Facts[]
Rose and Frank Co. were the exclusive American distributor for J.R. Crompton's new paper product. In their agreement there was a clause included stating that the arrangement was not intended to be a formal legal agreement and would not be subject to legal jurisdiction of either the US or the UK. J.R Crompton cancelled the agreement because they were unhappy with Rose and Frank Co.'s proceedings and Rose and Frank Co. sued for breach. They were successful at trial, which J.R. Crompton appealed.
Issue[]
- Can a clause be put in a contract saying that it is not legally binding, or is there a contract anyway?
Decision[]
Reversed the judgment of the Court of Appeal
Reasons[]
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.
Ratio[]
- It is generally assumed that parties in business relationships intend to be bound.
- If parties expressly state in an agreement that they do not wish to be bound, the courts must respect their actual intentions.
Notes[]
The House of Lords, on appeal, reversed this judgment agreeing with the reasoning of Atkin.