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This question relates to the issue of whether the parties to an agreement can enforce its terms through court action. By definition, a contract is a binding agreement, but the important thing for this question is that not all agreements are contracts. In order to limit the number of cases that might otherwise be brought, the courts will only enforce those agreements, which the parties intended to have legal effect. Although expressed in terms of the parties’ intentions, the test for the presence of such intention is an objective, rather than a subjective, one. For the purposes of this question in regard to intention to create legal relations, agreements can be divided into two categories, in which different presumptions apply.
Domestic and social agreements In domestic and social agreements, there is a presumption that the parties do not intend to create legal relations.
In Balfour v Balfour (1919), a husband returned to Ceylon to take up his employment and he promised his wife, who could not return with him due to health problems, that he would pay her £30 per month as maintenance. When the marriage later ended in divorce, the wife sued for the promised maintenance. It was held that the parties had not intended the original promise to be
binding and therefore it was not legally enforceable.
Another situation where it held that there was no intention to create legal relations can be seen in Jones v Pandavatton (1969), in which a mother was not held liable to maintain an agreement to pay her daughter a promised allowance.
It should be emphasised, however, that the presumption against the intention to create legal relations in such relationships is only that, a presumption and that, as with all presumptions, it may be rebutted by the actual facts and circumstances of a particular case as may be seen in Merritt v Merritt (1970). After a husband had left the matrimonial home, he met his wife and promised to pay her £40 per month, from which she undertook to pay the outstanding mortgage on their house. The husband, at the wife’s insistence, signed a note agreeing to transfer the house into the wife’s sole name when the mortgage was paid off. The wife paid off the mortgage but the husband refused to transfer the house. It was held that the agreement was enforceable as in the circumstances the parties had clearly intended to enter into a legally enforceable agreement.
Commercial agreements
In commercial situations, the strong presumption is that the parties intend to enter into a legally binding relationship in consequence of their dealings.
In Edwards v Skyways (1964), employers undertook to make an ex gratia payment to an employee whom they had made redundant. It was held that in such a situation the use of the term ex gratia was not sufficient to rebut the presumption that the establishment of legal relations had been intended. The former employee, therefore, was entitled to the payment promised.
As with other presumptions, this one is open to rebuttal. In commercial situations, however, the presumption is so strong that it will usually take express wording to the contrary to avoid its operation. An example can be found in Rose and Frank Co v Crompton Bros (1925) in which it was held that an express clause stating that no legal relations were to be created by a business transaction was effective.
Applying the above law to the facts in the problem scenario provides the following conclusions:
Amy and Ben
Although they are brother and sister it is clear from the facts of the situation that they entered into a business relationship with regard to the provision of the updating of the web site. Amy was to do the work for Ben’s business and Ben was expected to, and indeed agreed to pay £1,000. In such circumstances there was a clear intention to create legal relations and Ben cannot avoid his liability to pay Amy on the basis of their familial relationship. He may have wanted to help his sister, but he did so by entering into a business contract with her; one which she can enforce against him.
Che The position in this instance is even stronger in Amy’s favour. Even if he did have the motive to benefit Amy as his friend, Che can hardly claim that his agreement with her was a purely social one. It was clearly a business transaction and as such he is bound to comply with the original terms of the contract and pay the full contractual price of £1,000.