When drafting a contract, one crucial concept to consider is the intention to create legal relations. It refers to the intention of the parties to the agreement to be bound by the terms of the contract and be legally obligated to carry out their respective duties.
In contract law, this intention is a necessary element for a legally enforceable agreement to exist. Without it, the promises made between the parties do not constitute a contract, but merely a social agreement.
To determine whether parties have the intention to create legal relations, the courts have developed two presumptions – one for commercial and business agreements and the other for domestic or social agreements.
Commercial or Business Agreements
The presumption in commercial or business agreements is that the parties intend to create legal relations. This means that when two businesses or individuals are conducting business deals, it is presumed that they intend to create an enforceable agreement. However, this presumption can be rebutted if the parties have included express words in the contract that suggest otherwise.
For example, if two companies enter into a sale agreement for goods, it is presumed that they intend to be legally bound by the contract`s terms, including payment and delivery obligations. However, if the agreement includes language stating that the deal is a mere agreement to agree or that the parties do not intend to be legally bound by it, then the presumption is rebutted, and the contract may not be enforceable.
Domestic or Social Agreements
The presumption in domestic or social agreements is that parties do not intend to create legal relations. This means that when friends, family members, or other close associates make an agreement, it is presumed that they do not intend to be legally obligated to carry out their respective promises. However, this presumption can also be rebutted if the parties have included language in the agreement that suggests otherwise.
For example, if two friends make an agreement to go on a trip together, it is presumed that they do not intend to be legally bound by their promises to go. However, if they include an express term in their agreement stating that they will cover each other`s expenses or that one will compensate the other if they back out, then the presumption is rebutted, and the agreement may be enforceable.
In conclusion, the intention to create legal relations is an essential concept in contract law. It involves determining whether parties intended to be legally obligated to carry out their respective promises when making an agreement. The presumption is that commercial agreements create legal relations, while domestic or social agreements do not. However, these presumptions can be rebutted by express language in the agreement. By considering this element, parties can ensure that their contracts are legally enforceable and adequately protect their interests.