Contracts

Contract Law
Mid-Term Take home
Question 1: Briefly discuss the notion of ‘Intention to Create Legal Relations’ by referring to
appropriate case law. (7.5 Marks) (600 Words)
Suppose there is an agreement, A valid contract with all its constituents, Consideration, offer,
acceptance etc, but one of the parties argue that it was never their intention for it to be legally
binding, Hence, the contract would be not legally binding because it was part of the
agreement itself that the agreement would not be binding1.
In simple terms, the party did not anticipate that the agreement to do something would be
enforced upon by a court of law.
There are two types of agreements expounded upon by courts on ‘Intention to create legal
relations’.
1) Social and Domestic Agreements : There is a presumption that there is not an

intention to make it legally enforceable like first brought up in the case, Balfour v.
Balfour2, Where the husband had promised to pay the wife some monthly payment for
her stay in London, while he was in Ceylon. Later when the husband stopped making
the payment, the wife moved to court. Two judges ruled that this is not valid because
of lack of consideration on wife’s part but Atkin, held that in a family relation, mutual
agreements are often made regarding different household activities and expenses,
however neither of the parties involved had the intention to make it legally binding.
This presumption, however could be rebutted if there is evidence to prove otherwise.

Like in the case, Errington v. Errington Woods3, Father gave the deposit for a house
which he promised to transfer to his son and daughter-in-law if they paid the
mortgage instalments. The father died but the Daughter-in-law continued to make the
payment. The Mother inherited the house and wanted to remove daughter-in-law from
the house but the court held that there was an unilateral offer to the couple by the
father and the timely payment of mortgage was an act of acceptance. Therefore, The
wife could not be removed from the house.
1
Pathak, Akhileshwar. Contract Law. Delhi, Oxford University Press, 2011.
2
Balfour v Balfour [1919] 2 KB 571
3
Errington v Errington Woods [1952] 1 KB 290
2) Commercial agreements : Here, there is a presumption that the parties want this
agreement to be legally enforceable in a court of law. In the case, Commissioner of
wealth tax, Bhopal v. Abdul Hussain Mulla Muhammad Ali4, The defendant Abdul
advanced a loan to his partner, who employed the money in their business venture.
Abdul argued when the wealth tax was due that there was no agreement for this loan
which “lowered” his wealth as the parties did not intend to create ‘legal relation’,
hence, there was not an obligation for his partner to pay him back. However, The
Supreme Court held that, Here, one partner has advanced a payment to be employed
in a business venture, this is clearly a commercial transaction and in such transaction
it is presumed that there was ‘Intention to Create Legal Relations’.
Again this presumption can be rebutted by evidence to the contrary,

In the case, Rose and Frank Company v. J.R Crompton Limited5, Here the parties
mutually agreed to draw up an agreement for several restraints on buying, selling,
manufacturing etc. The last clause provided that this agreement would be carried out
with ‘mutual trust and loyalty’ and ‘friendly co-operation’. Generally referred to as
the “honourable pledge” clause. When a dispute arose, and plaintiff moved to the
court, and argument was made that the parties did not ‘Intend to Create Legal
Relations’.
The court of appeal held that although there is a presumption in cases of business
agreements that there is intention to create legal relations but they can explicitly
mention in their agreement to exclude such intention.
There is no such clause of ‘intention to create legal relations’ in The Indian Contracts Act,
1872. But it is widely accepted by Indian courts and other common law countries.
4
Commissioner of Wealth Tax, Bhopal v. Abdul Hussain Mulla Mohammad Ali, AIR 1988 SC 1417
5
Rose and Frank Company v. J R Crompton Limited, Court of Appeal, (1923) 2 KB 261.
Question 2 : What was the principle discussed in the case of ‘Stilk v. Myrick (1809) 2 Camp
317?’ Have the courts in United Kingdom deviated from the said principle in any
circumstance? If so, what was their justification? Discuss by referring to appropriate case
law. (7.5 Marks) (600 Words)
Stilk v. Myrick6
The case raises the question about whether the plaintiff who has contracted to perform certain
duties against some consideration, Can enforce an additional promise by the defendant for
performance of the same contractual duties.
Stilks was a merchant seaman, who was accompanying some articles to Baltic, with the
Master of the ship(Defendant: Myrick) and other fellow seaman. The consideration for Stilks
and other crew was set at 5 Pounds/month. Two crew members out of eleven, deserted the
ship. The Defendant promised the other 9 members including Stilks, That he would divide
the wages of deserters amongst the remaining 9 members if they would help the ship get
home.
Stilk sued Myrick to enforce the promise of extra wages.
There are two contrasting reports of the judgement in the above case:
Espinasse’s Report : He wrote that Lord Ellenborough relied on the case Harris v. Watson7,
and reasoned that when the seamen entered the ship, they had contracted to take the ship from
Point A to Point B, any desertion by other crew members does not discharge them from their
contractual duties of initial agreement8. It was based on ‘Public policy’ and conduct of
seamen.
Campbell’s Report : He basis the judgement of Lord Ellenborough on the grounds of ‘Fresh
Consideration’, He argues that the agreement to pay more than the initial sum agreed upon is
void because of want of ‘consideration’, there was no fresh consideration on the part of the
seamen because they had agreed to be complete the voyage irrespective of the circumstances.
Simply put “a new promise by B in consideration of A’s performing his duty to B under an earlier
contract between them is not necessarily obtained by duress; and that A’s performance of the duty
may in fact benefit B.”9
6
Stilk v Myrick (1809) 170 ER 1168
7
King’s Bench 170 Eng. Rep. 94 (1791)
8
Beijing Law Review 2013. Vol.4, No.2, 82-93 Published Online June 2013 in SciRes
(http://www.scirp.org/journal/blr)
9
Chitty JH Beale, Chitty On Contracts (Sweet & Maxwell 2015)
However, in the case, Williams v. Roffey Bros & Nicholls Ltd.10 ,
The appellants Roffey Bros were contracted to refurbish 27 flats, they even had a penalty
clause in it. They further subcontracted the work to Williams(Defendant). He fell behind on
his timeline but Roffey Bros offered him bonus payments if the work was completed on time.
Williams continued with the work until the payment of bonus stopped.
Subsequently he sued the appellant for breach of contract.
It was argued that there was no fresh consideration from Williams for additional bonus,
hence, the appellants are not liable to pay any bonus amount. They relied upon Stilk v.
Myrick11.
But the court took a different view by enhancing the scope of “Fresh Consideration”.
Gildwell LJ, Held, The promise to pay extra to complete the same contractual obligations was
binding since the appellant obtained a ‘practical benefit’ from the same as there was a penalty
clause. And timely completion of the work saved him from the said penalty and the promise
to pay bonus was not given under duress and was even appellants own idea.
Hence, the bonus payment to Williams was legally enforceable.
The courts in UK have not necessarily deviated from the judgement of Stilk v. Myrick but
they have rather refined the doctrine of ‘fresh consideration’ used in it.
10
[1991] 1 QB 1
11
(1809) 170 ER 1168

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Contract Law

Mid-Term Take home

1) Social and Domestic Agreements : There is a presumption that there is not an

This presumption, however could be rebutted if there is evidence to prove otherwise.

Again this presumption can be rebutted by evidence to the contrary,

Stilk sued Myrick to enforce the promise of extra wages.

Subsequently he sued the appellant for breach of contract.

Hence, the bonus payment to Williams was legally enforceable.

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