Rose & Frank & Co v Crompton & Bros Ltd [1924] UKHL 2 (05 December 1924)

Rose and Frank Company, American paper dealers, had arrangements with English paper manufacturers Crompton and Brittains. A 1913 memorandum contained an 'honourable pledge' clause stating it was not a legal agreement. The House of Lords held this clause effectively negated contractual intention, but individual orders placed and accepted remained enforceable contracts.

Facts

Rose and Frank Company, an American corporation dealing in carbonising tissue paper, entered into business arrangements with two English manufacturers: J. R. Crompton and Brothers Limited and Brittains Limited. Prior to 1913, several informal arrangements existed between Rose and Frank and Cromptons regarding exclusive selling rights in America. In July/August 1913, all three parties signed a memorandum setting out arrangements for the supply and sale of papers, which included a clause stating:

‘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 either of the United States or England, but 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—based on past business with each other—that it will be carried through by each of the three parties with mutual loyalty and friendly co-operation.’

The arrangement was extended until March 1920. During 1919, disputes arose, and the English companies refused to deliver goods ordered by Rose and Frank. Rose and Frank claimed damages for breach of the 1913 agreement and alternatively for non-delivery of specific orders placed in early 1919.

Issues

Primary Issue

Whether the 1913 memorandum constituted a legally binding contract despite the ‘honourable pledge’ clause.

Secondary Issue

Whether individual orders placed and acknowledged during the arrangement constituted separate binding contracts.

Tertiary Issue

Whether pre-1913 agreements remained in force after the 1913 arrangement was entered into.

Judgment

The House of Lords unanimously held that the 1913 arrangement was not a legally binding contract due to the express intention of the parties stated in the ‘honourable pledge’ clause. Lord Phillimore delivered the leading judgment, with which Lords Birkenhead, Atkinson, Sumner and Buckmaster concurred.

On the question of individual orders, the House of Lords disagreed with the majority of the Court of Appeal and agreed with Bailhache J and Atkin LJ. Lord Phillimore explained:

‘According to the course of business between the parties which is narrated in the unenforceable agreement, goods were ordered from time to time, shipped, received, and paid for, under an established system; but the agreement being unenforceable, there was no obligation on the American company to order goods or upon the English companies to accept an order. Any actual transaction between the parties, however, gave rise to the ordinary legal rights; for the fact that it was not of obligation to do the transaction did not divest the transaction when done of its ordinary legal significance.’

On the pre-1913 agreements, the House of Lords allowed the cross-appeal, holding that these agreements had been cancelled by mutual consent when the parties entered into the 1913 arrangement, even though that arrangement was itself unenforceable.

Implications

This case established the important principle that parties can expressly exclude legal relations from their agreements, provided their intention is clearly expressed. The ‘honourable pledge’ clause effectively prevented the arrangement from being a contract, as it demonstrated a clear intention not to create legal relations.

However, the case also confirmed that individual transactions conducted under such an arrangement can themselves give rise to binding contracts. Each order placed and accepted constituted a separate contract, even though the overarching framework was not legally enforceable.

The case remains a leading authority on the requirement of intention to create legal relations in contract law, demonstrating that this essential element can be negated by express agreement between the parties.

Verdict: Appeal allowed in part. The 1913 arrangement was not a legally binding agreement due to the 'honourable pledge' clause. However, individual orders placed and accepted constituted binding contracts. The cross-appeal succeeded: the pre-1913 agreements had been cancelled by mutual consent when the 1913 arrangement was entered into.

Source: Rose & Frank & Co v Crompton & Bros Ltd [1924] UKHL 2 (05 December 1924)