Domestic agreements

The notion of the ‘domestic’ agreement should be taken as relating more to the subject matter than to the relationship between the parties. If, for example, a woman agrees to sell her car to her brother for £1,500, there is little reason to deny this agreement the status of a contract, and it should be presumed to be binding unless there is evidence to the contrary.

The decision in Sadler v Reynolds (2005), however, suggests there may be situations which fall into a sort of ‘halfway house’ between domestic and commercial which affects the burden of the presumption. In this case, the alleged contract was between a journalist and a businessman who were friends. The journalist wanted to ghost-write the ‘rags to riches’ autobiography of the businessman and split the profits. The businessman opted to go with another author instead. The judge suggested that the oral agreement fell ‘somewhere between an obviously commercial transaction and a social exchange.’ The onus was on the journalist to prove that there was an intention to create legal relations, ‘albeit that the onus was a less heavy one than that which would be required to establish such an intent in the context of a purely social relationship’.

Since the rule is based on a presumption, it is always possible for that presumption to be rebutted. In Merritt v Merritt (1970), an arrangement between a husband and wife similar to that agreed in Balfour v Balfour, but made in the context of the break-up of the marriage, was held to be legally binding. Lord Denning distinguished Balfour v Balfour in the following way:

‘The parties [in Balfour v Balfour] were living together in amity. In such cases, their domestic arrangements are ordinarily not intended to create legal relations. It is altogether different when the parties are not living in amity but are separated, or are about to separate. They then bargain keenly. They do not rely on honourable understandings. It may safely be presumed that they intend to create legal relations.’

The context in which the agreement was made was such that although it ostensibly concerned a domestic matter – the support of a wife by her husband – the presumption that it was not intended to be binding was rebutted.

The same principles apply where there is a third party to the agreement, other than family. In Simpkins v Pays (1955), the claimant – a lodger – the defendant and the defendant’s granddaughter lived together and regularly entered a competition, which required the listing of eight items in order of merit. Each woman made a listing, and the three entries were submitted on one form in the defendant’s name. They had agreed that if any of them won they would share the winnings between them. When one of the lines won, which was paid to the defendant, the claimant sued to recover a third of her share. There judge found that there was a binding contract despite the family connection, as the lodger was also party to the contract.

An innocent party’s willingness to go to the court to enforce a breached agreement should not be regarded as being conclusive as to whether there was an intention to create legal relations. There are many minor commercial agreements where the parties are unlikely to consider it worth involving the courts to remedy a breach. Nevertheless, such agreements are clearly intended by the parties to create binding obligations. Moreover, even in relation to substantial commercial transactions, parties often prefer to settle disputes in ways which do not involve recourse to lawyers. This does not mean they do not intend their agreements to be legally binding.