Intention to enter into a legally binding agreement

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A fundamental principle of Contract law is that the contracting parties must actively intend to enter into an arrangement that creates legal obligations. For common-sense reasons, domestic arrangements are assumed not to create a contract, while commercial arrangements are assumed to create one, unless clearly specified otherwise.

As far as domestic arrangements are concerned, it is clearly contrary to public policy to have routine domestic disputes tying up the courts. In Balfour v Balfour Atkins LJ said that a husband's offer to pay money to his wife was outside the realm of contracts altogether (see: Balfour v balfour (1919)). Similar assumptions have been made for other family agreements (e.g., see: Jones vpadav atton (1969), and even for social organizations.

There are some exceptions to this assumption. For example, agreements made by divorced or separated couples over the disposition of property are likely to be considered contracts (see: Merritt v merritt (1970)). In these cases the arrangements are no longer really domestic. In addition, arrangement that significantly affect the lives of any party are likely to be taken as contracts (see: Parker v clark (1960)).

For commercial arrangements, the opposite assumption applies. In commercial dealings it is extremely difficult to evade the obligations of an agreement by claiming that it was never intended to be legally binding (see: Edwards v skyways ltd (1964), Esso v customs and excise commissioners (1976)). To create this effect, the wording of the agreement must be very clear (see: Rose and frank co v crompton (1925)).

UK LAW
Contract Law