University of Nottingham
Law of Contract
PERFECTING AGREEMENTS AS CONTRACTS
Howard Bennett
Hind Professor of Commercial Law
• All contracts are agreements but not all agreements are contracts. For an agreement to be a
contract, in addition (a) the parties must have an intention to create legal relations, and (b) a
minority of contracts require compliance with a formality. Furthermore, (c) in all cases
consideration must have been provided.
1. Intention To Create Legal Relations
• The parties’ sovereignty over their agreement extends to determining whether it should be
legally enforceable. The question is, therefore, asked, whether they had an ‘intention to
create legal relations’. As ever, the question is answered objectively: regardless of subjective
intentions, did the words and conduct of the parties indicate an intention to create a legally
binding contract?
The parties to the agreement intend for the agreement to be legally binding. They intend that if the
agreement is broken you can be taken to the court of law.
• Whether intention to create legal relations therefore fact sensitive.
o Standard domestic case: no intention to create legal relations
▪ Balfour v Balfour [1919] 2 KB 571: husband promised wife £30 per week while
ill-health prevented her from returning with him to Si Lanka where he worked;
difficulties in their relationship; he stopped paying; breach of contract? CA:
no. Domestic housekeeping arrangements are not binding contracts.
The husband welshes on the agreement and the wife sues him. The litigation is between husband and
wife about household finances. Is there contractual intention? No. this is a domestic matter. If one
partner to a marriage welshes on domestic arrangements, it would not end up in the court of law
o Domestic but third party involved and significant change of position
▪ Parker v Clark [1960] 1 WLR 286: elderly couple (D) agreed with younger
couple (C) that, if C sold their house and lived with D sharing household
expenses, the husband of D couple would leave the house to the wife of C
couple by will; C sold their house and went to live with D, but they did not get
on; within a year, D repudiated the agreement and told C to leave. Held:
contract, as indicated by causing C to sell their house.
Domestic in subject matter; concluded between elderly couple and younger couple where the younger
couple will sell their home and move in with the elderly couple to help to maintain the household.
When the elderly couple passes away, they will leave the house to the younger couple in the will. The
couples however began to fall out and the older couple proposed to evict the younger couple. Was
there a binding contract between them? There is a binding contract. It may be a domestic arrangement
agreement, but it is clearly an arm’s length agreement which is not between family members, the
younger couple is being asked to change their lifestyle considerably, relinquish freedoms which they
would have otherwise had and commitment themselves on a long-term basis. In return ultimately,
they will inherit the property. There is a degree of reliance, thus there is a clear intention that the
agreement should be legally binding.
1
,University of Nottingham
Law of Contract
o Married couple, once separated likely to be contractual
▪ Merritt v Merritt [1970] 1 WLR 1121: after leaving his wife, husband promised
to transfer the matrimonial home into wife’s sole name provided she paid all
outgoings on the house until mortgage paid off. Held: legally binding.
. the agreement is held to be a contract. The husband and wife, although still married are separate.
Technically they are husband and wife but the factual context has changed. This is not a domestic
contract between a union. This is an arrangement between two people who used to cohabit, and the
arm’s length nature of the agreement leads easily to the conclusion that this was intended to be legally
binding.
o Borderline case: change of position but family
▪ Jones v Padavatton [1969] 1 WLR 328: mother promised daughter, if she gave
her job as secretary in US to read for the bar in England, she would give her a
maintenance allowance of £200 per month; daughter agreed; agreement
subsequently varied to provide house instead of allowance; mother fell out
with daughter and gave her notice to quit. CA: family arrangement like
Balfour.
Similarities to parker v Clarke
However, an agreement between two family members; a mother and daughter.
The daughter is working in America as a secretary. The mother thinks the daughter should be a
barrister and proposes that she should move to London and start studying law to qualify as a barrister.
If the daughter does this, the mother promises to maintain her daughter during her studies. the
daughter goes ahead with this and the mother maintains her. The two fell out, can the mother hold
the daughter to the agreement?
She has abandoned her lifestyle and moved continents. However, there was no contractual intention.
Why not? The court could not get past the fact that the agreement was between mother and daughter.
• With ordinary commercial transactions, presumption that legal relations intended: burden of
proof on party disputing the existence of contractual intention and not easy to discharge
(Edwards v Skyways Ltd [1964] 1 WLR 349 at 355), but again it depends on the facts.
o Rose & Frank Co v JR Crompton & Bros Ltd [1925] AC 445: US firm (C) made sole agents
for sale in US and Canada of D’s goods; contract contained ‘honourable pledge clause:
‘This arrangement is not entered into, nor is this memorandum written, as a
formal or legal agreement, and shall not be subject to legal jurisdiction in the
Law Courts either of the United States or England, but it is only a definite
expression and record of the purpose and intention of the three parties
concerned, to which they each honourably pledge themselves, with the fullest
confidence - based on past business with each other - that it will be carried
through by each of the three parties with mutual loyalty and friendly co-
operation.’
HL: no basis to deny clear intention that agreement of moral force only.
o Similarly, the parties can agree that drawing up a formal documentary record of their
agreement is a condition precedent to a legally binding contract. The parties thereby
retain control over whether a contract is ever concluded and, if so, the precise timing.
2
, University of Nottingham
Law of Contract
• Implied contract: challenging burden of proof: need clear evidence that intended contract
even though not expressed (often stated in terms of ‘necessity’: The Aramis [1989] 1 Lloyd’s
Rep 213).
o Baird Textile Holdings Ltd v Marks & Spencer plc [2001] C.L.C. 999: C was one of four
principal garment suppliers to D; supplied D for over 30 years; in accordance with D’s
wishes, no express contract; without warning, D terminated arrangement with C with
effect from end of then current production season; C claimed implied contract, terms
being to give reasonable notice to terminate and during contract’s subsistence to
purchase reasonable quantity at reasonable price. CA: no contract.
▪ No necessity to imply contract. If parties’ conduct consistent with no contract,
no need to imply one. ‘It is merely putting the same point another way to say
that no intention to make any such contract will then be inferred.’ At [61] per
Mance LJ.
▪ Uncertainty: D did not allocate orders between its main suppliers according
to any formula and no objective criteria for determining what was reasonable
by way of quantity or price: [29]. Not case where considering whether
uncertainty defeats evident intention to have a contract; rather ‘the lack of
certainty confirms the absence of any clear evidence of an intention to create
legal relations.’ At [30] per Sir Andrew Morritt V-C.
▪ Failure to formulate essential principles governing long-term relationship
indicative of absence of contractual intention (reinforced by contrast with
specific short-term seasonal agreements): at [70]-[71].
Claimant is relatively small company supplying clothing to marks and spencer for over 30 years.
However, marks and spencer had never wanted to sign an express contract. They always dealt with
their supplier on an informal basis. Placed orders and paid for clothes but never sat down and
discussed the terms on which this was happening. M&S immediately terminated their agreement with
the claimant. there was no prior indication that M&S was going to seize business, and they were given
very little notice. The claimant in essence was upset at the treatment. Have they got a case in law?
Can they sue M&S for breach of contract? Could they claim that the relationship was contractual and
that under the terms of the contract, if they wished to bring the contract to an end, they would have
to provide a reasonable notice period; during which they would have to continue purchasing the
clothing.
There was absence of evidence of any contract. There was no agreement to any terms. The claimant’s
argument was that this could be implied simply from the fact of a long-term arrangement. The CoA
did not support, claimant loses and M&S wins.
Reasoning of the CoA:
- Why should one infer a contract? Clearly the arrangement could have been based on a
contract but the arrangement did not need to be based on a contract. The simple fact; they
did not state there must be a contract. Asking a court to imply a contract, you’re saying look
at the facts its obvious that there must be a contract. In this case there was not
- If there is argument or suggestion of a contract, there is no certainty. Where are the terms?
You would have to invent these terms. Inescapably, the contract would have to be written for
the parties and the courts do not do this
- There was no objective criteria to be employed to figure out what the terms might say.
- Against this there was the fact that although this was a long-term agreement, the parties had
never sat down and discussed the basis of the agreement along with its terms. The inference
to be drawn from this was that the parties did not intend the arrangement to have contractual
intention.
3
Law of Contract
PERFECTING AGREEMENTS AS CONTRACTS
Howard Bennett
Hind Professor of Commercial Law
• All contracts are agreements but not all agreements are contracts. For an agreement to be a
contract, in addition (a) the parties must have an intention to create legal relations, and (b) a
minority of contracts require compliance with a formality. Furthermore, (c) in all cases
consideration must have been provided.
1. Intention To Create Legal Relations
• The parties’ sovereignty over their agreement extends to determining whether it should be
legally enforceable. The question is, therefore, asked, whether they had an ‘intention to
create legal relations’. As ever, the question is answered objectively: regardless of subjective
intentions, did the words and conduct of the parties indicate an intention to create a legally
binding contract?
The parties to the agreement intend for the agreement to be legally binding. They intend that if the
agreement is broken you can be taken to the court of law.
• Whether intention to create legal relations therefore fact sensitive.
o Standard domestic case: no intention to create legal relations
▪ Balfour v Balfour [1919] 2 KB 571: husband promised wife £30 per week while
ill-health prevented her from returning with him to Si Lanka where he worked;
difficulties in their relationship; he stopped paying; breach of contract? CA:
no. Domestic housekeeping arrangements are not binding contracts.
The husband welshes on the agreement and the wife sues him. The litigation is between husband and
wife about household finances. Is there contractual intention? No. this is a domestic matter. If one
partner to a marriage welshes on domestic arrangements, it would not end up in the court of law
o Domestic but third party involved and significant change of position
▪ Parker v Clark [1960] 1 WLR 286: elderly couple (D) agreed with younger
couple (C) that, if C sold their house and lived with D sharing household
expenses, the husband of D couple would leave the house to the wife of C
couple by will; C sold their house and went to live with D, but they did not get
on; within a year, D repudiated the agreement and told C to leave. Held:
contract, as indicated by causing C to sell their house.
Domestic in subject matter; concluded between elderly couple and younger couple where the younger
couple will sell their home and move in with the elderly couple to help to maintain the household.
When the elderly couple passes away, they will leave the house to the younger couple in the will. The
couples however began to fall out and the older couple proposed to evict the younger couple. Was
there a binding contract between them? There is a binding contract. It may be a domestic arrangement
agreement, but it is clearly an arm’s length agreement which is not between family members, the
younger couple is being asked to change their lifestyle considerably, relinquish freedoms which they
would have otherwise had and commitment themselves on a long-term basis. In return ultimately,
they will inherit the property. There is a degree of reliance, thus there is a clear intention that the
agreement should be legally binding.
1
,University of Nottingham
Law of Contract
o Married couple, once separated likely to be contractual
▪ Merritt v Merritt [1970] 1 WLR 1121: after leaving his wife, husband promised
to transfer the matrimonial home into wife’s sole name provided she paid all
outgoings on the house until mortgage paid off. Held: legally binding.
. the agreement is held to be a contract. The husband and wife, although still married are separate.
Technically they are husband and wife but the factual context has changed. This is not a domestic
contract between a union. This is an arrangement between two people who used to cohabit, and the
arm’s length nature of the agreement leads easily to the conclusion that this was intended to be legally
binding.
o Borderline case: change of position but family
▪ Jones v Padavatton [1969] 1 WLR 328: mother promised daughter, if she gave
her job as secretary in US to read for the bar in England, she would give her a
maintenance allowance of £200 per month; daughter agreed; agreement
subsequently varied to provide house instead of allowance; mother fell out
with daughter and gave her notice to quit. CA: family arrangement like
Balfour.
Similarities to parker v Clarke
However, an agreement between two family members; a mother and daughter.
The daughter is working in America as a secretary. The mother thinks the daughter should be a
barrister and proposes that she should move to London and start studying law to qualify as a barrister.
If the daughter does this, the mother promises to maintain her daughter during her studies. the
daughter goes ahead with this and the mother maintains her. The two fell out, can the mother hold
the daughter to the agreement?
She has abandoned her lifestyle and moved continents. However, there was no contractual intention.
Why not? The court could not get past the fact that the agreement was between mother and daughter.
• With ordinary commercial transactions, presumption that legal relations intended: burden of
proof on party disputing the existence of contractual intention and not easy to discharge
(Edwards v Skyways Ltd [1964] 1 WLR 349 at 355), but again it depends on the facts.
o Rose & Frank Co v JR Crompton & Bros Ltd [1925] AC 445: US firm (C) made sole agents
for sale in US and Canada of D’s goods; contract contained ‘honourable pledge clause:
‘This arrangement is not entered into, nor is this memorandum written, as a
formal or legal agreement, and shall not be subject to legal jurisdiction in the
Law Courts either of the United States or England, but it is only a definite
expression and record of the purpose and intention of the three parties
concerned, to which they each honourably pledge themselves, with the fullest
confidence - based on past business with each other - that it will be carried
through by each of the three parties with mutual loyalty and friendly co-
operation.’
HL: no basis to deny clear intention that agreement of moral force only.
o Similarly, the parties can agree that drawing up a formal documentary record of their
agreement is a condition precedent to a legally binding contract. The parties thereby
retain control over whether a contract is ever concluded and, if so, the precise timing.
2
, University of Nottingham
Law of Contract
• Implied contract: challenging burden of proof: need clear evidence that intended contract
even though not expressed (often stated in terms of ‘necessity’: The Aramis [1989] 1 Lloyd’s
Rep 213).
o Baird Textile Holdings Ltd v Marks & Spencer plc [2001] C.L.C. 999: C was one of four
principal garment suppliers to D; supplied D for over 30 years; in accordance with D’s
wishes, no express contract; without warning, D terminated arrangement with C with
effect from end of then current production season; C claimed implied contract, terms
being to give reasonable notice to terminate and during contract’s subsistence to
purchase reasonable quantity at reasonable price. CA: no contract.
▪ No necessity to imply contract. If parties’ conduct consistent with no contract,
no need to imply one. ‘It is merely putting the same point another way to say
that no intention to make any such contract will then be inferred.’ At [61] per
Mance LJ.
▪ Uncertainty: D did not allocate orders between its main suppliers according
to any formula and no objective criteria for determining what was reasonable
by way of quantity or price: [29]. Not case where considering whether
uncertainty defeats evident intention to have a contract; rather ‘the lack of
certainty confirms the absence of any clear evidence of an intention to create
legal relations.’ At [30] per Sir Andrew Morritt V-C.
▪ Failure to formulate essential principles governing long-term relationship
indicative of absence of contractual intention (reinforced by contrast with
specific short-term seasonal agreements): at [70]-[71].
Claimant is relatively small company supplying clothing to marks and spencer for over 30 years.
However, marks and spencer had never wanted to sign an express contract. They always dealt with
their supplier on an informal basis. Placed orders and paid for clothes but never sat down and
discussed the terms on which this was happening. M&S immediately terminated their agreement with
the claimant. there was no prior indication that M&S was going to seize business, and they were given
very little notice. The claimant in essence was upset at the treatment. Have they got a case in law?
Can they sue M&S for breach of contract? Could they claim that the relationship was contractual and
that under the terms of the contract, if they wished to bring the contract to an end, they would have
to provide a reasonable notice period; during which they would have to continue purchasing the
clothing.
There was absence of evidence of any contract. There was no agreement to any terms. The claimant’s
argument was that this could be implied simply from the fact of a long-term arrangement. The CoA
did not support, claimant loses and M&S wins.
Reasoning of the CoA:
- Why should one infer a contract? Clearly the arrangement could have been based on a
contract but the arrangement did not need to be based on a contract. The simple fact; they
did not state there must be a contract. Asking a court to imply a contract, you’re saying look
at the facts its obvious that there must be a contract. In this case there was not
- If there is argument or suggestion of a contract, there is no certainty. Where are the terms?
You would have to invent these terms. Inescapably, the contract would have to be written for
the parties and the courts do not do this
- There was no objective criteria to be employed to figure out what the terms might say.
- Against this there was the fact that although this was a long-term agreement, the parties had
never sat down and discussed the basis of the agreement along with its terms. The inference
to be drawn from this was that the parties did not intend the arrangement to have contractual
intention.
3
