Contract is a set of promises or agreement enforced by law. It is based upon the agreement of the parties. To reach an agreement between parties, it is important for the two parties to have a common intention and consideration for both. However, intention is a subjective understanding of the parties' minds whereas the parties can have different intention.
The statement: 'In cases where the issue is litigated, it seems likely that one party intended ......' by Collins, H(2003) states that when contradiction between parties occurs, it is forced to the conclusion that the courts must rely on hidden policy considerations when determining the intentions of the parties.
It is important to look at how the law determines the intentions to create legal relation of the two parties which is policy consideration.
Formation of contract
There are 4 elements in contract, which are offer, acceptance, consideration and intention to create legal relation.
Importance of creating legal relation
To make a contract to be legally enforceable, it is vital to create legal relation. The aim is to protect both parties by legal means when the contract is breached. The intention of the parties must be ascertained from the language they have used in the contract, considered the surrounding circumstances and the object of the contract.
It could be said that the law of contract ought not to intervene in domestic situation because the courts would be swamped to due with domestic disputes. Therefore it depends mostly on the legal relations in the contract. The Scottish Law Commission has stated (1977) that
'it is, in general, right that courts should not enforce entirely social engagements, such as arrangements to play squash or to come to dinner, even though the parties themselves may intend to be legally bound thereby.'
In case of...