“Jones v Padavatton’’

FINAL DRAFT SUBMITTED IN THE PARTIAL FULFILMENT OF THE COURSE

TLTLED-

LAW OF CONTRACTS -1

Submitted by: Submitted to:

AMISHA PRAKASH Ms. Sushmita Singh

ROLL NO:2005 (2nd Semester)

B.B.A .LL.B,CNLU,PATNA

Academic session-2018-2023

CHANAKYA NATIONAL LAW UNIVERSITY

Nyaya Nagar ,Mithapur,Patna 80001

1
 ACKNOWLEDGEMENT

It is my privilege to record my deep sense to perform gratitude to those who helped me in

completion of this project.

In making of this project many people helped me immensely directly or indirectly. I sincerely
acknowledge the help rendered to by our faculty Ms. Sushmita Singh ho had given me an idea
and encouragement in making this project. I also acknowledge the help of library and my staff
and my friends for being cordial in order to make conductive environment of the CNLU hostel.

AMISHA PRAKASH

2nd SEMESTER

2
DECLARATION OF THE CANDIDATE

I hereby declare that the work report in the B.B.A LLB (Hons.) Project report entitled “Jones v
Padavatton’’ submitted at CHANAKYA NATIONAL LAW UNIVERSITY is an authentic
record of my work carried out under supervision of Ms. Sushmita Singh . I have not submitted
this work elsewhere for any other degree or diploma . I am fully responsible for my project
report.

SIGNATURE OF THE CANDIDATE

NAME OF THE CANDIDATE ; AMISHA PRAKASH

CHANAKYA NATIONAL LAW UNIVERSITY ,PATNA

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 RESEARCH QUESTIONS

1.) Must both parties intend that an agreement be legally binding in order to be an
enforceable contract?

2.) Does India contract act consider the cases related to domestic arrangement?

3.) Commercial agreements differ from domestic and social agreements?

HYPOTHESIS

Domestic arrangements, however complex, are presumed not to create contracts, unless there is
clear indication to the contrary.

RESEARCH METHODOLOGY

Mostly doctrine sources and primary method of research was adopted in the making of this
project.

Few primary and secondary methods were used. Some literary works and books and articles
were referred and the interent through various websites were use extensively for the collection
of data which was required for the study needed for this research.

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CHAPTERISATION

Contents
CHAPTERISATION ...................................................................................................................... 5
1)Intention to create legal relations................................................................................................. 6
2)How is intention ascertained? ...................................................................................................... 7
3)Family and Social Agreements .................................................................................................... 8
3.1)Balfour v Balfour ...................................................................................................................... 8
4) Jones v Padavatton.................................................................................................................... 11
COMMENTS: ........................................................................................................................... 12
5)Commercial Agreements ........................................................................................................... 14
5.1)Esso Petroleum Ltd v Commissioners of Customs and Excise .......................................... 14
5.2)Rose and Frank Co. v J.R. Crompton & Bros Ltd .............................................................. 15
6)Distinction between social and domestic agreements and commercial agreements ................. 16
6.1)Coward v Motor Insurance Bureau .................................................................................... 17
6.2Albert v Motor Insurers Bureau ........................................................................................... 18
6.3)Conclusion .......................................................................................................................... 19
7) CONCLUSION ........................................................................................................................ 21
8) Bibliography ............................................................................................................................. 22

5
1)Intention to create legal relations
Introduction

According to Section 2 (h) of the Indian Contract Act: ‘An agreement enforceable by law is a
contract.’ A contract, therefore, is an agreement the object of which is to create a legal
obligation, i.e., a duty enforceable by law.

Apart from offer, acceptance, and consideration, the final ingredient for a contract to
be entered into which is enforceable at law is that the parties must have an intention to create
legal relations. Without it there is no binding contract. Under Indian law, an agreement supported
by consideration is not enough to create a legally binding contract; the parties must also have an
intention to create legal relations. Often, the intention to create legal relations is expressly stated
by the contracting parties. In other situations, the law will readily imply the intention, because of
the nature of the commercial dealings between the parties. Generally it is assumed that in social
and domestic type of agreements this type of intention is absent, but parties do intend to create
legal relations in commercial agreements. It is assumed that this doctrine was not clearly
established until 1919.

Alternatively, it can be said that the Doctrine is based upon public policy; that is to say that, as a
matter of policy, the law of contract ought not to intervene in domestic situations because the
courts would then be swamped by trifling domestic disputes. We can have an example of it; I
promise to pay my wife ₤50 if she will type the manuscript of this chapter of the book. My wife
agrees. Does this agreement create a legally enforceable contract? On the face of it there appears
to be no reason why it should not. We have reached agreement and the agreement is supported
by consideration. But it is likely that an English Court would conclude that we had not entered
into a legally binding contract because we lacked an ‘an intention to create legal relations’,
which has been held to be an essential element in any contract.

It could be said that the doctrine is based on the intention of the parties, objectively interpreted;
that is to say, my wife and I did not intend that our agreement would have legal consequences.
But my wife certainly expected to receive the money if she typed the manuscript, although it is
unlikely that neither of us intended that she would have to go to court in order to get her money.

It was observed by the Scottish Law Commission, 1977,

“it is, in general,l right that courts should not enforce entirely social engagements,
such as arrangements to play squash or to come to dinner, even though the parties themselves
may intend to be legally bound thereby”.

In Singapore Contract Law, Section 4 describes the requirement of Intention to Create

Legal Relation1

1
Law of Contract Singapore 4(1)

6
 “In the absence of contractual intention, an agreement, even if supported by
consideration, cannot be enforced. Whether the parties to an agreement intended to create legally
binding relations between them is a question determined by an objective assessment of the
relevant facts”

2)How is intention ascertained?

The test for figuring out what the parties’ intention was in entering into an agreement is
objective. Therefore, a party seeking to enforce a contract doesn’t have to prove that they
consciously adverted to the legal implications of entering into the agreement. They only need to
show that it can be inferred from the facts that such an intention was express or implied in the
agreement. The inference of such a fact is assisted by two main presumptions regarding
intention; family or domestic agreements and business or commercial agreements. However,
these presumptions can be rebutted and do not cover the field.

Presumption 1: Family, social or domestic agreements

There is a presumption of no intention to create legal relations for family, social or domestic
agreements. For example, if parents decided to give their daughter an allowance on the condition
she keep her grades up, it is unlikely this will be regarded as a contractual arrangement. This
presumption is based on the idea that families prefer to rely on mutual trust and affection rather
than contracts to enforce their obligations to each other.

The easiest way to rebut this presumption would be to create a written contract with the
assistance of a lawyer. However, the presumption can also be rebutted if for example husband
and wife have separated or possibly in circumstances where an elderly relative promises their
house to a family member in return for caring for them until their death. Whether the
presumption has been rebutted will depend on the facts of the case.

Presumption 2: Business or commercial agreements

There is a presumption of an intention to enter into a legally enforceable contract for business or
commercial situations. It is rare for the conclusion to be drawn that parties did not intend
business agreements to be attended by legal consequences. Such a presumption could be rebutted
if there is an express, clear and unambiguous exclusion of that intention by the parties.

7
Although these presumptions are helpful, difficulties arise when there are overlaps of these
categories (eg. family businesses) or situations that do not fit neatly within either category. In
those situations, intention will have to be judged by the general principle of objectivity.2

3)Family and Social Agreements

In domestic arrangements it is generally assumed that the parties do not intend to
relate legal relations. In many domestic agreements, for example those made between husbands
and wives and parents and children, there is no intention to create legal relations and no intention
that the agreement should be subject to litigation. Familial relationships do not preclude the
formation of a binding contract, though to create contractual relations, there must be a clear
intention on either party to be bound.

While there are conflicting legal authorities on whether specific facts involving familial relations
result in binding and enforceable agreements, it seems settled that in domestic agreements there
is a rebuttable presumption that the parties do not have intention to create legal relations.

Much importance is given to the policy that private lives of the citizens should be protected
from too much interference from the courts. Chen-Wishart calls this ‘Freedom from
contract.’ 3

3.1)Balfour v Balfour
Facts – Mr Balfour was a civil engineer, and worked for the Government as the Director of
Irrigation in Ceylon (now Sri Lanka). Mrs Balfour was living with him. In 1915, they both came
back to England during Mr Balfour’s leave. But Mrs Balfour got rheumatic arthritis. Her doctor
advised her to stay, because a jungle climate was not conducive to her health. As Mr Balfour’s
boat was about to set sail, he promised her £30 a month until she came back to Ceylon. They
drifted apart, and Mr Balfour wrote saying it was better that they remain apart. In March 1918,
Mrs Balfour sued him to keep up with the monthly £30 payments. In July she got a decree nisi
and in December she obtained an order for alimony.

The Court of Appeal unanimously held that there was no enforceable agreement, although the
depth of their reasoning differed.

Warrington LJ delivered his opinion first, the core part being this passage.

“The matter really reduces itself to an absurdity when one considers it, because if we were to
hold that there was a contract in this case we should have to hold that with regard to all the more
or less trivial concerns of life where a wife, at the request of her husband, makes a promise to

2
http://www.craddock.com.au/Document/Contracts+-e2-80-
93+intention+to+enter+into+a+legally+enforceable+relationship.aspx
3
(Adams & Brownsword 2004:93-94)

8
him, that is a promise which can be enforced in law. All I can say is that there is no such contract
here. These two people never intended to make a bargain which could be enforced in law. The
husband expressed his intention to make this payment, and he promised to make it, and was
bound in honour to continue it so long as he was in a position to do so. The wife on the other
hand, so far as I can see, made no bargain at all. That is in my opinion sufficient to dispose of the
case.”

Then Duke LJ gave his opinion-

“In the Court below the plaintiff conceded that down to the time of her suing in the Divorce
Division there was no separation, and that the period of absence was a period of absence as
between husband and wife living in amity. An agreement for separation when it is established
does involve mutual considerations.

That was why in Eastland v Burchell 3 QBD 432, the agreement for separation was found by the
learned judge to have been of decisive consequence. But in this case there was no separation
agreement at all. The parties were husband and wife, and subject to all the conditions, in point of
law, involved in that relationship. It is impossible to say that where the relationship of husband
and wife exists, and promises are exchanged, they must be deemed to be promises of a
contractual nature. In order to establish a contract there ought to be something more than mere
mutual promises having regard to the domestic relations of the parties. It is required that the
obligations arising out of that relationship shall be displaced before either of the parties can
found a contract upon such promises.’’

Lord Justice Atkin took a rather different approach, emphasising that there was no “intention to
effect legal relations”. That was so because it was a domestic agreement between husband and
wife, and it meant the onus of proof was on the plaintiff, Mrs Balfour. She did not rebut the
presumption.

“The defence to this action on the alleged contract is that the defendant, the husband, entered into
no contract with his wife, and for the determination of that it is necessary to remember that there
are agreements between parties which do not result in contracts within the meaning of that term
in our law. The ordinary example is where two parties agree to take a walk together, or where
there is an offer and an acceptance of hospitality. Nobody would suggest in ordinary
circumstances that those agreements result in what we know as a contract, and one of the most
usual forms of agreement which does not constitute a contract appears to me to be the
arrangements which are made between husband and wife. It is quite common, and it is the
natural and inevitable result of the relationship of husband and wife, that the two spouses should
make arrangements between themselves – agreements such as are in dispute in this action –
agreements for allowances, by which the husband agrees that he will pay to his wife a certain
sum of money, per week, or per month, or per year, to cover either her own expenses or the
necessary expenses of the household and of the children of the marriage, and in which the wife

9
promises either expressly or impliedly to apply the allowance for the purpose for which it is
given. To my mind those agreements, or many of them, do not result in contracts at all, and they
do not result in contracts even though there may be what as between other parties would
constitute consideration for the agreement.’’

However, this attitude towards social agreements seems to have changed nowadays. Freeman
classifies Balfour v Balfour as a ‘Victorian Marriage’ and sees the marriage of today ′less
regulated′ and ′more dependent upon individual choice.′ For him ‘Marriage has become a
‘personal rather than a social institution.’ He pleads for a change in the treatment of
presumptions in domestic spheres.

The presumption that the parties to domestic agreements do not intend to create legal relations
can be rebutted in a number of different ways. There is no finite list of methods by which the
presumption can be rebutted. There are, however, one or two restrictions on the type of evidence
that can be led. In particular, the parties cannot lead evidence of their own subjective intentions
but that is a general preposition of contract law and is no confined to the present context.

While or not the presumption has been rebutted ultimately depends upon the facts of the case, the
cases in which the presumption has been rebutted exhibit some common features. In the first
place the context in which the agreement was concluded has often been a factor in persuading the
court to rebut the presumption. For example, where the relationship between the parties is
approaching the point of break down the courts are more likely to conclude that there was an
intention to create legal relations.

Secondly, the presumption may be rebutted where the parties have acted to their detriment in
reliance upon the agreement that has been concluded between the parties. This factor does not
always suffice to rebut the presumption, we can have its example from Jones v. Padavatton.4

4
[1919] 2 KB 571

10
 CASE COMMENT:

4) Jones v Padavatton
Agreement for mother to maintain daughter; whether intention to create legal relations

Court; Court of Appeal

Decided;29 November 1968

Citation(s);[1968] EWCA Civ 4, [1969] 1 WLR 328; All ER 616

Judge(s) sitting;Lord Justice Danckwerts, Lord Justice Salmon, Lord Justice Fenton Atkinson

FACTS:

A mother and daughter came to an arrangement whereby the mother agreed to maintain her
daughter if she agreed to study for the bar. The daughter commenced her studies and the mother
paid her an allowance. The arrangement was later altered and the mother agreed to provide a
house in which her daughter could reside whilst she studied. Mother and daughter fell into
dispute as to the occupancy of the house, and the mother sought possession. It was held the
daughter was entitled to remain in possession and the mother appealed.

Issues:

1. Does intention of both parties to make an agreement be legally binding in order to be an

enforceable contract?

2. Under what circumstances will a court decline to enforce an agreement between mother
and daughter?

HELD:

1.Yes. Both parties must intend that an agreement be legally binding in order to be an
enforceable contract.

2.The court will not enforce agreements between mother and daughter and are presumed not to
create contracts, unless there is clear indication to the contrary.

Held:

The daughter argued the agreement between herself and her mother amounted to a legally
binding contract and, as such, she should be entitled to remain in occupation of the house. She
claimed there had been an intention to create legal relations and she had provided consideration
for her mother’s maintenance by studying for the bar. The mother argued there was merely an
informal family arrangement, there had been no intention to create legal relations and she was,

11
therefore, entitled to recover possession of the house. Even if there was an enforceable contract,
she asserted the terms of the arrangement were too vague for the court to enforce.

The mother’s appeal was successful and she was awarded possession. There is a presumption
that family arrangements are based on mutual trust, family ties and affection, and that there is no
intention to create legally binding contracts capable of enforcement in the courts. This
presumption can be rebutted, but the lack of formality regarding the agreement between mother
and daughter strongly indicated there was no such intention and the daughter had no defence to
her mother’s claim for the house.

COMMENTS:
The case of Jones v. Padavatton concerned whether or not a legally enforceable contract existed
between the parties, in the case a mother and daughter. The judgements of Salmon LJ and Fenton
Atkinson LJ, although reaching the same conclusion have very different reasoning. Salmon LJ
considered that two main factors needed to be addressed; whether or not the parties had intended
a legally binding contract ,and whether the terms of the contract were sufficient to be legally
enforceable.

The English law operates generally on an objective approach based on what a reasonable person
in the position of the parties would have intended. Salmond LJ follows this approach in his
judgement, stating it is a presumption of fact that when arrangements are made between family
members, they are not intended to create a legal relationship but are rather based on mutual ties
of trust and affection.

This presumption was established by Atkins LJ in his explanation of the case Balfour v Balfour
and is cited by Salmon LJ, however he does go on to accept that in some circumstances just
because a , ‘‘ Contracting party is unlikely to extend his pound of flesh does not mean he has no
legal right to.’’ I consider that the principle illustrated by Balfour V Balfour , although
fundamental for many cases , may not be so relevant considering the circumstances of this case.

In a society of increased domestic disruption , illustrated through statistics such as rising divorce
rates, it is very arguable that family arrangements are becoming more likely to be intended as
legally enforceable. In considering the very special circumstances of this case, I consider it is
possible to distinguished it from that of Balfour v Balfour and rather follow the approach of
Fenton Atkinson LJ, studying the specific intention of the parties rather than the presumption
derived fro the case of Balfour v Balfour.

Salmon LJ considers the second factor to be addressed is whether the terms of the agreement
were sufficient enough to be legally enforceable. He considers the intentions of the daughter
were clear – to leave Washington and study for the Bar in England, but did not consider the
mother would have intended to give up all her rights concerning the house. The arrangements
were too vague to have to have contractual intent.

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Similarly there is no evidence that the mother ever intended her daughter to receive any more
than $ 2 in West –Indian terms, a month maintenance support. On this point I agree with Salmon.
In English law, if the terms of an offer are not certain, the resulting agreement can fail. I don’t
consider that the terms were certain enough to ensure a legally binding contract , and here agree
with the explanation from Fenton Atkinson LJ, that the responsibility was for the daughter to
establish a contract in relation to the house and she totally failed to do so.

Salmon LJ considered alongside this , that the terms of the offer could not possibly exceed five
years from 1962 considering all circumstances of the case, and thus the daughter was entitled to
nothing further under the original agreement Salmon LJ concluded his judgement by addressing
the counterclaim referred to by the CCJ, and states that a reasonable comprise should be reached
on the figures, so as not to exacerbate ill feeling between parties. This view in considered too by
Fenton Atkinson LJ.

Fenton Atkinson LJ addresses the issues of consideration and intention in his judgement; issues
which I have to consider are far more relevant to the specifies of this case. He addresses several
points in his judgement, firstly whether the agreements made between the parties were intended
to be legally enforceable, secondly did the mother intend to be legally enforceable, secondly did
the mother intend to be legally bound to support her daughter for an uncertain period of time, and
thirdly did daughter assume a contractual obligation to complete her studies.

Fenton Atkinson LJ concludes that consideration was given by the daughter in the form of
executed consideration, evident through her move from Washington to London ,but does not
consider that here consideration can determine whether the parties intended a legally binding
contract. The court generally apply an objective approach conflicts with reality.

Fenton Atkinson LJ, following this approach, states that it is the history of this case which most
accurately points to the intentions of the parties, and highlights three important factors. Firstly,
that the payments of $ 200 were accepted by the daughter without any indication that the mother
was contractually bound to a larger sum, secondly, that when in 1964 The mother bought the
property, many matters had been left open, such as the control of rents,and occupational
boundaries.

The final factor highlighted, and which I consider to be of huge significance, is the behaviour of
the daughter when her mother visited. The daughter was evidently extremely upset that the issue
has become litigated, and stated that a mother does not ‘normally’ sue her daughter. This is
perhaps the strongest indication that the daughter had never intended legal consequences to arise
from the agreement. Fenton Atkinson LJ was satisfied that no legally binding contract had been
intended, and the arrangements had been based on mutual trust.

He held that the mothers claim for possession should succeed, and the appeal allowed. Although
Salmon LJ and Fenton Atkinson LJ reached the same final judgement, I do not consider that the
reasoning of Salmon was as relevant to this case as that of Fenton Atkinson LJ. As I have

13
mentioned above, the objective approach applied by Salmon LJ cannot be applied in every case
and may in fact be becoming outdated.

The approach adopted by Fenton Atkinson LJ must be considered more appropriate for the very
special circumstances of this case, and I agree that the intention of the parties was best
determined through the behavioural history of the mother and her daughter rather than the
judgement of Balfour v Balfour. I do not deny that the reasoning of Salmon LJ is that which the
majority would be likely to adopt, and agree with many other factors he addresses, such as the
judgement of ‘reasonable time’ not exceeding five years. I cannot however conclude that his
reasoning is of such relevance to this case, as that of Fenton Atkinson LJ.

5)Commercial Agreements
Commercial agreements differ from domestic and social agreements in that the presumption
operates the other way. It is here that there is a very strong presumption that there is an intention
to create legal relations. For anyone to come along after they have made an ordinary commercial
contract and argue that there was no intention to create legal relations would be wasting their
time. For such an argument to succeed there must be a very clear and explicit statement. One
way in which this can happen is if parties who are negotiating for a contract want to make
absolutely sure that their negotiations do not inadvertently become a contract. We looked at this
issue earlier when we examined. In the case of commercial transactions the courts presume that
the parties did intend to create legal relations and the presumption is not an easy one to displace.
The strength of the presumption is such that the issue rarely arises in commercial litigation. One
case in which it did arise, and which produced a division of judicial opinion, is the decision of
the House of Lords in Esso Petroleum Ltd v. Commissioners of Customs and Excise.5

5.1)Esso Petroleum Ltd v Commissioners of Customs and Excise

Facts:

In 1970 the taxpayers (‘Esso’) devised a petrol sales promotion scheme. The scheme involved
the distribution of millions of coins to petrol stations which sold Esso petrol. Each of the coins
bore the likeness of one of the members of the English soccer team which went to Mexico in
1970 to play in the World Cup competition. The object of the scheme was that petrol station
proprietors should encourage motorists to buy Esso petrol by offering to give away a coin for
every four gallons of Esso petrol which the motorist bought. The coins were of little intrinsic
value but it was hoped that motorists would persist in buying Esso petrol in order to collect the
full set of 30 coins. The scheme was extensively advertised by Esso in the press and on
television with phrases such as: ‘Going free, at your Esso Action Station now’, and: ‘We are
giving you a coin with every four gallons of Esso petrol you buy.’ Folders were also circulated
by Esso to petrol stations which stated, inter alia: ‘One coin should be given to every motorist

5
[1976] 1 WLR 1.

14
who buys four gallons of petrol – two coins for eight gallons and so on.’ 4,900 petrol stations
joined the scheme. Large posters were delivered by Esso to those stations, the most prominent
lettering on the posters stating: ‘The World Cup coins’, ‘One coin given with every four gallons
of petrol’. The Customs and Excise Commissioners claimed that the coins were chargeable to
purchase tax under s2(1) of the Purchase Tax Act 1963 on the ground that they had been
‘produced in quantity for general sale’ and therefore fell within Group 25 of Sch 1 to the 1963
Act.

Judgement:

Viscount Dilhorne - Esso are engaged in business, and are supplying these coins in order to
promote the sale of their petrol. But it does not necessarily follow that there was any intention on
their part they should enter legally binding contracts with respect to the coins. Nor is there any
reason to impute to the motorist an intention to enter into a legally binding contract for the
supply of a coin.

If it were found that Esso, the dealer, and the customer intended to create a contract, it would
seem to preclude the possibility of any dealer ever offering a free gift, however negligible the
value. A common intention to enter legal relations would be found more easily if the item were
something of value to the purchaser. But here the coins were of little intrinsic value. If there were
any contract relating to the coins, the consideration for it would be not the payment of money,
but the entry into a contract to buy petrol.

The presumption in favour of legal relations in commercial transctions can be rebutted but the
cases in which it has been rebutted are few. It can be rebutted by the express stipulation of the
parties. We can have its example by the case of Rose and Frank Co. v J.R. Crompton & Bros
Ltd.6

5.2)Rose and Frank Co. v J.R. Crompton & Bros Ltd

Facts:

The defendant manufactured carbon paper in England. The plaintiff bought the defendant’s
paper and sold it in New York. After dealing with each other for a number of years they entered
into a written agreement as to the plaintiff having exclusive rights to buy and sell the defendant’s
goods. The agreement said :

“this agreement is not a formal or legal agreement. It will not be subject to the jurisdiction of
either the British or American courts. It is a record of the intention of the parties to which they
honourably pledge themselves and is to be carried out with mutual loyalty and friendly co-
operation.”

6
[1923] 2 KB 261; [1925] AC 445

15
Following a series of disputes the plaintiff claimed that the defendant was in breach of the
agreement and the trial judge held that it was legally binding. The defendant appealed.

Judgement:

The Court held that there was no legal contract. The clause had the effect of negating any other
objective evidence of intention to create legal relations. Justice Vaisey, writing for the Court,
reasoned that it was a gentlemen’s agreement, “which is not an agreement entered into between
two persons, neither of whom is a gentleman, with each expecting the other to be strictly bound,
while he himself has no intention of being bound at all.”

Point decided:

A collective agreement shall be conclusively presumed not to have been intended by the parties
to be a legally enforceable contract unless the agreement—

(a) is in writing, and

(b) contains a provision which (however expressed) states that the parties intend that the
agreement shall be a legally enforceable contract.

In our Indian law the intention to create legal relations is not given as an essential ingredient
of contract law, but even the apex court of India has expressed its reservation about the need of
this separate requirement of “intention to contract” under the contract act. Going by the criticism
which is already there in the West, the court found that it was a necessity of those systems where
consideration was not a requisite of enforceability. Thus it is still an open question whether the
requirement of “intention to contract” is applicable under the Indian Contract Act in the way in
which it has been developed in England.

6)Distinction between social and domestic agreements and commercial

agreements
Social Arrangements – The parties in domestic or social arrangements are generally
presumed not to intend legal consequences.”

Australian Contract law also recognize its importance, and distinguish it from consideration, it is
given in following words-

“For a contract to exist the parties to an agreement must intend to create legal relations. Usually,
the presence of consideration will provide evidence of this – if the promisor has specified
something as the price for the promise this – in most cases – carries with it an intention that the
parties be bound. Intention remains, however, an independent requirement and must be
separately demonstrated and there are cases in which consideration has been present but no

16
contract found to exist because this pre-condition has not been fulfilled. In determining if there is
contractual intent and objective approach is taken.

When assessing each case the courts used to apply certain presumptions to different types of
contract; thus, typically, domestic or social contracts were presumed not to have been created
with an intention to create legal relations and commercial agreements were presumed to have
such intention. Recently, however, the High Court in Australia has indicated that presumptions
should not be used when determining intent – in each case intention must be proved without the
aid of such presumptions.”

Family and Social Agreements

In domestic arrangements it is generally assumed that the parties do not intend to relate legal
relations. In many domestic agreements, for example those made between husbands and wives
and parents and children, there is no intention to create legal relations and no intention that the
agreement should be subject to litigation. Familial relationships do not preclude the formation of
a binding contract, though to create contractual relations, there must be a clear intention on either
party to be bound.

While there are conflicting legal authorities on whether specific facts involving familial relations
result in binding and enforceable agreements, it seems settled that in domestic agreements there
is a rebuttable presumption that the parties do not have intention to create legal relations.

Much importance is given to the policy that private lives of the citizens should be protected from
too much interference from the courts. Chen-Wishart calls this ‘Freedom from contract.’ Adams
and Brownsword therefore correctly state that the “sanctioning” presence of courts might inhibit
social relationships.’ There are several points which could be made here – remember that when
the courts talk of intention, they seldom mean the actual intention of the parties – evidence
concerning the psychological disposition of the parties would not be regarded as relevant. What
the judges are interested in is a reasonable inference from the actions of the parties – an objective
test. Now often, what is a reasonable inference will tell you lots more about the person who is
doing the inferring than it will about the state of mind of the persons who are the subject of the
discussion.

Commercial Arrangements– In the case of agreements in a commercial context, the courts

will generally presume that the parties intended to be legally bound. However, the presumption
can be displaced where the parties expressly declare the contrary intention. This is often done
through the use of honour clauses, letters of intent, memoranda of understanding and other
similar devices, although the ultimate conclusion would depend, not on the label attached to the
document, but on an objective assessment of the language used and on all the attendant facts.

6.1)Coward v Motor Insurance Bureau

Workman carried to work on colleague’s motorcycle; whether intention to create legal relations.

17
Facts

Mr Coward was a pillion passenger on a motorcycle owned and driven by his work colleague Mr
Cole. There was an accident resulting from Mr Cole’s negligence, and both were killed. Mrs
Coward obtained judgement for damages which was not paid out because Mr Cole’s insurance
policy did not provide cover for him to carry pillion passengers. She sought to recover damages
from the MIB claiming a policy should have been in place under Road Traffic Act 1930 Part II.

Issues

Under the Road Traffic Act 1930 Part II a passenger who is carried for hire or reward in the
insured’s vehicle must be covered on the driver’s insurance policy. Mrs Coward contended that
her husband and Mr Cole had reached an agreement whereby he would regularly provide lifts to
work on his motor cycle in return for certain cash payments. She argued this amounted to a
contractual obligation and, therefore, the risk to her husband should have been covered by Mr
Cole’s policy or, failing that, by the MIB under their agreement with the Ministry of Transport.
The MIB argued there was no legally enforceable contract between Mr Cole and Mr Coward as
there had been no intention to create legal relations. They also argued that a motor cycle was not
a ‘vehicle’ for the purposes of the Road Traffic Act 1930.

Held

Mrs Coward’s claim was unsuccessful. Neither party intended there was a legal obligation to
carry and be carried to and from work, under a binding contractual agreement. Mr Coward was
not a passenger who Mr Cole was under a duty to ensure and the MIB, therefore, were not under
an obligation to satisfy the judgement.7

6.2Albert v Motor Insurers Bureau

Facts

Q regularly gave his co-workers lifts to and from work in his car over a period of more than eight
years, and received payments for this. On one of these trips, there was an accident in which one
of his passengers and co-workers were killed. Albert (A) brought a claim against the driver under
The Fatal Accidents Acts 1846-1908, and was awarded damages. When Q failed to meet the
order, A brought action against the Motor Insurer’ Bureau (MIB). The action was brought
against MIB on the basis that Q was acting on a hire/reward basis when giving lifts for
remuneration for the purposes of section 203(4) of the Road Traffic Act 1960.

Issue

At the court of first instance, the court found that the actions of the driver did not amount to that
which engaged section 203(4) of the Road Traffic Act 1960. On appeal, the actions of the

7
[1963] 1 QB 259

18
unofficial driving/lift giving actions of the driver were considered for whether they could amount
to a business activity. If such a business relationship could be found, the MIB would be liable for
damages.

Held

In deciding the appeal, the court considered Coward v Motor Insurers Bureau [1963] 1 QB
259 and Connell v Motor Insurers Bureau [1969] 2 QB 494.

The appeal was allowed – it was held that the actions of the driver went beyond mere social
kindness, and the activities amounted to a business activity, and as such the vehicle in which the
victim was killed was a vehicle for which passengers had been carried for hire pursuant to
section 204(4) Road Traffic Act 1960. This was held to be true, as the passengers were aware of
the expectation of pay for the service, and as such the lack of contract between the parties was
irrelevant.8

6.3)Conclusion

The doctrine of intention to create legal relations to create legal relations has not lacked its
critics. Some, such as Professor Freeman, are critical of the way in which it has been used to
deny legal effect to agreements made in a family context. Others points out that the doctrine rests
on a fiction in that the parties to the alleged agreements frequently have no discernible intention
one way or the other. . But it is assumed that it is a necessary part of contract. In the case of
Albert v Motor Insurers’’ Bureau , it was stated by the Upjohn LJ-

“The hazards of everyday life, such as temporary indisposition, the incidence od holidays, the
possibility of a change of shift or different hours of overtime, or incompatibility arising, make it
most unlikely that either contemplated that the one was legally bound to carry and the other to be
carried to work.”

It is stated in ‘‘Chitty on Contracts ” 9thus:

‘‘An agreement, even though it is supported by consideration, is not binding as a contract if is

was made without any intention of creating legal relations. Of course, in the case of ordinary
commercial transactions, it is not normally necessary to prove that the parties in fact intended to
create legal relations. ” (emphasis supplied)

In our Indian law the intention to create legal relations is not given as an essential ingredient of
contract law, but even the apex court of India has expressed its reservation about the need of this

8
[1971] 3 WLR 291
9
(25th Edition, Volume I, para. 123)

19
separate requirement of “intention to contract” under the contract act. Going by the criticism
which is already there in the West, the court found that it was a necessity of those systems where
consideration was not a requisite of enforceability. Thus it is still an open question whether the
requirement of “intention to contract” is applicable under the Indian Contract Act in the way in
which it has been developed in England.

But earlier to this, a limited recognition of the applicability of this principle in India could be
inferred from the decision of the Supreme Court in Banwari Lal v. Sukhdarshan Dayal,. In an
auction sale of plots of plot, a loudspeaker was spelling out the terms, etc., of the sale, one of the
statements being that a plot of certain dimensions would be reserved for Dharamshala (public
inn). Subsequently that plot was also sold for private purposes. The purchasers sought to restrain
this. Chandrachud J (afterwards CJ) said:

“Microphones…….. have no yet acquired notoriety as carriers of binding representations.

Promises held out our loudspeakers are often claptraps of politics. In the instant case, the
announcement was, it at all, a puffing up for sale.”

In a subsequent case on the subject, the Supreme Court noted the general proposition that in
addition to the existence of an agreement and the presence of consideration there is the third
contractual element in the form of intention of the parties to create legal relations.

Ultimately we should assume that the intention to create legal relation is a essential requirement
of contract. At the first instance it may have some similarities with consideration but there may
be so many cases when both these elements are different. As like, it two friends decided to go to
a restaurant, and one of them promises to pay for the drink and the other for the food then we can
not say that there is no consideration but still there is no intention to create legal relations, and if
anyone of them sue the other for breach of contract then the action should fail.10

10
http://www.australiancontractlaw.com/law/formation-intention.html

20
7) CONCLUSION
Intention to create legal relations is part of elements in contract. Intention to create legal relations
is defined as an intention to enter a legally binding agreement or contract. Intention to create
legal relations is one of the necessary elements in formation of a contract. It is because, intention
to create legal relations consists of readiness of a party to accept the legal sequences of having
entered into an agreement. Intention to create legal relations is a motion of every contracting
party must have the necessary intention to enter into a legally binding contract.

Consideration is one of the essential elements of contract. There are many definition of
consideration. At first, consideration can be defined as something that is worth and have value
such as an item or services. Consideration includes of executory, executed except for past. Apart
from that, consideration in contract is executory when whether works has not been completed,
but which needs to be completed in future. Next, consideration in contract is executed when
works have been completed. Furthermore, past consideration refers to being past at a time before
the making of a promise. Consideration only amounts to past consideration if it was performed
before the return promise was made for example before the contract was formed. Consideration
occurs as the requirements in order to enable the party to enforce a promise.

In term of general rules of social friend’s relations, there is no presumption to be legally binding.
Otherwise, in term of exception the presumption is rebuttable. In term of general rules of family
or domestic relations, there is no presumption to be legally binding. Otherwise, in term of
exception the presumption is rebuttable.

In term of general rules of commercial or business relations, there is a presumption or intention

to be legally binding. Otherwise in term of exception the presumption is rebuttable.

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8) Bibliography
Books:

• Avtar Singh, Law of Contract and Specific Relief (12th edition 2017)

• Beatson J, Anson`s Law Of Contract (28th edition Oxford, Delhi)

• Ewan Mckendrick, Contract Law (6th edition Palgrave Macmilan, Hampshire 2005)

• Michael Furmston, Cheshire, Fifoot & Furmston’s Law of Contract (15th Indian edition
Oxford, Delhi 2007)

• Jill Poole, Text Book on Contract Law (8th edition Oxford, London 2006)

Websites:

• http://www.australiancontractlaw.com/law/formation-intention.html

•
https://www.google.com/search?q=jones+vs+padavatton+case+analysis&oq=jones&aqs=
chrome.3.69i57j69i60l2j69i59l2j69i61.3517j0j7&sourceid=chrome&ie=UTF-8

• http://netk.net.au/Contract/05Intention.asp

• http://netk.net.au/Contract/Balfour.asp

•http://www.google.co.in/search?hl=en&q=intention+to+create+legal+relationship+in+social+an
d+domestic&meta=&aq=f&oq=

• www.usyd.edu.au/lec/subjects/Merritt%20v%20Merritt.

• http://netk.net.au/Contract/Esso.asp

• http://netk.net.au/Contract/Edwards.asp

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