Contracts in Brief: The key elements – Part 4: An Intention to Create Legal Relations

Further to my previous articles outlining the different key elements for the formation of contract, we finish with the final element, the intention to create legal relations.

This is important because a contract cannot be binding unless both parties have mutually portrayed an intention to make the arrangement binding. It is quite simple the most important aspect because unless this is apparent and clearly understood by both parties then there is no contract in place.

This is not as easy to ascertain though, and the courts have deliberated this for years. Either there is a genuine dispute arising after one party claims to have not have any intention to enter legal relations, or one party is trying to exploit this notion to go back on the agreement. This means that the courts have adopted the stance that it will consider the objective conduct of the parties and not the subjective state of mind. Essentially this is pointing out that there must be some evidence of objective conduct by one party outwardly wishing to enter relations in some degree.

Again, nothing is simple though and in commercial situations, there may actually not be any clear objective conduct that is present. This is important because there would in these circumstances be a consideration given to the presumption aspect rather than clear objective conduct. If there is a rebuttable argument that one party presumed that the other wished to enter legal relations and for them to be binding then it is for the other party to defend this ‘presumption’ but showing clear evidence that it did at no time intend for any agreement to be binding. This would be the case if for example two parties had an intention in place, but one considered the agreement to be binding at a different time to the other. There has to be a sign of certainty and a clear note of a complete agreement.

It is important to remember that although being vague can be beneficial to one party if they intend to rebut any presumption of an intention for an agreement to be binding, it may be detrimental to another. This means that it is important to be clear that you intend for this to be legally binding such as wording in a document to sign. It may also be good practice to separate the points of which you intend to be legally binding against those you understand to still be in negotiation stages. Finally, it may be good practice to sit down with the other party and ask what their intentions are and ensure they understand what they are agreeing to whether it be verbally or expressed in a contract.

If you have been subject to anyone claiming that they had no intention for an agreement to be legally binding or you have been the one who has been told you, contact us now.

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