To offer a friend a meal may look like an offer and may be capable of acceptance but we would not expect the courts to enforce this agreement. Mere agreements do not create contracts. Even if we add in the ingredient of consideration this does not cook up a legally binding contract. On the other hand, we expect agreements with companies to be enforced. It is understood that we need to demonstrate the following contractual elements:

1.      An agreement with an offer and an acceptance

2.      Consideration

3.      Intention

Criticism of Intention

Oddly, this third factor is capable of being criticised because it can be seen as unnecessary given that there is consideration. Williston:

“The common law does not require any positive intention to create a legal obligation as an element of contract … A deliberate promise seriously made is enforced irrespective of the promisor’s views regarding his legal obligation.”

Of course, consideration in itself does not prove an intention to create legal relations, e.g., two people may go have a meal with one agreeing to buy the food if the other agrees to buy the drink. This has all the elements but lacks an intention to be legally bound. Thus intention must be proved whatever Williston suggest and often comes down to whether:

1.      The parties subjectively so intended.

2.      A reasonable person would objectively assume such an intention from the nature of the relationship.

There are two classes of agreement where a person may deny a legal intention:

·        Domestic agreements –assumed to not be so intended.

·        Commercial agreements – assumed to be so intended.

Ultimately, the difference between these comes down to the assumptions that the courts make regarding what will be intended. This often comes down to language.

Domestic Agreements

This concerns contracts involving social, family or other domestic agreements. The assumptions is that the parties are not intended to be bound unless it can be demonstrated:

1.      Some degree of distance between the parties – autonomy

2.      Clear expression and performance of the terms of the agreement

3.      Preferably, a written document of appropriate language and completeness

Agreements between husband and wife

The assumption here is that there is no such intention. But there are exceptions and the true meaning and intention will depend on the context where there may be found such an intention. All that is being said is that if the evidence of intention is so strong then the courts will depart from the assumption.

Balfour v Balfour, 1919 – case of the Faraway Wife

The husband lived in the then Ceylon (now Sri Lanka) and because his wife could not travel they agreed to part with him promising her a £30 a month allowance. He changed his mind and she sued. Failed because this was a domestic agreement. Judgment of its times?

Here the courts decided that the assumption had not been sufficiently rebutted. This case could be criticised because the couple had de facto separated and that thus the courts should have enforced the agreement. It is argued that if we want to decide what to do we should look at whether the parties have actually executed the agreement: if it is executed we should enforce, if executory we should not. So if one party keeps his word the other should!  However, in the following case there was a clear intention to so create such an agreement.

Merritt v Merritt, 1970

The Determined Wife

In this cases the husband had left the marital home and which was in their joint names. They met and a written agreement was drawn up at her insistence - she refused to get out of the car until he so wrote - stating that he promised her £40 a month with which she would pay the mortgage amongst other items and that he would transfer to the house to her after the last instalment. He changed his mind. She sued and succeeded because the courts decided that there was clear intent. Crucially, they were legally separated.

Agreements between Parent and Child

The reasoning here is very similar to husband and wives. Unenforceable, ceteris paribus.

Jones v Padavatton, 1969

The Ungrateful Daughter

Mrs Jones (P) lived in Trinidad. Her daughter’s (D) marriage had failed so P suggested that she go to London and become a barrister. She offered her an allowance. P bought a house and D moved in. They quarrelled and P claimed possession of the house. There was consideration but no written agreement – the daughter had started the course. CA decided that P could claim for the house because the courts decided that there was no real intention that would rebut the presumption. Other opinion was that the agreement had a limited life span and that after five years and little progress by D it lapsed and thus the allowance could be stopped. The house had the added complication of being vague and uncertain and thus could not amount to an intention for P to renounce her rights to dispose as she felt. D was a mere licensee.

The courts decided here on the two separate agreements, the allowance and the house. The allowance had lapsed quite reasonably and the house was too vague to amount to an agreement to be legally binding because the time factor was indeterminate.

Other Domestic Agreements

Of course, many agreements are made between people who are not of the same family. The courts have to use their judgment of the significance of the facts of a case, which will often decide the intentions of the parties.

Simpkins v Pays, 1955 – The Cheating Landlord

D owned a house and lived with her granddaughter and a lodger. They entered a newspaper contest every week. It was in D’s name but no rules as to who paid for postage and other expenses. They won £750 and D and granddaughter wanted it for themselves and excluded P, the lodger. Judge decided that there was a ‘mutuality in the arrangement between the parties’. It was a joint enterprise to which each contributed in the expectation of sharing any prize that was won. The fact that he was a lodger rebuts the domestic agreement argument.

Friends entering the lottery will have to share if it can be proved a strong degree of organisation indicating a willingness to be bound, e.g., the group that agreed that if one person won they would give the other two £25,000 – the winner was required to pay. The following case demonstrates changing times and the situation of agreements with friends.

Buckpitt v Oates [1968]

The Dangerous Drive Home

The parties were friends, both 17 years. They used each other’s cars. P, however, sustained an injury because of D’s negligence and sued for breach of contract because he had paid D 10 shillings towards petrol. He lost because this was seen as a domestic agreement.

Overall, we can see from above that we have an assumption that the courts will not enforce a domestic agreement unless there is compelling evidence that a reasonable person would infer from the facts that an intention was so intended. For example, in Parker v Clark [1960] the P’s had been invited by the D to move into their large house as companions. Everything was agreed but D tried to evict claiming agreement was not legally binding but lost because P’s had actually sold their house to move in with P’s – a strong indicator of intent.

Ultimately, it could be argued that the development of this area of law regarding domestic agreements will depend on social mores and practices, e.g., marriage may become less assumed to involve a joint relationship precluding enforcement of agreements.

Commercial Agreements

A commercial agreement can be assumed to be intending to create legal relations. This makes sense because in business firms are unlikely to want to enter into contract with somebody if they felt that they could not get redress in the event of a dispute. However, this assumption has to be qualified in the following situations:

Did the firm really intend to be bound? - Honourable Pledge Causes

Consumers when entering into contracts with companies have to clear about the nature of the enforceability of the contract. Firms also have to be clear what is the nature of the agreement. We often boost the products we want to sell but do we want to be taken precisely at our word? To attract custom firms often use hyperbole to advertise their goods and services and may be surprised when a disgruntled ‘punter’ tries to sue them for breach of contract for this disappointment. The firm will respond with the argument that they never intended to create a legal relationship upon these statements and that a reasonable man would have understood this. What they are saying is that they will do their best to honour their pledge but statements made are not to be binding.

This was one of the arguments in Carlill v Carbolic where the advertisement was only meant to be a ‘mere puff’, an expression of the confidence that they – the defendant’s – had in the coal or only a ‘promise in honour’ only. The Court of Appeal were not impressed by this argument given the extravagance of the advertisement which indicated that money was deposited in an account as a sign of the company’s good faith and intention. Given that the contract was not directly between the P and D there was a problem. Seeing this as a unilateral contract by P responding with the specified conduct solved this problem.

Bowerman v Association of British Travel Agents Ltd (ABTA) 1996

Claimant booked a holiday with a ABTA tour operator. ABTA’s role is as an insurer in the event of an insolvency or poor quality of service. After paying but before departure the tour operator went bust. Now, there was a notice on the wall of the operator:

“ABTA arranges for you to be reimbursed the money you have paid in respect of your holiday arrangement”. This would give confidence to a customer but ABTA argued that this was not intended to give rise to a contract with the claimant. CA rejected this because it looks like an offer that the customer is entitled to accept by entering a contract with the ABTA member. This is analogous to Carlill.

Incidentally, a number of years ago Hoover faced a similar problem. They had run advertisements stating that anybody that bought a Hoover product for more than £100 would be able to claim a return flight to the USA. Thousands did but after initial obstruction Hoover – after sacking their original lawyers – listened to legal opinion and paid up. This cost £40 million and the USA parent company got rid of this liability by selling to Candy. The precedents above made them realise that they were unlikely to win.

Suppose a firm makes it absolutely clear that it does not intend to be bound?

If the parties actually expressly declare that it is not to be binding in law. If this becomes an unambiguous term the courts will accept it, e.g., in Rose and Frank v Crompton [1923] – D had given P rights to sell their tissues in USA and Canada for three years. Their agreement explicitly stated that this agreement was not to enforceable in courts but to “they each honourably pledge themselves” to do their best. D ended agreement without the notice required in one of the terms but also crucially refused to make agreed deliveries causing great harm to P’s business. They sued but failed on the notice issue because the courts decided that parties could enter agreements that would allow them to operate on good faith alone if it were explicitly and freely entered into. This was an honourable pledge clause. However, the refusal to deliver orders could be enforced because these were separate contracts entered into before the ending of the distribution agreement.

The difference with Carlill and this case is that the courts will protect consumers more than firms. For example, if you saw an offer in Dixons of a free TV with every DVD player bought the courts would enforce regardless of small print and ‘honourable pledges’. Unambiguous agreement are no problem; what of cases where certainty is not present?

                Edwards v Skyways Ltd [1964] – case of the pilot

P was employed as a pilot but D made him redundant. His pension was part of the negotiation and in the agreement the D said that if he accepted repayment of his contributions to date they would give him an ‘ex gratia’ (gift) payment representing their contributions. P was happy to agree but they then refused the ex gratia payment. Sued for breach of contract on the extra payment but the D said that those particular words – ex gratia – clearly indicated no intention to be bound. P won because the assumption was that agreements in business were intended to be binding and the D had failed to rebut this assumption. Essentially, just because you use certain words does not allow you to escape.

If there is any doubts or a lack of certainty the courts have favoured the aggrieved party. In short be clear what you intend, e.g., in Kleinwort Benson v Malaysia Mining [1989] the P had loaned £10 million to a subsidiary of the D’s. D’s had refused a guaranty for their subsidiary but agreed a strange ‘Letter of Comfort’ whatever that meant. CA decided P could not get their money back from D because a simple reading of the words seemed to suggest uncertainty. This decision is somewhat dodgy and arguable. Subsequent cases indicate that D’s would not avoid their responsibilities by hiding behind vague words.

This issue of ‘comfort letters’ came up in Walford v Miles [1992] – D’s wanted to sell their business. P agreed to buy ‘subject to contract’. D’s agreed with P’s that if the P’s got a comfort letter from their bankers that they would not speak to third parties. D’s changed their mind and P’s were informed that they had sold the business to a third party. The issue came down as to whether this ‘lock-out’ agreement could be enforced. Decided by Lords that it could not because it lacked sufficient clarity and time limit – lacked intention.

Just because the objects of a contract seem of little intrinsic value does not mean that the courts will decide that there is no legal intent. Sometimes gifts disguise business intent.

Esso Petroleum v Customs and Excise [1976]

The case of World Cup Coins

Esso had a marketing campaign based on 1970 World Cup whereby customers could collect sets of coins –‘ a coin for every four gallons’. D wanted to charge tax on these coins. It all depended on what happened at the pumps. Esso argued that the advertisements were not intended to create legal relations – they were not bound to issue to the customers and that they were therefore not of any intrinsic value: they were just gifts and no more. Lords decided that there was an intention to create legal relations and the tax they must pay.

Football Pools and other Schemes

Prima facie, we could argue that if we won a competition we should be paid but this is not so. However, there is usually a clause that explicitly states that that this is ‘in honour only’ often in small print. For example, in Jones v Vernons Pools [1938] and Appleson v Littlewoods [1939] the ‘winners’ could not enforce payments. If you enter a competition or apply for some products from the back of cereal packets you will see the words ‘binding in honour only’ which means that the company will do its best but you cannot make them.

Criticism and Reform

You could argue here that the Unfair Terms in Consumer Contract Regulations [1994] could rule out these honourable pledge clauses.

Trade Unions Agreements

We can see that firms and trade unions make collective bargaining agreements but are they intended to be legally binding? In Ford v AUEW [1969] where a term specified that there would be no strikes without going through a recognised dispute procedure. A strike occurred and Ford attempted to get an injunction enforcing that term. They failed because there was not such an intention partly because of the practical difficulty of enforcing such a term for both sides.