There must be an intention among the parties that the agreement should be attached by legal consequences and legal relations, and as such they do not give rise to a legally enforceable contract e.g. an agreement to dine at a friend’s house or to go to a movie.
Legal relationship arises when the parties know that if one of them does not fulfill his part of promise, he shall be liable to compensate the other for breach of contract. If there is no intention to create legal relationship by the parties among themselves, there is no contract.
Agreements between husband and wife also lack the intention to create legal relationship and thus do not result in contracts. In commercial and business agreements, the presumption is usually that the parties intended to create legal relations. But this presumption is rebuttable which means that it be shown that the parties did not intend to be legally bound.
Simpkins vs Pays :
In this case a paying guest along with other two members of the family used to send entry coupons for fashion competitions of a Sunday newspaper. One of the coupons filled by the granddaughter of the landlady was successful and won a prize. The paying guest received the prize as the coupon was sent in his name. That young lady used the paying guest to recover her one third shares in the prize money. But he refused to pay on the ground that the arrangement to share the prize money was merely a family matter and it was never intended to give rise to legal consequences.
Hence there was not a legally enforceable contract. Held, there was an enforceable contract in as much as there was mutuality in the agreement between the parties, and, therefore, the paying guest was bound to pay one-third share of the prize money.
Balfour vs Balfour :
Mrs. & Mr. Balfour were enjoying leave in England. When the husband was due to return to his home country, Ceylon, his wife could not accompany him because of her health. He agreed to send her Rs. 30 a month as maintenance expenses during the time of their separation. She sued for breach of this agreement. Held, no legal action had been contemplated and hence there was no contract.
Farina vs. Fickus :
In this case, a father wrote to his would be son-in-law that his daughter would have a share of what he leaves behind. Held, it was merely a statement of intention and there was no binding contract.
Rose & Frank :
Co. vs Crompton & Brothers Ltd. In this case the former company entered into an agreement with the latter company, by means of which Rose Company was appointed as the agent of Crompton Company. The agreement contained one clause along with many others, as “this agreement is not entered into as a formal or legal agreement, and shall not be subject to legal jurisdiction in the law courts.” Held, there was no intention to create legal relations on the part of the parties to the agreement and hence there was no contract.
A person may make a proposal or statement in a jest without any thought or intention to create a binding obligation. A proposal made in jest, cannot be expected by the offeree as a reasonable man, to have been made with the intention of making a contract. Also, a person labouring under the stress of great emotion or excitement, may make a statement that cannot be treated as an offer on account of the fact that it would be obvious to a reasonable man that a legal relation is not contemplated.
Barranquilla vs Sukhdarshanlal Dayal :
In this case, it was held that the promises made over loudspeakers are often claptrap of politics.
But it is also to be noted here, that one would be bound by what he leads another reasonably to believe that he is serious, even if he is in fact jesting or acting under stress of great emotion or excitement.
Esso Petroleium Co. Ltd. vs. Customs and Excise Commissioners :
This petroleum company organized a promotion scheme to give to purchasers of four gallons of petrol, a free World Cup coin. Held, the company is bound to give to every purchaser of the specified quantity this free gift, although it was merely an advertisement scheme.
Though social or religious agreement are not made with the intention of making them legally enforceable, but parties standing in a domestic or social relationship may enter into an enforceable contract if they have intended their agreement to have legal consequences.
McGregor vs McGregor :
A husband and wife promised to withdraw complaints of assaults on each other under arrangement by which the husband promise to pay the wife an allowance in return of wife’s promise to restrain from pledging her husband’s credit. Held, the agreement was a binding contract.
Thus, the parties must intend to create legal relations when they enter into a contract. Where there is no such intention, there is no contract. Intention to create legal relations may be express or implied from circumstances of the case.