no 16 intention terms

8/2/2019 No 16 Intention Terms

1/5

INTENTION TO CREATE LEGAL AGREEMENTS

Even if the parties have, by offer and acceptance, made an agreement and the agreement is supported byconsideration, a contract will not necessarily be formed. The element required is the intention of the parties tocreate legal relations. Generally, social, domestic and family arrangements are not usually intended to bebinding whereas commercial agreements are intended by the parties involved to be legally binding. Theintention must be rebutted by the party seeking to deny it. In domestic and social agreement there is a

rebuttable presumption that there was no intention that the agreement be legally binding. Agreements in adomestic or social context include agreements made between members of a family and between friends.

DOMESTIC AGREEMENTS

There is a presumption that in arrangements between husband and wife the parties do not intend to

create legal relations.

BalfourV Balfour

Mr. Balfour (D) worked in Ceylon. His wife had to stay in U.K for medical reasons. The husband agreed to payMrs. Balfour 30 monthly. They subsequently separated. Mrs. Balfour sued her husband for money owing under

their agreement. She could not recover the money because such arrangements are not usually intended to belegally binding. Domestic affairs should be dealt with privately.

The presumption is rebutted where parties have separated or are about to separate when they enterinto the arrangement.

MerrittV Merritt

The husband (D) had left the matrimonial home owned in the joint names of the husband and wife. Thespouses met and the husband agreed to pay 40 monthly to his wife out of which he agreed to keep up themortgage payments. The husband signed a note of these agreed terms and an undertaking to transfer thehouse into her sole name when the mortgage had been paid off. The wife paid off the mortgage but thehusband refused to transfer the house into her name. It was held that in the circumstances, an intention is tocreate legal relations was to be inferred and the wife could sue for breach of contract.

There is a presumption that in family arrangements the parties do not intend to create legal relations.

JonesV Padavatton

Mrs. Jones offered her daughter an allowance if she would give up her job and study for the bar. Padavattondid so. Two years later Mrs. Jones bought a house for Mrs. Padavatton and also allowed her to claim rent fromother tenants. 3 years later, Mrs. Jones claimed possession of the house. The mother and the daughter werevery close when the agreement was made. There was no intention to create legal relations.

Domestic arrangements extend to those between people who are related but who have a closerelationship of some form.

SimpkinV Pays

The defendant, her grand-daughter and the claimant took part together each week in a competition organizedby a Sunday newspaper. The arrangements over postage and other expenses were informal and the entrieswere made in Pays name. One week they won 750. Pays refused to pay Simpkin her share. Simpkin couldrecover her share. Though it was a friendly adventure, there was a contract. Therefore, there was an intention

to be legally binded.

Page 1 of 5


2/5

COMMERCIAL AGREEMENTSIn the case of ordinary commercial dealings there is a strong presumption that the parties intended it to belegally binding.The onus of rebutting the presumption rests on the party claiming that it does not apply.

EdwardsV Skyways Ltd

An employer agreed to make an ex-gratia payment to a redundant employee (ex-gratia means non-contractualand at the will of one of the parties). The use of the term ex-gratia was only a denial of a previous liability anddid not rebut. The presumption is that the parties intended that the agreement to make the payment waslegally binding.

Transactions binding in honour onlyIf the parties stale that and agreement is binding in honour only ,this amounts to an express denial of intentionto create legal relations.

Jonesv Vernons PoolsJones argued that he had sent to the def a football pools coupon on which his prediction entitled him adividend. The defendant denied having received the coupon. A clause on the coupon stated that the transactionshould not give rise to any legal relationship..but..be binding in honour only. A contract did not existbetween the parties since the clause on the agreement clearly negated any such intention. Jones could nottherefore sue for breach of contract.

TERMS OF A CONTRACT

A legally binding agreement must be complete in its terms, otherwise there is no contract. Terms are thoseelements which the parties consider to be of such material importance that they must form the basis of therecontractual agreement. There are 2 types of terms:

Implied terms Expressed terms

IMPLIED TERMSThere are situations where certain terms are not expressly adopted by the parties, but may be imputed fromthe context of the contract.

The Moorcock Case

There was an agreement by a wharf owner to permit a ship owner to unload his ship at the wharf. The ship wasdamaged when, at low tide, it was grounded on the bottom of the river on a hard ridge. It was held that thecourt implied a term into the agreement that the river bottom would be reasonably safe.

Expressed TermsExpressed terms are terms specifically inserted into the contract by either or both of the parties.

ScamellV Ouston

An agreement provided for the balance of the price. on hire purchase terms over a period of 2 yrs. The wordhire purchase terms was considered too imprecise and there was no contract.

There are 3 types of expressed terms: a condition, a warranty and an innominate term.

ConditionA condition is a vital term of the contract, breach of which may be treated by the innocent party as a substantialfailure to perform a basic element of the agreement. The innocent party can either repudiate the contract orclaim damages for any loss suffered or breach of contract.

Page 2 of 5


3/5

Poussardv Spiers

Mrs. Poussard agreed to sing in a series of operas for Spiers. She failed to appear on the opening night andSpiers refused her services for subsequent nights. She sued for breach of contract and it was held that theobligation to appear on the opening night was a condition and Mrs. Poussard was in breach of this condition.Therefore Spiers was entitled to repudiate the contract.

WarrantyA warranty is a less important term is incidental to the main purpose of the contract. Failure to observe it doesnot cause the whole agreement to collapse; consequently the innocent party may claim damages for its breachbut not treat the contract as repudiate.

BettiniV Gye

Bettini agreed to sing in a series of concerts and to attend 6 days of rehearsals beforehand. He failed to appearin the first 4 days and consequently Gye refused Bettinis series for the balance of the rehearsals andperformances. Bettini sued for breach and it was held that the obligation to appear for rehearsals was a merewarranty. The central condition of the contract was that Bettini should sing at the concerts.

Innominate termsThis is a term having the characteristic of both a condition and that of a warranty, but is none of them.

The Hansa Nord

Citrus pulp pellets were sold for 100k. One of the conditions of the contract was shipment to be made in goodconditions. On arrival some pellets were defective and their melt value reduced by20k.However even if all thegoods were sound, their melt value would have been 86k.The goods were later sold and eventually re-acquired by the original by buyer for 34k(and used them for the original purpose). The provision as toshipment in good condition was neither a condition nor a warranty, but an innominate term. The effect of thebreach was not sufficient to justify treating the contract as discharged. The buyers only remedy was indamages, i.e., the difference in value of the sound goods and the defective goods.

Exclusion clause

An exclusion clause is normally included in a contract, either to restrict, limit or completely waive liability undera contract. The use of exclusion clause became so proliferated and was a means whereby stronger parties in acontract would impose unbearable conditions on weaker parties that it became a source of hardship to thelatter. Subsequently, the Unfair Contract Terms Act (UCTA) 1977 was enacted whereby the use of exclusionclause was regulated. With the enactment of UCTA 1977, most of the common law rules governing theutilization of exclusion clause have now become obsolete. However, there are still some rules which are valid.

An attempt to include an exclusion clause unilaterally into a contract after it was made will not make itpart of the contract.

OlleyV Marlborough Court

A notice in a hotel room excluded liability for loss or damage to guests property. This was held to be ineffective

because the contract for accommodation had been made at the reception desk. An exclusion clause printed on a receipt given after the contract was made will not make it part of the

contract. A receipt is not a contract in itself but is evidence that a contract has been entered into.

ChaplettonV Barry

On seeing a notice for the hire of desk chairs, the claimant took two chairs, paid for them and received twotickets which he put in his pocket. One of the chairs collapsed and he was injured. The defendant council relied

Page 3 of 5


4/5

on a notice on the back of the tickets by which it disclaimed liability for injury. It was not reasonable tocommunicate the conditions on a receipt. The disclaimer of liability was invalid.

ThomsonV London Midlands Scottish RLY Co

Thorton bought a railway ticket, which stated she would travel subject to the companys standard conditions ofcarriage. Their conditions could be expected at the station. One of the conditions excluded liability for injury to

passenger. Thorton was unable to read and so was unaware of the clause. She was injured and claimeddamages. It was held that the ticket was more than a receipt. The Rly Co had taken reasonable steps to bringthe clause to the passengers intention. Thorton was bound by the clause even though she could not read,illiteracy is a misfortune not a privilege.

If there is an oral misrepresentation of the offerees term by the offerees representative or agent, theofferee cannot rely on those written term.

Curtisv Chemical Cleaning & Dyeing Co

The plaintiff took a wide satin wedding dress to the defendant for cleaning. She was asked to sign a documentwhich contained a clause that the company would be not liable for any damage howsoever arising. However shewas told it excluded liability for damage to beads or sequins. She then signed the document. The dress was

stained due to negligence of the defendants. The defendant was liable and could not rely on the exclusionclause because of the misrepresentation on to the extent of the exclusion clause.

Where a person signs a contractual agreement he would be liable for whatever is in that agreement inthe absence of fraud and misrepresentation.

LEstrangeV Graucob

The owner of a caf bought a cigarette vending machine and signed a contract of sale which she had not read.The contract excluded liability about defects. The machine was defective. She was unable to recover the priceor obtain damages as she was bound by the clause since she had signed it.

UCTA 1977

When considering the validity of exclusion clauses the courts have had to strike a balance between: The principle, that the parties should have complete freedom to contract. The need to protect the public from unfair exclusion clauses in standard form contracts used by large

companies.

Exclusion clauses do have a proper place in business. They can be used to allocate contractual risk, and thus todetermine in advance who is to insure against that risk. Thus, between businessmen with similar bargainingpower exclusion clauses are a legitimate device. The main limitations are now contained in UCTA 1977, whichapplies to clauses excluding business, liability, in contract or tort, involving the public.

In general, the Act applies only to clause inserted into agreements by commercial concerns or business. The actdoes not apply to:(i) Contracts relating to the creation or transfer of patents.(ii) Contracts of insurance.(iii) Contracts relating to the creation or transfer of an interest in land.(iv) Contracts relating to company formation or dissolution.

The Act uses two techniques for controlling exclusion clauses. Some types of clauses are void, whereas othersare subject to a test of reasonableness.

Page 4 of 5


5/5

Test for reasonablenessThe terms must be fair and reasonable having regard to all the circumstances which were , or which ought tohave been, known to the parties when the contract was made. Statutory guidelines have been included in theAct to assist the determination of reasonableness. The court will consider in relation to contracts for the saleand supply of goods the following factors:

(i) The relative strength of the parties bargaining power positions and in particular whether thecustomer could have satisfied his requirements from another source.

(ii) Whether any inducement was offered to the customer to persuade him to accept limitation of hisrights.(iii) Whether the customer knew of the existence and extent of the exclusion clause.(iv) If failure to comply with a condition excludes or restricts the customers rights, whether it was

reasonable to expect when the contract was made that compliance with a condition would bepracticable.

(v) Whether the goods were made, processed or adapted to the special order of the customer.

With the enactment of UCTA 1977, most of the exclusion clauses have been rendered ineffective. UCTA appliesparticularly to the following:

1) Where there is personal injury or death, no exclusion clause can be used to exclude liability.2) Any clause attempting to restrict liability for loss arising due to negligence is not applicable.

3) Any other damages sustained must then satisfy the requirements of reasonableness if the exclusion isto be discarded or made applicable. The requirements of reasonableness in this particular situationinclude the following:

i. The relative strength of the bargaining party; the stronger the party the more probable he canimpose an exempt clause.

ii. Whether any inducement was offered to the customer to persuade him to accept a limitation ofhis right.

iii. Whether the customer knew or ought to have known of the existence or extent of the exclusionclause.

iv. Whether the goods were made, processed or adapted to a special order of the customer.

UCTA excludes negligence, personal injury or death and loss of profit/revenue as a result of breach. In lawignorance is no excuse.

Page 5 of 5

no 16 intention terms

Documents