Case Facts
The parties married in 1941 and in 1949 acquired a freehold building plot upon which they built a house at 133 Clayton Road, Hook, Chessington. The property was initially held in the husband's name, subject to a building society mortgage. In early 1966, prior to the couple's separation, the house was transferred into their joint names, reflecting their respective financial contributions.
On 20 May 1966, the husband informed his wife that he was in love with another woman with whom he was living. On that occasion he said: "When the house is paid for, I will consider signing over the other half to you." Five days later, on 25 May 1966, the parties met and sat in the husband's car outside the matrimonial home. Following their discussions, the husband wrote and signed the following on a piece of paper:
"In consideration of the fact that you will pay all charges in connection with the house at 133 Clayton Road, Chessington, Surrey, until such time as the mortgage repayment has been completed, when the mortgage has been completed I will agree to transfer the property into your sole ownership. Signed, John Merritt. 25th May, 1966."
At the time this document was signed, the outstanding mortgage balance stood at only £180. The husband agreed to pay the wife £40 per month, from which she was to make the remaining payments to the building society, and he handed her the mortgage book. Mrs Merritt duly paid off the remaining balance over the following months, partly from the £40 monthly payments and partly from her own earnings (she was earning a net wage of £7 10s per week).
Once the mortgage had been discharged, the husband reduced his monthly payments from £40 to £25 and refused to transfer the house into the wife's sole name. Mrs Merritt brought an action in the Chancery Division for a declaration that the house should belong to her and for an order requiring the husband to convey it accordingly. Mr Justice Stamp made the order at first instance in the wife's favour. The husband appealed to the Court of Appeal.
Held
The Court of Appeal dismissed the appeal and upheld the order made at first instance. The written agreement signed by the husband on 25 May 1966 was a binding contract, and the wife was entitled to have the house transferred into her sole name.
On the question of intention to create legal relations, the court drew a critical distinction between agreements made between spouses living together in amity and those made when the parties are separated or about to separate. Where the parties are not living in amity, they are bargaining at arm's length and the circumstances do not call for the application of the presumption against legal intent that operates between cohabiting spouses.
The court dismissed the argument that there was no consideration, holding that Mrs Merritt's act of paying off the outstanding mortgage balance to the building society was ample consideration for the husband's promise, even where she used a portion of the £40 monthly payments to do so. The court also dismissed the argument raised under s 17 Married Women's Property Act 1882, by which the husband contended that the house should be held on trust for both parties jointly. The written paper dealt expressly with the beneficial ownership of the property, and it was clearly intended to vest that ownership entirely in the wife.
The court further distinguished Balfour v Balfour [1919] and Simpkins v Pays [1955], both of which concerned parties living together in amity, from the present circumstances in which the parties had already separated.
Ratio Decidendi
The ratio of the decision is that where spouses have separated or are in the process of separating, the presumption against intention to create legal relations — which applies to domestic arrangements between parties living together harmoniously — does not apply. In such circumstances the parties are dealing with one another at arm's length, and their agreements may be treated as legally binding contracts.
The leading judgement held that in determining whether an agreement was intended to be binding, the court does not inquire into the subjective states of mind of the parties. Rather, it asks objectively: would reasonable people regard the agreement as intended to be binding? On the facts, the written and signed agreement of 25 May 1966, taken together with the surrounding circumstances — including the husband's earlier statement on 20 May 1966 and Mrs Merritt's subsequent performance of her obligations by paying off the mortgage — left no doubt that the parties had entered into a legally enforceable contract.
The nuance between the judgements of the different members of the court on the precise nature of the presumption is significant. The leading judgement took the view that where the parties are not living in amity but are separated or about to separate, "it may safely be presumed that they intend to create legal relations", treating this as a positive presumption in favour of legal intent. By contrast, another member of the court expressly declined to go so far, holding only that in such circumstances there is "no presumption against the creation of such legal relations as there is when the parties are living happily together." On either formulation, the result is the same: the written agreement was enforceable.
The court also confirmed that Mrs Merritt's payment of the outstanding mortgage balance constituted good consideration. The consideration was not vitiated by the fact that some of the funds used came from the husband's own monthly payments; what mattered was that she undertook and performed the legal obligation of discharging the mortgage.
Obiter Dicta
In the course of the judgements, the court discussed the nature and basis of the presumption against legal intent in domestic arrangements, drawing on earlier authority. One member of the court quoted directly from Lord Atkin's judgement in Balfour v Balfour [1919]: "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." The observation was made that once natural love and affection between the parties has dissipated, the factual basis for the presumption against legal intent falls away with it.
The court further emphasised the importance of examining the surrounding circumstances when determining whether a domestic agreement is intended to have legal effect. The antecedent statement made by the husband on 20 May 1966 and the subsequent detailed written and signed agreement of 25 May 1966 were together treated as powerful evidence of the objective intention of both parties to be legally bound.