Animus Contrahendi: The Imperative of Intention to Create Legal Relations in Indian Contract Law
Introduction
The formation of a valid and enforceable contract under Indian law hinges on several essential elements. While the Indian Contract Act, 1872 (hereinafter "the Act") delineates requirements such as offer, acceptance, consideration, free consent, capacity of parties, and lawful object (Section 10), the principle of animus contrahendi, or the intention to create legal relations, stands as a crucial, albeit judicially evolved, prerequisite. This principle distinguishes agreements intended to be legally binding from those of a social, domestic, or purely honorary nature. This article undertakes a comprehensive analysis of the doctrine of intention to create legal relations within the framework of Indian contract law, drawing significantly upon judicial pronouncements and legal scholarship. As articulated in M/S. VISION MILLENIUM EXPORTS P. LTD,MUMBAI v. DCIT, CENTRAL CIRCLE- 7(2), MUMBAI (Income Tax Appellate Tribunal, 2025) (Ref 19), for a contract to be valid, parties "must intend to constitute legal relationship. It arises when the parties know that if any one of them fails to fulfill his part of the promise, he would be liable for the failure of the contract. If there is no intention to create legal relationship, there is no contract between parties."
The Doctrinal Basis and Presumptions
The requirement of an intention to create legal relations, while not explicitly codified as a distinct heading in the Indian Contract Act, 1872, has been firmly embedded into Indian jurisprudence, largely influenced by English common law.
Common Law Lineage and Indian Application
The English law proposition that a third contractual element, the intention of the parties to create legal relations, is necessary in addition to agreement and consideration, has been influential. However, this has not been without academic debate. As noted in Commissioner Of Wealth Tax, Bhopal v. Abdul Hussain Mulla Muhammad Ali, (Dead) By Lrs. (Supreme Court Of India, 1988) (Ref 7), citing Cheshire and Fifoot's Law of Contract, Professor Williston criticized this separate element as "foreign to the common law, imported from the Continent by academic influences in the nineteenth century and useful only in systems which lack the test of consideration to enable them to determine the boundaries of contract." Despite such academic critiques, Indian courts have generally adopted and applied this principle. The Supreme Court in Commissioner Of Wealth Tax, Bhopal (Ref 7) further observed, "Such an intention ordinarily will be inferred when parties enter into an agreement which in other respects conforms to the rules of law as to the formation of contracts."
Presumptions in Varying Contexts
Courts typically apply presumptions regarding the intention to create legal relations based on the context of the agreement.
- Commercial Agreements: In agreements of a commercial nature, there is a strong presumption that the parties intend to create legally binding obligations. As stated in Subbammal v. Masanamuthu Thevar And Others S (Madras High Court, 1998) (Ref 9, also cited as Ref 18) and Mrs. Rajabu Fathima Buhari And Another v. S.V Ramakrishna Mudaliar And Others. (1972 SCC ONLINE MAD 95, Madras High Court, 1972) (Ref 16), "the intention is presumed in the case of commercial agreements rebuttable by the parties seeking to deny it." The onus of proving that no legal effect was intended in such cases is heavy, as affirmed in Edwards v. Skyways Ltd. [1964] 1 WLR 349, cited in Commissioner Of Wealth Tax, Bhopal (Ref 7) and INCOME-TAX OFFICER v. V.R. GANTI (1985 ITD HYDERABAD 13 901, Income Tax Appellate Tribunal, 1985) (Ref 17).
- Social and Domestic Agreements: Conversely, in agreements of a social or domestic nature, such as those between family members or friends, the presumption is that the parties do not intend to create legal relations. The classic case of Balfour v. Balfour [1919] 2 K.B. 571 (cited in Ref 7, 9, 16) is illustrative of this principle. The intention in such cases "can be inferred from the language used by the parties and the circumstances in which they use it" (Subbammal v. Masanamuthu Thevar And Others S (Ref 9, 18); Mrs. Rajabu Fathima Buhari (Ref 16)).
- Rebutting Presumptions: These presumptions are not absolute and can be rebutted by clear evidence to the contrary. For instance, in commercial agreements, parties may expressly declare that their agreement is not to be legally binding, as seen in the "honour clauses" discussed in cases like Rose and Frank Co. v. J.R. Crompton & Bros Ltd. [1925] A.C. 445 (cited in Ref 9, 16). Similarly, the use of terms like "ex gratia" in a commercial context does not automatically negate contractual intent if the overall circumstances suggest a binding promise, as held in Edwards v. Skyways Ltd. (cited in Ref 7, 17). The court in INCOME-TAX OFFICER v. V.R. GANTI (Ref 17) noted that "ex gratia" might mean no admission of pre-existing liability but does not prevent the payment from having legal effect as part of a binding contract.
Ascertainment and Manifestation of Intention
The determination of whether parties intended to create legal relations is primarily an objective exercise, based on an assessment of the words used and the surrounding circumstances.
The Objective Test
The law applies an objective, not subjective, test to ascertain animus contrahendi. As stated in Commissioner Of Wealth Tax, Bhopal (Ref 7), quoting Bahamas Oil Refining Co. v. Kristiansands Tankrederie A/S [1978] 1 Lloyds Law Reports 211, "In deciding whether or not there was any animus contrahendi in relation to a certain transaction... the law applies an objective and not a subjective test." The court looks at what a reasonable person in the position of the parties would have understood the intention to be.
Express and Implied Intention
Intention can be expressed explicitly by the parties or implied from their conduct, the nature of the agreement, and the surrounding circumstances. In PIONEER PROPERTY MANAGEMENT LTD. v. AMAZON SELLERS SERVICES PRIVATE LIMITED AND ANR. (Calcutta High Court, 2024) (Ref 14), it was noted that an offer may be accepted by conduct, provided "it is clear that the offeree did the act with the intention of accepting the offer." The exchange of documents like emails, letters, and telexes can also evidence an intention to be bound, even in the absence of a single formally signed agreement (Trimex International FZE Ltd. v. Vedanta Aluminium Limited, cited in Ref 14).
Letters of Intent and Preliminary Communications
The status of letters of intent (LOIs) often raises questions about contractual intention. As observed in Dresser Rand S.A v. Bindal Agro Chem Ltd. (Supreme Court Of India, 2006) (Ref 8), an LOI "merely expressed an intention to enter into a contract" and did not, in that instance, create a binding legal relationship. However, the Court also acknowledged that "a letter of intent may be construed as a letter of acceptance if such intention is evident from its terms." The critical factor is the language of the LOI and the totality of circumstances. Similarly, Bank Of India And Others v. O.P Swarnakar And Others (Supreme Court Of India, 2002) (Ref 10), quoting Treitel, states, "The question whether a statement is an offer or an invitation to treat depends primarily on the intention with which it was made." An agreement to enter into an agreement is generally not enforceable (LATE MOHAN S. KALE (SINCE DECEASED) MRS. CHHAYA MOHAN KALA v. HILLARI VICTOR D'SOUZA (National Consumer Disputes Redressal Commission, 2024) (Ref 21)).
"Subject to Contract" Clauses
Phrases like "subject to contract" or "subject to a formal agreement" can indicate that parties do not intend to be bound until a formal document is executed. However, as held in P.B Bhat v. V.R Thakkar (Bombay High Court, 1971) (Ref 11), this is not an inflexible rule. The court must "extract the intention of the parties both from the terms of their correspondence and from the circumstances which surround and follow it." The question is whether the preparation of a further document is a condition precedent to the creation of a contract or merely an incident in its performance.
Intention in Specific Contexts and Judicial Interpretations in India
The principle of animus contrahendi is applied across various contractual scenarios in India.
Government Contracts and Statutory Formalities
In dealings with the government, statutory formalities for contracts often play a role in manifesting intention. For instance, Section 175(3) of the Government of India Act, 1935 (analogous to Article 299 of the Constitution of India) prescribes formalities for government contracts. While State Of West Bengal v. B.K Mondal And Sons (1962 AIR SC 779, Supreme Court Of India, 1961) (Ref 1) primarily dealt with claims under Section 70 of the Indian Contract Act (quasi-contract) in the absence of a formally valid contract, it implicitly underscores that the government's intention to be bound by a contract must typically be manifested through compliance with such formalities. Section 70 allows for compensation where work is done not intending to do so gratuitously and the other party enjoys the benefit, operating independently of formal contractual intent but highlighting an equitable intention to compensate.
Promissory Subscriptions and Representations
The case of Kedarnath Bhattacharji v. Gorie Mahomed (Calcutta High Court, 1886) (Ref 4) illustrates how an intention to create legal relations can be inferred in the context of subscriptions for a public or charitable purpose. When a person subscribes to a fund and, on the faith of that subscription, liabilities are incurred by the promoters, the subscriber’s promise becomes legally enforceable. The act of subscribing, knowing that it will be acted upon, demonstrates an intention to be bound. Conversely, in Banwari Lal And Others v. Sukhdarshan Dayal (1973 SCC 1 294, Supreme Court Of India, 1972) (Ref 6), vague representations regarding the reservation of a plot for common use as a Dharmshala, not backed by clear stipulations in sale deeds or cogent evidence of a binding commitment, were held insufficient to create an enforceable legal right, indicating a lack of definitive intention to create such an obligation.
Advertisements and Invitations to Treat
Advertisements are generally considered invitations to treat rather than offers, meaning they lack the immediate intention to be bound upon acceptance. However, as established in Carlill v. Carbolic Smoke Ball Co. [1893] 1 Q.B. 256 (cited in Ref 9, 16), an advertisement can constitute a unilateral offer if it demonstrates a clear intention to be bound to those who perform the specified conditions.
Construction of Terms and Conduct of Parties
The courts often look at the language used and the subsequent conduct of parties to discern intent. In E. V. Ganapathi Iyer v. V. Venugopal (Died) And Another (Madras High Court, 1978) (Ref 12), the court interpreted the word "ensure" in a document not as a "guarantee" but in its popular sense, based on the overall context and surrounding circumstances, concluding there was no intention to create a legal guarantee. Similarly, in D.S Commercial Pvt. Ltd.… v. Shree Shewtambar Sthanakbasi Jain Sabha…. (Calcutta High Court, 1983) (Ref 22), the court considered whether a variation in rent implied a new lease, stating the cardinal question was whether "the parties had intended to create a new relationship between them, or merely had agreed to alter the rate of rent."
Privity and Agency
The intention to create legal relations is generally confined to the contracting parties. As affirmed in COX AND KINGS LTD. v. SAP INDIA PVT. LTD. (Supreme Court Of India, 2023) (Ref 13), "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which they have not agreed so to submit," emphasizing that consent and intention bind only the signatories, subject to limited exceptions.
Contractual Set-Off
Even in specific contractual rights like set-off, intention plays a role. As noted in BHARTI AIRTEL LIMITED v. VIJAYKUMAR V. IYER (2024 SCC ONLINE SC 4, Supreme Court Of India, 2024) (Ref 15), for a valid contractual set-off, "the normal requirements of the law of contracts, viz. intention to create legal relationship, acceptance, consideration etc. should be established."
Challenges in Ascertaining Intention
The primary challenge lies in objectively determining the parties' true intentions, especially when they are not explicitly stated or are ambiguous. Courts must carefully sift through evidence, including correspondence, conduct, and the overall context of the transaction. The line between a firm commitment and preliminary negotiations can be thin, requiring meticulous judicial scrutiny. For example, the motive behind a transaction, such as the desire to circumvent service rules or evade taxes as in Surasaibalini Debi (Smt) v. Phanindra Mohan Majumdar (1965 AIR SC 1364, Supreme Court Of India, 1964) (Ref 2), might be distinct from the intention to create a particular legal relationship (or lack thereof), though such motives can impact the legality or enforceability of an agreement.
The enforceability of agreements where the intention is unclear or disputed often turns on the specific facts and the interpretation of the parties' communications and actions. The onus of proving an intention to create legal relations (or the lack thereof, in rebuttal to a presumption) rests on the party asserting it (Commissioner Of Wealth Tax, Bhopal (Ref 7)).
Conclusion
The doctrine of animus contrahendi, or the intention to create legal relations, is an indispensable element in the formation of enforceable contracts under Indian law. While not explicitly detailed in the Indian Contract Act, 1872, it has been consistently applied by Indian courts, drawing from common law principles and adapting them to the Indian context. Through a system of presumptions based on the nature of the agreement (commercial versus social/domestic) and an objective assessment of the parties' words and conduct, courts strive to give effect to genuine contractual intentions while filtering out arrangements not meant to be legally binding. This principle ensures that the sanctity of contract is upheld by enforcing only those promises that parties reasonably understood would carry legal consequences, thereby fostering certainty and predictability in commercial and personal dealings. The judicial emphasis on objective interpretation, coupled with careful consideration of the specific circumstances of each case, remains central to the application of this vital contractual doctrine in India.