In order to make a contract legitimate, it must have the intent to create legal relations, which is one of the most significant requirements of the Indian Contract Act, 1872. Section 10 of the Indian Contract Act stipulates that there must be a desire to establish legal connections, and so a domestic or social agreement does not qualify as a legitimate contract.
The case of Balfour v. Balfour is a landmark in the field of contract law. In this instance, the court acknowledged that even if an agreement emerges that would be a legitimate contract under normal circumstances, and it is not essential that it would be a valid contract where there is no purpose to form a legal relationship and when the agreement originates from a domestic arrangement.
FACTS OF THE CASE
The husband, Mr. Balfour, has filed an appeal against Justice Sargeant, Additional Judge of the King’s Bench Division, who found that a legal contract had developed between him and his wife based on the circumstances of the case. The appeal was filed at the Court of Appeal’s Civil Division.
Mr. Balfour and his wife, Mrs. Balfour, were the defendants in this case. They had married in the year 1900. Mr. Balfour was the Director of Irrigation for the Ceylonese government (present day Sri Lanka). The couple lived in Ceylon until 1915, with brief trips to the United Kingdom. They travelled to England for a holiday in November 1915, when the husband was on leave. In August 1916, after more than a half-year stay, the husband was forced to return to Ceylon due to work obligations. The doctor, however, recommended his wife, who was suffering from Rheumatic Arthritis, to stay until November 1916.
On the day he was set to leave, August 8, 1916, he made an arrangement with his wife, promising to pay £24 for that month and £30 for each month after that until she returned to Ceylon. The wife admitted that such an arrangement was reached when they had no prior disagreements. Payment of the above-mentioned sum continued for a few months, but as their relationship worsened, he eventually stopped paying that amount to the wife, prompting her to file a lawsuit to enforce their verbal agreement, and the lower court found in her favour. The matter at hand is a husband’s appeal to the Court of Appeal against this judgement.
1. Is the arrangement between them a legally binding contract?
2. Did Mr. Balfour intend for the arrangement to create legal relations?
3. Did such a verbal agreement between couples have legal ramifications or was it only a domestic and social agreement?
4. Can domestic and social agreements be enforced and fall within the jurisdiction of contract law?
RULE OF LAW
The case of Balfour v. Balfour was largely an English Law decision that established the theory of Legal Relationship as a necessary component of contract law. The theory of Intention to form legal relations was largely addressed in the case, despite the fact that it did not include any other legislation or conduct other than English Contract law.
An agreement is deemed a contract in English contract law only if it is legally enforceable and recognised by law with legal implications. As a result, it is acknowledged that agreements of a domestic or social character are not contracts since they are not enforceable.
The three judge bench found that the agreement between the husband and wife was an ordinary domestic agreement between the spouses, and that because there were no prior disputes between them at the time of the agreement, it could be inferred that there was no intent to create legal relations and give rise to legal consequences. As a result, the agreement between them lacked legal effect, and the bench, in a majority judgement, reversed the lower court’s decision and freed Mr. Balfour to act in accordance with the provisions of the agreement.
In his decision, Lord Justice Warrington stated that the arrangement between the spouses in this case was only a friendly agreement. He thought that there was no purpose of forming formal connections when entering into agreement because there were no agreements made by wife on the amount to be supplied and it was suggested that husband would pay as long as he is able to. As a result, he concluded that it was a typical social and domestic agreement between spouses with no legal effect because of its insignificance.
To these views, Lord Justice Duke added a few points. He noted that their personal bond, which could not be a part of their litigation, formed the foundation of their communication. In addition, the agreement was made at a period when they were living in harmony and not in conflict. Furthermore, there was no consideration flowing from the woman to the other spouse, and no commitment from the husband to his wife for such payment. As a result, there was never a contract between them.
Finally, Lord Justice Atkins pointed out that such domestic agreements do not meet the legal enforceability and formation of legal relations requirements of contract law. It is commonly acknowledged that the most prevalent kind of non contractual agreements are those made between couples. The only consideration they have is love and affection, which has no legal worth and so does not fulfill the requirement of having consideration in order to create a legitimate contract. As a result, non performance of such an agreement has no legal ramifications.
The main question before the Court of Appeal in the case of Balfour v. Balfour was whether an ordinary agreement between spouses when everything is fine between them amounts to a valid contract or does not amount to any contract because it is domestic or social in nature and thus has no intention of creating legal relations. Although Justice Sargeant of the lower court ruled in favour of the wife, upholding the agreement as a contract, the three judge Court of Appeal bench unanimously held that such an ordinary domestic agreement between the spouses, lacking consideration from the wife’s side and no intention of creating legal relations on the part of the husband, was not a contract.
The Court stated that in domestic ties between spouses, mutual agreements are not established with the aim of establishing legal relationships with legal implications. As a result, such agreements do not result in a legally binding contract. This decision sets a high bar for all future claims involving the same subject matter; otherwise, the court would be inundated with thousands of minor domestic disputes. The decision sparked a fresh interest and focus on the relevance of the ‘intention to create legal relations‘ in Contract Law.