Lifeline Chemicals Limited has just moved to its new corporate office in Victoria Island, Lagos. Bose, a younger sister of the Managing Director, is invited to serve meals at the office cafeteria daily. She is issued a letter, requesting for her services for one year, starting from October 2009. The letter contains an “honour clause” stating that the arrangement “shall not be attended by any legal relationship or the subject of litigation, but all such transactions are binding in honour only.” The desired menu for each month, from October to December, is sent to Bose and she provides the meals according to the order.
In the month of November, plans are made for an End-of-Year & Christmas Party. It is suggested that professional caterers should be hired for this event. The Managing Director accepts the suggestion. He informs his sister that she will not be needed to cater for the End-of-Year event. He also lets her know that her services to the company may not be required subsequently.
Bose is saddened by this development. She has already invested in foodstuff towards fulfilling the orders. She intends to make a case to protect her interests. However, she is told by a friend that her rights are not enforceable because she is doing business with her brother. What is the legal position of Bose with the company?
A valid contract, which is enforceable in a court of law, must have an offer, an acceptance and some form of consideration from each party. It is however agreed that there is a fourth element required to be present in any contract. This is the intention of both parties to enter into legal relations. For a contract to be enforceable, it must be clear that the parties consented to enter into legal obligations and accepted to be bound by them.
The present case covers the following legal issues:
- The place of domestic and social engagements.
- The effect of the “honour clause” in contracts.
- The nature of divisible contracts.
From as far back as 1919, the case of Balfour v. Balfour, established the position that contractual intention is absent in domestic and social engagements. Parties to such an agreement cannot sue each other on it. This rule has been applied especially in family relationships like that of a husband and wife or between a parent and child. In Jones v. Padavatton, a mother promised to make monthly payments to her daughter and provide accommodation in return for the daughter’s promise to study Law. After a bitter quarrel between the two, the mother revoked her promise and evicted the daughter. It was held by the Court of Appeal that the agreements to pay the daughter a monthly allowance and permit her possession of the house were not binding because they were not meant to create legal relations.
However, this rule may not apply in certain situations. For example, where family members are not living in harmony and their relationship has degenerated to the level of mutual hostility, an agreement between them would be binding. Also, where the performance of a domestic or social engagement involves great sacrifices on the part of one or both parties, the absence of contractual intention may be rebutted. In the case of Parker v. Clark, a man and his wife sold their house to move in and share expenses with his uncle. The agreement was held to be binding because of the drastic and irrevocable steps they had taken.
The case of Bose catering for Lifeline Chemicals involves a commercial agreement to provide services over a period of time. The fact that the business is done with the company classifies it as a commercial transaction. In law, there is a presumption of contractual intention in commercial agreements. However, a party may plead the absence of contractual intention where the agreement itself contains a clause expressly excluding the intention to enter into legal relations.
Indeed, it is not uncommon for provisions in a contract, as in the letter from Lifeline Chemicals, to absolve the parties of any legal liabilities arising from the business. In Buko v. Nigerian Pools Company, the Supreme Court expressed its views on the “honour clause” as follows: “the intention was to ensure that the relationship between the parties was to be that of honour, in other words, a gentleman’s agreement rather than to create a legal relationship.”
Thus, it would seem that the provision of catering services is a commercial transaction, which should be binding on the parties. Nevertheless, provisions have been made to exclude legal liabilities by the insertion of an “honour clause” in the original letter of offer. This means that, even though the services of Bose have been engaged for a period of one year, Lifeline Chemicals is at liberty to disengage without any liability.
It must be noted that this transaction involves what is known as a divisible contract. This is a situation with a major contract clearly divisible into smaller units. For example, a contract may be entered into for the supply of goods over a period of time. Every time a specific order is placed, it is a smaller contract in the major one. In Bose’s case, she had a major contract to provide meals for a period of one year. Subsequently, specific menus were given for October to December. Each order placed was a contract by itself. From the judicial decision in Rose & Frank’s Case, we see that the parties in a divisible contract are legally obligated to orders made before the termination of the contract.
In conclusion, Lifeline Chemicals is liable for the orders made to Bose for the months of October to December, before her services were disengaged.
Principles and cases are drawn from Sagay: Nigerian Law of Contract