According to the Indian Contract Act, of 1872, a contract means an agreement enforceable by law. The enforceability of an agreement depends upon various conditions provided under section 10 of the Indian Contract Act. The intention to create a contract is one of the most essential factors in ascertaining the enforceability of an agreement.
In this law note, we will discuss the intention to create a contract with the help of landmark judgements.
Related Law Note: 5 Kinds of Contracts Defined With Easy Examples and Differences
What Is the Intention to Create a Contract?
Under the Indian Contract Act, the term intention means to create a legal relationship when forming an agreement and its enforceability.
The Indian Contract Act does not contain any provision mandating the requirement of intention for creating contractual obligations. However, it is derived from various landmark judgements by English and Indian courts.
Case Laws Related to the Intention to Create a Contract
The following landmark judgements discuss the relevancy of ‘intention’ in the formation of a contract.
Banwari Lal vs Sukhdarshan Dayal (1972)
The Supreme Court limited its recognition of the requirement of intention as one of the essential elements of a contract.
Dalrymple vs Dalrymple (1811)
The court observed that contracts must not be taken as a matter of pleasantry. Every loose conversation does not convert into a contract.
Balfour vs Balfour (1919)
In this case, a husband and wife were on holiday in England. The husband had to return to work in Ceylon, and the wife had to stay back because of health issues. Husband promised to pay her monthly expenses. He did pay for a few months, but later on, differences arose, which resulted in their separation. The wife bought an action to recover the agreed sum as monthly expenses. Lord Atkin dismissed the action and observed that these arrangements do not result in the contract even though they constitute consideration because the party did not intend that they shall be attended by legal consequences.
Rose and Frank Co. vs JR Crompton and Bros. Ltd (1923)
The court held that the intention of the parties is to be ascertained from the terms of the agreements and surrounding circumstances. As a matter of course, it follows that the arrangements relating to family and social matters do not intend legal consequences; hence, there is no intention to create a contract. In contrast, in the case of business relations, parties intend legal consequences as a matter of course.
However, this does not mean a legally binding contract cannot exist in all family and social matters. If parties intend legal consequences in family and social matters, it will also be a binding contract.
McGregor vs McGregor (1888)
In this case, a husband and wife withdrew their complaint under an agreement in which the husband agreed to pay her allowance, and the wife refrained from pleading the credit. This agreement was held to be a binding contract.
Jones vs Padavatton (1969)
The mother persuaded the daughter to pursue studies and undertook to bear all the related expenses. The daughter could not complete her education in five years. The mother stopped paying expenses and commenced proceedings to evict the daughter. The court held that the parties intended to contract, although the matter was one of family. The engagement did result in the contract, but the agreement could last only for a reasonable period.
Test: The intention of the parties is to be ascertained from the terms of the agreement and surrounding circumstances. The test of determination of such intention is objective and not subjective. It is not what parties had in mind, but what a reasonable man would think in the circumstances is to be inferred.
Conclusion
It can be concluded that along with the conditions of enforceability of agreement laid down under section 10 of the Contract Act, which are free consent of parties, competency of parties, lawful consideration, lawful object and not expressly declared to be void, the intention to create a contract, i.e., the intention to create a legal relationship, is also an essential requirement for the formation of a valid contract.
The intention of parties is to be ascertained from the terms of the agreement and surrounding circumstances. It is not what the parties held in their mind, but what a reasonable man would think in the circumstances is to be inferred.
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