Contract Law Intentions to Create Leagal Relations

Intention to be bound is essential

The intention to create legal relations is an essential element in the formation of a contract. Where no intention to be bound can be attributed to the parties, there is no contract. The test of intention is objective. The courts seek to give effect to the intentions of the parties, whether expressed or presumed. In Rose and Frank Co. v Crompton Bros. (1925) AC 445 Atkin LJ said, in the Court of Appeal, that: ‘To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly.’ In the same case, Scrutton LJ said: ‘Now it is quite possible for parties to come to an agreement by accepting a proposal with the result that the agreement does not give rise to legal relations. The reason for this is that the parties do not intend that their agreement shall give rise to legal relations. This intention may be implied from the subject matter of the agreement, but it may also be expressed by the parties. In social and family relations such an intention is readily implied, while in business matters, the opposite result would ordinarily follow.’ Although it can be difficult at times to make such distinctions (Edmonds v Lawson [2000] QB 501 or Sadler v Reynolds [2005] EWHC 309 QB) it seems logical, for present purposes, to make a broad distinction between agreements of the commercial kind and agreements of the domestic kind.

policy: there was no express or implied promise that this policy would remain. The statement was one of present fact regarding the parent company's intentions. It was not a promise as to future conduct, and therefore, not a contractual promise. The statement was not intended to be other than a representation of fact giving rise to a moral responsibility.

‘Subject to contract’

The expression ‘subject to contract’ creates a strong inference that the parties do not intend to be bound until the execution of a formal contract. Acceptance ‘subject to contract’, prima facie, is not binding. In a sale of land, it is usual to express tentative preliminary agreement to be ‘subject to contract’, so as to give the parties an opportunity to reflect or to seek legal or other advice before entering a binding contract. The expression ‘subject to contract’ has received judicial recognition for this purpose. But if any other form of wording is used, care must be taken to show legally that the parties did not intend to create a legally binding agreement. There is a difference between a tentative agreement which is not binding and a provisional agreement which may be binding.

Eccles v Bryant and Pollock [1948] Ch 93: The parties agreed on the sale of certain property, ‘subject to contract’. The contract was drawn up and counterparts prepared for each party. The purchaser signed