If two or more parties make an agreement without any intention of being legally bound by it, that agreement will not be regarded by the courts as a contract. It is important to remember with regard to this issue that the courts assess the parties’ intentions objectively – so if to onlookers their behavior or words would suggest they intended to be bound, the fact that one secretly had reservations is irrelevant.
As far as intent to be legally bound is concerned, contracts can be divided into domestic and social agreements on the one hand and commercial transactions on the other.
Where an agreement falls into the domestic and social category, there is a rebuttable presumption that the parties do not intend to create legal relations. The reverse applies in commercial agreements, where it is presumed that the parties do intend such agreements to be legally binding. Again, this principle can be rebutted, if the parties stipulate that their agreement should not be legally enforceable.
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