Intention to create legal relations

Introduction

In order to create a contract, both parties must intend to enter into a legal relationship. If it is not clear from the contract that the parties intended legal consequences then the law presumes the intention of the parties based on the type of agreement.

Domestic or social agreements

It is presumed that there is no intention to be legally bound, unless it can be shown otherwise.

Balfour v Balfour (1919)

Facts: The defendant, who was about to go abroad, promised to pay his wife £30 per month in consideration of her agreeing to support herself without calling on him for any further maintenance. The wide contended that the defendant was bound by this promise.

Held: There was no legally binding contract between the parties. As it was a domestic agreement it was presumed the parties did not intend to be legally bound.

The usual presumption that agreements between spouses living happily together are not legally enforceable does not apply when they are about to separate, or have already separated. In such instances the circumstances of the case can be shown to rebut the presumption.

The presumption that there is no intention to be legally bound will also be rebutted where the evidence shows that the parties made formal and/or detailed financial arrangements.

Commercial agreements

It is presumed that there is an intention to be legally bound, unless it can be shown otherwise.

This is a strong presumption that can only be rebutted by clear evidence to the contrary.

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