The intention to create legal relations is far more important than consideration The law of contract requires that a contractual agreement is established by parties of sound mind, who have the capacity to exchange a consideration that creates a mutual obligation1. The insistence of the law, on the qualification of the parties as being of sound mound and competent persons, underlines the importance of the binding obligation that is to be established2. Therefore, the intention to create legal relations is far more important than consideration, since once the intention is established, then the law upholds that the intention is as good as an already established contractual agreement.
Thus, whenever it is established that there was an intention to create a legal contract, the parties involved in the creation of the intention are prevented from rescinding the contract, through the doctrine of estoppels2. The substance of a contract is the intention that the individuals had when they were establishing the contractual agreement. Therefore under the law, an agreement is only legally enforceable, if the parties are deemed by the court to have intended to establish it1.
While the element of consideration is essential for a legal establishment of a contract, the intention to establish such a contract overrides the substance of consideration, since where the court can determine that the parties involved in the establishment of a contractual agreement had the intention to do so, and then the presumed consideration is as good as agreed. While the intention to create a legal relation between parties may not have been stated explicitly, it is the circumstances and the conditions surrounding the establishment of the agreement that are inferred, to establish whether such an intention existed2.
To establish the existence of an intention to create legal relations, two principles always come into play. First, the principle of the reasonable man test, must apply. This principle seeks to determine whether, given the circumstances under which the parties to an agreement were while establishing it, a reasonable man can find there was or there was no intention to create a legally binding agreement3. The second principle is the principle of two presumptions, which presumes differently when considering the intentions of an agreement, depending on whether the agreement is a commercial agreement or a social agreement.
Nevertheless, the differentiation in the nature of the agreement, when it comes to the presumption of an intention to create a legally binding contract, has a predetermined position.
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