Contract; formation; intention to be bound; agreements between spouses.
Facts: After getting married in 1941, Mr and Ms Merritt borrowed money from a bank to build a house. They lived in it over the years while jointly contributing to paying off the loan. The house was originally owned by Mr Merritt alone but in 1966 it was put into joint ownership with Ms Merritt. Some time thereafter Mr Merritt began an extramarital relationship with another woman and left his wife. Having separated, Mr and Ms Merritt met to discuss their financial position. Ms Merritt agreed to finish paying off the loan on the house and in return Mr Merritt promised that when the loan was completely repaid, he would transfer the house to Ms Merritt's sole ownership. He signed a letter to this effect but, when the time came, he refused to transfer the house to Ms Merritt. Ms Merritt brought a legal action to enforce it.
Issue: Was the promise to transfer the house to Ms Merritt intended to be a legally enforceable one, despite the parties being spouses?
Decision: It could be inferred from the circumstances that the agreement was intended to be legally enforceable.
Reason: Whether or not an agreement is intended to be legally enforceable is something that is decided objectively. The court asks what intention can reasonably be inferred from the circumstances at the time of the agreement. Lord Denning MR said (at 762):
"In all these cases the court does not try to discover the intention by looking into the minds of the parties. It looks at the situation in which they were placed and asks itself: would reasonable people regard the agreement as intended to be binding?" In the present case, the court decided that when the goodwill between married persons has broken down, it can be inferred that they no longer rely on honourable understandings, and that they intend their agreements to create legal obligations.