The kind of statement found in Rose and Frank v Crompton is known as an
honourable pledge clause, one in which the parties bind each other in
honour but not in law. Honourable pledge clauses are allowed by the court,
with some reluctance on occasions, and the House of Lords re-examined
the issue in the following case.
The opportunity to restate the extent of this burden of proof arose in the
Court of Appeal in the following case.
In the case of Carlill v Carbolic Smoke Ball Company, seen earlier, it was
argued that there was no intention there to create legal relations, but the
argument failed as a defence. The court decided that the evidence showed
that the company had really led the public to believe that any contract was
intended to be binding. So why does the court decide that some parties
72 Contract law
Rose and Frank Co v Crompton Bros (1925)
Both parties were in business, and they formed an agreement in which one
acted as agent for the other to sell paper. In their written negotiation they
included a statement that they had not entered into a ‘formal or legal
agreement’, but had only made a ‘definite expression and record of the
purpose and intention’ of the parties. When later a dispute arose, the House
of Lords accepted this statement, and concluded that there was no intention
to create legal relations in their negotiations. It is at least arguable that if the
parties had gone to the lengths of writing all of this down, then it could
hardly be claimed that the agreement was not a formal one. However, the
outcome was in accordance with the parties’ expectations, which was
probably at least part of the reasoning behind the court’s decision.Edwards v Skyways (1964)
Skyways claimed that the term ex gratia meant the same as legally
unenforceable, and this would have enabled the company to avoid a
payment to a pilot who had been made redundant. The court did not agree,
and emphasised that there was a very heavy burden on any party claiming
that the presumption in a commercial contract had been rebutted.Kleinwort Benson v Malaysian Mining Corporation (1989)
The trial judge found that a ‘letter of comfort’, which was really a letter
giving support to a credit arrangement, did have legal intent,being
written in a commercial context, and followed the normal presumption
that such agreements were intended to be binding.However, the Court
of Appeal, somewhat reluctantly, held that the letter did not carry an
intention to be bound.