Intention to create legal relations

Many agreements are plainly never intended by the parties to be legally binding; there is no intention to take any dispute to a court of law.

In the case of agreements of a friendly, social or domestic nature there is a strong presumption that the parties did not intend to create a legal relationship. If friends agree to come to tea and they fail to turn up, or if a husband agrees to meet his wife and forgets, there can be no action for breach of contract, even though the complaining party may have incurred certain expenses.

In Balfour v. Balfour (1919), a husband promised his wife an allowance before he left to take up a post abroad. When he stopped the payments, an action by the wife failed on the ground that this was not a binding contract but merely a domestic agreement with no legal obligations attached to it.

Conversely, in Simpkins v. Pays (1955), three people sharing a house, the owner, her granddaughter and paying lodger, regularly entered a competition in a Sunday news­paper. The entries were sent in the name of the grandmother, but all three contributed. When an entry won, the grandmother refused to share the prize of £ 750. It was held that the others were entitled to share, because their agreement to this effect was, in the view of the court, intended to be legally binding.

On the other hand, there is a strong presumption that business agreements are intended to create legal relations. This presumption can be rebutted, but only by very strong evidence such as a clear statement in a written contract.

In Rose and Frank v. Crompton Bros Ltd (1925), an English company agreed to sell carbon paper in America through a New York firm. This marketing arrangement was for a renewable period of three years and provided that 'This arrangement is not entered into.. as a formal or legal agreement, and shall not be subject to legal jurisdiction in the Law Courts...'. Therefore, when the English company withdrew, it was not liable for breach of contract, although it was held liable to honour orders placed before withdrawal.

Similarly, in Appleson v. Littlewood Ltd (1939), the claimant sued to recover money which he claimed to have won on a football pool. His action failed, because the printed entry form contained a statement that the transaction was 'binding in honour only'.

Most collective agreements between employers and trade unions as to wages and other terms of employment will not be legally binding. The parties are assumed to have intended the agreement to be no more than a broad working arrangement, unless they expressly provide in writing that it is to be legally enforceable.

Form

In general, the form in which a contract is made does not matter and will have no effect upon the validity of the contract. However, there are certain exceptions.

Some contracts must be by deed. Promises for no consideration, and some bills of sale (mortgages of goods), are void unless in this form. Most conveyances of land must be completed by deed (see below).

Certain other contracts which must be in writing include bills of exchange, cheques and promissory notes, contracts of marine insurance, the transfer of shares in a company, and legal assignment of debts. Absence of duly signed writing renders such contracts void. Hire-purchase and other regulated agreements which come within the Consumer Credit Act 1974 may be unenforceable against the borrower unless they are made in writing and include the information required under the Act.

Contracts of guarantee, although not required to be in writing, are unenforceable in the courts unless there is written evidence of the essential terms, signed by the guarantor or his agent. This is a historical survival from the Statute of Frauds 1677. Special rules apply to land. A conveyance, such as a sale or lease, is normally in two stages. First the parties contract to sell (or lease) the land. Under the Law of Property (Miscellaneous Provisions) Act 1989, this contract must be made in writing in a signed document which 'incorporates' all terms which the parties have expressly agreed; the terms can either be set out in the document itself or included by reference to some other document. Usually in practice two identical documents are prepared, one signed by the vendor (seller) and handed to the purchasers, the other signed by the purchasers and handed (with a deposit) to the vendor. The Act allows this, even though neither document is signed by both parties, so long as each copy incorporates all the express terms. None of these formalities applies to sales by public auction. After the contract, the purchasers (through their solicitors) usually check the vendor's title to ensure that he does have the right to sell. If all is well, the transaction will then be 'completed' by conveyance of the title to the purchasers and payment by them of the (rest of the) price. This conveyance must be made by deed if the transaction is a sale or a lease for over three years.