Introduction
The case of Daulia v Four Millbank Nominees [1978] Ch 231 concerns the formation of a unilateral contract and the point at which an offer can no longer be revoked. A unilateral contract is one where an offer is made in exchange for performance, rather than in exchange for a promise. In this particular case, the offer concerned the sale of property. The technical principle at stake is the point at which an offeror becomes bound, in particular when the offeree has started, but not completed, performance. The key requirements involve analysing the communications between parties, determining the nature of the agreement (bilateral vs. unilateral), and understanding the legal limitations imposed by legislation, such as the Law of Property Act 1925, which demands written contracts for the transfer of land.
The Facts of the Case
In Daulia v Four Millbank Nominees, the claimant, Daulia, wished to purchase property from the defendants, Four Millbank Nominees. The parties reached an oral agreement on the terms, but no written contract had been produced. The defendants promised Daulia that if a banker's draft for the deposit was arranged before 10:00 am on 22nd December, a formal written contract would be drafted for the sale. Daulia took the required steps to fulfill this condition; however, the defendants declined to proceed with the sale. The case turned to the question of whether a unilateral contract was established and whether the defendants were able to revoke their offer once the claimant had begun performing the required action.
Unilateral Contract Formation and Revocation
A crucial aspect of the Daulia v Four Millbank Nominees case is the determination of when a unilateral contract is formed. In contrast to bilateral contracts, which are formed by an exchange of promises, a unilateral contract arises when an offer is made which is accepted by the completion of a specified act. The offeror essentially promises to perform if the offeree performs the requested action. The issue then becomes whether an offeror can revoke their offer once the offeree has started performance, but before it is completed. In the Daulia case, Four Millbank made an offer conditional upon the creation of the banker's draft by a specific deadline.
The Court in Daulia acknowledged that a unilateral contract existed. Until performance begins, an offeror maintains the capacity to withdraw the offer. However, once the offeree commences the act of performance, a limitation is imposed on the offeror’s ability to revoke the offer. This principle acknowledges that it would be unjust for an offeror to benefit from the commencement of an act of performance, yet to be able to retract their offer before completion. This is a key characteristic that distinguishes the Daulia v Four Millbank Nominees case from the general rules of revocation of offer.
The Effect of the Law of Property Act 1925
Section 40(1) of the Law of Property Act 1925 stipulates that contracts concerning land must be in writing. This is a statutory requirement designed to offer certainty and to avoid potential fraud in land transactions. In the Daulia case, the oral agreement between the claimant and the defendant was not sufficient to create a legally binding contract for the sale of land, even though the court accepted that a unilateral contract had been created. The court’s initial decision to dismiss the case was based on this lack of a written agreement. The need for a written contract as required by the Law of Property Act 1925, is a significant factor in any contract relating to the sale of land, and any unilateral contract that appears to fulfil the usual requirements will still be unenforceable without compliance with this act.
Obiter Dictum: Implied Obligation and Commencement of Performance
Although the court was compelled to dismiss Daulia’s claim because of non-compliance with Section 40 of the Law of Property Act 1925, Goff LJ made a significant obiter dictum (a statement not strictly necessary for the decision but which expresses an opinion). This statement concerned the revocation of unilateral contracts. Goff LJ stated that an offeror has an implied obligation not to prevent the condition of the offer from being satisfied once the offeree has begun performance. This implied obligation is triggered as soon as the offeree begins to perform the conditions of the offer. This is crucial. Before this point, the offeror can withdraw the offer, but once the offeree has started performance, it is too late for the offeror to revoke the offer. The commencement of performance, thus, is the moment when a unilateral offer becomes irrevocable. This obiter statement has had a considerable impact on the approach to unilateral contracts and offers a degree of protection to the offeree who has begun performance on reliance of the offer.
Comparison with other case law
Daulia v Four Millbank Nominees can be compared to other landmark cases to understand its place in contract law. For example, Errington v Errington and Woods [1952] 1 KB 290 establishes a similar principle regarding unilateral contracts. In Errington, the court held that a father’s promise to his son and daughter-in-law to transfer ownership of a house once the mortgage was paid was a unilateral contract which could not be revoked once performance (paying off the mortgage) had begun. This concept supports the idea outlined in Daulia that performance can create an irrevocable obligation on the part of the offeror.
Also, Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, another pivotal case, illustrates the formation of a unilateral contract. In Carlill, the Carbolic Smoke Ball Company advertised a reward of £100 to anyone who contracted influenza after using their smoke ball. The Court held that this advertisement was an offer to the world at large and could be accepted by anyone who purchased and used the smoke ball. This case shows that unilateral contracts can exist and can be accepted by performing specific acts. This ties in with the principle seen in Daulia where a unilateral contract is established once performance has started, even though in Daulia, the contract was void due to its nature involving land and lack of a written form.
These cases, along with Daulia v Four Millbank Nominees, help define the principles of offer, acceptance, revocation, and the role of performance in the law of contract, and specifically within the concept of unilateral contracts.
Conclusion
The judgment in Daulia v Four Millbank Nominees clarified key aspects of unilateral contract formation, particularly in cases where the offeree has started performance. Though the case was ultimately dismissed due to the non-compliance with section 40(1) of the Law of Property Act 1925, the obiter dictum by Goff LJ set a significant precedent. The principle that an offeror cannot revoke their offer once the offeree has begun performance of the conditions outlined in a unilateral offer has been highly influential, offering protection to offerees and aligning with general contract law expectations. This case provides a clear position that, while the offeror retains the power to revoke a unilateral contract before performance commences, their ability to do so is restricted once performance has begun. The case also highlights the significance of statutory requirements such as the Law of Property Act 1925, demonstrating that despite the existence of a valid contract formed through offer and acceptance, legislative requirements must still be fulfilled. These principles and distinctions seen in this case are fundamental to the application of contract law, and the case provides valuable guidance in this complex area.
