Monash University LAW2101 Contract Law: Intention Case Analysis

This case study examines a contract dispute between Alisha Ahr and Bailey Brown regarding the mass production of Alisha's artwork on clothing. The central issue revolves around whether there was a clear intention to create legal relations, a crucial element for a binding contract under Australian Contract Law. The analysis considers the distinction between commercial and social/domestic agreements, referencing key cases like Ermogenous v Greek Orthodox Community of SA, Inc and Masters v Cameron to determine the enforceability of the preliminary agreement. The conclusion assesses whether Alisha is bound by the contract, considering the nature of their relationship and the degree to which the agreement was formalized. Desklib provides a platform for students to access similar solved assignments and past papers.

Running head: CONTRACT LAW
Contract Law
Name of the Student
Name of the University
Author Note

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Issue
The issue in this case is that if there is an intension to create legal relationship
between Alisha Ahr and Bailey Brown. The issue in this case also relates to that if the
contract between Bailey Brown and Alisha Ahr is a binding one or not. The issue here is also
that if both the parties Alisha Ahr and Bailey Brown are bound by the contract or not.
Rule
According to Australian Contract Law fourth element of a valid contract in Australia
states that there must be an intention to create legal relationship. Here this intention
requirement of a valid contract is usually based on the parties of the contract. In case of
commercial arrangements it is presumed that there is an intention to create legal
relationship. But in cases of social and domestic agreements it is presumed that there is no
intention to create legal relationships. There presumptions determines that on whom the onus
of proof is applicable.
Application
In this case Alisha Ahr wanted to start art mass-produced which is on clothing with
Bailey Brown. For this they entered into a contract, which states the following:
 An exclusive licence of copyright of artwork by the name of “Flying Free,
2018, colour linocut” is granted worldwide for the use of t-shirts.
 A payment of $10,000 will be made for the production of the first lot of t-
shirts, along with 5% for the royalty payments.

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 Alisha Ahr will be named as the artist who made the t-shirt and her name wil
be present on the swing tag of the t-shirts and in the website where the t-
shirts are sold will also have her name.
This letter of agreement will be followed by a formal contract, after consultating with
the solicitors.
It was also stated in the contract that further discussions will be needed to
formalise this agreement.
This contract was signed by both the parties to the contract that is Alisha Ahr
and Bailey Brown.
But then Alisha Ahr started having second thoughts regarding this business.
Therefore Alisha decided to back out of the business with Bailey Brown. Bailey
Brown in this regard stated that Alisha is bound to this business by the contract and
therefore she cannot back out now.
In this regard it must be stated that according to Australian Contract Law if the
contract stated above is a commercial one which satisfies the fourth element of the
intention to create legal relationship then Alisha Ahr will be bound to obey the
contract. Then Alisha will not be able to back off from the contract which was signed
by her.This contract will be then binding on both the parties to the contract that is
Alisha Ahr and Bailey Brown. In this case Bailey Brown can also sue or take any
legal action against Alisha Ahr if she tries to back out of the contract which she had
signed according to Australian Contract Law. Alisha Ahr therefore will be liable to
pay damages for the breach of the contract or will have to abide by the contract. But if
the contract created between the parties that is Alisha Ahr and Bailey Brown is a

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social contract or it is a domestic contract which means if there is any personal
relationship between Alisha Ahr and Bailey Brown then this will not satisfy the fourth
element of a valid contract according to Australian Contract Law as there will be no
intention to create legal relationship between both the parties to the contract that is
Alisha Ahr and Bailey Brown. In this case the contract will not be a binding one.
Therefore, Alisha Ahr will not be bound to obey the contract even if she has signed it.
In this case Bailey Brown will not be able to sue or take any legal action against
Alisha Ahr. Alisha Ahr will also not be liable to pay any damages to Bailey Brown
for the breach of the contract, even though Alisha Ahr has signed it.
In Ermogenous v Greek Orthodox Community of SA, Inc [2002] HCA 8; 209
CLR 95; 76 ALJR 465; 187 ALR 92 (7 March 2002) case the High Court stated that
“Preliminary agreements become apparent when parties enter into an agreement, however
that is yet to have been formalised in a more intricate agreement which will be signed by both
parties. Where one party later refuses to continue with the agreement, the question thus arises
whether the first agreement was intended to be enforceable”.
In Masters v Cameron case High Court [1954] HCA 72; 91 CLR 353; 40 NSWLR
622; 28 ALJR 438 three possibilities were held. They are as follows.
1. “The parties are immediately bound to the bargain, but they intend to restate the deal
in a more formalized contract that will not have a different effect; or,
2. Parties intended to be immediately bound, however their performance of terms is
suspended until their intention is formalised through conclusion of legal
documentation; or,
3. Parties do not intend to be immediately bound, instead they intend to be bound only
when a properly drawn contract has been signed. “

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In this case like the Ermogenous v Greek Orthodox Community of SA, , Inc [2002]
HCA 8; 209 CLR 95; 76 ALJR 465; 187 ALR 92 (7 March 2002) case the contract
which was made between Alisha Ahr and Bailey Brown is a preliminary one.
However more intricate details were yet to be formalised. If one party refuses to
continue with the contract then the question of the intention to create legal
relationship comes while enforcing the contract. If the contract is a commercial one
then the intentention to create legal relationship is satisfied otherwise if it a social
contract or a domestic contract then there is no intention to create legal relationship.
Conclusion
Thus in this case it can be stated that if there is a personal relationship between the
parties of a contract that is Alisha Ahr and Bailey Brown then there is no intention to create a
legal relationship therefore Alisha Ahr can back off from the contract and she is not bound to
obey it according to Australian Contract Law. But if there is no personal relationship between
Alisha Ahr and Bailey Brown then this will be a commercial contract and Alisha Ahr will be
bound to obey this contract and she will not be able to back off according to Australian
Contract Law. Thus it can be stated that in this can if Alisha Ahr wants then she can back out
of the contract which was created between her and Bailey Brown on the basis of any personal
relationship. The contract stated here is also at fault because some intrications of the contract
were yet to be formalised between the parties that is Alisha Ahr and Bailey Brown. Some
more discussions were still needed to be done between the parties to the contract that is
Alisha Ahr and Bailey Brown. Therefore, these are the steps which can be taken with regards
to this case by Alisha Ahr against Bailey Brown if they want to end the contract between
them and if Bailey Brown tries to take any legal action against Alisha Ahr.

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Refecrence List
Australian Contract Law
Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95; 76 ALJR
465; 187 ALR 92 (7 March 2002)
Masters v Cameron case [1954] HCA 72; 91 CLR 353; 40 NSWLR 622; 28 ALJR 438