Intention to create legal relations

The fictional nature of this area of law

An agreement will not be legally binding unless it was intended to be legally binding. However, the only cases where there will be an issue as to whether or not the parties to an agreement intended it to be legally binding are cases where it is impossible to tell whether or not they intended it to be legally binding.

For example, in Granatino v Radmacher (2010) – where the UK Supreme Court had to decide whether or not to give effect to the parties’ pre-nuptial agreement that neither party would seek to make a claim to property belonging to the other party if they got divorced – there was no issue as to whether that agreement was intended to be legally binding. It was obvious that it was intended to be binding. The only issue the UK Supreme Court had to decide was whether the public interest demanded that they should refuse to give effect to it. (On which issue, they split 8:1 in favour of giving effect to the pre-nuptial agreement so long as it was freely entered into, and did not prejudice the interests of the children to the marriage.)

Again, in Cobbe v Yeoman’s Row (2008) – where the claimant’s work in obtaining planning permission to develop the defendant’s land was wasted because the defendant pulled out of a provisional agreement to sell his land to the claimant – there was no issue as to whether or not the claimant and the defendant intended their provisional agreement to be legally binding. It was obvious that they did not. The only issue the House of Lords had to decide was whether the claimant was entitled to a remedy even though he had not yet entered into any kind of contract with the defendant. (On which issue, the House of Lords ruled that the claimant was entitled to a reasonable sum – a quantum meruit – for the work he had done in trying to obtain the planning permission.)

So the issue as to whether or not the parties to an agreement intended it to be legally binding only ever comes up in cases where it is impossible to resolve that issue because what the parties intended is shrouded in obscurity. It follows that in a case – like Balfour v Balfour (1919) and Jones v Padavatton (1969) – where there is an issue as to whether the parties to an agreement intended it to be legally binding, when the court tries to determine whether or not that agreement was intended to be legally binding, that is not, and cannot be, what it is actually doing. This is because it is impossible to determine whether or not the parties intended that their agreement be legally binding in these kinds of cases.

So what were the courts doing in cases like Balfour v Balfour or Jones v Padavatton? The answer is pretty simple – They were trying to decide whether or not to find that the agreement reached in those cases was legally binding. In other words, in a case like Balfour v Balfour or Jones v Padavatton, the court was trying to decide whether the reasons for finding that the agreement was legally binding outweighed the reasons against.

So when the courts say that they will ‘presume’ that domestic agreements are not intended to be legally binding, and that they will ‘presume’ that commercial agreements are intended to be legally binding, what they are really saying is that in a case where it is impossible to tell whether or not an agreement was intended to be legally binding, the balance of reasons applying to the case will usually come down in favour of refusing to enforce a domestic agreement and will usually come down in favour of enforcing a commercial agreement.

I’ll now substantiate this argument by looking at Balfour v Balfour and Jones v Padavatton in more detail.

Balfour v Balfour (1919)

In Balfour v Balfour, a husband and wife were based in Ceylon, where the husband had a job. They came back to England when the husband was on leave. When his period of leave expired, he went back to Ceylon; on the other hand, his wife stayed in England as she was too ill to travel. The husband promised to send his wife £30 a month while she had to stay in England. After he got back to Ceylon, he wrote to his wife saying that he thought it would be better if they remained apart. He subsequently failed to keep up the promised maintenance payments of £30 a month, and so his wife sued him for the money.

It seems not to have been noticed that the wife had supplied no consideration for the husband’s promise (though Warrington LJ observed that ‘The wife…made no bargain at all’). Instead, the case was regarded as turning on the issue of whether the husband’s promise had been intended to be legally binding. This was obviously impossible to resolve (otherwise there would have been no issue as to whether the promise had been intended to be legally binding) and so, in ‘resolving’ this issue, the Court of Appeal was really determining whether or not they ought to find that this agreement was binding.

In favour of finding that the agreement was binding was the fact that the husband had a moral responsibility not to leave his wife destitute and that he had acknowledged that responsibility in promising to send her £30 a month for her maintenance. (This was the reason why the first instance judge had found in favour of the wife.) However, the Court of Appeal thought that this reason was outweighed by two reasons against finding that the agreement was binding.

The first was that finding that this agreement was binding would fix the husband’s obligation to pay maintenance at £30 a month when a change of circumstances might mean that it was important that he pay his wife more, or might mean that he could only afford to pay his wife less than this sum. For Warrington LJ this made it ‘quite impossible’ to find that the husband’s promise to pay his wife was legally binding: ‘If we were to imply…a contract in this case we should be implying on the part of the wife that whatever happened and whatever might be the change of circumstances while the husband was away she should be content with this £30 a month, and bind herself by an obligation in law not to require him to pay anything more; and on the other hand we should be implying on the part of the husband a bargain to pay £30 a month for some indefinite period whatever might be his circumstances… it seems to me that it would be impossible to make any such implication.’ So finding that the husband’s promise here was legally binding would freeze an element of the husband’s relationship with his wife – how much he would give her by way of support – that needed to remain flexible if the husband and wife’s relationship were to be able to cope with unexpected changes of circumstances

Secondly, the Court of Appeal was concerned that finding that a promise like this was legally binding would be ‘a possible fruitful source of dissension and quarrelling…it would lead to unlimited litigation in a relationship which should be obviously as far as possible protected from possibilities of that kind’ (per Duke LJ). This is because turning a married couple into contracting parties might have a damaging effect on the nature of their relationship. Marriage is supposed to be a partnership focussed on achieving shared goals together, while people in a contractual relationship use each other in order to achieve their own goals. So finding that a married couple are in a contractual relationship might encourage them to stop thinking of themselves as being in a partnership and start thinking of each other in more antagonistic terms. Their relationship would become less ‘What can I do for you?’ and more ‘What have you done for me lately?’ It was because of these kinds of concerns that Atkin LJ famously observed that: ‘Agreements such as these are outside the realm of contracts altogether. The common law does not regulate the form of agreements between spouses. Their promises are not sealed with seals and sealing wax. The consideration that really obtains for them is that natural love and affection which counts for so little in these cold Courts.’

On balance, then, the Court of Appeal thought it would be undesirable to find that the promise in this case was legally binding. Of course, they dressed up their conclusion in terms of a finding that the promise was not ‘intended’ to be legally binding – but that was not what they were really deciding, as it was completely unclear whether or not the promise was intended to be legally binding.

Jones v Padavatton (1969)

In Jones v Padavatton, a mother was suing to recover possession of a house from her daughter. The mother lived in Trinidad. She had bought the house for her daughter to live in while her daughter studied for her Bar exams. In 1962, the mother had persuaded the daughter to give up a good job working in the Indian Embassy in Washington DC, and travel to England with her son in order to qualify as a barrister. (The mother’s plan was that once her daughter became a barrister, she would come back to Trinidad and practise there.) The mother had promised to give the daughter an allowance of (what turned out to be – there was some misunderstanding between the mother and daughter as to how much she would get) £42 a month to help cover her expenses while she studied for the Bar.

The mother subsequently suggested – and the daughter agreed – that instead of paying her £42 a month, she would instead buy a house for the daughter to live in with her son, and the daughter could let out rooms in the house and use the rent money to cover her expenses. The house was purchased in 1964. In 1967, the mother – unhappy that her daughter had provided her with no information as to how much money she was making by letting out rooms in the house – travelled to England to find out what was going on, and commenced proceedings to recover possession of the house from her daughter. The daughter argued that the mother could not do this, as she was bound by her agreement to allow her daughter to live in the house so long as she was studying for the Bar, and the daughter had still not passed all her Bar exams. (In fact, even in 1969, when the case was considered by the Court of Appeal, the daughter had still to do some of her Part I exams, and had passed none of the Part II exams.)

The Court of Appeal disagreed over whether there was a binding contract between the mother and daughter in this case. Salmon LJ thought that the Court should find that the mother’s promise to support her daughter was legally binding. The fact that the mother had induced her daughter to give up a very good job in Washington and travel to England by making that promise was a very weighty consideration in favour of finding that the mother’s promise of support was legally binding on her: ‘I cannot think that either [the mother or the daughter] intended that if, after the daughter had been in London, say, for six months, the mother dishonoured her promise and left her daughter destitute, the daughter would have no legal redress.’ However, he thought that the mother’s promise of support was not unlimited:

‘The parties cannot have contemplated that the daughter should go on studying for the Bar and draw the allowance until she was seventy, nor on the other hand that the mother could have discontinued the allowance if the daughter did not pass her examinations within, say, eighteen months. The promise was to pay the allowance until the daughter’s studies were completed, and to my mind there was a clear implication that they were to be completed within a reasonable time.’

Salmon LJ thought that five years was a ‘reasonable time’ for passing the Bar exams, and so by the time the mother came to England, the five years was up. The mother was therefore no longer bound by then by her promise of support, and could recover possession of the house.

Danckwerts and Fenton Atkinson LJJ thought that the mother’s promise of support was never legally binding. Fenton Atkinson LJ seemed to think that there was actually no issue over whether the promise of support was intended to be legally binding: he thought it was obvious from the evidence (in particular, the open-ended and imprecise nature of the arrangements between the mother and the daughter, and the daughter’s being aggrieved at the idea of her mother taking legal action against her) that the mother’s promise of support was not intended to be legally binding and that the daughter was simply trusting her mother to come through with the promised support, and the mother was trusting her daughter to get through the Bar exams reasonably quickly. Danckwerts LJ thought that the need for flexibility in how the mother would support her daughter counted against the Court’s finding that the mother’s promises to her daughter were legally binding: ‘What was required was an arrangement which was to be financed by the mother, and was such as would be adaptable to circumstances, as it in fact was… It was not a stiff contractual operation…’