ROSE AND FRANK COMPANY APPELLANTS vs J. R. CROMPTON AND BROTHERS AND OTHER RESPONDENTS [1925] A.C. 445, H.L. "Tissues and Honor Clauses"

Rose and Frank were sole distributors for J.R. Crompton and another, of tissue paper manufactured in England, in the US and Canada.  Initially they had a 12 month contract, but in 1913, they signed a document with the Respondents and another company whereby there was an understanding that Rose and Frank would serve as the sole distributor for a time of 3 years, with a right to renew, but with a clause stating the following:

"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."

In 1919 differences arose between the parties, and the respondents refused to continue dealings with the appellants, and also refused to ship them tissues which they had ordered prior to the differences, and based this on the claim that there was no contract between them, that there was only an "honor clause", and that the order outstanding was part also not contractual because it emanated from this non-contractual relationship.

The appellants claimed that the first part of the document was in fact a contract, and the honor clause, which came at the end of the document, could not nullify the agreement, and that the claim should fail on repugnance.

Lord Phillmore decided the following:

1) The entire document can be construed to be an honor clause, and there was no contract to begin with, which squashes the argument of repugnance.

2) There is a claim for the outstanding orders, since these were done under the terms of a normal transaction, and even though the dealings emanated from a non-contract "honorable agreement of terms", there was no obligation on the American company to order the products or upon the English company to accept the order.  This in itself is a contractual transaction, and must be considered such.  (An example given was if the American company placed the order and the English company shipped something which damaged other goods on board, the American company would have legal recourse.)

3) On the appellants claim for damages emanating from future orders, since there was no contract, this is squashed.

The ratio of this case can be said to be that an honor clause in a document which is agreed to by both parties nullifies the document from being a contract.