Intention to create legal relations
Intention to create legal relations is one of the necessary elements in the formation of a contract. Alongside Offer and Acceptance and also Consideration. There must be an intention to create a legally binding contract by both parties or the contract does not exist.
In the context of a commercial contract this intention can be assumed and it is down to the individual party to prove otherwise if they are disagreeing that a contract exist. Equally if the parties to a commercial agreement do not want their agreement to be a contract then they need to make that clear, this will then override the presumption that they intend to enter into a legally binding contract.
When the contract or agreement is in a social setting or between friends it is always presumed that there was never an intention to create legal relations therefore it will need to be proved otherwise if there is a problem or a dispute.
Consideration
The basic rule is that there will be no enforceable contract unless it is supported by consideration. Consideration in a legal sense basically means the exchange of promises, so basically “I promise to pay you £50 if you promise to clean my house.” If someone promises to clean your house and you say thank you very much.” Then there is no exchange of promises, just one promise and so this is not a contract but legally known as a gift.
The promise can be to do something in the future (executory consideration), or when one of the parties makes the offer or acceptance that completely fulfils their obligations of the contract ie with payment or goods. (executed consideration).
Promises in the past are as a rule, considered to not be consideration. Putting it very simply if you ran a cleaning company you couldn’t go and clean your neighbours house and then expect payment.
“You can’t promise to do something when you have already done it.”
There are exceptions to this though, if your neighbour had asked you to do it as a favour and then after they offered you £25 as a thank you. This would amount as consideration and therefore a contract would be formed.
“Consideration must be sufficient but need not be adequate”
Imagine a £15,000 car, the promise to pay for that car from the buyer is both sufficient and adequate. However, if that same car was being bought for £1,500 then the consideration would be sufficient but not adequate. However as long as the seller agreed freely to the sale, and there was an intention to create legal relations the inadequacy of the buyers payment (consideration) would not matter.
The reason for this principle is simple, it would be impossible for the courts to know definite values of goods and services and they believe that people should be allowed to make any contracts they like. Imagine a business using this as freedom to make bad contracts for little monetary value just to gain business and then later on relying on the courts to protect them.