The concept of establishing legal relations holds significant importance within the framework of the Indian Contract Act. A contract can only materialize when the involved parties, during the formation of an agreement, possess the explicit intention to establish a legally binding relationship between them. This intention signifies a clear determination to enter into an agreement that holds legal enforceability, with the parties having the capability to make sound judgments regarding their interests, taking into account both the legal implications and other consequences arising from the agreed-upon terms. The presence of this intention is considered a fundamental component in the creation of a contract.
Heilbut Symons v Buckleton (1913)[1]
According to Lord Moulten, in the context of commercial transactions, the mere definition of contract terms is insufficient; there must also be a concurrent presence of “Animus Contrahendi” (the intention to contract). However, it’s important to note that there are instances where the intention can explicitly be negated by the involved parties.
Two Criteria For Assessing The Existence Of An Intention To Form A Legal Relationship:
- OBJECTIVE ASSESSMENT: Under the objective test, the court assesses the intention by considering how a reasonable person would perceive the situation under similar circumstances. It involves gauging the agreement from an impartial standpoint, devoid of any specific individual’s subjective intentions. This approach relies on the perspective of an average, rational individual to determine whether the parties intended to create a legally binding relationship.
- REBUTTABLE PRESUMPTION: The rebuttable presumption approach entails the court initially assuming a particular intention, such as in the case of social arrangements. However, this presumption can be challenged and disproved by presenting relevant evidence. In situations where the presumption of a legal relationship’s absence exists, it can be overridden if compelling evidence demonstrates a contrary intent on the part of the parties involved. This approach allows for flexibility in cases where the initial presumption may not align with the actual intentions of the parties. Here the intention can explicitly be negated by the involved parties.
Objective Test – Determining The Existence Of Intention To Create A Legal Relationship
In order for an agreement to transform into a legally binding contract, several essential elements must be present, including:
Intention to Create Legal Relations
According to Heilbut, Symons and Co. v Buckleton [1913] AC 30, the intention to create legal relations is a fundamental requirement. However, this intention is not contingent upon the subjective desires of the parties involved. Instead, the court applies an objective test, assessing what a reasonable person, placed in similar circumstances, would think. The court considers the perspective of a reasonable individual rather than the actual intentions of the parties.
1. Lawful Consideration and a Lawful Object.
2. Capacity to Contract.
3. Free Consent.
4. The Agreement is Not to be Declared Void or Illegal.
5. Certainty of Meaning.
6. Other Necessary Legal Formalities.
In the case of Simpkins v Pays (1955)[2], a scenario involving a puzzle game among a mother, daughter, and a paying guest was examined. Despite the mother’s refusal to pay her share after winning the game, the court ruled in favor of the daughter and paying the guest. The court concluded that any reasonable person in this situation would perceive an intention to share the prize, emphasizing the objective assessment.
Similarly, in Carlil v Carbolic Smoke Balls (1893)[3], the defendant company’s advertisement promising a reward for influenza prevention was analyzed. Mrs. Carlil took the medicine but still contracted influenza. The court determined that the company’s advertisement clearly demonstrated an intention to establish a legal relationship with anyone who fulfilled the stated conditions. The objective test again played a pivotal role in assessing this intention.
These cases illustrate that the courts apply an objective standard when determining the intention to create legal relations in agreements, emphasizing the perspective of a reasonable person under similar circumstances as a guiding principle.
Domestic/Social Arrangements
In cases involving domestic or social arrangements, there is a presumption that such agreements are not made with the intention of creating a legal relationship. This presumption was notably established in the case of Balfour v Balfour (1919)4.
Balfour v Balfour (1919)[4]: In this case, a husband working abroad promised to pay his wife £30 every month until they could live together again. After they separated, he stopped making these payments. The court held that there is a presumption that spouses do not typically intend to create legal relationships in such domestic matters. Therefore, the husband was not legally obligated to pay the amount.
However, there are exceptional cases where domestic arrangements can be legally enforceable, as seen in Merritt v Merritt (1970)[5]:
Merritt v Merritt (1970): In this instance, a separated couple who jointly owned a house reached an agreement in writing. The husband agreed to pay £40 per month to the wife and eventually transfer the house to her. The court found this agreement to be legally enforceable, highlighting that it transcended the presumption against legal intentions in domestic matters.
Agreement Between Parent And Child
In cases involving agreements between parents and children, such as in Jones v Padavatton (1969)[6]:
Jones v Padavatton (1969): A mother asked her daughter, who was living in the United States and working as an accountant with her child, to return to Trinidad and become a barrister in England. The mother promised to pay her $200 per month if she did so. The daughter agreed, and the mother paid her bar tuition fees. There was also a promise to buy a house, which was later disputed. The court held that this was merely a family arrangement and not enforceable by law.
Other Social Arrangements
In cases involving social arrangements outside the domestic sphere, such as transportation agreements and commercial contracts, the intention to create legal relations plays a significant role:
Coward v Motor Insurer Bureau (1963)[7]: An owner of a vehicle made an agreement with a co-worker to provide transportation to and from work for a weekly fee. The court determined that this was a non-enforceable contract, as neither party had intended to create a legal relationship.
Rose & Frank v. J.R Crompton (1923)[8]: In this case, two firms entered into a written agreement for the sale and purchase of goods. The agreement included a clause explicitly stating that it was not a formal or legal document and would not be subject to legal jurisdiction in law courts. As a result, the court held that there was no valid contract since the parties had effectively excluded the intention to create legal relations from their agreement.
Conclusion
The judgments discussed above highlight the pivotal role of the intention to create a legal relationship in the formation of an enforceable agreement or contract. This intention can either be presumed or established based on the specific facts and circumstances of each case. It’s important to note that there are distinctions between English law and Indian law concerning the role of consideration in indicating this intention:
- English Law Perspective: In English law, the primary emphasis lies on the intention to create a contract, with consideration being regarded as more of an evidentiary factor. The presence or absence of consideration is considered in the broader context of the parties’ intention to establish a legal relationship.
- Indian Law Perspective: In Indian law, consideration holds a more essential role in defining a contract, and its presence is often seen as indicative of the intention to create a legal relationship. In this context, the existence of consideration becomes a significant factor in determining the enforceability of an agreement.
Furthermore, a key challenge lies in distinguishing between commercial agreements and social or family arrangements, where the intention to create legal relations may not always be clear-cut. Even in family arrangements, the element of consideration can come into play, adding complexity to the determination of whether a legally binding contract exists.
[1] Heilbut, Symons and Co. v Buckleton [1913] AC 30
[2] Simpkins v Pays [1955] 1 WLR 975
[3] [1893] 1 QB 256; [1892] EWCA Civ 1
[4] Balfour v Balfour [1919] 2 KB 571
[5] Merritt v Merritt [1970] 1 WLR 1211
[6] Jones v Padavatton [1969] 1 WLR 328
[7] Coward v MIB [1963] 1 QB 259
[8] Rose and Frank Co v JR Crompton and Bros Ltd, [1925] AC 445
Author: Akshat Govil, a student at Aligarh Muslim University.
