Contract Law

Lectures 7 and 8
INTENTION TO CREATE LEGAL RELATION:
In its simplest form, intention to create legal relations means that the parties must intend
to enter into a legally binding arrangement in which the rights and obligations of the
agreement are enforceable.
Familial relationship: The assumption in familial relationship including friendship &
relationship & love & affection. The assumption is that parties to the agreement do not for
want it to be legally binding.
CASE LAWS:
1. Balfour v Balfour:
A husband worked overseas and agreed to send maintenance payments to his wife. At the
time of the agreement the couple were happily married. The relationship later soured and
the husband stopped making the payments. The wife sought to enforce the agreement.

Held: The agreement was a purely social and domestic agreement and therefore it was
presumed that the parties did not intend to be legally bound. No legally binding contract in
relation.
2. Merrit v Merrit:
A husband left his wife and went to live with another woman. There was £180
left owing on the house which was jointly owned by the couple. The husband
signed an agreement whereby he would pay the wife £40 per month to enable her
to meet the mortgage payments and if she paid all the charges in connection with
the mortgage until it was paid off he would transfer his share of the house to her.
When the mortgage was fully paid she brought an action for a declaration that the
house belonged to her. The agreement was binding. The Court of Appeal
distinguished the case of Balfour v Balfour on the grounds that the parties were
separated. Where spouses have separated it is generally considered that they do
intend to be bound by their agreements. The written agreement signed was further
evidence of an intention to be bound.
3. John v Padavanton:
A mother promised the daughter, a secretary in the US, that she would pay $200 per
month if the daughter gave up her work in Washington and studied for the English bar. The
daughter came to England and started reading for the Bar. The agreement between the
mother and daughter was later varied- the mother agreed to provide a house for the
daughter. She failed the Bar and the mother sought possession of the house. The daughter
argued that her giving up job in the US was good consideration for the house.

Was the agreement between the parties legally binding? The Court of Appeal found that
the agreement was not legally binding. Per Danckwerts, L J: there is possibly a
presumption that members of a family do not intend agreements between themselves to
have the force of contracts. Therefore, the mother was entitled to the house.
Commercial transaction: In commercial transaction there is a strong assumption that the
parties intend to enter into a legally binding agreement.

CASE LAWS:
1. Esso petroleum v custom & excise department:
Esso ran a promotion whereby any person purchasing four gallons of petrol would get a
free coin from their World Cup Coins Collection. The question for the court was whether
these coins were 'produced in quantity for general resale' if so they would be subject to tax
and Esso would be liable to pay £200,000. Esso argued that the coins were simply a free
gift and the promotion was not intended to have legal effect and also that there was no
resale.
The House of Lords held that the offer of coins did produce a binding contract with any
customer who bought more than four gallons of petrol. The parties intended to create legal
relations. The customers provided consideration by purchasing the necessary amount of
petrol.
However, the consideration was a contract to purchase petrol. This meant that customer
did not buy the coins for ‘money consideration’. The Lords therefore held that the contract
was not a sale contract, so the tax was not applicable.
2. Central London properties v high tree:
Facts
The claimant let by deed a block of flats to the defendant for a term of 99 years in 1937.
The rent was £2,500 a year. The subsequent chaos of WW2 meant that the defendant could
only sublease some of the flats to tenants. This put them in danger of defaulting on the rent.
The claimant told the defendant that they would reduce the rent to £1,250 a year to avoid
this.
In 1945, the claimant wrote to the defendant stating that rent would now be payable at the
original rate. They also asked for back-payments covering the difference during the war
period. The parties sought a declaration from the court as to what the defendant’s legal
position was.

Issue(s)

Could the claimant insist on the defendant paying the full rent?
Was the claimant entitled to back-payments?

Decision - The High Court stated that the claimant could demand the full rent going
forward, but not any back-payments. The claimant had made a statement which the
defendant relied on. The claimant was therefore estopped from claiming the full rent for
the duration of the war. However, they could revive their right to the full rent going
forwards once the war was over. This was because the conditions which underpinned the
claimant’s promise had ceased.
CAPACITY:
Section 11 of the contract act says regarding the person who can’t enter into contract.
Sounds mind, insane age. A minor can’t enter into a legal binding agreement. An agreement
with a legally insane person would only be invalid or void. If insanity is in the knowledge
of the other party. The law states that individuals who enter into a contract must have the
capacity to enter into a contract, otherwise it is voidable. Adults who have full capacity are
able to enter into contracts and enforce them at law (unless they are illegal contracts).
The law sets out those who do not have legal capacity to contract, particularly providing
special legal protection to those who are minors, or under a mental disability.

CASE LAWS:
1. Adeel Sultan v Khalid Rasheed (PLD 2017 590)
This case established the six exception that the agreement to minor is valid;
1. Guardian can get two times the value for the sale of land owned by the minor.
2. Where the sale proceeds will be used for essential maintenance of the minor and no
other property to sale is available.
3. When the minor in debt and that property sale will pay off the debt.
4. Where the property has been reserved by someone else.
5. Where the property is deceased and in danger of being destroyed.
6. To pay off legacy.
2. Nash v Inman:
The defendant, a minor, purchased a number of waistcoats from the plaintiff. The
issue was whether they were necessaries. The court held that the waistcoats were
not necessaries as the minor had an adequate supply at the time of sale. It was
held that two conditions had to be met before goods or services would be
regarded as ‘necessaries’. First, the goods or services had to be suitable to the
condition in life of the minor (e.g. a minor accustomed to living a life of luxury
will have a different ‘condition in life’ from a minor living in impoverished
circumstances). Whether this was the case would depend on the type of lifestyle
the minor in question was accustomed to leading. Second, the goods or services
had to be suitable to the minor’s actual requirements at the time of supply. If the
minor had an adequate supply of the relevant goods from another source, this
requirement would not be satisfied. Only contracts where minors necessities are
being fulfilled will be legally binding.
3. De francesco v Barnum:
A minor entered into a contract with the plaintiff as an apprentice to be taught
stage dancing. The minor agreed to serve the plaintiff for 7 years, but there was
no obligation on the plaintiff to provide employment. The plaintiff had the right to
terminate the contract, but there was no similar right in the minor. The minor left
the plaintiff and took up with the defendant. The plaintiff sued the defendant in
tort of inducing a breach of contract. Court sided with the defendant. The contract
between the plaintiff and the minor was one-sided and unreasonable that it could
not be considered a valid contract. It was held that contracts though which minor
will gain benefit without being injected to cumbersome term would be valid.