contract
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This article has been written by Aparna Venkataraman, from Tamil Nadu National Law University.

Introduction

Balfour v. Balfour is an important case in contract law. This is so because it was the first case that defined the concept of ‘intention to create legal relations’ and its usage. It was held that if there was an agreement, between two people which would normally constitute a contract, the same need not be true in case the parties to the agreement were spouses.

Facts of the case

This is an appeal by the husband against the decision of the Additional Judge of the King’s Bench Division. Justice Sargant, who had presided over the proceedings of the Court, had held that there was a valid contract existing between the parties. This appeal was filed under the Court of Appeal (Civil Division).

Mr Balfour, the appellant, was the Director of Irrigation under the Government of Ceylon. He married his wife Mrs Balfour in 1900, after which they decided to settle down in Ceylon. Both of them came to England in 1915 and were to return to Sri Lanka in 1916, when Mr. Balfour’s leave expired as a result of which he had to return to Sri Lanka. But just before he could do so, Mrs Balfour had developed rheumatoid arthritis (an autoimmune condition, whereby the body misinterprets the joint linings to be foreign and hence attacks the same). On the day he was supposed to leave (August 8), Mr Balfour gave Mrs Balfour 24 GBP for that month. Both of them agreed that he would send 30 GBP to her for every subsequent month.

Judgement

The facts regarding the decision that 30 GBP would be the amount that Mr. Balfour would send to his wife were inferred from a set of letters that Mrs. Balfour had submitted before the Court as evidence. Warrington, L.J. questioned whether what took place between the parties could be called a contract or whether it was a mere arrangement. He then added that no contract took place ‘in express terms’ because if it were so, then it would mean on Mrs Balfour’s part that she had to be content with 30 GBP that her husband sent and on Mr Balfour’s part that he had to pay 30 GBP for an indefinite period of time, irrespective of his circumstances – both of which are implications that cannot be made. He concluded by saying that the judgement given by Justice Sargant cannot stand and that the appeal should be allowed.

Atkin, L.J. said that there can be agreements that do not become contracts and that the appellant said that there was no contract in this case. He said that agreements between a husband and a wife are things that are the usual forms of agreements which cannot be called contracts. He said that agreements in these cases cannot be contracts because legal obligations were never intended. He said that terms of the agreements such as these can be edited, removed, or added (as the case may be) as the performance of the contract proceeds. He also added that the appeal should be allowed.

Duke, L.J. concurred with the opinion of both these judges.

Theory of the concept

This concept was born in the nineteenth century. If anyone creates an agreement with an intention to not have any legal consequences during the performance of the said agreement, then that agreement cannot be called a contract. An agreement having consideration but not legally binding can also not be called a contract. An objective test can be applied to the same, where the facts of the case are looked at from the perspective of a reasonable person and then decided if such a reasonable person intended that the afore-mentioned agreement ought to have been legally binding or not. 

Other Judicial Decisions

The two cases below talk about the concept of ‘no intention to create legal relations’ when it comes to family arrangements:

Spellman v. Spellman

Mr and Mrs Spellman were the parties in this case. They bought a car through the hire purchase system in hopes that their married life might be better (for they were going through some problems). In the registration book, Mr Spellman wrote down Mrs Spellman’s name, upon which she questioned whether the car was hers. He replied in the affirmative. But after three weeks, Mr Spellman took the car with him (but left the registration book with his wife) for their marriage was not working out. The hire purchase agreement did not allow Mr Spellman to separate from the ownership of the car, nor did it let him assign the benefit of the said agreement.

It was held that Mrs Spellman did not get any rights over the car or the benefit of the hire – purchase agreement. This was because the agreement was considered to be a domestic one that did not bear ‘intention to create legal relations.’ This case focuses more on the aspects of hire – purchase agreement rather than the fact that it was a domestic agreement. The principle established in Balfour v. Balfour was reiterated in this case as for the above-mentioned reason, even though Balfour v. Balfour does not appear to be expressly cited.

Jones v. Padavatton

The parties in this case were Mrs Violet Jones and her daughter Mrs Ruby Padavatton. In this case, both of them had an arrangement that Mrs Jones would pay maintenance for her daughter, provided her daughter studied for the Bar in England. Later they altered the arrangement whereby the mother gave her daughter a house to live in during her studies. There came a dispute when the possession of the house was questioned, and Mrs Jones appealed.

Balfour v. Balfour was cited in this case in order to support Mrs Jones’ appeal for she argued that the arrangement was one between the family members and that she had no intention to create legal relations and so she ought to get possession of the house. She also argued that even if the Court deemed the arrangement to be a valid one, the terms of the same were vague to come to any conclusion.

Mrs Padavatton argued that the arrangement did constitute a valid contract and hence there was intention to create legal relations. She also added that her studying for the Bar amounted as consideration for the said contract.

Mrs Jones’ appeal was successful. The Judges – Salmon LJ and Atkinson LJ – had different rationale, although they reached the same conclusion. Salmon LJ spoke about two major factors – one, whether there was intention to create legal relations and two, whether the terms of the so-called contract were adequate in order for them to be enforceable or not. Salmon came to the conclusion that there was no intention to create legal relations and also says that the terms of the contract were too vague. Atkinson LJ considers three major arguments – one, same as that of Salmon, whether there was intention to create legal relations between the parties, two – whether the mother in order to support her daughter ever wanted to create legal relations and three, had the daughter ever thought of her completing her education to be a contractual duty. Atkinson LJ said that there was no intention to create legal relations because the daughter claimed to be distraught when her mother sued her, which was ample reason. He then proceeds to say that both the mother and daughter never anticipated any issues or legal relations too. 

The cases cited below are similar because they talk about intention to create legal relations existing (within family arrangements, in particular). 

Merritt v. Merritt

In this case, the parties were married in 1941. Their house was jointly owned. They together owed 180 GBP on the house in 1966, when Mr Merritt left the matrimonial home to stay with another woman. So, he agreed to pay 40 GBP per month to Mrs Merritt, who was to use this money for mortgage payments. Mr Merritt also agreed that once all the payments were made, he would transfer his share of the property to her. He also signed a document to this effect. When Mrs Merritt got the house in her name, Mr Merritt appealed.

Mr Merritt said that the agreement between his wife and himself was that of a domestic nature. There were no intentions to create legal relations and hence no contract. He also said that as there was no proper consideration provided by Mrs Merritt as a result of which the agreement could not be called a contract.

Mrs Merritt argued that there was ‘intention to create legal relations’. She claimed that paying all the obligations that arose with the mortgage amounted to consideration.

Mrs Merritt won the case. It was held that as the couple were in the process of separating, the concept of ‘intention to create legal relations’ does not apply and that paying off the mortgage did amount to consideration and hence there was a valid contract in this case.

Comparison to Balfour v. Balfour

Despite the fact that both Balfour v. Balfour and Merritt v. Merritt talk about intention to create legal relations, in Merritt v. Merritt, it was held that the circumstances of the both the cases were different because in Balfour v. Balfour, the couple were married whereas in this case they were separated. Another issue is that it is normally assumed that any arrangement between divorcees intends to have legal consequences.

Lord Denning was of the opinion that the appeal should be dismissed because on the ground that he agreed with Stamp J (who had declared that the property was to go to Mrs Merritt, which was appealed against by Mr Merritt in the Court of Appeal). He said that the case of Balfour v. Balfour was not applicable in this case for the evidence is quite clear that there was intention to create legal relations through the letter. Widgery LJ said that without the feeling of love and affection that comes through marriage, when lost, cannot be a ground for an agreement to be called a domestic one and hence there was no intention to create legal relations.

Simpkins v. Pays

Ms Simpkins, a person who had a habit of entering into newspaper competitions, was a tenant of Mrs Pays. Ms. Simpkins, Ms. Pays, and her granddaughter stayed at the same house. All three of them decided to fill out for this particular newspaper competition but in Mrs Pays’ name. They decided to split the prize, in case they did win. One of the entries of the granddaughter was selected and they were awarded a cash prize of 750 GBP. But once the prize money did come, Mrs Pays refused to distribute the same. So Ms Simpkins sued Mrs Pays for her one third share of the prize.

It was held that despite the agreement being between family members, Mrs Pays was to pay the appropriate amount to Ms Simpkins. This was because when Ms Simpkins entered into the contest, she entered only with the agreement of sharing the money (in the prospect of winning), which clearly showcased intention to create legal relations. Also the fact that Ms. Simpkins was an outsider to the family of granddaughter and grandmother, makes it obvious from the perspective of a reasonable man, that there ought to be intention to create legal relations, which makes it obvious that the principle of Balfour v. Balfour cannot be applicable in this case, though the case was not cited. The above-mentioned comment was what Sellers J implied as well in his judgement as a result of which, Mrs Pays was ordered to pay the money to Ms Simpkins.

Rose & Frank Co v. JR Crompton & Bros Ltd

This is an important case because despite the fact that the parties to this case were two companies and not familial relations (which means that Balfour v. Balfour is inapplicable to this case) it talks about the concept of intention to create legal relations.

The parties in this case were Rose and Frank Co, an American company and JR Crompton and Bros Ltd, a British company. These two companies entered into a written agreement that stated that Rose and Frank Co would be the sole selling agent of JR Crompton and Bros Ltd in the USA. This agreement had a clause that stated that it was just an “honourable pledge” and not a legal one. Then Rose and Frank Co placed an order with JR Crompton and Bros Ltd, which was accepted. But later, JR Crompton and Bros Ltd put an end to the agreement and declined to send the goods. They stated that their initial agreement was not binding as per the aforementioned clause. So Rose and Frank Co sued JR Crompton And Bros Ltd.

The verdict was announced in favour of JR Crompton and Bros Ltd. It was held that the intention of not creating legal relations was plainly stated in the agreement and hence the said agreement cannot be called a contract.

Beswick v. Beswick

The parties in this case were Peter Beswick and his nephew John Beswick. Though this case does not deal with intention to create legal relations, (which implies that Balfour v. Balfour cannot be cited in this case) it is worth a mention because of the fact that the parties are family members.

Peter was a coal merchant, with no property for his business. He only owned the other materials that he needed for his work. His nephew worked with him. When both Peter and his wife were over seventy, they were experiencing health issues. John also wanted to take control of the business. So, both of them went to a solicitor. He had an agreement framed stating that Peter would give his nephew the business and in return, John would pay Mrs Beswick (Peter’s wife) a weekly annuity of 5 GBP. John did not pay the required sum because he thought Mrs Beswick to be an outsider to the contract. So, Peter Beswick sued John Beswick.

Peter Beswick won the case in his favour. It was held that Mrs Beswick was the administratrix of Peter Beswick (a woman who is an administrator especially of an estate ) and hence could enforce the contract, thereby making John pay the weekly annuity. It was also held that she was entitled to specific performance.

Parker v. Clark

In this case, the parties are the Clark family and the Parker family. The Clark family has Mr and Mrs Clark, an elderly couple. The Parker family consists of Mr Parker, Mrs Parker, and their daughter. Mrs Parker was the niece of Mrs Clark. Mr Clark asked the Parker family to move in with them. Mr Parker said that they would love to do so, but if they did so, it would mean that they would have to sell their existing house. Mr Clark then assured Mr Parker through a letter that the Clarks would leave their house to Mrs Parker and her daughter in their will. Soon, the Parkers sold their house and moved in with the Clarks. The Parkers also bore part of the costs for running the house. After some time, the Clarks asked the Parkers to vacate their house for they were not happy with the Parkers as a result of which the Parkers sued the Clarks.

The Parkers argued that the agreement was a legally enforceable contract. The Parkers’ dependency on the contract was visible because they sold their house. They pointed out that the Clarks had breached the contract by asking them to leave the residence.

The Clarks argued that the agreement cannot be called a contract for there was no intention to create legal relations and that the agreement was too vague to be called a contract. Furthermore, they added that even if the agreement was considered to be a contract, then it was not enough to satisfy Sec 40 (1) of the Law of Property Act, 1925. The afore mentioned section reads: “No action may be brought upon the contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto by him lawfully authorised.”

The Parkers won the case. It was held that both the language as well as the circumstances of the said case intend for legal relations to exist. The letter was held as enough proof which satisfied Sec 40 (1) of the Law of Property, 1925. It was also held that Parkers were entitled to damages.

Recent trends

In Ermogenous v. Greek Orthodox Community of SA Inc , an Australian case, the concept of intention to create legal relations came up. This case was filed by Archbishop Ermogenous saying that he was not paid for all the leaves that he had accumulated. In this case it was held that there were many presumptions that changed the decision of the Full Court of the Supreme Court of SA, where the decision was first taken. This made the High Court decide in favour of the Greek Orthodox Community, stating that there was no intention to create legal relations and that Ermogenous was not entitled to the money.

In Baird Textile Holdings Ltd v. Marks & Spencer plc , the plaintiff was the supplier to the defendant for more than three decades, when the defendant cancelled the order. This caused the claimant to sue the defendant, the problem being that there was no express contract, which prompted the Judge to deliver the ruling in favour of Marks and Spencer. Though in this case the concept of intention to create legal relations is not expressly stated, it is implied that there is no such intention and hence no contract.

There has been a long-standing argument on whether the concept of intention to create legal relations has to be considered an essential ingredient (along with offer, acceptance, and consideration) or not. One side of the argument states that this concept is an illusory one. The other side argues that this concept is more important than that of consideration. The four countries USA, UK, Australia, and New Zealand seem to have three different perspectives regarding the inclusion/exclusion of this concept as an essential ingredient of contract law.

Rules of the contract law in the US

The Contract Law of the United States says that intention to create legal relations is not required, as per Sec 21 of the Second Restatement of Contracts. This concept will not be enforced in cases such as those of domestic or social agreements, unless and until there is “unusual manifestation” of the said concept. This implies that commercial agreements are contracts unless the facts of the case do not intend the same.

Rules of contract law in the UK

The English law believes that the concept of intention to create legal relations is necessary along with offer, acceptance, and consideration. This belief is considered to be orthodox. There are two assumptions in this case – one, that commercial agreements are generally contracts, unless the facts of the case suggest otherwise (as in Rose & Frank Co v. JR Crompton & Bros Ltd) and two, domestic agreements do not have intention to create legal relations, unless otherwise stated (as in Parker v. Clark).

In Australia, the recent judgement of Ermogenous V Greek Orthodox Community of SA Inc has changed its perspective regarding the concept of intention to create legal relations. Now, the burden of proof of this concept is on the party that alleges the existence of a contract.

Rules in US and UK: the difference

Though the US and UK seem to have contrary opinions regarding the concept of intention to create legal relations, it is not the case, as they both imply that one, commercial agreements are by default contracts and two, domestic agreements are unenforceable in the Courts unless the facts of the case are different. The difference between UK law and Australian law is that the UK law is based on two assumptions (regarding commercial and domestic agreements), whereas in Australia there is no assumption – the intention to create legal relations has to be argued in every case.

Conclusion

The author has tried to provide a case analysis of Balfour v. Balfour and thereby analyse the importance of the concept of intention to create legal relations. This case was one of the first of its kind to bring out the importance of this concept. This concept has been analysed in the cases of family agreements (in this project), where this concept has to be proved, in order to establish that whatever arrangement the parties might have had was contractual in nature. The author has also analysed cases that discuss this concept and has observed that all the cases are circumstance based – there is no straight-jacket solution. Looking at the argument regarding intention to create legal relations becoming another essential ingredient – the author agrees with the Australian standpoint. This case is an important one whose viewpoint is not likely to change in the near future.

References

  1. Balfour V Balfour [1919] 2 KB 571
  2. J. Beatson, A. Burrows, J. Cartwright, Anson’s Law Of Contract 70 – 73
  3. A.G. Chrolos, The Intention to Create Legal Relations, 23 Modern Law Review 331, 331 – 333 (1960)
  4. J.W.A Thornely, Husband and Wife. Gift. Equitable Assignment, 19 Cambridge Law Journal 163, 163 (1961)
  5. Jones V Padavatton [1969] 1 WLR 328
  6. Merritt V Merritt [1970] 1 WLR 1211
  7. Simpkins V Pays [1955] 1 WLR 975
  8. Rose And Frank Co V JR Crompton And Bros Ltd [1925] AC 445
  9. Beswick V Beswick [1968] AC 58
  10. Ermogenous V Greek Orthodox Community of SA Inc (2002) 209 CLR 95
  11. Zhixiong Liao, Intention to Create Legal Relations and the Reform of Contract Law: A Conservative Approach in the Modern Global Era, 4 BEIJING LR 82, 89 (2013)
  12. Baird Textile Holdings Limited V Marks And Spencer plc, [2001] EWCA CIV 274
  13. 1 POLLOCK AND MULLA, THE INDIAN CONTRACT AND SPECIFIC RELIEF ACTS 46 – 48 (14)

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