Legal Intent in Contract Law

Legal intent means that the contracting party 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.

The test as to whether or not there is legal intent is whether a reasonable person would regard the agreement as intended to be legally binding. The circumstances surrounding any negotiations and any alleged contract will be taken into account.

In many cases, there may be an informal agreement, but to be legally binding there must be legal intent on the part of both parties.

In family and social arrangements, the domestic arrangements are such that it is presumed legal intent does not exist in the context of those agreements. For instance, in Balfour v Balfour (1919), the husband was working away and sent maintenance payments to his wife. When the relationship broke down, she could not enforce the agreement because the agreement arose out of their domestic situation as husband and wife. There was no intention to create legal relations.

The exception to the general position is where it is clear that a legally binding agreement is intended. In these cases, the presumption can be rebutted. For instance, in Merritt v Merritt (1970), the husband and wife were separated when they made an agreement under which he promised to pay for certain expenses, but failed to do so. He claimed that the agreement was made within his family and he did not have the required legal intent for the agreement to be legally binding. However, the court found the agreement to be enforceable because the agreement was made when they were not in living in ‘amity’.

Commercial agreements are invariably enforceable as legally binding contracts because there will an intention to create legal relations, with the exchange of money for goods or services. When forming a commercial contract, there must be an offer, acceptance of that offer, consideration (ie. payment) and legal intent to form a contract.

In commercial contracts, there is a rebuttable presumption that there is legal intent. It is for the party claiming there is no legally binding contract to prove this. Where there is a dispute, the court will look at the objective conduct of the parties together with the relevant circumstances. They can also look at the behaviour of the parties after it is alleged that a legally binding contract was created to decide whether or not it is legally binding.

Some contracts are unenforceable at law. For instance, section 29 of the Post Office Act 1969 says that accepting letters and parcels to send in return for money does not create a contract between the post office and the senders. Section 179 of the Trade Union and Labour Relations Act 1992 outlines that conditions which are agreed between employers and trade unions are not legal and not enforceable, but the conditions only become legally binding and enforceable when conditions are in writing.