The Intention to Contract

INTRODUCTION

Commercial law provisions, particularly the establishment of binding business arrangements relies on the existence of a valid contract. A binding contract has core elements revolving around the intention of the parties to enter into a binding agreement. If the intention to engage in a contract exists, together with the other elements of a binding agreement, then the parties to the contract can enforce obligations or rights. Otherwise, there would be no basis for claims. Intention to contract constitutes a requisite to bind parties to comply with the terms of the agreement.

SCENARIO

Three sports enthusiasts, Anas, Alif and Ainul, who were without access to satellite link agreed to form a club that would allow them to watch events together. Anas suggested that the creation of the club involves the purchase of equipment for installation in the garage of Ainul to which Alif and Ainul mutually agreed as a brilliant idea. However, after parting and telling their families of the club, Alif and Ainul did not receive the expected support. Without knowing about this, Anas purchased the equipment using the credit card he jointly shared with his spouse. Anas later learns that the arrangement for the club is off.

ISSUE

The issue is whether there is a valid contract among Anas, Alif and Ainul for purposes of enforcing obligations on the part of Alif and Ainul.

SHORT ANSWER

There is no enforceable contract among Anas, Alif and Ainul because there was no intention to engage in a binding contract. This means that Anas cannot legally bind Alif and Ainul to comply with their obligations in the formation of the club, especially in relation to the purchase of the equipment.

DISCUSSION

Generally, based on the elements of valid contract, the intention to create an enforceable contract depends on the existence of three factors. According to Harvey v. Facey (1893), a valid offer which requires the intention of the party making the offer to be involved in an enforceable contract and the belief on the part of the recipient of the offer of the intention to create an enforceable contract. In the given case, there was no valid offer because even if Anas may have intended the agreement to form a club as binding, this was not the perspective of Alif and Ainul. In Carlill v. Carbolic Smoke Ball Company (1893), an acceptance which requires communication and without any conditions or counter-offers. Since Alif and Ainul did not consider the agreement as an offer, the mutual agreement to the idea of forming a club does not constitute an acceptance and the intention to engage in a legally enforceable agreement. There should also be a consideration as mentioned in Australian Woollen Mills Pty Ltd v. Commonwealth