ACCA F4 - Corp and Business Law (ENG)

Part B The law of obligations  4: Formation of contract II 63

If the defendants in the High Trees case had sued on the promise, they would have failed as they

provided no consideration to the 1940 agreement. Therefore, the principle of promissory estoppel is 'a

shield not a sword' and cannot become a cause of action in its own right. Promissory estoppel only

applies to a promise of waiver which is entirely voluntary.

D and C Builders v Rees 1966

The facts: The defendants owed £482 to the claimants who were in acute financial difficulties. The

claimants reluctantly agreed to accept £300 in full settlement. They later claimed the balance.

Decision: The debt must be paid in full. Promissory estoppel only applies to a promise voluntarily given.

The defendants had been aware of and had exploited the claimants' difficulties.

4 Intention to create legal relations

Various cases give us a set of rules to apply when determining whether the parties to a contract intended

to be legally bound by it.

Where there is no express statement as to whether or not legal relations are intended, the courts apply one

of two rebuttable presumptions to a case.

 Social, domestic and family arrangements are not usually intended to be binding.

 Commercial agreements are usually intended by the parties involved to be legally binding.

The word 'presumption' means that it is assumed that something is the case, for example it is presumed

that social arrangements are not deemed to be legally binding. 'Rebuttable' means that the presumption

can in some cases be refuted; the burden of proof for rebutting the presumption is on the party seeking to

escape liability.

Intention to create legal relations can be defined as follows.

'An agreement will only become a legally binding contract if the parties intend this to be so. This will be

strongly presumed in the case of business agreements but not presumed if the agreement is of a friendly,

social or domestic nature.'

4.1 Domestic arrangements

4.1.1 Husband and wife

The fact that the parties are husband and wife does not mean that they cannot enter into a binding

contract with one another. Contrast the following two cases.

Balfour v Balfour 1919

The facts: The defendant was employed in Ceylon. He and his wife returned to the UK on leave but it was

agreed that for health reasons she would not return to Ceylon with him. He promised to pay her £30 a

month as maintenance. Later the marriage ended in divorce and the wife sued for the monthly allowance

which the husband no longer paid.

Decision: An informal agreement of indefinite duration made between husband and wife whose marriage

had not at the time broken up was not intended to be legally binding.

Key term

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