Intention of the Parties to Create Legal Relations
In contract law, there are particular requirements that should be fulfilled so as to have a binding contract. Indeed, the court try to interpret whether a party intended to have a binding contract with the other party when making an agreement. The court established certain distinctions between domestic and social agreements and commercial agreements.
Domestic and social agreements:
In domestic and social agreements, the court is likely to find that the parties did not intend to create legal relations. The leading case that supports this claim for domestic contracts is the Balfour v Balfour, where a husband and wife while being married made an agreement that he will send his wife money. Indeed, the court found that the parties did not actually intend to create a binding contract. This seems to be a presumption based upon policy. Additionally, the court is likely not to consider a domestic agreement as a binding contract as every simple agreement between friends and families might lead to court for claims and lead to waste of money and time.
However, there are cases that the court might accept that parties intended to be legally bound in social and domestic agreements, considering that the reasonable person is likely to accept this presumption in particular cases. A significant case that the court found that the parties intended to be legally bound in a domestic agreement is the Merritt v Merritt with the distinction that in this domestic contract, the parties’ relationship had broken down at the time the agreement was made.
When it comes to commercial agreements, the court strongly presumes that the parties intended to be legally bound by the contract. In Esso Petroleum Ltd v Commissioners of Customs & Excise the court found that as it was a commercial agreement, the parties intended to be legally bound by it. In this case, Esso was giving a collectible World Cup coin to those who purchased 4 gallons of petrol from its filling stations. The court found that the coins were given in exchange of purchase of petrol, thus creating a collateral contract for the transfer of the coins. Indeed, this was a contract, and not a mere gift by Esso, in part because House of Lords held that there was a presumption to create legal relations.
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