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Just because there is an agreement between people, it does not signify that a contract exists. The creation of legal relations is a doctrine of the English contract law that is defined as an intention is to enter a legally binding agreement or contract. An agreement, which is defined as the meeting of minds with the acceptance and understanding of mutual legal rights and duties as to particular actions or accountability, is legally enforceable only if the contracting parties may be deemed by the court to have intended it.
The intention to create legal relations is a vital principle of Contract Law. As A.W.B Simpson stated, this doctrine might date back to the landmark decision of Carlill v Carbolic Smoke Ball Company in 1893, but however, it wasn’t in a firm position until 1919, after the case of Balfour v Balfour. Whether or not the parties intended to be legally bound to the contract is the doctrine’s main concern.
Acknowledgement of the presence of domestic and social agreements to which parties do not mean to be legally bound has culminated in an assumption that, proportionately, no contract is recognized. Commercial transactions, however, are treated with a presumption that legal relations were intended.
It is stated that in terms of general rules of family or domestic relations, there is no assumption to be bound legally. However, there are exceptions in which the presumption is rebuttable. For instance, Balfour v Balfour  shows that the intention to create legal intentions is crucial for family and domestic relations.
Both parties must intend that an agreement be legally binding in order to be an enforceable contract. Matters involving the daily life of husband and wife are not subject to contractual interpretation, even when consideration exists. Spouses habitually intend that the conditions of their agreements can be different as situations develop. The court held that it was assumed that an agreement was made by the parties as husband and wife and did not intend that it could be sued upon. The court held that as a matter of public policy, it could not resolve disagreements between spouses. There is a strong presumption in commercial agreements that the parties intend to be bound, and, unless there is very contrary evidence, the presumption will not be rebutted. In the case of Esso Petroleum Ltd v Customs and Excise Commissioners, Lord Simon of Glaisdale stated that the whole agreement took place in a setting of business relations, and that general unacceptance to allow a commercial promoter to claim what he has done is a mere puff, not intended to create legal relations. The convention of such events is generally to promote the body offering the prize. As a result, there is a presumed intention to create legal relationships which is then binding on the parties and can be relied on by members of the public who enter the competition.
The intention to create legal relations is essential in creating a valid contract as it ensures both parties are willing to be bound by the terms of their agreement. When two parties are determined to enter a contract, their mentality will discern the subject matter of the contracts. This happens because of the ‘intention’ that the two parties have to be permitted to agree. If there is no agreement by both the parties, it may cause the contract to be an invalid agreement.
The contract would not be enforceable, legal and binding if intention to create legal relations is non-existent. If there is no intention to create a legal relation, the contract can be presumed as not legal. Because of that, the contract could possibly be unenforceable as there is no intention to create legal relations at the beginning which makes the contracting parties to be legally binding.
Another reason to why creating legal relations is important is so that the parties are able to sue each other when a dispute arises. With no intention to create legal relations, it may cause the contracting parties to not be legally binding and these circumstances may cause the contract enforceable. When the contract is enforceable, the contracting parties are unable to take charges against each other and this will spoil their business crisis; and this will cause the contracting parties difficulty to enquire their justice.
Without the intention to create legal relations, the contract “formed” may become just a mere promise. Promise is defined as a declaration, verbal or written, made by one person to another for a good or valuable consideration in the nature of a covenant by which the promisor binds himself to do some act, and gives to the promisee a legal right to demand and enforce a fulfilment. Promises arise when there is no intention to create legal relations.
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