intention to create legal relation Flashcards
intention to create legal relation
For a contract to be binding, the parties need to have in-
tended to be legally bound by it. This intent must have been mutually communicated either expressly or impliedly
REBUTTABLE PRESUMPTIONS BASED ON RELATIONSHIP OF THE PARTIES
- domestic situation
There is a presumption in domestic arrangements (for exam- ple, agreements between a married couple or among family members) that the parties do not intend to be legally bound.
This presumption can be rebutted by objective evidence to the contrary. However, if either party has actual knowledge that the other does not intend to be legally bound, the agreement will not be legally binding even if objectively there was evidence to support intent to be bound. - social situation
There is a similar presumption in the case of social arrange- ments. The courts will presume there was no intention to be legally bound unless there is evidence to the contrary to rebut this presumption.
Exam Tip
The parties may appear to fall within the domestic and social category by virtue of their relationship. However, if their dealings are in a commercial context, then this is likely to be enough to rebut the presumption.
Commercial Situation
There is a strong presumption that parties to a commercial
agreement intend to be legally bound. T
Rebutting the Presumption in a commercial situation
To rebut the presumption, the parties may state in their agreement that it is ‘binding in honour only’ or ‘subject to contract’. Both of these statements record that negotiations have taken place but that at the time of the agreement there is no intention to be legally bound. In the case of ‘subject to contract’, the implication is that the legally binding agreement will follow. A statement made in the heat of the moment, or in anger, may also be enough to rebut the presumption of legal intent.
capacity-minors
1.minors. As a general rule, a contract entered into by a minor is voidable by the minor.
2. Minors can enforce contracts, but they are not bound by them unless they ‘ratify’ (that is, adopt) the contract when they turn 18.
3. exceptions
(1) ‘Necessaries’
Any contract entered into by a minor for necessary
goods or services at a reasonable price will be binding. In relation to goods, ‘necessaries’ are defined by the Sale of Goods Act 1979 as goods suitable to the condi- tion in life of the person concerned and to their actual requirements at the time of the sale and delivery.
(2)Employment Contract
Minors are also able to enter into contracts of employ- ment provided the terms of the contract are of benefit to them.
(3)Contracts for the Acquisition ofa **Permanent Interest **in Property
Certain contracts made by minors for the acquisition of a permanent interest in property (such as shares in a company) are binding on them unless the minor expressly repudiates the contract. This is because under the
contract they have actually acquired rights of ownership over the property.
Minors’Contracts Act 1987
The rule that minors are not bound by their contracts can be unfair on the other party to the contract. For example, a seller could transfer property to the minor (say, a car) and the minor could then refuse to pay for it. The Minors Contracts Act 1987 provides the other party with some relief. Under the Act, if the other party has transferred property to the minor, a court may require the minor to transfer the property back to them, if it is just and equitable to do so.
capacity
As well as being required to have the necessary legal intent, a party to a contract must also have capacity to enter into it
Lack of Mental Capacity
1. A contract entered into by an individual who lacks mental capacity is voidable by that individual, but only if the other party to the contract knew that they lacked capacity.
2. According to the Mental Capacity Act2005 (MCA’), individuals lack mental capacity to enter into a contract if they are unable to make a decision for themselves in relation to the matter. This means being unable to **understand information relevant to the decision, being unable to retain such information, being unable to weigh up** the information involved in making the decision, or being unable to com**municate their decision.
lack of mental capacity (exceptions)
a. Can Ratify upon Recovery
A person lacking mental capacity at the time a contract was made can ratify the contract if they later recover.
b. Necessaries
Like minors, under the terms of the MCA, a person lacking mental capacity also is required to pay a reasonable price for necessaries.
intoxication
If someone becomes so intoxicated that they are unable to understand what they are doing, in the same way as those with a mental incapacity, they will have to pay a reasonable price for necessaries, but they are not bound by other con- tracts if the other party was aware of their incapacity.
Companies Have Capacity
An incorporated company is a separate legal person under law and therefore has capacity to enter into contracts in its own name, rather than in the name of its shareholders.The Companies Act 2006 provides that the validity of an act done by a company will not be called into question on the grounds of lack of capacity by reason of anything in the company’s constitution.
