Alexander Brogden and Ors. v. The Directors of the Metropolitan Railway Company, (1877) 2 App. Cas. 666

Mr. Brogden, who headed a coal supply partnership, had been supplying coal to Metropolitan Railway Company for several years without any formal written contract. Mr. Brogden proposed that the parties should enter into a formal long-term agreement governing future coal supplies. Following negotiations, Metropolitan Railway Company prepared a draft agreement and forwarded it to Brogden for approval.

Brogden made certain amendments to the draft, including filling blank spaces and nominating an arbitrator for dispute resolution. He then wrote the word “approved” on the document and returned it to Metropolitan Railway Company. Metropolitan’s agent received and filed the document but did not formally communicate acceptance or execute the agreement.

Despite the absence of formal execution, both parties proceeded to act in accordance with the terms of the draft agreement: Metropolitan Railway Company regularly ordered coal; and Brogden supplied coal under the proposed contractual arrangement.

Subsequently, disputes arose between the parties, and Brogden contended that no binding contract existed because the agreement had never been formally accepted.

Acceptance May Be Inferred from Conduct: The House of Lords held that contractual acceptance need not always be express and may be inferred from the conduct of the parties. The Court observed that when parties act upon the terms of a draft agreement and treat it as binding, their conduct itself may constitute acceptance. Thus, a formally signed agreement is not indispensable where mutual assent is evident from performance.

Conduct of Parties Demonstrated Mutual Assent: The Court noted that after exchange of the draft agreement: Metropolitan Railway Company continued placing coal orders under the proposed terms; and Brogden supplied coal accordingly. This consistent course of dealing clearly demonstrated that both parties intended to be governed by the draft agreement. The Court therefore concluded that the parties had mutually adopted and acted upon the contractual terms.

Lord Blackburn’s Principle: Lord Blackburn explained that: Where parties proceed to act upon a draft agreement as though it were binding, they may become legally bound even before formal execution of the contract. The Court emphasized that commercial transactions must be assessed according to the practical conduct and intentions of the parties rather than merely technical formalities.

Existence of a Concluded Contract: The Court held that Metropolitan Railway Company’s conduct in accepting and acting upon the draft agreement amounted to acceptance of Brogden’s amended terms. Therefore, a concluded and enforceable contract had come into existence through conduct. The House of Lords held that a binding contract existed between the parties.