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Rose and Frank & Co v Crompton

[1923] 2 KB 261

Overview

The parties entered into an an agreement (relating to the supply of tissue paper) which stated, in part:

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 … but it is only a … record of the purpose and intention of the … parties ...

Following a dispute the court was required to determing whether there was a binding contract. On the issue of intention to create legal relations the Court of Appeal and House of Lords made clear that the parties can expressly provide that their agreement is not to give rise to contractual obligations in law:

Lord Atkin: ... I see nothing necessarily absurd in business men seeking to regulate their business relations by mutual promises which fall short of legal obligations, and rest on obligations of either honour or self-interest, or perhaps both. ...

Tissue paper

Facts

Rose and Frank (plaintiffs) entered into an agreement with the appellants in relation to the supply of tissue paper. The document recording this agreement stated:

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 … but it is only a … record of the purpose and intention of the … parties … to which they each honourably pledge themselves … based on past business …

A dispute arose between the parties and an issue arose about whether there was contractual intent.

At trial Justice Bailhache determined that there was a binding contract. On appeal, Lord Justices Atkin, Bankes and Scrutten all considered that there was no intention to be legally bound (although Atkin LJ dissented on the question of orders). On further appeal the House of Lords agreed with the Court of Appeal that the agreement did not have legal force.

Held (Court of Appeal)

Lord Atkin

Lord Justice Atkin, in the Court of Appeal, held that the agreement expressed in clear terms that the parties did not intend to enter into legal relations; there was nothing 'absurd' in their position.

... To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly. 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. It may be negatived impliedly by the nature of the agreed promise or promises, as in the case of offer and acceptance of hospitality, or of some agreements made in the course of family life between members of a family as in Balfour v Balfour. If the intention may be negatived impliedly it may be negatived expressly. In this document, construed as a whole, I find myself driven to the conclusion that the clause in question expresses in clear terms the mutual intention of the parties not to enter into legal obligations in respect to the matters upon which they are recording their agreement. I have never seen such a clause before, but I see nothing necessarily absurd in business men seeking to regulate their business relations by mutual promises which fall short of legal obligations, and rest on obligations of either honour or self-interest, or perhaps both. In this agreement I consider the clause a dominant clause, and not to be rejected, as the learned judge thought, on the ground of repugnancy.

I might add that a common instance of 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 subject to a contract being drawn up. The words of the preliminary agreement in other respects may be apt and sufficient to constitute an open contract, but if the parties in so agreeing make it plain that they do not intend to be bound except by some subsequent document, they remain unbound though no further negotiation be contemplated. Either side 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. ...

[footnotes omitted; emphasis added]

In this case there was no binding contract because there was no requisite intent.

On this issue the other members of the Court (Scrutton LJ and ) agreed.

Held (House of Lords)

Lord Phillimore

On the issue of intention, the Court of Appeal that the agreement did not have legal force.

Here, I think, the overriding clause in the document is that which provides that it is to be a contract of honour only and unenforceable at law.

Lords Buckmaster, Atkinson, Birkenhead and Sumner

The remaining judges agreed with the judgment given by Lord Phillimore.