Intention to create legal relations 

An agreement supported by consideration is still not a contract unless the parties intended it to be legally enforceable. The requirement filters out arrangements that are plainly social, and it is tested the same way as agreement itself: objectively, by asking what a reasonable person would conclude from the parties' words, conduct and context — not by asking what either privately intended.

How Australian courts approach it

Students often learn this as two presumptions: commercial agreements are presumed intended to be binding, and family or social arrangements are presumed not to be.

Treat those as starting points rather than rules. In Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95,¹ the High Court rejected mechanical application of these presumptions, holding that a religious appointment could still be a binding contract once the whole of the circumstances was examined. The presumption language survives in teaching because it captures a real pattern; it should not replace the analysis.

What actually carries weight:

• The context of the dealing. Arm's-length commercial negotiation points strongly one way; an arrangement between family members over dinner points the other.
• The formality and specificity of the terms. Detailed obligations, prices and dates suggest parties who expected to be held to them.
• What was at stake, and what was done in reliance. A party who gave up a home or a job on the strength of an arrangement is unlikely to have regarded it as unenforceable.
• Express words. A clause stating that an arrangement is binding — or is expressly not intended to create legal relations — will usually be given effect.

Three recurring settings

Commercial arrangements

Intention is ordinarily readily found. The live questions are usually elsewhere: whether the terms are certain, or whether a document was intended to bind immediately or only on execution of a formal contract. Letters of intent, heads of agreement and memoranda of understanding need reading closely — the label does not decide it, and a document may bind as to some matters and not others.

"Subject to contract" language usually indicates that the parties did not intend to be bound until a formal document was executed, but it is a question of construction, not a formula.

Family and domestic arrangements

Agreements between spouses, partners, parents and children are often not intended to be enforceable — but frequently enough, they are. Arrangements about property, substantial financial contributions, or long-term care commitments are regularly enforced, especially where one party has acted to their detriment. The domestic setting is evidence, not an answer.

Government and voluntary arrangements

Statements of policy, funding announcements and internal government arrangements often lack the intention to contract. Where a public body deals commercially, ordinary principles apply.

Applying this in a problem question

1. Characterise the relationship and the setting.
2. Look for express words dealing with enforceability, and construe them.
3. Weigh formality, specificity, the stakes, and any reliance.
4. Reach a conclusion objectively — and if you invoke a presumption, say why the circumstances support it rather than treating it as decisive.

Intention sits alongside agreement and consideration. All three must be present, and the terms must be sufficiently certain.

Where the authority sits

This is common law, and it is an area where Australian and English authority have moved apart in emphasis — Australian courts have been more willing to treat the presumptions as guides than as rules. Prefer Australian appellate decisions, and note the court when you cite one.