Elements of a Valid Contract

(Contd.)
Intention to create legal relations is one of the essential elements of a valid contract .
As part of our everyday life we often enter into some kind of agreements . We make arrangements to meet our friends at
the school cafeteria or hostel, to lend a course mate a textbook or to help with their homework. However, not every
agreement is intended to be legally binding, as there is no intent to allow either party to sue for breach of the agreement.
In Dalrymple v Dalrymple (1811), Lord Stowell explained the rationale for intention to create legal relations: ‘Contracts should
not be...the sports of the idle hour, mere matters of pleasantry and badinage, never intended by the parties to have serious
effect whatever.’
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 . In other words Intention to create legal
relations is therefore a legal basis for seeking the intervention of the courts to enforce an agreement or a promise in the
event of a default on the part of the other party.
 Social and Domestic Agreements
The courts have developed guidelines including two key presumptions regarding intention to create legal relations. This is to
decide whether or not an agreement is intended to be legally binding.
PRESUMPTION ONE
• In social and domestic agreements, the presumption is that there is no intention to create legal relations. Social and
domestic agreements cover such areas as family agreements or those made between friends and colleagues. Here, there is
a rebuttable presumption that such agreements have no intention to create legal relations, and are not legally binding. As
Lord Stowell said in Dalrymple, such ‘mere matters of pleasantry’ cannot be seen to be enforced by the courts.
In the case of Balfour v Balfour(1919) 2 KB 571 an agreement made by a husband to pay his wife £30 per month during
an amicable part of their marriage was deemed by the court to contain no intention to create legal relations and therefore
unenforceable.
In Jones v Padavatton (1969) 2 All ER 616 A mother agreed to pay a stipend to her daughter if she gave up a lucrative
job in New York in order to study for the Bar in England. The daughter agreed but struggled financially during her studies, so
her mother bought her a house and agreed that she could let out apart of the house and keep the lodging money. However,
later they quarreled, and the mother sought repossession of the house. The daughter argued that the provision of the house
was contractual, but this failed. The court stated that the real purpose of the house was social and domestic and not
contractual.
 Rebuttal of Presumption One
In social and domestic agreements, the presumption may be rebutted where the following factors are present:
Where there has been reliance placed on the agreement.
• Where a married/cohabiting couple are separating and a separation agreement is made.
In Merritt v Merritt (1970) 1 WLR. 1211 the court took a different view. Here, a husband and wife were estranged, during
which time the husband agreed to pay his wife £40 per month provided she used this to continue to pay the mortgage. Lord
D e n n i n g , d i s t i n g u i s h i n g B a l f o u r , h e l d t h a t a s
the parties were ‘not living in amity’, it was ‘safely presumed that they intended to create legal relations’
• Where the agreement is in writing and/or made in a business context.

In gambling situations where there is evidence to show, for example, intention to divide winnings.
In Simpkins v Pays (1955) 1 WLR 975 the lodger of a house and members of the household entered newspaper
competitions in the lodger’s name, paying equal shares of the entry money to the competitions. They had agreed to split any
winnings evenly. When they won £750, the lodger refused to share the money, arguing that there was no intention to create
legal relations. As money had originally changed hands, the court decided that despite the ‘social’ environment there was an
intention to create legal relation.
Contracts of a business or commercial nature are treated differently from social and domestic arrangements in
relation to intention to create legal relations. In commercial agreements, there is a strong presumption that
there is intention to create legal relations agreements will be legally binding unless evidence can be raised to the
contrary.

In Edwards v Skyway (1969) an attempt by a company to avoid paying

an ex-employee an ex gratia payment as part of a redundancy failed. Despite this type of payment indicating no
pre-existing liability, the court felt that once the agreement to pay was made, there was intention to create legal
relations.
In commercial agreements, the presumption may be rebutted where the following factors are present:

• Where the agreement states ‘subject to contract’.

• Where letters of comfort and/or honour clause have been used.

In Rose & Frank Co. Crompton Bros (1923) 2 KB 261 the House of Lords allowed, in principle, the idea of honor-pledge
clauses, which enforce that there is no intention to create legal relations in a contract.

Where the agreement is in respect of collective bargaining.

Parties to an agreement must be qualified or have the competence to contract. To be qualified or have the
competence to contract, parties must have attained the age of majority (which is twenty-one (21) years under
the common law, eighteen (18) years under Ghanaian law) .Parties must be of sound mind .

Companies incorporated under the Companies Act,2019 (Act 992 ) attains legal personality and as such have
contractual capacity.

At common law , the general rule is that contracts entered into between a minor and an adult are not binding on
the minor but binding on the adult party. In order words, a contract entered into between an adult and a minor
cannot be enforced against the minor, but can be enforced against the adult.
There are however certain categories of contracts which are deemed under the common law to be binding on
the minor. These are as follows:
(I)Contracts for Necessaries
Where a minor enter into a contract for the purchase of necessaries such contracts are binding on the minor and he is
liable to pay a reasonable price for the goods.
Section 2(3) of the Sale of Goods Act, 1962 (Act 137) defines ‘necessaries are goods suitable to the condition in life of
the person to whom they are delivered and to his actual requirements at the time of delivery’
The term generally refers to those things without which a person cannot reasonably exist and include food, clothing,
lodging, education, and other essential services such as medical services, as well articles and services necessary to
maintain the particular person’s station of life (wealth and status).
In Chapple v Cooper (1844) 13 M & W 252, a married minor entered into a contract for the purchase of a coffin to
bury her husband. It was held that the contract was one for ‘necessaries’ and the minor was liable to pay for it.
For the minor to be liable, it must be established that not only are the goods suitable to his condition of life but also to
his actual requirements at the time of delivery. This principle was established in Nash v Inman[1908]2 K.B
However a contract can be for the purchase of necessaries but not binding on the minor, if the terms are too
harsh or onerous. This principle was established in Fawcett v Smethurst (1914) 84 LJ KB 473.

(ii)Beneficiary Contracts of service

Generally refers to apprenticeship contracts that are in the interest of the minor. He should be able to obtain
employment, learn a trade or acquire some training for a profession.
The principle therefore is that where an infant enters into a contract of apprenticeship or contract of service
under which he receives instruction or training, the contract is binding on the minor, provided that the terms of
the contract, construed as a whole, are substantially beneficial to the minor.
See Clements v London & Northwestern Railway (1894) 2 QB 482 compared to De Francesco v Barnum (1890)
45 Ch. D 430
NB- At common law, the principle which makes a beneficial contract of service binding on the minor does not
extend to trading contracts. Thus an infant is not liable for goods supplied to him for the purpose of trade or
for damages if he fails to deliver goods that he has contracted to sell as a trader. See: Cowern v Nield (1912) 2
KB 110
(iii) Voidable Contracts
Voidable contracts are contracts which the minor acquires an interest in some subject matter
permanent in nature which gives rise to continuous obligation. These contracts are binding on the
minor unless and until he repudiates the contract during his minority or within a reasonable time
after attaining majority. Examples include, lease agreements, purchase of land and subscription for
company shares.

(b) Contractual capacity of mentally incompetent persons

• A lunatic is a person of unsound mind, a mentally incompetent person, an insane person or one
who is not compos mentis. The contractual capacity of mentally incompetent persons is governed
by a number of rules formulated by the courts. The common law position is stated in Imperial
Loan Co. v Stone (1892) 1 QB 599 as follows ‘ Unsoundness of mind would… be a good defence
to an action upon a contract if it could be shown that the defendant was not of a capacity to
contract and the plaintiff knew it.
Contractual capacity of drunken or intoxicated persons
The contractual capacity of drunken or intoxicated persons is generally said to
be that same as that of the mentally afflicted. If at the time of the contract, a
person was so drunk or intoxicated as not to know the consequences of his act
and his drunkenness or intoxication was known to the other party at the time
of contracting, the contract will be deemed to be voidable at the instance of
the drunken or intoxicated party. The drunken party however has the option of
ratifying the contract when he becomes sober, so as to make it valid.
Matthews v Baxter (1873) LR 8 Exch 132
Thank you