G.R. No. L-5315
MADRIGAL & CO., plaintiff-appellant, vs. W. S. STEVENSON & CO., defendant-appellee.
January 15, 1910

FACTS:
Plaintiff Madrigal & Co. sued defendant W. S. Stevenson & Co. for damages, alleging a breach of contract for the sale and delivery of 2,000 tons of Duckenfield coal in July 1908. Madrigal & Co. claimed a verbal contract was entered into on April 7, 1908, through a broker named Armstrong, who was allegedly acting on behalf of Stevenson & Co. This verbal agreement was purportedly reduced to a written memorandum.

Stevenson & Co., a wholesale merchant, had received instructions from its London office to buy 2,000 tons of coal for July delivery. Its agent, Corbet, informed the broker Armstrong that Stevenson & Co. was in the market to buy the said coal. However, Armstrong misunderstood this to mean Stevenson & Co. was in the market to sell.

On April 7, Armstrong presented a “Coal contract” memorandum. Its title stated: “Coal contract between Messrs. Madrigal & Co., buyers, and Messrs. W. F. Stevenson & Co., sellers.” The document had blank spaces for “Accepted, ….. buyers” and “Accepted, ….. sellers.” Stevenson, the defendant’s manager, believing that the document was a memorandum for his company to buy coal from Madrigal & Co., signed Stevenson & Co.’s name in the blank space opposite the word “buyer.” This memorandum was delivered to Madrigal & Co.

Two days later, Armstrong forwarded a duplicate of the memorandum to Stevenson & Co., with Madrigal & Co.’s name signed in the blank space opposite the word “buyer.” Corbet, Stevenson & Co.’s agent, immediately returned the memorandum, pointing out that Madrigal & Co. had signed as “buyer” instead of “seller,” and requested a correction. Armstrong then informed Madrigal & Co. of Stevenson & Co.’s position, that they were the buyer, not the seller. Madrigal & Co. subsequently demanded fulfillment of the alleged contract of sale in July, but Stevenson & Co. refused, denying the existence of such a contract.

The trial court found that Corbet proposed a purchase by the defendant, not a sale, and that Stevenson & Co.’s signature was attached in good faith as a buyer. The confusion arose through the mistake of the broker.

ISSUE:
Whether a valid contract of sale was perfected between Madrigal & Co. and W. S. Stevenson & Co., despite the mutual misunderstanding regarding each party’s role (buyer or seller) in the transaction.

RULING:
The Supreme Court AFFIRMED the judgment of the trial court, holding that no valid contract of sale existed between the parties.

The Court ruled that there was no “meeting of the minds” or mutual consent on the alleged contract. Both Madrigal & Co. and W. S. Stevenson & Co. signed the memorandum as “buyer,” each believing the other was the “seller.” This fundamental disagreement on the capacity of the parties (who was buying and who was selling) meant that one of the essential requisites for a contract consent was absent.

The Court found that Stevenson & Co. consistently intended to purchase coal, not sell it, as evidenced by its internal communications and its prompt actions to correct the perceived error in the memorandum. The confusion was solely due to the broker’s mistake. Since there was no mutual agreement on the terms and nature of the transaction, no contract was formed, and therefore, Stevenson & Co. could not be held liable for damages for an alleged breach.