In this article, we will discuss what constitutes as an intention to be bound, how legal capacity is defined under the law, why the requirement of writing is significant, and what to consider when drafting or reviewing the contract terms.

‘Intention to be bound’

In your agreement with the other party, there must be some intention to be legally bound. This is integral to the contract’s formation. The intention is not always expressly stated but is implied by the nature of the agreement.

In general, for agreements that include family, friends, or other close relationships, there is a presumption that there was no intention to be legally bound. If the matter takes on a commercial character, however, the presumption becomes that the parties intended to be bound by the terms of the agreement to which they agreed. This test for determining the intentions of the parties is objective, which means that the ‘true’ intentions of the party are largely irrelevant.

As such, if you were planning on contracting with any of your family members or friends, it might be worth double checking that all parties have the requisite intention to be legally bound by the terms of whatever agreement you all reach. In general, the best way to ensure this is to put the contract in writing to get rid of any lingering doubt. Not only will this come in handy in the unlikely event that there is a dispute, but it may also help to maintain your close relationships.

Legal capacity

In certain cases, a Court will not force someone who is incapable of understanding the nature of their actions to honour their contractual obligations. For example, minors (those under the age of 18) have legal capacity for some contracts but not all types. Even adults who lack the mental capacity (either because of illness or intoxication) will not be said to have legal capacity to contract with other parties.

Writing Requirement

The law does not require a contract to be in writing for it to be legally enforceable. In some cases, however, for example when suing someone over a breach of a contract involving the sale of real property, it might need to be signed and evidenced in writing for it to be enforceable.

Terms of the Contract

In general, the courts will try to give effect to the terms of the contract that the parties have agreed to. Just to clarify, the terms of the contract are the substance (words, clauses, provisions etc) of the agreement. If courts need to work out what the parties agreed to, they will look at the conduct in addition to whatever is in writing to get an objective understanding of the intentions of the contracting parties. While terms can be implied into a contract, ordinarily the terms are clearly expressed.

As previously mentioned, sometimes certain statutes will impact a contract. For example, some legislation implies terms into a contract. Implied terms are simply those not expressly included, but that nonetheless form part of the contract. Take for example a contract for the sale of goods. In such a contract, it would probably be implied that the goods are of saleable quality.

Even at common law there are numerous terms implied into contracts.

Also, at common law there are a number terms which are implied in many contracts. Sometimes, the nature of the contract is such that trade or custom usage will operate to imply terms in a contract. There are, however, exceptions to a number of implied terms and the contracting parties may deny the existence of such implied terms or seek to modify them.

Here are some examples of implied terms:

  • The parties will not breach the contract’s terms;
  • For service contracts, the service will be carried out in a professional manner; and
  • For commercial contracts, time is of the essence

Conclusion

Our contract lawyers will happily provide you with the advice you are looking for, and at a fraction of the price of traditional firms. LegalVision has a team of great contract lawyers who can assist you. Please call our office on 1300 544 755 and our Client Care team will happily provide you with an obligation-free consultation and a fixed-fee quote.

Lachlan McKnight

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