This article is written by Jinal Prajapat from Damodaram Sanjivayya National Law University and the article has been edited by Khushi Sharma (Trainee Associate, Blog iPleaders)
It is not wrong to say that millions of contracts are concluded in one day. To give basic instances, we can consider transactions between shopkeepers, transactions between corporations, experiencing the service in the restaurant, and the purchase of tickets, etc.
A contract is the foundation of the civilized world. To define contracts in the way Salmond did – “A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more acts or forbearance on the part of others. ”
It is vital to describe what a contract is according to the Indian Contract Act of 1872 which mostly covers contractual principles and rules. As per Section 2(h) of the Act, a contract means “any agreement which is enforceable by law”.
It should be understood here that not every agreement results in a valid contract. There are different essential elements of a contract to form a valid contract. The Indian Contract Act in Section 10 lists the essential requirements for a contract to be enforceable in a court of law. India follows the English principle, which makes it necessary for a valid contract to have the intention to create legal relations.
The meaning of Intention to create legal relations is that the “intention of the parties to enter a legally binding agreement i.e., contract and fulfil its obligations lawfully”. The common intention of the parties to enter into legal obligations, expressed or inferred, to create a valid contract must be present in addition to consideration. There must be, it is said, consensus ad idem.
In circumstances where the question of the existence of a contract arises, the Court seeks to bring into effect what was agreed at the time by the parties. However, when the terms of these proceedings are uncertain, the Court shall examine whether the parties have intended to create legal relationships.
The idea may have been derived from the famous Carlill v Smoke Ball Company case of 1893, but it had not truly been established by the landmark judgment of Balfour v. Balfour in 1919.
The legal analysis of the intention to create legal relationships has therefore led to a conventional split and to establish standards to help with the verdict on the presence of this intent. The split includes analyzing if a social, familial, or domestic agreement or a commercial agreement is established. The assumption is that there is no intention of creating legal relationships in a domestic agreement, although this can be rebutted where objective circumstances evince an intention.
This essay will review the rules governing the intent to create a legal relationship.
Presumption of intention in domestic and social agreements
Although many sources include “social and domestic agreements” as a single category, it is preferable to distinguish ‘family agreements’ from ‘social agreements’, since social agreements do not evoke a presumption and only the objective test applies in cases determined on the facts. Of course, the presumption may be rebutted by proof of contrary intent, but a purely subjective intention to create legal relations will not suffice. There must be objective proof of an opposing intent.
Unless there is strong evidence to the contrary, family agreements are assumed not to create legal relations. Courts will invalidate agreements that are not legally binding. The simple establishment of a joint bank account between a man and his wife, or the guy promising to purchase her a vehicle in an attempt to mend their troubled marital connection, is a merely domestic agreement that does not result in a legal relationship.
In 1919, in Balfour v Balfour, Lord Atkin held that no intention to be legally bound was found although the husband was not able to pay maintenance while working in Ceylon (when the husband failed), even though the woman was dependent on the payments. In general, agreements between spouses, the Court noted, are not legal, and highlighted the fact that considering the contract, makes it ridiculous, because in this case, it seems to be more or less trivial concerns of life, where a wife promises him, at the request of her husband, this is a promise that can be enforced. The Court has decided that the plaintiff has the duty of concluding a legally binding agreement.
In Spellman v Spellman, it was determined that a husband’s commitment to buy a car from his wife followed by the contract of purchasing a car booked on behalf of his wife—a prohibition on parting with a car—was not meant to establish a legal relationship or to confer rights in a car or a purchase agreement. A purely domestic agreement was signed against Spellman v Spellman. The transaction was entirely domestic, with no intention of carrying out a fair transfer or trust.
The same concept applies to agreements between parents and children that are assumed not to be legally binding but are rebuttable based on whether the parties’ language demonstrates such an intention.
Mrs. Jones purchased a home where Mrs. Padavatton lived while studying at Lincoln’s Inn in the case Jones v Padavatton. Mrs. Jones filed for possession after a dispute, but Mrs. Padvatton claimed that their agreement constituted a legally enforceable contract, allowing her to stay in the home until she completed her bar examinations. The Court used Balfour v Balfour and determined that a mother’s commitment to give an allowance and use of a home in exchange for her daughter leaving the United States of America to study for the English Bar was not an enforceable contract.
This case exemplified the Court’s thorough study of the parties’ dealings to determine if the assumption may be rebutted. The Court reaffirmed the assumption that family agreements are often based on mutual trust and love and have no purpose of establishing formal relations.
“Unlike the earlier case, however, the complexity and precision of the agreements in this one meant that the facts had at least to be considered, rather than being dismissed as ‘outside the realm of contracts.”
In the case of social relations, Courts disregard the presumption of intention to establish a legal relationship and instead look at the facts and circumstances. All that is required by the law is that the parties intend legal consequences. The assumption is rebutted if there is evident intent to be contractually bound.
The assumption of domestic agreement parties not intending to establish legal relations may be rebutted in several ways. There is no definitive list of techniques for rebutting the assumption. While whether or not the presumption is rebutted ultimately relies on the circumstances of the case, instances in which the presumption is rebutted have certain characteristics. When spouses have separated, it is usually assumed that they intend to abide by their agreements. The signed written agreement provided further proof of a desire to be bound.
For example, in Merritt v Merritt, a separation agreement between estranged spouses was held to be binding after the presumption was successfully rebutted and an intention between an estranged husband and wife was established. In this instance, the husband agreed to give the wife £40 each month to assist her with mortgage payments, and in exchange for her paying all mortgage costs until the mortgage was paid off, he would transfer his part of the property to her. He lowered his monthly allowance to GBP 25 per month once the mortgage was paid off and refused to transfer the property. She filed a lawsuit seeking a declaration that the home was hers. The Court conducted an impartial analysis of all relevant facts before finding that there is an intention in such situations. In this case, the Court of Appeal determined that their contract was binding and differentiated it from Balfour v Balfour based on the parties’ separation.
McGregor v McGregor is another example of a legally binding relationship between husband and wife. In this case, a husband and wife withdrew their complaints according to an agreement in which the husband agreed to give her an allowance and she agreed not to pledge his credit. The agreement was found to constitute a binding contract.
Simpkins v Pays demonstrates how the assumption that an agreement is legally binding may be rebutted when a third party is involved. The facts are as follows: The defendant, her granddaughter, and the plaintiff (a paid lodger at their residence) all participated in a weekly tournament, with each contributing one-third of the stake held in the defendant’s name. When they won a £750 reward, the defendant refused to split it, prompting the plaintiff to sue for a third of the winnings. The Court determined that the outsider’s presence rebutted the assumption that the pact was a familial agreement and meant to be legally enforceable. There was adequate reciprocity in the agreements reached between the parties.
Parker v Clark shows that, although it is believed that domestic agreements do not establish legally enforceable duties, the circumstances may overrule this presumption in certain instances. The defendants, an elderly couple, proposed that the claimants, who were their friends, move in with them, forcing the defendants to sell their own home. The defendants bequeathed a portion of their home to the plaintiffs in their will. The claimants accepted this offer, sold their home, gave the remaining funds to their daughter to assist her in purchasing an apartment, and moved in with the defendants. As a result, the claimants vacated the premises and filed suit against the defendants. The defendants contended that they did not enter into a contract because they lacked the intent to establish legal relations. The Court determined that the parties wanted to establish legal relations. This case shows that the agreement intends to have legal consequences where one party has acted to his detriment on the faith of the agreement.
Additionally, in Errington v Errington, a father-in-law bought a home for the residence of his son and daughter-in-law. He promised the couple they would own their house if they continued with their mortgage payments. The father died afterwards and left the mother’s house. The son returned home with his mother when his father died, but his spouse refused to make the mortgage payments and continued to pay. The mother submitted a request that the wife is taken out of the house. In the defendant’s favour, the Court of Appeal ruled. The home had no rights of ownership for her and her husband. However, it did take advantage of a clause that ensured its continuing occupation until the mortgage was paid. The defendant had the right to see her: neither could her sister be expelled.
In Beswick v. Beswick, also, an uncle’s agreement was binding to transfer a coal carrier to his nephew.
Reasons behind rebutting the presumption
As demonstrated in the previous instances, courts are generally reluctant to interfere with policy concerns in domestic contracts. The floodgates argument is the main reason for this perspective. According to Adams and Brownsword, the main aim of this argument is to limit the kinds of cases that may be brought before the courts or to ‘prevent societal and family disputes from over-burdening the legal system.’
Subsequent to this is the idea of De minimis non curat lex which means “Law does not deal with minor matters”. This strategy may be ignored since internal disputes are commonplace. In the case of Balfour v. Balfour, this was also upheld.
The policy highlights the need of safeguarding the private lives of people from excessive judicial intrusion. This is called “contractual freedom” by Chen-Wishart. Adams and Brownsword thus correctly argue that the ‘sanction’ presence of courts may hinder social ties. In a case such as this, it is up to the Court to decide whether the arrangement is “completely social” and thus impractical.
While it is possible to distinguish the idea of preserving the law from the domain of a ‘liberal democratic society,’ Balfour’s approach was attacked for gender inequality.
Not only academics but even courts address the issue of the intention as one of the essential elements of a valid contract. The article tried to unravel the intention of legal relations in domestic and social agreements.
In England and India, the situation about the purpose of contract construction is the opposite. The legal evolution on the concept of the intent to create legal connections has guaranteed in England that marginalization only serves as a proof element. However, in India, it is necessary to demonstrate the legal purpose of binding contractual parties. In formulating binding contractual responsibility it is a non-negotiable aspect.
As a fundamental component of contract law, the purpose of establishing legal relationships is not stated in our Indian legislation, as the Indian Apex Court voiced reservations on the need for this distinct ‘intention to enter into legal relations’ required under the contract statute.
We should ultimately conclude that the intention to create legal relationships is a basic contract requirement. First of all, there may be some similarities, but when the two components are distinct, there can be so many instances. As if two friends agreed to visit a restaurant, one of whom pledges to pay for the drink, and another for the meal so that we can not claim that there is no consideration, but yet that there is no intention to create legal relations.
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