Once the court has established offer and acceptance the next step is to find the intention to create legal relations. This means that both parties knew they were making an agreement that was legally enforceable. The law makes the presumption that there is no intention to create legal relations in domestic or social arrangements. The law also implies an intention to create legal relations in commercial contracts.
The general rule is that the law implies an intention to create legal relations in commercial contracts; this presumption can only be rebutted by an express statement in the agreement to restrict this element. There are a number of examples where express statements have been successful in restricting legal relations.
Jones v Vernon’s Pools (1938) and Appleson v Littlewoods Pools (1939)
Both claimants believed they had a winning football pool coupon but both coupons read ‘binding in honour only. Therefore, this term restricted the creation of legal relations and the claims failed. A sale of a house ‘subject to contract’ means that there is the intention to proceed with the agreement, but the terms of the contract still need to be agreed and therefore it is a matter of interpretation as to whether a contract exists or not.
Social and Domestic Agreements
The exception to the general rules that social and domestic agreements lack an intention to create legal relations is where there is a more formal situation.
Balfour v Balfour (1919)
The husband agreed to pay the wife £30 a month maintenance whilst they lived in separate countries due to ill health. The husband stopped paying when the marriage broke down. The courts said the agreement was not legally enforceable as the agreement was purely a domestic agreement and therefore lacked any intention to create legal relations.
Compare that to:
Merritt v Merritt (1970)
A husband and wife were living apart and made an agreement for the husband to pay £40 a month maintenance which she would use to pay the mortgage. Once the mortgage was paid off the husband would transfer the house from joint names to the wife’s name. He wrote this agreement on a piece of paper and then signed it. He then refused to transfer the house. The courts held that this was a legally binding agreement and not just a domestic agreement as the agreement was written down.