The Intention To Create Legal Relations In Commercial Arrangements Is Essential: The House of Lords

The House of Lords in the well-known case of Rose and Frank Co v. Crompton and Brother Ltd (1925) AC 445 highlighted agreements that are enforceable by law. The Court, in this case, held that the very fact that the arrangement between the parties to the case does not constitute a legal contract will not ipso facto preclude the orders and acceptances from constituting legally binding contracts. 


Rose and Frank Co was the sole US distributor of JR Crompton’s carbon paper products. In 1913, the parties signed a new sole office agreement for the sale of paper goods in the USA. The written agreement contained a clause stipulating that it was not a formal nor legal agreement, and an “honourable pledge” between business partners, and towards the end of the document, there was a remarkable clause that 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”. 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. In 1920, before the orders were fulfilled, the British company terminated the agency agreement and refused to send the goods, claiming that the 1913 agreement was not legally binding and that, consequently, the orders did not create legal obligations.


On appeal, Lord Justices Atkin, Bankes and Scrutten all were of the opinion that there was no intention to be legally bound. The House of Lords held that the 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. Regarding this case, it further held that the agreement clearly expressed that the parties did not intend to enter into legal relations. The Court explained the argument that the clause restricting the legal enforceability of a contract applies 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 prohibited the legal enforceability of the agreement. 

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Reviewed by Anagha K Bharadwaj

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