What is the significance of 'intention to create legal relations' in contract formation?

The significance of 'intention to create legal relations' in contract formation lies in its role as a fundamental requirement for the enforceability of a contract. In order for a contract to be legally binding, the parties involved must intend for their agreement to have legal consequences. This intention distinguishes casual agreements or social arrangements from formal contracts.

Without this intention, a contract may be seen as merely a non-binding arrangement, even if the other elements of a contract, such as offer, acceptance, and consideration, are present. In situations where legal relations are not intended, such as agreements made in a social context (like a promise to meet for coffee), courts would not enforce those agreements.

The concept helps ensure that parties are serious about their commitments and understand that they are entering into a legally binding arrangement, thereby providing a framework for accountability and clarity in contractual dealings.