| Citation | (1925) AC 445 |
| Date of Judgement | 17th December 1925 |
| Court | House of Lords |
| Case type | Contract law |
| Appellant | Crompton Bros |
| Respondent | Rose & Frank Company |
| Bench | Earl of Birkenhead, Lord Atkinson, Lord Summer, Lord Buckmaster and Lord Phillimore. |
Facts
- Rose Frank and Co. are US-based distributors of carbonizing tissue paper, which they import from England and then polish before reselling in top condition. They started working with JR Crompton and Bros Limited in the beginning of 1905.
- Later, agreements between the parties granted Rose and Frank Company the exclusive and practically exclusive right to sell Crompton Bros carbonizing tissue, with a 12-month notice requirement.
- The parties’ relations were being reevaluated in the year 1913. The agreement was changed in 1913, and JR Crompton and Bros. and another producer, Brittains Ltd. (referred to as “Brittains”), started providing carbonizing paper to Rose Frank and Co.
- The provision of tissue paper was agreed upon by the parties. There was an interesting clause near the document’s conclusion that read: “This agreement is neither formal or legally binding and is not contained in this memorandum, which means that it is not enforceable in court.”
- The contract had a three-year term, although it could be terminated early with a six-month notice. The arrangement was extended for a further three years on the same terms and circumstances in August 1918.
- A disagreement over Rose Frank and Co.’s performance erupted in early 1919, just before the second term was set to expire in 1920. Crompton & Bros thought Rose Frank and Co.’s business was hurting because they weren’t carrying as much variety as they should.
Issues
Can a clause be put in a contract saying that it is not legally binding, or is there a contract anyway?
Judgement
The written agreement was determined by the House of Lords not to be a contract. This was so that it would be evident that the parties did not intend to be bound by the agreement’s legal obligations—the “binding in honor only” clause. However, as soon as the claimant placed an order and it was accepted, a second, legally binding contract for the delivery of the items was created.
The High Court will conduct the trial on the questions of whether there was a breach and whether the defendant has a defense.
Analysis
- One of the crucial components of a contract is the intent to engage into a legal relationship. A legally binding contract or agreement is what is meant when someone intends to get into a legal partnership.
- It might be seen as one of the components required for the creation of a contract. It demonstrates unequivocally that the parties are prepared to embrace the legal repercussions of having made such an agreement. Every party to a contract must have the intent to establish a legal relationship for the agreement to be considered binding.
- When determining the purpose to establish a legal connection, the following factors can be taken into account: –
1) The parties to the agreement must be of sound mind to enter into a binding agreement.
- Both parties must agree because of their “intention,” which acts as the consenting mind. In the event that neither party agrees, the contract may become null and void. Thus, it will become a legally binding agreement once both parties sign it.
2) A contract must have the intent to establish legal relations in order to be valid, enforceable, and binding.
- One of a contract’s fundamental components is the purpose to establish a legal relationship. The contract can be assumed to not be a legal contract if there is no purpose to establish a legal relationship.
- Due to the lack of an initial intention on the part of the parties to establish legal relations, which will prevent the contracting parties from being in a legally binding relationship, it will result in the contract not being enforceable.
3) The parties cannot file a lawsuit against one another if they did not intend to.
- It’s possible that the contracting parties are not being legally binding if there is no desire to establish legal connections, in which case the contract will be void.
- As a result, when a contract is enforceable, the contractual parties have the right to seek redress and make the agreement enforceable in court.
4) If there is no desire to establish a legal relationship, the contract may become nothing more than a promise.
- The contract will become little more than a promise if neither party intends to enter into a legal relationship.
- Simply promising anything is equivalent to a simple promise that develops when there is no desire on the part of the parties to establish legal connections.
5) If the contract is not intended to establish a legal relationship, it may not have binding force.
- The contract won’t be enforceable if there is no purpose to establish a legal relationship.
Referred
- https://www.scribd.com/document/185912140/Rose-Frank-v-Crompton-Bros-1925-AC-445#
- https://casebrief.fandom.com/wiki/Rose_and_Frank_Co._v_J.R._Crompton_and_Bros._Ltd.
- https://lawprof.co/contract/contract-formation-cases/rose-frank-co-v-jr-crompton-bros-ltd-1925-ac-445/
written by Sushmita singh of Lloyd school of Law, an intern under Legal Vidhiya.
