Rose & Frank Co v JR Crompton & Bros Ltd
House of Lords
Citations: [1925] AC 445; (1924) 20 Ll L Rep 249.
Facts
The parties entered into an ongoing agreement allowing the claimant to order products from the defendant and sell them as the defendant’s sole agent. After a year, the parties agreed to extend the arrangement for another three years. They produced a document recording the agreement, which contained a clause stating 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…it is only a definite expression and record of the purpose and intention of the three parties concerned, to which they each honourably pledge themselves, with the fullest confidence…that it will be carried through by each of the three parties with mutual loyalty and friendly co-operation.’
The claimant, relying on the agreement, placed orders with the defendant. The defendant accepted these orders, but on one occasion did not deliver. The defendant subsequently terminated the contract without notice. The claimant sued for breach of contract. The parties asked the court to determine whether there was a legally binding contract.
Issue(s)
- What was the effect of the ‘binding in honour’ clause?
- Was there an enforceable contract between the parties?
Decision
The House of Lords held that the written agreement was not a contract. This was because the ‘binding in honour only’ clause clearly indicated that the parties did not intend to be legally bound by that arrangement. However, once the claimant placed an order and that order was accepted, there was a separate, legally enforceable contract for the delivery of goods.
The House remitted the issues of whether there was a breach or whether the defendant had any defence to the High Court for trial.
This Case is Authority For…
While it is presumed that commercial parties intend to be legally bound by their arrangements, it is open to them to agree that they will not be. ‘Binding in honour only’ clauses will therefore preclude the existence of a binding contract.
Other
Even if an agreement is binding in honour only, it is possible for subsequent agreements between the parties to be legally binding.
As Lord Phillimore argued, to hold that the later accepted orders in this case were not legally binding would lead to absurd results. For example, there had been past orders in which the defendant delivered the goods. If those arrangements were not legally binding, it would mean that the claimant was not bound to pay for those goods.
