation BHD [1989); where the plaintiff bank agreed
with the defendants to lend money to a subsidiary of the defendants. The subsidiary went into
liquidation and the plaintiffs claimed payment from the defendants. It was held that the letters of
comfort were statements of the company's present policy and not contractual promises as to future
conduct.

The presumption that parties participating in a commercial agreement intend to create legal relations
may be rebutted where the words of a contract, or an offer, suggest that legal relations were not
intended. There are three main situations where this will occur: Where an offer is extremely vague, or
clearly not intended seriously, the law will not give its acceptance to contractual effect. In Weeks v
Tybald (1604), where the defendant announced that he would give f100 to any suitable man who would
marry his daughter, but it was held that his words were not intended to be taken seriously, and his
promise was not legally binding.

This principle is sometimes applied in advertising and sales promotions, but only if there is 113 no
evidence of contractual intent. In Carlil v Carbolic Smoke Ball Co. (1893), where Company published an
advertisement for a smoke ball – that said if you used it properly 3 times a day and caught the flu; you
would be entitled to £100. Ms. Carlill performed this and caught influenza. It was held that the company
was liable to pay the promised 100 as she accepted the terms of the contract.

An honor clause states that the agreement is not a formal contract. If it is the intention of one or both
parties not to make a binding agreement then that agreement cannot be a contract. If the parties to an
agreement expressly declare that the agreement is binding in honor only that there is no contract Rose
& Frank Co v Crompton Bros [1925].

A contract is not legally binding where the agreement is based on the honor (approval) of the parties.
Such as in Jones v Vernon's Pools Ltd. [1938], where the plaintiff claimed to have won the football pools.
The coupon stated that the transaction was "binding in honor only". It was held that the plaintiff was not
entitled to recover because the agreement was based on the honor of the parties (and thus not legally
binding).

The sale of a house is subject to contract; this is reflecting the situation that an agreement has been
reached between the owner of the house and the prospective buyer; but that a written contract has not
yet been completed. The delay may occur while the buyer checks financial and other details like title of
the house.

Use of these words in an agreement is usually (though not always) taken to mean that the parties do not
intend to be legally bound until a formal contract is made. If the parties subsequently act upon the
agreement, their conduct may be interpreted as amounting to an intention to create the final contract.
In Confetti Records v Warner Music UK Ltd. (2003), the claimants owned the copyright in a music track
that the defendant wished to use in an album. Terms were discussed between the parties and the
defendant sent a fax to the claimant containing legal terms, but marked 'subject to contract. The
claimant signed this and faxed it back. The court held that this did not amount to a contract.
The context is very important to find out the intentions of the parties as where the words of a business
agreement are ambiguous, the courts will favor the interpretation which suggests that the parties did
intend to create legal relations, and therefore find that there is a contract while keeping in view the
context that dealing is taking place on the commercial side. In Edwards v Skyways [1964], where the
plaintiff pilot was terminated by the defendant. He had been informed by his pilot’s association that he
would be given an ex-gratia payment. The defendant failed to pay and the pilot sued him. The defendant
argued that the use of the words "ex gratia" showed that there was no intention to create legal
relations. It was held that this agreement related to business matters and was presumed to be binding.

To conclude the above discussion, the question of contractual intention is one of the facts. An
agreement will only be legally binding if the intention is present. The courts examine the intentions of
the parties objectively. To the extent the intention to create legal relations is concerned, contracts can
be divided into domestic or social agreements presumed to be not binding and commercial or business
agreements presumed to be binding. The presumption in both types is rebuttable. The agreement in
question must be carefully scrutinized to determine the nature of the parties' agreement. Without an
intention to create legal relations, there will not be a contract. The doctrine of intention to create legal
relations has not lacked its critics.

Others point out that the doctrine rests on fiction in that the parties to the alleged agreements
frequently have no observable intention one way or the other. But it is assumed that it is a necessary
part of the contract. An agreement, even though it is supported by Consideration, is not binding as a
contract if it is made without any intention of creating legal relations. Of course, in the case of ordinary
commercial transactions, it is not normally necessary to prove that the parties in fact intended to create
legal relations.