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IntentionIntention to create legal relations

For a contract to exist the parties to an agreement must intend to create legal relations.

 

General rules

For a contract to exist the parties to an agreement must intend to create legal relations. Usually, the presence of consideration will provide evidence of this - if the promisor has specified something as the price for the promise this - in most cases - carries with it an intention that the parties be bound. Intention remains, however, an independent requirement and must be separately demonstrated and there are cases in which consideration has been present but no contract found to exist because this pre-condition has not been fulfilled. In determining if there is contractual intent and objective approach is taken.

Air Great Lakes

When assessing each case the courts used to apply certain presumptions to different types of contract; thus, typically, domestic or social contracts were presumed not to have been created with an intention to create legal relations and commercial agreements were presumed to have such intention. Recently, however, the High Court in Australia has indicated that presumptions should not be used when determining intent - in each case intention must be proved without the aid of such presumptions.

Ermogenous

 

Domestic, Family Agreements

Although presumptions are no longer used, in reality, in most domestic or social agreements the parties do not usually intend to create legal relations – at least when the agreement is entered into whilst relations are harmonious.  Consequently, a plaintiff is likely to face an uphill battle proving intent in such cases.

Balfour v Balfour Jones v Padavatton

 

Commercial agreements

If an agreement is a commercial one, the parties will normally intend that it to be legally binding. In such a case, showing otherwise will be difficult. Again, the test of intention is objective.   Where the parties to a commercial agreement do not intend it to be binding they may use what are known as “Honour clauses” to indicate that the agreement is binding in honour only – not legally.  

Rose & Frank 

 

Agreements with Government

Normal commercial agreements with Government are likely to intend to be legally binding, just as is the case for other types of commercial agreements – however, there may be some policy-based agreements for which this is not the case.  The Australian Woollen Mills case presents one possible example (consideration was also found to be absent in this case).  The was also the case in Administration of PNG v Leahy.

Australian Woollen Mills Administration of PNG v Leahy

 

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