⇒ For there to be a contract the parties must have intended to create legal relations.

⇒ An objective approach is taken as confirmed in RTS Flexible Systems v Molkerei Alois Müller [2010]:

• "It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations."
• In other words, the court asks whether or not the reasonable person would have thought the parties intended to create legal relations.

⇒ The intention of the parties can be looked at through how the contract is made.

⇒ If the contract is in writing and it says the parties intend to create a legally binding contract then this is usually sufficient.

⇒ The existence of offer, acceptance and consideration may prove there is an intention to create legal relations.

⇒ The reason for this requirement (i.e. the requirement for the parties to intend to create legally binding relations) is that some contracts have offer, acceptance, and consideration but nobody would think it was a legally binding contract:

• For example, let's say you tell your parents that you will tidy your room if they give you a bar of chocolate in return: there is offer, acceptance and consideration, but cannot be said to be a legally binding contract.
• Also see the case of Coward v Motor Insurers’ Bureau [1963].

⇒ The presumed intent of the parties can be domestic or commercial (see below)

⇒ Where an agreement is domestic/family/social it is generally accepted that these are non-contractual because the parties are unlikely to have thought that their dispute could end in court (i.e. it is unlikely such parties would have intended to have created legal relations).

• On the other hand (as is explored in the next section) where an agreement is commercial, the parties must have intended to have legal effect so these agreements are usually contractual.

⇒ Balfour v Balfour (1919) demonstrates how a domestic agreement is not usually intended to have created legal relations (and therefore will not be contractual).

⇒ As an intention to create legal relations is about a presumption of the parties' intent to be legally bound, it is possible that this presumption can be disproved.

⇒ Also see the case of Simpkins v Pays (1955).

⇒ Domestic agreements are usually not seen as legally binding, but commercial agreements usually are seen as legally binding.

⇒ See the case of Esso Petroleum v Commissioners of Customs and Excise [1976].

⇒ You can get rid of the presumption that there is a legally binding relation in commercial agreements by using certain phrases e.g. 'subject to contract'.

• BUT, even such phrases like this are meaningless if the performance/actions of the parties indicate this requirement has been waived as seen in RTS Flexible Systems v Molkerei Alois Müller [2010].
• See the case of Rose and Frank Co v Crompton Bros [1925], where the automatic presumption of a legally binding relation was successfully rebutted.

⇒ For example, agreements between employers and trade unions are collective agreements.

⇒ In an employee's contract it may say that certain terms depend on the collective agreement of the employer and the trade unions – is there intention to create legal relations?

• See Ford Motor v AEF [1969]: this case said they are intended to have no legal effect.

⇒ Have a think about this: if a newspaper publisher advertises that a particular DVD will be available as a 'free gift' inside the paper on a particular day does the decision in Esso Petroleum v Commissioners of Customs and Excise [1976] mean that you could sue the newspaper published (as opposed to the newsagent) if the DVD was missing?

⇒ Some other helpful legal resources on forming an agreement in contract law:

• An Intention to Create Legal Relations: A Contractual Necessity or an Illusory Concept
• Mcbridesguides: Intention to Create Legal Relations