1BUSINESS LAW Issue: In this given scenario the issue that exists is whether there was an intention of the parties to be legally bound by the contract and whether John is entitled to enforce the agreement with Alex. Relevant Rule: Intention to create legal relations is an essential element of a valid contract.The party who wishes to enforce the contract with other party must establish that the parties to the contract intended to create legal relations. As held in the case AirGreat Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1989] 2 NSWLR 309, it had been held by the court that a consideration generally implies the intention of the parties to be legally bound, however the intention to create legal relations still remains an independent essential element of a valid contract. A contract would not be enforceable in which consideration is present but the former pre condition has not been fulfilled. In case of commercial agreements, the courts generally assess that the parties intended to be legally bound. An objective test is applied by the courts to assess the intention of the parties in commercial agreements. In the caseRose and Frank & Co v Crompton [1923] 2 KB 261, it had been held that in circumstances where the parties to the contract do not intend be legally bound, they can use honor clauses to indicate that the agreement in honor and legally. However this presumption of the courts in assessing the intention to create legal relations has been discarded. In the caseKleinwort Benson Ltd V Malaysia Mining Corporation Bhd[1989] 1 WLR 379, it had been held in case of commercial and business relations, there is a presumption that the parties have the intention to be legally bound by the terms of the contract, and however in exceptional cases this presumption is rebuttable.
2BUSINESS LAW In case of family and domestic agreements the courts generally presume that the parties to the contract did not intend the contract to be legally binding. However, in terms of exception this presumption can be rebutted as held in the caseBalfour v Balfour[1919] 2 KB 571. However in the recent notable caseErmogenous v Greek Orthodox Community of SA Inc(2002) 209 CLR 95, it had been held by the high court of Australia that no presumption is to be taken into consideration while assessing the intention of the parties to create legal relations even in case of domestic or family agreements Further it had been held in the case . It can be stated that the courts do not generally apply the subjective test to assess and evaluate the intention of the parties as this might give the party who wishes to avoid the fulfillment of the responsibilities of the contract an easy loophole to escape his liability. Instead as held in the Carlill v Carbolic Smoke Ball Company [1893]EWCA Civ 1, the courts apply the objective test to assess whether a reasonable third party in the circumstances of the case would have thought that the parties intended to create legal relations. It can be stated that the rebuttable presumption imposes the burden of proof; however the burden of proof can be rebutted upon the presentation of evidence to the contrary. Application As it has been discussed before a contract can be enforceable if the parties to the contract intended to create legal relations. It has been provided through the facts of the case Jon agreed to work for Alex for the remuneration of four hundred dollars per week. Alex had agreed to pay him four hundred dollars and had asked John to join work from Monday at 7 the following week. John had clearly followed his instructions and started working for him on the agreed date. Therefore in this case the intention of the parties to the contract can be analyzed by the
3BUSINESS LAW application of the objective test as established in the case Carlil v Carbolic Smokeball case as discussed above. In accordance with the judgment of the case it can be sated that any reasonable person in the given circumstances any reasonable person would have assessed that the parties to the contract intended to create legal relations as John had relied on the promise of Alex and worked for him relying on the consideration Alex had promised him. In the given case study it is evident that Alex wanted to escape his liability of paying the promised wages to him by stating John was family to him. It can be stated in accordance with the decision of the Balfour v Balfour case that in case of domestic and social agreements, the courts generally presume that the parties to the agreement generally do not intend to be legally bound. Thus in this case Alex can use this as the ground of defense to avoid the liability to pay wages to John. However, as held in the Ermogenous v Greek Orthodox Community of SA, it can be stated that courts generally do not take into consideration any presumption while determining the intention of the parties to create legal relations. Further as held in the case Errington v Errington [1952], it can be said that the presumption of not intending to be legally bound in case of domestic and family agreements will be rebuttable if evidence suggests the contrary.Therefore the burden is on John to prove additional facts so as rebut the presumption that the parties to the contract did not intend to be legally bound as it was merely a domestic agreement. In the given scenario it is evident that Alex had promised a fixed remuneration for his services and John relied on such promise of Alex and performed his obligations. Therefore John can point out that he deserved to be paid the amount that was promised to him. Further it can be pointed out by John that he provided his services to the business of Alex and thus the agreement in consideration will be treated as a commercial one. It has been discussed
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4BUSINESS LAW above that the courts generally presume that the parties to a commercial agreement generally intend to be bound unless evidence points the contrary. Conclusion Thus to conclude, it can be said that John can enforce the contract with Alex as there was intention on the part of the parties to be legally bound.
5BUSINESS LAW Reference List: Errington v ErringtonWoods [1952] 1 KB 290 Ermogenous v Greek Orthodox Community (2002) 209 CLR 95 Carlill v Carbolic Smoke BallCompany [1892] EWCA Civ 1 Balfour v Balfour[1919] 2 KB 571 KleinwortBenson Ltd v Malaysian Mining Corporation, [1989] 1 WLR 379 Frank & Co v Crompton [1923] 2 KB 261 Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1989] 2 NSWLR 309