12 May 2011 | Peter Brudenall
A contract inferred by behaviour can be binding
This is an important case that established that a contract can be formed through the conduct of the parties. Mr Brogden, who had a long-term relationship with the Metropolitan Railway Company for the supply of coal, suggested that a formal contract be agreed by the parties to cover future supplies.
Metropolitan sent Brogden a draft contract for review. Brogden added some changes and sent it back to Metropolitan and wrote “approved” at the end of the draft. The agreement was then filed by Metropolitan without further amendment or discussion. For some time, both parties then acted consistently with the terms that had been developed by the parties.
Unfortunately, there was a disagreement and Brogden argued that there was no formal agreement in place between them.
The House of Lords held that a contract had arisen by conduct. The court said that even though no formal agreement was signed, the parties had acted consistently with a formal contract being in force. The word “approved” on the document with Brogden’s name was binding, even though the standard signature of Brogden’s partnership “B. & Sons” was not used. The court said that although a mere mental assent to the agreement’s terms would not have been enough, because the terms were acted on it was binding. Lord Blackburn stated that “if the parties have by their conduct said they act upon the draft that has been approved by Mr Brogden, and which if not quite approved of by the railway company has been exceedingly near it, if they indicate by their conduct they accept it, the contract is binding”.
The case highlights how a contract may be inferred from conduct, even though neither party may have signed any formal agreement. This can be particularly important in long-term business relationships when written agreements often become superseded by the parties changing how they do business with each other, but without this being formally agreed in writing. Ensuring that any such change is appropriately agreed in writing is the only way to be certain as to the terms of a business relationship.
☛ Peter Brudenall is a partner at LG