Beware! Not All Agreements Are Binding Contracts

A broken promise

A couple stayed overseas for several years. The husband decided send the wife home, promising to bank in a monthly allowance until his return.The wife got mad and sued. But she didn't succeed.

Why is that so?

There is no intention to create a legally binding agreement. This is what happened in Balfour v Balfour.

Balfour v Balfour: A husband working overseas agreed to send maintenance payments to his wife. The husband stopped making the payments. The wife wanted enforce the agreement. The court ruled that the agreement was a social and domestic agreement and it was presumed that the parties did not intend to be legally bound.

This brings us to the next question.

What is an intention to be legally bound?

An agreement is only legally binding if both parties have the common understanding that it will be binding

In legal jargon, this is known in contract law as the ‘meeting of the minds’

This means ...

When you're buying:

• a football match ticket
• a watch
• a brand new car
• groceries

there's no issue, when it comes to intention. These are all commercial agreements. The general rule is the parties will normally intend that it to be legally binding.

But, what about domestic and social arrangements?

In most domestic or social arrangements, the general rule is parties are presumed not to have the intention to create legally binding agreements.

This means…

when:

• you’re promising to pay for the drinks if your friend buys you dinner
• your brother said he’ll clean your house on weekends if you drive him to work every day

it will be hard to disprove the presumption that these agreements are not intended to be binding.

Whenever you enter into an agreement, please make sure that both parties are clear on whether it’ll be a legally binding one or not.

Pic credits: WiseGeek