LAWS6991 Chap.6 Intention to Create Legal Relations and Formalities
Intention to Create Legal Relations and Formalities
This chapter covers the last element of formation and the main writing requirement. Intention to create legal relations is judged objectively from the whole circumstances after Ermogenous, which moved courts away from rigid presumptions. Commercial promises are generally intended to bind, as Banque Brussels Lambert shows, unless excluded as in Rose and Frank, while family arrangements like Todd v Nicol depend on evidence.
Masters v Cameron classifies subject to contract agreements. Section 54A of the Conveyancing Act 1919 (NSW) requires signed writing for land contracts, subject to part performance.
What this chapter covers
- 01
The objective test for intention
- 02
Ermogenous and the decline of presumptions
- 03
Commercial promises and letters of comfort
- 04
Honour clauses
- 05
Family and social arrangements
- 06
Government agreements
- 07
Masters v Cameron classes
- 08
Section 54A writing requirement
Worked example · free
A family loan to buy a car
- 1Balance: 36 payments of $500 is $18,000; after 12 payments, Max has paid $6,000, leaving $12,000 owing.
- 1Ermogenous rejects reliance on a presumption that family arrangements are not binding; intention is found objectively from all the circumstances, with the onus on the party asserting the contract.
- 1The subject matter is a significant sum of money, the terms are written and specific, and the parties acted on them for a year. These facts point towards an intention to be legally bound.
- 1Lena has a strong argument that the loan is a contract and that $12,000 remains payable.
Key terms
- Intention to create legal relations
- The objectively assessed intention of the parties that their agreement should have legal consequences.
- Letter of comfort
- A document given to a lender about a related company's affairs, which may or may not contain binding promises.
- Honour clause
- A term stating that an agreement is binding in honour only and not intended to have legal effect.
- Subject to contract
- Words indicating that parties may not intend to be bound until a formal contract is executed.
- Part performance
- An equitable doctrine allowing enforcement of an oral land contract where acts are unequivocally referable to such a contract.
- Joinder
- Reading several documents together to find a signed note of all the essential terms.
Intention to Create Legal Relations and Formalities FAQ
Are family agreements presumed not to be contracts?
Not any more. Ermogenous moved the law away from presumptions, Ashton v Pratt read it that way, and Mills v Dodds puts the onus on the party asserting a contract to prove the intention from all the circumstances.
Are business promises always binding?
They are generally intended to bind, and Rogers CJ in Banque Brussels Lambert rejected a twilight zone for promissory business statements. But parties can exclude legal effect expressly, as the honour clause in Rose and Frank did, and the Full Federal Court in Cirrus warned against assuming every negotiated arrangement is contractual.
Is a letter of comfort a contract?
It depends on construction. Banque Brussels Lambert asks whether a shareholder's undertaking to give ninety days' notice before selling was appropriately promissory, and Rogers CJ said such business statements should be enforced unless something clearly shows they were not meant to bind.
What are the Masters v Cameron classes?
Parties bound now who will restate terms later; parties who have agreed all terms but made performance conditional on a formal document; and parties not bound at all until a formal contract is executed. A possible fourth class was suggested in Baulkham Hills.
What must a note satisfying section 54A contain?
It must identify the parties, state the consideration including the price, and describe the land well enough to identify it, and it must carry the signature of the person being sued or of someone authorised to sign for them.
Is an oral contract for land void?
No. It is unenforceable at common law, so damages and contractual rights are unavailable, but equity may still recognise interests and part performance is preserved by section 54A(2), subject to the strict test in Pipikos v Trayans.
Exam move
Treat intention as an evidence exercise. For any problem, list the facts about subject matter, status, relationship and surrounding circumstances, and say how each points. Keep the commercial and domestic cases in separate columns, and learn the exact wording of the Masters v Cameron classes so you can place a subject to contract clause quickly.
For formalities, memorise the three contents of a compliant note and the effect of non-compliance. Ask Sia to give you mixed family and business scenarios and to test whether your evidence list is complete.
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