Business Law Case Study: Enforceability of Agreements and Intention

This case study analyzes a business law scenario concerning a dispute over a contractual agreement. The core issue revolves around whether the parties involved intended to create legally binding relations. The assignment delves into the essential element of 'intention to create legal relations' in contract law, referencing key legal precedents such as Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd, Rose and Frank & Co v Crompton, and Kleinwort Benson Ltd V Malaysia Mining Corporation Bhd. The analysis distinguishes between commercial and domestic agreements, examining the presumptions courts make regarding the parties' intentions. The case also addresses the application of the objective test, as highlighted in Carlill v Carbolic Smoke Ball Company, to assess whether a reasonable third party would consider the parties intended to create legal relations. The assignment further considers the rebuttable nature of presumptions, particularly in domestic agreements as per Balfour v Balfour and Ermogenous v Greek Orthodox Community of SA Inc, and how evidence can influence the court's decision. The conclusion determines whether the contract between the parties is enforceable based on the established principles of contract law and the intention of the parties involved.

Running Head: BUSINESS LAW
BUSINESS LAW
Name of the Student:
Name of the University:
Author Note

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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 Air Great 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 case Rose 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 case Kleinwort 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.

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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 case Balfour v Balfour[1919] 2 KB 571. However in
the recent notable case Ermogenous 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

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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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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.

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Reference List:
Errington v Errington Woods [1952] 1 KB 290
Ermogenous v Greek Orthodox Community (2002) 209 CLR 95
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1
Balfour v Balfour[1919] 2 KB 571
Kleinwort Benson 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