Snelling v Snelling

Snelling v John G. Snelling Ltd. and Others [1973] Q.B. 87

Contract – Parties – Whether agreement legally enforceable – Claim by plaintiff against company

Facts:

The plaintiff and his brothers, the second and third defendants were directors of a family business and company, the first defendant. The company owed the brothers large amount of money. The brothers had a falling out and in an effort to make amends, an agreement was drawn up stating that if any of the brother’s resigned as director, they would forfeit the amount of money that was owed to them and that money would be used to pay the company mortgage. Snelling resigned and his director brothers passed a resolution upholding the terms of the agreement. Snelling issued a writ against the company for the monies owed. Proceedings ensued.

Issues:

Whether the agreement between the brothers was intended to create legal relations and whether it could be relied on by the company.

Held:

The appeal was dismissed. Upon consideration of the background in which the agreement between the brothers was made, i.e. that the company was running into financial difficulties, the agreement was intended to apply to the company and be considered legally. Therefore, the plaintiff was entitled to be legally bound by the contract.  The case of Balfour v Balfour [1919] 2 K.B. 571, was distinguished on its fact as the family relationship had already been destroyed by arguments. Even though the company was not a party to the contract as the contract was made between the directors, the Snelling company was the beneficiary of the contract, in the event a brother resigned as director. It was at the court’s discretion under s 41 of the Supreme Court of Judicature (Consolidation) Act 1925 to dismiss Snelling’s claim and to honour the agreement even though the defendant company had no defence to the actions of Snelling.