Learning Outcomes
After studying this article, you will be able to explain the requirement of intention to create legal relations in contract law, distinguish between domestic/social and commercial agreements, apply the relevant legal presumptions and rebuttal methods, and identify how courts determine legal intent. You will also be able to analyse key cases and apply the objective test to assess enforceability for SQE1-style questions.
SQE1 Syllabus
For SQE1, you are required to understand the role of intention to create legal relations in contract formation. This includes knowing the legal presumptions for different types of agreements, how those presumptions can be rebutted, and how courts objectively assess intention. Focus your revision on:
- The requirement of intention to create legal relations as an element of contract formation.
- The legal presumptions for domestic/social and commercial agreements.
- How and when those presumptions can be rebutted.
- The objective approach courts use to determine legal intent.
- The effect of intention on enforceability and privity.
- Key case law illustrating these principles.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What is the legal presumption regarding intention to create legal relations in commercial agreements?
- In which circumstances can the presumption against legal intent in domestic agreements be rebutted?
- Which case established that a written agreement between separated spouses was legally binding?
- What is the effect of an "honour clause" in a commercial contract?
Introduction
The intention to create legal relations is a core requirement for the formation of a contract in English law. Without this intention, an agreement—even if supported by offer, acceptance, and consideration—will not be legally enforceable. This article explains how courts determine legal intent, the different presumptions applied to domestic and commercial agreements, and how those presumptions can be rebutted.
The Requirement of Legal Intention
A contract is only enforceable if both parties intend their agreement to have legal consequences. Not every promise or arrangement is legally binding. The law distinguishes between informal social promises and those meant to be enforceable.
Key Term: intention to create legal relations
The requirement that parties to an agreement must intend it to be legally binding and enforceable by law.
Presumptions in Different Contexts
Courts use legal presumptions to assess whether parties intended to create legal relations, depending on the context of the agreement.
Domestic and Social Agreements
Agreements between family members or friends are presumed not to be legally binding. This reflects the expectation that such arrangements are informal and not meant for court enforcement.
Key Term: domestic agreement
An agreement made in a family or social context, presumed not to be legally binding unless proven otherwise.
Commercial Agreements
In business or commercial contexts, the law presumes that parties do intend to create legal relations. This is because business parties usually expect their agreements to be enforceable.
Key Term: commercial agreement
An agreement made in a business context, presumed to be legally binding unless clearly stated otherwise.
Rebutting the Presumptions
Presumptions are not absolute. Parties can present evidence to rebut them.
Rebutting the Domestic Presumption
The presumption against legal intent in domestic agreements can be rebutted if the facts show that the parties intended to be legally bound. Factors include:
- Written agreements.
- Parties living apart or separated.
- Formality or seriousness of the arrangement.
- Significant subject matter (e.g., property or business).
Worked Example 1.1
A husband promises to pay his wife a monthly allowance while they are living together. Later, they separate and sign a written agreement about mortgage payments. Is either agreement legally binding?
Answer: The first agreement (while living together) is presumed not to be legally binding (Balfour v Balfour). The second, written agreement after separation is likely binding because the presumption is rebutted by the formal context and separation (Merritt v Merritt).
Rebutting the Commercial Presumption
The presumption of legal intent in commercial agreements can be rebutted if the parties expressly state that the agreement is not legally binding, for example, by including an "honour clause" or stating the agreement is "binding in honour only."
Worked Example 1.2
Two companies sign a document stating, "This arrangement is not a formal or legal agreement and shall not be subject to legal jurisdiction." Is this agreement enforceable?
Answer: No. The presumption of legal intent is rebutted by the clear wording of the clause, so the agreement is not legally binding (Rose & Frank Co v JR Crompton & Bros Ltd).
The Objective Test
Courts apply an objective test to determine intention. The question is whether a reasonable person would conclude, from the parties' words and conduct, that they intended to be legally bound—not what the parties privately thought.
Key Term: objective test
The legal standard that assesses intention based on how a reasonable person would interpret the parties' actions and words, not their subjective beliefs.
Factors Considered by Courts
When deciding if an agreement is legally binding, courts consider:
- The context and relationship of the parties.
- The language used in the agreement.
- The seriousness and formality of the arrangement.
- The conduct of the parties (e.g., performance or reliance).
- The certainty and completeness of the terms.
Worked Example 1.3
Two friends agree over dinner to start a business, discuss profit-sharing, and one invests money. The other later withdraws. Is there a contract?
Answer: The court will consider the context (social setting), but the seriousness, investment, and business subject matter may rebut the domestic presumption and show intent to create legal relations.
Effect of Intention on Enforceability
If there is no intention to create legal relations, the agreement is not enforceable, regardless of other elements. If intention is present, the agreement may be enforced as a contract.
Key Term: enforceability
The quality of an agreement being capable of legal enforcement as a contract.
Privity and Third-Party Rights
The intention to create legal relations is also relevant where contracts purport to benefit third parties. Under the Contracts (Rights of Third Parties) Act 1999, a third party may enforce a contract if the contract expressly provides for it or if the term purports to confer a benefit.
Key Term: privity of contract
The rule that only parties to a contract can enforce or be bound by its terms, subject to statutory exceptions.
Key Point Checklist
This article has covered the following key knowledge points:
- Intention to create legal relations is essential for contract formation.
- Domestic/social agreements are presumed not to be legally binding, but this can be rebutted.
- Commercial agreements are presumed to be legally binding, but this can be rebutted by clear wording.
- Courts use an objective test to determine intention, focusing on words, conduct, and context.
- The presence or absence of intention affects enforceability.
- Privity of contract limits enforcement to parties, with statutory exceptions for third parties.
Key Terms and Concepts
- intention to create legal relations
- domestic agreement
- commercial agreement
- objective test
- enforceability
- privity of contract
