UNIVERSITY OF PORT HARCOURT BUSINESS SCHOOL

BUSINESS AND COMPANY LAW ASSIGNMENT

AN ESSAY ON THE INTENTION TO CREATE LEGAL RELATIONS: IN

WHAT CIRCUMSTANCE WOULD IT BE PRESUMED LACKING IN
AGREEMENT

BY:

NAME: EMI IGONIBO IYALLA:

REG NUMBER: G2022/MBA/MGT/UPBS/PT023

 The intention to create legal relations is a fundamental principle in
contract law. An agreement, no matter how well it is detailed or
structured, cannot be considered a legally binding contract if the parties
involved did not intend to enter into a legal relationship. This essay
delves into the circumstances under which the intention to create legal
relations would be presumed lacking in an agreement.

In the vast landscape of agreements, from the casual promises made in

social settings to the meticulously drafted corporate contracts, discerning
which ones hold legal weight is crucial. The principle of intention
differentiates a gentleman's agreement, for instance, from a binding
business contract. It ensures that the legal system does not concern
itself with trivialities, instead focusing its resources on matters of genuine
legal concern. Within the Nigerian context, especially considering the
complexities of modern business transactions in dynamic economies like
ours, understanding this principle is pivotal. For MBA students at the
University of Port Harcourt Business School, it offers invaluable insights
into navigating the challenging terrains of contract negotiations and
business commitments.

At its core, the intention to create legal relations refers to the

commitment between parties to establish a contract with legal
enforceability. This intention signifies more than just a mutual
agreement; it represents a mutual understanding that the terms of the
contract can be enforced by law, and any breaches could result in legal
consequences.

Historically, contracts were largely based on oral agreements and

mutual trust between parties. However, as societies evolved and
business interactions became more intricate, the need for clear legal
frameworks became evident. In earlier legal systems, the focus was
mainly on formalities such as seals and witnesses. With time, however,
the emphasis shifted to the underlying intention of the parties. This
evolution was driven by the realization that the spirit of the agreement -
the genuine desire to create binding obligations - was more important
than mere formalities. The doctrine of intention to create legal relations
thus emerged as a means to distinguish serious contractual
undertakings from casual or social agreements.

These Agreements includes:

Domestic and Social Agreements

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Historically, courts have been hesitant to intervene in domestic or
familial matters. Hence, domestic and social agreements are usually
presumed to lack the intention to create legal relations. For instance, an
agreement between family members, such as a father promising to buy
a car for his son, is generally perceived as not intended to have legal
consequences. However, this presumption can be rebutted if there is
clear evidence that the parties intended to be legally bound. An example
would be if a written agreement is present, or if there are witnesses
attesting to the parties' intention to formalize the arrangement.

Commercial Agreements

Contrary to domestic situations, commercial agreements are generally

presumed to have the intention to create legal relations. Businesses
enter into contracts to ensure that terms and conditions are met, and
disputes can be legally resolved. However, there are situations where
this intention is lacking:

Honour Clauses

Some commercial contracts contain a clause stating that the agreement

is "binding in honour only" or similar wording. This is a clear indication
that the parties do not wish the agreement to be legally enforceable.

Gentlemen's Agreements

These are informal agreements based on trust, often without any written
document. While they can carry moral weight, they may lack the
intention to create legal relations, making them unenforceable in a court
of law.

Letters of Intent and Memoranda of Understanding

In business transactions, preliminary documents such as Letters of

Intent (LOI) or Memoranda of Understanding (MOU) may be exchanged
before a formal contract is established. These documents might outline
the parties' intentions or summarize negotiations. While they may seem
formal, they often lack the essential elements of a contract and might
explicitly state that they are not legally binding. Unless specified
otherwise, LOIs and MOUs are typically presumed not to carry the
intention to create legal relations.

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Incomplete Negotiations

Sometimes, parties engage in negotiations without reaching a final

agreement. If essential terms are left undecided or are too vague, the
agreement may be deemed incomplete. Such agreements lack the
clarity required for legal enforceability, and thus, it can be presumed that
there was no intention to create legal relations.

Conclusion

The intention to create legal relations is a cornerstone of contract law,

distinguishing mere agreements from legally binding contracts. While
commercial agreements generally presume this intention, there are clear
exceptions. Domestic and social agreements, on the other hand, are
traditionally seen as non-binding. For any agreement, the presence or
absence of the intention to create legal relations depends on the specific
facts, the context, and sometimes the wording of the agreement itself.
Parties should be clear and explicit about their intentions if they wish to
ensure that their agreements are legally enforceable.