Case Analysis of “Rose & Frank Co v JR Crompton & Bros Ltd” [1925] AC 445
FACTS OF THE CASE
Rose Frank and Co carry on business in the US as dealers in carbonizing tissue paper which they purchase from England and after treatment, sell in a perfect state. Their relations with JR Crompton and Bros limited began early in the year 1905.
Later om agreements were entered between the parties where Rose and frank company were entitled to have the exclusive and nearly exclusive right of selling Crompton bros carbonising tissue but it was subjected to a 12 months notice.
In the year 1913, the relations between the parties were being reconsidered. In the year 1913, the arrangement was altered so that JR Crompton and Bros and another manufacturer Brittains Ltd (‘Brittains’), began supplying carbonising paper to Rose Frank and Co.
The parties agreed to the supply of tissue paper. Towards the end of the document, there was a remarkable clause which stated that:
“This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts”.
The agreement had a term of 3 years but was subjected to termination on the giving of 6 months notice in advance. In August 1918, the agreement was renewed for a further period of 3 years on the same terms and conditions.
Before the expiry of the second term was due to expire in 1920, in early 1919 a dispute arose regarding Rose Frank and Co performance. Crompton and Bros believed that Rose Frank and Co have not varied business as they should be carrying and their business was suffering due to this.
LEGAL ISSUES INVOLVED
(1) Whether the agreement between the parties of 1913 constituted a legally binding contract? What is the effect of the ‘binding in honour’ clause?
(2) Whether there is an enforceable contract between the parties? Whether the orders placed constitute enforceable contracts of sale?
JUDGEMENT
DECISION OF TRIAL COURT
At the trial court, Justice Bailhache determined that there was a binding contract between the parties. Rose and Frank were successful in the trial court and the decision was granted in their favour.
DECISION OF COURT OF APPEAL
On appeal, Lord Justices Atkin, Bankes and Scrutten all were of the opinion that there was no intention to be legally bound.
Lord Justice Atkin, in the Court of Appeal, held that the agreement clearly expressed that the parties did not intend to enter into legal relations; there was nothing ‘absurd’ in their position.
“To create a contract, there has to be a common intention between the parties to enter into legal obligations, which must be mutually communicated either expressly or impliedly. It may be negatived impliedly by the nature of the agreed promise or promises, as in the case of offer and acceptance or of some agreements made in the course of family life between members of a family as in the case of Balfour v Balfour.
The intention between the parties can be negatived either impliedly or expressly. The clause in question in clear terms expresses the mutual intention of the parties is not to enter into legal obligations.
Lord Atkin further went on to say that he had never seen this type of a clause. He considered it as a dominant clause that should not be rejected, on the ground of repugnance.
It might add that a common instance of an effect being given in law to the express intention of the parties not to be bound in law is to be found in cases where parties agree to all the necessary terms of an agreement for purchase and sale, but it is subject to a contract being drawn up by them.
The words of the agreement in other respects will be apt and sufficient to constitute an open contract, but if the parties agree to make it plain that they do not want to be bound except by some subsequent document, they remain unbound though no further negotiation be contemplated.
Either of the parties is free to abandon the agreement and to refuse to assent to any legal obligation; when the parties are bound they are bound by virtue only of the subsequent document.”
DECISION OF HOUSE OF LORDS
Regarding the 1913 agreement, the Court gave an overriding effect to the provision in the agreement that expressly provided that it is solely an “honourable pledge”, which demonstrates that the parties did not intend the arrangement as a legally-binding contract.
The Court explained that the argument that the clause restricting the legal enforceability of a contract apply solely when the document is unquestionable of legal force. In the present case, the document and circumstances did not intend to create any legal interest, and the clause expressly prohibits the legal enforceability of the agreement.
Regarding the second point, the Court held that the facts of the given arrangement do not constitute a legal contract. It does not preclude the orders and acceptances from constituting legally binding contracts.
The lack of enforceability of an express legal arrangement under an agency agreement does not prohibit legal transactions.
LEGAL PRINCIPLE INVOLVED
Intention to enter into a legal relationship is one of the important aspects of elements in a contract. Intention to enter into a legal relationship can be said as an intention to enter into a legally binding contract or agreement.
It can be considered as one of the necessary elements in the formation of a contract. It clearly shows the readiness of the parties involved to accept the legal consequences of having entered into such an agreement. Intention to create a legal relationship is an essential element for every contracting party which leads to entering into a legally binding contract.
The following points can be considered while determining the intention to create a legal relationship: –
1)The parties to the contract must have the obvious mind to enter into a serious contract
It is due to their ‘intention’ to be the consenting mind to which both the parties have to agree. In case there is no agreement by both of the parties, it can make the contact being a void agreement. Thus, both of the contracting parties will make it a binding contract.
2)To make a contract enforceable, legal and binding, there must be an intention to create legal relations
The intention to create a legal relationship is one of the essential elements of a contract. In case there is no intention to create legal relation, the contract can be assumed as not a legal contract.
It will lead to the contract not being enforceable because there is no intention on the part of parties to create legal relations at the beginning, which will not make contracting parties be in a legally binding relationship.
3)In the absence of intention, the parties cannot sue each other
With no intention to create legal relations, it may mean that the contracting parties are not being legally binding and these circumstances will make the contract unenforceable.
Therefore, when the contract is enforceable, the contracting parties can seek justice and make the contract enforceable in a court of law.
4)The contract may become a mere promise if the intention to create legal relations is absent
When there is no intention on part of parties to create a legal relationship, it will make the contract become merely a promise.
Merely making a promise is like a simple promise arising when there is no intention on the part of the parties to create legal relations.
5)The contract may lack the binding effect in the absence of the intention to create legal relations.
When there is no intention to create a legal relationship, it will make the contract, not a binding one.
