This case established that a contract can be accepted by the conduct of the parties.
Facts of the Case
The Appellants (Brogden & Co.) were coal mine owners in Wales. The Respondents were directors of the Metropolitan Railway Company. from beginning of 1870, the appellants had supplied the respondents with coal and coke for the use of their locomotives. In November 1871, the appellant’s manager, Mr. Hardman made a suggestion to enter a contract with the respondents. An officer of the respondents, Mr Burnett, was appointed to meet Mr. Hardman to make arrangement. As a result of this meeting on 19 December 2871, a draft agreement was drawn up. The material terms are:
From 1 January 1872, Brogden & Co. shall supply every week and deliver at least 220 tons of coal to Metropolitan Railway Company and any further quantity of coal not exceeding 350 tons per week, at such times and in such quantity as the company requires through their written instructions.
The payment was to be at the rate of 20s. per ton of 20 cwt (hundredweight).
The contract is for a period of 1 year and both parties have the right to terminate the contract by a 2 months advance notice in writing on 1 November 1872. If there is no notice given, the contract was to continue in force for 1 more year from 1 January 1873.
The draft contract was prepared by Mr. Burnett who then handed to Mr. Hardman for approval from Appellant. Mr. Hardman had submitted it to Mr. Brogden, the head of the firm of Brogden & Co. Mr Brogden left the date blank, filled up the details of the parties by putting in his name and his partners of his company, made some slight modifications to the contract, filled the arbitration clause with a name and finally written the word “approved” and under it signed his own name, “Alexander Brogden”. He gave the papers to Mr. Hardman to be returned to Mr. Burnett for the purpose of having a formal contract drawn in duplicate and signed by both parties.
Mr Burnett then put the draft contract into his drawer. No entry was made in the books of the company. On 22 December 1871, Mr Burnett telegraphed and sent a letter to the appellant to deliver 250 tons per week of coal starting from 1 January 1871. Mr Hardman answered that they had arranged to supply the respondent with the coal requested, 250 tons weekly from 1 January 1871. The supply of coal has been made for some time but sometimes, there was a failure of regular supply. Many letters had passed between the parties which referred to the contract drafted and the deficient supplies had been made up by the appellant.
In December 1873, the appellant declined to continue the supply of coal in that manner. Thus, an action for damages as for breach of contract was brought against the appellant. The appellant had denied the existence of a contract to supply coal. This case was heard before the Court of Common Pleas and judgment was ordered to be entered for the respondent and the damages were assessed at £9643. The appellant then appealed. The Court of Appeal affirmed the lower court’s decision. Thus, the appellant appealed to the House of Lords.
Issue of the Case
Whether there was a valid contract between Brogden & Co and Metropolitan Railway Company?
Judgment of the Case
The Appellants contended that there had not been any completed agreement. What they had done was only sketch out what was proposed by both parties and the word ‘approved’ written and signature by one of the partners in his own name is not the proper style and designation of the firm. So, they argued that it was not sufficient to constitute a valid contract.
The respondents argued that everything that has been done was necessary constitute a bonding contract. A proposition had been made and the authorised agents of both parties had met to consider it. Then, they reduce what they had agreed into writing, with only some blanks which could be easily filled up and it does not constitute new proposition. The papers were sent to the appellants for approval and it was returned with the word ‘approved’ with Mr. Brogden’s signature attached. As to the name of the arbitrator, it may be a new proposition but it was accepted by the respondents without informing the appellant.
The court finds that the amendments made by the respondent make no substantial difference to the terms. The document was signed by one of the persons as partners in the agreement and it was signed on behalf of the partners. After the contract was returned to the respondent, the respondents were silent and makes no objection to anything which had been done to the contract but they said to the appellant this “We shall require 250 tons per week of locomotive coal, commencing not later than the 1st of January next". This date is the date mentioned in the contract for the commencement of the supply. On 22 December, the appellant replied "We have arranged to supply you quantity you name, 250 tons weekly, from 1st January." This shows that they were acting according to the terms of the contract.
Another strong evidences that the parties had entered into contract is that all the coal supplied from 1st January was invoiced and paid for according to the contract price of 20s, which as higher than the price before.
It was held by the court that if both parties have acted upon that draft and treated it as binding, they will be bound by it. When they had come so near as it remained to execute formal agreements, and the parties evidently contemplated that they were to exchange agreements, so that each side should be perfectly safe and secure, knowing that the other side was bound. But, although that was what each party contemplated, still the court agrees "that if a draft having been prepared and agreed upon as the basis of a deed or contract to be executed between two parties, the parties, without waiting for the execution of the more formal instrument, proceed to act upon the draft, and treat it as binding upon them, both parties will be bound by it. But it must be clear that the parties have both waived the execution of the formal instrument and have agreed expressly, or as shewn by their conduct, to act on the informal one.
Hence, the court concludes that the judgment ought to be in favour of the respondents.
Principle of the Case
A contract can be accepted by the conduct of the parties if they had acted according to the terms of the contract and treated it as binding upon them.
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