LEGAL CASE PRESENATIOn of voidable agreement

legal case

1. ROSE FRANK COMPANY V. CROMPTY AND BROS LIMITED (1925)AC 445 PRESENTED BY:- Group-9 PRINCE 23GSOB2010515 RAHUL PANDEY 23GSOB2010545 PRIYA TYAGI 23GSOB2010594 PRIYANKA 23GSOB2010464 RAJESH JADON 23GSOB2010615

2. 01 03 02 04 Contentions/ Argument Legal Principle Involved Table of contents Overview Facts of the Case 05 Judgement 06 Reasons

3. Overview 01

4. Overview Citation:- (1925)Ac445 Date of judgement:- 17 dec. 1925 Court:- House of Lords Appellant:- Crompton Bros Respondent:- Rose & Frank company Bench:- Lord Atkinson, Lord Buck master, Lord Phillimore

5. Facts of the Case 02

6. 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 on 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.

7. 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”. 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.

8. 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.

9. Legal Principle Involved 03

10. 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. 

11. The following points can be considered while determining the intention to create a legal relationship: –  The parties to the contract must have the obvious mind to enter into a serious contract  To make a contract enforceable, legal and binding, there must be an intention to create legal relations  In the absence of intention, the parties cannot sue each other  The contract may become a mere promise if the intention to create legal relations is absent  The contract may lack the binding effect in the absence of the intention to create legal relations.

12. Contentions/Arguments 04

13. Exclusivity Clause Interpretation: The primary contention revolved around the interpretation of the exclusivity clause in the contract. Rose & Frank Co. argued that the clause was merely a “gentleman’s agreement” and not a legally binding condition, while Crompton & Bros. Ltd. contended that it was an integral part of the contract. Precedent and Industry Practice: Rose & Frank Co. argued that it was common industry practice to have such non-binding clauses and pointed to similar cases where they were not enforced as legal obligations.

14. Lack of Mutual Assent: Rose & Frank Co. claimed that there was no mutual assent to make the exclusivity clause a binding term, and it was not sufficiently clear in the contract. Arguments by Rose & Frank Co: Customary Practice: They contended that the language used in the contract was in line with industry practices, which did not render such clauses legally enforceable.

15. Business Realities: Rose & Frank Co. argued that the nature of their relationship with Crompton & Bros. Ltd. was informal and did not suggest a legally binding contract, especially regarding the exclusivity clause.

16. Arguments by Crompton & Bros. Ltd.: Express Wording: Crompton & Bros. Ltd. emphasized the clear language of the contract, stating that the exclusivity clause was “binding in honor only,” which they believed was a legally binding condition. Course of Performance: They argued that both parties had consistently acted as if the exclusivity clause was binding over an extended period, reinforcing its legal significance.

17. Judgement 05

18. 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.

19. 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. 

20. “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. 

21. 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. 

22. 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.” 

23. 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.

24. 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.

25. Reasons 06

26. Scrutton , writing for the majority, stated that although in business relations it is generally assumed that a contract has been intended, here there is a specific clause stating the intention of the parties not to be bound in a legal contract. In contract law it is the intentions of the parties that matters, and here they are clearly stated. As the parties did not intend to be bound, there is no legally enforceable contract. Atkin, in the dissent, agreed that the document did not form a legally binding contract, but held that the orders and responses between the parties in the process of business constituted enforceable contracts of sale.

27. Q. Whether the agreement between the parties of 1913 constituted a legally binding contract? What is the effect of the ‘binding in honour’ clause? Q. Whether there is an enforceable contract between the parties? Whether the orders placed constitute enforceable contracts of sale?

28. Thanks!