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The presumption with commercial promises is that they are intended to be legally binding. However, again, the presumption is a rebuttable one.

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Chapter 6: Intention to Create Legal Relations

There are three situations to consider. These are:

(a) advertising puffs;

(b) honour clauses and similar clauses intended to deny the existence of an intention to be bound; and

(c) cases in which an intention to create legal relations is denied, as a matter of policy, by the courts or by statute.

We will deal with these in turn.

Advertising puffs

Advertisers often describe their goods or services in an optimistic manner designed to attract customers. Such promises are often vague in content and, therefore, any attempt to enforce them would probably fall foul of the general rule that a contract must be certain in its terms.

However, the advertiser will not always escape liability on the grounds that his statement was a ‘puff. In Carlill v Carbolic Smoke Ball Co (1893), the defendants claimed that their offer to pay a reward of £100 to anyone who caught ‘flu after using their smoke ball in the prescribed manner, was merely an advertising puff. It was held that the Company’s promise was intended to be legally binding, particularly in view of their claim to have deposited £1,000 with their bankers ‘to show our sincerity in the matter’.

The Advertising Standards Authority is responsible for monitoring advertising. If an advertisement is thought to infringe the Control of Misleading Advertising Regulations 1988 and 2000, reference may be made to the Office of Fair Trading, who may secure an undertaking that the offender will cease producing the advertisement or, if no undertaking is forthcoming or an existing undertaking is breached, may seek an injunction from the courts to restrain publication of the advertisement. In 2000, Clockwork Orange Ltd gave a written undertaking to stop producing misleading advertisements for its Fuel Cat product.

Honour clauses

The parties can negative their presumed intention to create legal relations by inserting an ‘honour clause’, or similar clause announcing their intention not to be bound, into their contract. This is seldom done in commercial agreements generally, though there is evidence that many commercial parties who enter into contractual relations have, in practice, no intention of enforcing the agreement by legal action, should things go wrong.

The leading case on honour clauses in relation to normal commercial contracts is Rose & Frank v Crompton.

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Law for Non-Law Students

Rose & Frank v Crompton (1925)

The plaintiffs were a New York firm which was given sole selling rights in the USA and Canada by the defendants, who were an English firm which manufactured paper tissues. The contract conferring the rights contained the following 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.

The contract was for three years from 1913, with an option to extend. It was in fact extended to March 1920, but the defendants terminated it without notice in 1919. Before the termination, the defendants had received and accepted several orders from the plaintiffs. The plaintiffs sued, claiming breach of contract.

Held by the House of Lords: the defendants were not in breach of the 1913 agreement, since it expressly stated that it was binding in honour only. However, each individual order placed under the agreement and accepted by the defendants created a separate contract. Thus the defendants were in breach of the contracts to supply the orders they had accepted before repudiating the 1913 agreement.

Honour clauses are also used by football pools’ promoters to avoid legal liability should a competitor claim that he has submitted a winning entry but that the pools company has lost it (or some similar denial of liability).

Jones v Vernons Pools (1938)

The plaintiff claimed that he had sent the defendants a winning football pool coupon. The defendants denied having received the coupon and, in denying liability, relied on a clause which was printed on every coupon, to the effect that the transaction should not give rise to any legal relationship or be legally enforceable but binding in honour only. The court held that this effectively negatived any intention to create a legal relationship.

See, also, Appleson v Littlewood Ltd (1939), in which the Court of Appeal followed the Jones case.

It has been held, however, that if the parties to a commercial contract wish to rebut the presumption that a legal relationship is intended, they must do so in clear terms.

Edwards v Skyways (1964)

The defendants were an airline. They wished to make a number of pilots redundant. Under his contract with the company, E was entitled, on termination of his contract of employment, to choose one of two options in

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Chapter 6: Intention to Create Legal Relations

relation to his contributions to the defendant’s pension scheme. He could: (a) withdraw his own contributions to the fund; or (b) take the right to a paid-up pension at the age of 50. His union negotiated with the defendants and as a result of the negotiations it was agreed that if E would take option (a) the defendants would make him an ‘ex gratia’ payment approximating to the amount of his own contributions: in other words, he would receive back double the money he had paid in. The plaintiff chose this option, but the defendants refused to make the ex gratia payment. When the plaintiff sued, the defendants argued, among other things, that the words ‘ex gratia’ meant that there was no intention to create legal relations. Held: the onus was on the party seeking to escape liability to prove that there was no intention to create legal relations. Here they had not done so. The words ‘ex gratia’ simply meant that there was no pre-existing liability on the company’s part. It did not mean that their offer, once accepted, would not be binding in law.

Cases in which the existence of an intention to create legal relations is denied by the courts or by statute

There are certain cases in which, as a matter of policy, the courts or statute have denied the existence of an intention to create a legal relationship.

Willmore v South Eastern Electricity Board (1957)

The plaintiffs wished to install infra-red ray electric lamps for the purpose of rearing chicks. A steady heat was necessary for this purpose. The plaintiffs, therefore, consulted the defendant’s engineer who told them that the electric current supplied by the defendants would be suitable. The plaintiffs completed an application form for the supply of current. The plaintiffs bought lamps from the defendants who approved their installation. On a number of occasions the voltage failed (that is, there were electricity cuts) and, as a result, the plaintiff’s chicks died. They sued for breach of contract. Held: the defendants supplied electricity pursuant to a statutory duty and there was, therefore, no intention to create legal relations.

Triefus v Post Office (1957)

The Post Office lost two registered packets belonging to the plaintiffs.

Compensation for their loss was restricted to £2 18s. The plaintiff sued for breach of contract. Held: there was no contract since there was no intention to create legal relations. (For statutory provisions to the effect that the Post Office shall not be liable in tort for the loss or delay of a postal packet see s 29 of the Post Office Act 1969. For statutory provisions which limit the liability of the Post Office in tort for the loss of a registered packet see s 30 of the same Act.) In Pfizer v Minister of Health (1965), it was held that there was no contract between a chemist and his patient, even if the patient pays a prescription fee, in respect of a prescription filled under the NHS. The reason