Intention to Create Legal Relations

2376 words 10 pages
Intention to create legal relations

Statement of the Rule
To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly (Rose and Frank Co v JR Crompton & Bros Ltd).

It is open for the parties to use express language to indicate an intent (or lack of) to impose legal obligations on each other. Alternatively, this intention can be impliedly from the circumstances.

The courts use an objective test in making a determination about the intention of the parties. In making an objective determination of the parties, intention the court looks at the surrounding circumstances and asks if a reasonable person would regard the agreement as intended to be binding.
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It can sometimes be difficult determining whether a transaction has taken place in a business setting (Esso Petroleum Co Ltd v Customs & Excise).

In Esso Petroleum v Customs & Excise Esso, for promotion purposes distributed millions of coins, of no intrinsic value, to petrol stations that sold Esso petrol. The advertisement to the public indicated that these coins were a gift and for every four gallons of petrol purchased a coin would be given. The matter before the court was whether the coins were being sold (and therefore liable to be assessed for purchase tax). On of the issues was whether the parties had the necessary intention to form a contract.

In a 3:2 majority, the court held that the parties possessed the requiste legal intent in relation to the provision of the coins upon a customer buying the ptrole. First, the promotion took place in a business setting, it was intended that sales would be promoted as a result of the coins. Second, this scheme had a potentially large commercial benefit to Esso. Third, this view was supported by authority (Rose and Frank v JR Crompton). The contrary view was that the offer of a gift of a free coin could not properly be regarded as a business matter that attracted legal intention.

Rebutting the Presumption
The intention not to create legal relations may be evident in a number of different


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