The importance of an intention to create legal relations and the presumption of such in a commercial context
Legal intent means that the contracting parties must have had the intention to form a legally binding contract. Without this intention to create legal relations, the contract will not be binding and the parties cannot enforce it. This is often overlooked, but ordinarily, the test will be an objective one of whether a reasonable person would regard the offer made to him as one which was intended to create legal relations; but the decision may be influenced by the importance of the agreement to the parties. Being aware of the principles is critical to the enforceability of a contract.
Whilst individuals and smaller businesses in particular may be attracted to the idea of an informal agreement, this could be dangerous.
In social and domestic agreements, the law raises a presumption that the parties do not intend to create legal relations. However, in commercial circumstances there is a rebuttable presumption that the parties involved intend an agreement to be legally binding even where the transaction is relatively insignificant.
Where there is an expressed agreement, in an ordinary commercial context, the onus of disproving an intention to create legal relations is a heavy one. It is established at common law that the courts will always presume an intention where an agreement is made in a commercial setting. That is not to say that an agreement would not be found to be binding in a non-commercial setting.
Ordinarily, the test will be an objective one of whether a reasonable person would regard the offer made to him as one which was intended to create legal relations; but the decision may be influenced by the importance of the agreement to the parties.
If you are interested in any of the topics raised in this article, have any questions or would like to receive further information, please contact our Head of Franchising and Commercial Services Fiona Boswell.
Alternatively, contact a member of the team on 0115 9888 777.