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Intention to create legal relations is one of the three forming elements required to form a contract. There are many agreements reached between people who never intend their agreement to end up in a legal dispute. But there are also agreements made between parties who have every intention of using the law to enforce the agreement if the other party reneges on the bargain.

Key issues

How the court approaches the question of intention to create legal relations with particular regard to social agreements and business agreements.

Common pitfalls

The most common pitfall is that of failing to recognise that intention to create legal relations is an issue. Be aware that any mention in a problem of family members will probably be linked with this issue.

Another common pitfall is to assume that, because a family relationship is mentioned, no business relationship is intended. In modern times, business relationships within families are quite common and the facts of each case must be carefully argued, recognising where the onus of proof falls and the difficulty of upsetting a legal presumption.

Question 1

George, Amy, Luella, and Celia are four friends who decide to go on holiday together touring the North Island and entering into various fishing competitions en route. They agree to share expenses and any prizes won by any of them.

All four of them enter into the Bay of Islands fishing competition and sign the entry forms. George catches the biggest fish out of all the competitors and wins the $20,000 first prize, but tells the other three that the money is his and he is not going to share it with them.

The situation is made even more complex for the friends when the fishing competition organisers tell George that the number of entries in the competition was fewer than forecast and as a result, they will only pay him $10,000. The entry form contains a clause stating that “any decision by the organisers shall be final and shall not be called into question in any Court of law”.

Advise the friends as to their legal position:

  • in regard to the rights of Amy, Luella, and Celia against George; and
  • in regard to the decision of the organisers.

Answer Plan

You will need to consider the following in your answer:

  • Whether George, Amy, Luella, and Celia intended to create a contract.
  • Whether George and the contest organisers intended to create a contract.

Question 2

Where the parties to an agreement do not expressly state whether they intend to be legally bound by their agreement, how do the courts discover their intention in this respect?

Answer Plan

You will need to consider the following in your answer:

  • The courts’ objective approach;
  • The policy reasons behind the rules of intention;
  • The courts’ approach to social agreements;
  • The courts’ business presumption in regard to business agreements.

Question 3

Rogan is a retiree and invites his adult son, James, to his house for dinner on the basis that he will supply the main if James brings the drinks and dessert. James, however, arrives late and empty-handed.

James explains that he has had a busy day at work due to a business partner with whom he has signed a memorandum of understanding. James is sure that the partner is in breach of the memorandum but there is a clause in the memorandum stating “This agreement is binding in honour only and is not subject to legal jurisdiction”.

Rogan puts aside his disappointment to relate to James how he saw an advertisement that morning in the newspaper for a camera that he wanted together with the offer of a telescopic lens, free, with every sale. However, on arriving at the camera store the salesperson told him that they had run out of the telescopic lenses that they had in stock and that the offer was withdrawn. Rogan does buy the camera but is disappointed that there is no free lens.

Rogan finishes the meal by asking James if he is prepared to help with some maintenance around the property and, in return, Rogan would give James the tapestry picture in the lounge that James has always admired. James agrees.

Advise Rogan and James whether the various agreements they have entered into are contracts or not.

Answer Plan

You will need to consider the following in your answer:

  • whether there is intention to create legal relations in the agreement between Rogan and James as to dinner;
  • whether there is intention to create legal relations in the agreement between James and the business partner;
  • whether there is intention to create legal relations in the agreement between Rogan and the camera store;
  • whether there is intention to create legal relations in the agreement between Rogan and James as to house maintenance.

 

For the full sample answers and more see Adams and Drake Questions and Answers: Contract Law (3nd ed, LexisNexis, Wellington, 2014).

 

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