Brogden v Directors of The Metropolitan Railway Company (1877) 2 App Cas 666

Facts

Brogden & Sons had a long-standing informal business relationship supplying coal to the Metropolitan Railway Company. To formalise their arrangement, the parties decided to create a written contract. The railway company’s agent drafted the terms and sent the document to Brogden for consideration. Brogden’s agent made some minor alterations to the draft, notably inserting the name of an arbitrator to resolve any future disputes. He then signed the document, marked it as ‘approved’, and returned it to the railway company’s agent. The railway company’s agent simply placed the document in his desk drawer and never formally communicated his acceptance of the amended terms to Brogden. Despite the lack of formal communication, both parties proceeded to act in accordance with the terms laid out in the draft contract. The railway company ordered coal, and Brogden supplied it at the prices specified in the document. This course of dealing continued until a dispute arose, at which point Brogden contended that no binding contract had been formed.

Issues

The central legal issue before the House of Lords was whether a binding contract existed between the parties in the absence of a formal, communicated acceptance of Brogden’s amended contract document. The key question was whether the subsequent conduct of the parties could constitute a valid acceptance of what was, in effect, a counter-offer from Brogden.

Judgment

The House of Lords unanimously held that a valid and binding contract had been formed. The court reasoned that Brogden’s amendments to the draft contract constituted a counter-offer. While the railway company never explicitly communicated its acceptance of this counter-offer, its subsequent conduct of ordering coal on the new terms was a clear and unequivocal act of acceptance.

Judicial Reasoning

The Law Lords established that acceptance need not always be an express statement but can be inferred from the conduct of the parties.

Lord Cairns, the Lord Chancellor, explained that mutual assent was key:

…when you have a document signed by one party, and you find that document in the possession of the other party, and you find that other party has acted upon it, what can be stronger evidence of his having assented to it, although he may not have signed it?

He emphasised that the contract came into existence not when the document was amended, but when the parties began to act upon its terms:

…it was not until the parties had acted upon it that a contract was made.

Lord Blackburn provided a detailed analysis on the nature of acceptance, stating:

I have always believed the law to be this, that when an offer is made to another party, and in that offer there is a request express or implied that he must signify his acceptance by doing some particular thing, then as soon as he does that thing, he is bound… a simple acceptance in your own mind, without any intimation to the other party, and tested by no act, is not an acceptance… But there is this clear gloss upon it, that where a course of dealing has specified between the parties that he should do an act, or he has so conducted himself that it is manifestly an acceptance, the doing of the act is a sufficient indication.

The court concluded that the ‘course of dealing’ between the parties demonstrated a consensus and an intention to be bound by the terms of the amended draft. The act of ordering and supplying coal was only explicable on the basis that both parties considered themselves bound by the contract.

Implications

This case is a foundational authority in English contract law for the principle of acceptance by conduct. It establishes that a contract can be formed even without explicit verbal or written communication of acceptance, provided the offeree’s actions are consistent with an intention to accept the offer and are known to the offeror. The decision underscores the objective approach to contract formation, where the court looks at the external manifestations of the parties’ intent rather than their subjective states of mind. It highlights the critical role that a ‘course of dealing’ can play in establishing the existence and terms of a contract, particularly in commercial contexts where formal procedures may be overlooked.

Verdict: The House of Lords held that a valid and binding contract existed between the parties.

Source: Brogden v Directors of The Metropolitan Railway Company (1877) 2 App Cas 666