Legal intention

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This article is a topic within the subject Principles of Private Law.


Required Reading

Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009), pp. 91-103 (chapter 5).


[1] The intention requirement indicates that the parties must manifest an intention to create legal relations.(legal relations = be legally bound). This is determined objectively.

  • Objective approach: has the party manifested or appeared to have manifested (as could be reasonably perceived) an intention to be legally bound, not whether it actually had the intention to be so.

This was discussed in Merritt v Merritt:[2]

  • 'The court does not try to discover the intention by looking into the minds of the parties. It looks at the situation in which they were placed and asks itself: would reasonable people in the agreement as intended to be binding?'[3]

And Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd:[4]

  • When there is a written agreement, 'The Courts may also take into account the surrounding circumstances, including the actions and statements of the parties'.[5]

Also see Shahid v Australasian College of Dermatologists.[6]


Commercial Context

[7] Agreements made in a commercial context or of a commercial nature are automatically presumed to be made with legal intention.

  • The burden falls on the person denying enforceability to disprove the intention.
  • It can be very hard to disprove/deny legal intention in commercial contexts.
  • Exceptions:
    • Letters of comfort, which are deliberately left unclear.[8]
    • Non-Binding agreements (or Honour Clauses): this is where parties expressly stipulated the agreement is not legally binding.[9]

Non-Commercial Context

[10] On the other hand, agreements made in other (non-commercial) contexts are presumed not to be made with legal intention.

  • The burden falls on the person seeking enforceability to prove the intention.

It should be noted that in Ermogenous v Greek Orthodox Community of SA Inc,[11] the court decided that there should not be a general rule or presumption. Rather, each case must be decided on its own facts.

Agreements in the Private Sphere

[12] Agreements between family members or close relatives are usually presumed not to be made with intention to create legal relations. The courts have said that the presumption is against intention to be legally binding, reflecting their reluctance to intervene in private sphere.[13]

[14] Financial agreements between spouses are traditionally presumed to be made without intention to enter legal relations. This is discussed in Balfour v Balfour:[15].

  • Facts: husband promised his wife to pay her £30 per month while they were separated due to her health conditions. Further on, they agreed to remain apart and the husband subsequently stopped paying.
  • Held: the agreement was not intended to be enforceable, it was not intended to be a contract.[16]


[17] An exception to this rule of thumb is an agreement between spouses who are separating or are about to separate, in which case the courts have been willing to find legal intention.[18] Part VIII(A) Family Law Act 1975 (Cth) deals with financial agreements after separation. Agreements are legally binding if:

  1. The parties express that the agreement is made under this section.
  2. The agreement is signed by both parties.
  3. The agreement includes a certificate that both parties received independent legal advice.

Another exception is made in cases involving a promise with relation to housing. This was demonstrated in Todd v Nichol:[19]

  • Facts: Nichol invited overseas family members to come live with her, promised them her house would be theirs until they died. The Relationship broke down, Todd sought to enforce the contract.
  • Held: the permanent nature of the arrangement meant a high degree of reliance, therefore an intent to be legally binding.

This suggests that if there are serious consequences for the party taking invitation, then the agreement could be viewed as being made with intent to be legally binding. Lastly, even if a party can’t seek remedy via contract law, he can try an Estoppel.

Major Exception: Commercial Agreements Between Relatives

[20] If an agreement is essentially commercial in nature, the requirement of legal intention will be satisfied regardless of whether it is between relatives. This was discussed in Roufos v Brewster (the parties (a man and his father in-law) entered into a legally bound agreement because they entered the agreement for strictly commercial and separate interests).[21]

Non-commercial arm’s-length transactions

[22] It has been speculated that perhaps all agreements which (1) deal with substantial matter and (2) are conducted at an arm’s length (buying a house, hiring a nanny) should be presumed to contain legal intention.

  • However, this would undermine the entire ‘family-member is non-binding’ system.

Government agreements

[23] To determine whether there was legal intention on behalf of a government in a government agreement, the question is whether the transaction is a commercial contractual agreement or an administrative arrangement involving the implementation of policy. This was discussed in Australian Woollen Mills Pty Ltd v Commonwealth

  • A governmental statement of policy cannot on its own give rise to an intention to enter into legal relations.
  • The Commonwealth sought no statutory authority for the making of the payments.
  • The Commonwealth had no commercial interest in the scheme.
  • The scheme was invoked by persons without the authority to obligate the Crown into any expenditure.
  • The scheme expressly provided that the Commonwealth could vary the subsidy.

It was also discussed in Administration of Papua New Guinea v Leahy:[24]

  • Facts: Leahy sought help from Administration of Agriculture to exterminate ticks on his property. Their assistance did not completely exterminate the ticks and Leahy sought damages in breach of contract.
  • Held: the Administration didn’t enter into a contract, but was providing gratuitous assistance – the execution of its policy to exterminate ticks is a social service.

In Placer Development Ltd v Commonwealth, the dissenting judges (Menzies and Windeyer JJ) stated that the Commonwealth displayed intention to enter into a legally binding contract.[25]

  • The language of the Commonwealth in their dealings with Placer Development Ltd was that of legal obligation.
  • The Commonwealth approved the agreement and appropriated funds to meet its obligations.
  • This agreement has legal basis and is to be distinguished from the unenforceability of a purely political arrangement, such as assistance in the extermination of ticks or the provision of wool.

Preliminary agreements

[26] Parties who have negotiated the major terms of an agreement may write up a preliminary agreement, with the intention of writing a formal agreement at a later date. If one of the parties wants to withdraw before the formulation of the formal contract, it will be necessary to determine whether the parties intended to be bound by the preliminary agreement, or if they wanted to defer legal commitment until it was formalised.

As was discussed by the High Court in Masters v Cameron,[27] there are three different categories for cases involving preliminary agreements.

  1. Parties have finalised everything and want to reiterate the terms in a clearer way, but to the same effect.
    • Bound regardless of whether there is a formal document.
  2. Parties have finalised everything, but want to make performance on a term, or terms, conditional upon a formal document.
    • Bound to bring a formal document into existence.
  3. Parties don’t intend to enter a binding relationship unless a formal contract is signed.
    • Not bound unless a formal document is signed.

In Masters v Cameron the court held that the effect of a preliminary agreement depends on the intention displayed by the language of the parties.[28] The case fits into the third category.

  • The purchaser ran into financial difficulties and backed out of the deal.
  • The vendor sought to enforce the agreement outlined in the preliminary document (memorandum).
  • However, the memorandum stated the formal contract was to be written in a way acceptable to the vendor's solicitors, suggesting that it was thought to be subject to the preparation of a formal contract.
  • It was held that the language of the parties in the preliminary agreement could not give rise to legally binding relations; the purchaser was free to withdraw from the transaction prior to its formalisation.

A Fourth Category

[29]A fourth category has been suggested: parties agree to be immediately bound on the preliminary terms, although those terms are expected to be modified by a future formal contract.


Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009)

  1. Textbook, p. 91 [5.05].
  2. [1970] 1 WLR 1211.
  3. [1970] 1 WLR 1211, 1213.
  4. [1985] 2 NSWLR 309, 332-4, 337-8.
  5. Textbook, p. 92 [5.07].
  6. [2008] FCAFC 72.
  7. Textbook, p. 93 [5.10].
  8. Textbook, pp. 94-6 [5.15].
  9. Textbook, p. 96 [5.20].
  10. Textbook, p. 93 [5.10].
  11. (2002) 209 CLR 95.
  12. Textbook, pp. 96-7 [5.25].
  13. Balfour v Balfour [1919] 2 KB 571, 579
  14. Textbook, p. 97 [5.30].
  15. [1919] 2 KB 571
  16. [1919] 2 KB 571, 579
  17. Textbook, p. 98 [5.40].
  18. Merritt v Merritt [1970] 1 WLR 1211.
  19. [1957] SASR 72.
  20. Textbook, p. 99 [5.50]
  21. (1971) 2 SASR 218
  22. Textbook, p. 100 [5.55].
  23. Textbook, p. 100 [5.60].
  24. (1961) 105 CLR 6.
  25. (1969) 121 ClR 353.
  26. Textbook, pp. 101 [5.65].
  27. (1954) 91 CLR 353.
  28. (1954) 91 CLR 353, 362-3.
  29. Textbook, pp. 102 [5.75].
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