Legal Advice Essay

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The parties involved in a contract must intend to set up a legally binding agreement, which will be able to be identified from the circumstances but rarely be illustrated definitely in the agreement. Intention to create legal relations is the marrow of contractual relationships. To judge whether a contract has come into existence, as the High Court has recently said, “Regardless of the subjective intentions of the parties, the question of whether the parties had made contracts of the kinds described was to be determined by taking an objective view of the agreements.”[11], whether a reasonable person looking objectively at what the parties have said and their conduct would be considered by the court to say there was an agreement. For example, a social agreement does not enter into contract because the parties do not show their intention to create legal relations. Thus, it is necessary to intend the agreement to create legal relations for a contract to come into existence.

In case Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd[12], the existence of a contract is a consequence which the imposes upon, or sees as a result of, what the parties have said and done. Actual subjective intention to contract is a factor which the law takes into account in determining whether a contract exists but it is not, or not always, the determining factor.

Consideration is the price paid, the thing given or promised, the detriments suffered by one party in exchange for the other party’s promise. Consideration may be some right, interest or benefit going to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other party. So long as consideration exists, the court will not question its adequacy, provided that it is of some value. For example, the promise to pay a rent in return for the lease of a house would be good consideration. In the New South Wales Court of Appeal as follows “Without consideration, a promise is unenforceable at law. The modern theory of consideration has arisen from the notion that a contract is a bargain struck between the parties by an exchange. By that modern theory, consideration must be satisfied in the form of a price in return for the promise. The price can be in the form of an act, forbearance or promise.” [13] However, there is a highly controversial issue of contract law which is whether the doctrine of consideration is necessary for contract law.

For a contract to exist the parties to an agreement must intend to create legal relations. The presence of consideration will provide evidence of this. In most cases, if A has specified something as the price for the promise this carries with it an intention that the parties be bound. Intention remains, however, an independent requirement and must be separately demonstrated. Because this pre-condition has not been fulfilled, some cases in which consideration has been present but no contract found to exist. It is sufficient to say that the consideration may indicate serious intention to be bound. In the discussion of promissory estoppels, the absence of consideration would be sufficient to deal with the lack of a specific intention to create legal relations. However, the question of intention is something which is looked at in addition to the aspect of consideration. Abandoning intention to create legal relations because of the existence of consideration or offer and acceptance as test of contractual enforceability is untenable and unconvincing. Cheshire and Fifoot2 have successfully demonstrated considerations are perquisites to contract. A nominal consideration taken by the parties may be stronger evidence than a substantial consideration to prove intention to be legally bound.

Domestic or Social Agreements

Commercially based agreements are seen as including a rebuttable intention to create a legally binding agreement. However, the law presumes that domestic or social agreements are not intended to create legal relations. For example, an arrangement between siblings will not be presumed to be a legally binding contract. A person who wants to enforce a domestic or social agreement needs to prove that the parties did intend to create a legally binding agreement. Although presumptions are no longer used, in reality, in most domestic or social agreements the parties do not usually intend to create legal relations. Thus, a plaintiff is likely to face an uphill battle proving intent in such cases.

In case Balfour v Balfour[14], the agreement was not enforceable because the parties did not intend to create legal relations. This is so even though there may have been consideration. Because the parties did not intend that they should be attended by legal consequences, agreements are not contracts. Atkin LJ noted that the consideration that really obtains is that natural love and affection which counts for so little in these cold courts. The plaintiff failed to prove the intention.

Commercial agreements

The parties will normally intend that the commercial agreement to be legally binding. In such a case, showing otherwise will be difficult. Where the parties to a commercial agreement do not intend it to be binding they may use what are known as Honor clauses to indicate that the agreement is binding in honor only not legally.

In Rose and Frank & Co v Crompton[15], the agreement expressed in clear terms that the parties did not intend to enter into legal relations. There was noting absurd about this and therefore there was no binding contract because there was no requisite intent.

The Distinction between Domestic/Social Agreements and Commercial Agreements

This part illustrates the difference in presumption which is employed by the courts while dealing with the question of intention in cases of contracts arising in domestic set-up as opposed to those arising in commercial set-up. The requirement of intention to create legal relations in contract law is aimed at sifting out cases which are not really appropriate for court action. Not every agreement leads to a contract. For example, A may have an agreement to have a dinner with B. A may have a duty to realize the promise but not a legal duty. In domestic agreements those made between family members and friends, there is presumption of no intention to create legal relations and no intention that the agreement should be subject to litigation. In contrast to this, there is a rebuttable presumption in commercial agreements that the parties intend to create legal relations. In order to identify which agreements are legally binding and have an intention to create legal relations, the law draws a distinction between domestic and social