BetterLawNotes-5 (2)

CONTRACT LAW

Revocation of offers to enter into unilateral contracts can raise particular difficulties. Suppose that A promises B £100 if B walks from London to York Minster. When B is on the outskirts of York, A tells him that the offer is withdrawn. If B carries on to York Minster, can he claim the £100? If B stops on the outskirts of York, can he claim the £100? If not, can he claim anything?

Errington v Errington [1952] 1 KB 290

In 1936 a father bought a house for his son and daughter-in-law to live in. The father paid £250 in cash and borrowed £500 from a building society. The house was put in the father’s name. The father said to the daughter-in-law that if she and her husband paid off the building society loan, the house would be theirs. The father died in 1945 leaving all his property to his widow. The son and daughter-in-law had paid all the loan instalments up to this time, but the widow sought possession of the house. The Court of Appeal held that the couple were entitled to remain in the house so long as they paid the instalments.

‘The father’s promise . . . could not be revoked by him once the couple entered on performance of the act, but it would cease to bind him if they left it incomplete and unperformed.’ (Denning LJ at 296).

‘it is clear that the father expressly promised the couple that the property should belong to them as soon as the mortgage was paid, and impliedly promised that so long as they paid the instalments to the building society they should be allowed to remain in possession.’ (Denning LJ at 300).

Daulia Ltd v Four Millbank Nominees Ltd [1978] Ch 231

Daulia wished to buy certain properties in London which FMN were selling as mortgagees. Daulia claimed that there was an oral agreement that FMN would exchange sale contracts with Daulia if Daulia attended at FMN’s offices at a certain time with a signed copy of the agreed contract and a banker’s draft for the amount of the deposit. Daulia did this, but FMN refused to exchange contracts. The Court of Appeal held that there was a unilateral contract but that it was unenforceable as it did not comply with the requirements of s 40 of the Law of Property Act 1925. In the Court of Appeal, Goff LJ said that there was no issue here as to revocation of an offer of a unilateral contract as Daulia had fully performed the conditions and actual exchange was not a condition of conclusion of the unilateral contract. But Goff LJ added that if he were wrong on that point, and exchange was necessary for conclusion of the unilateral contract, the outcome would be the same.

‘Whilst I think the true view of a unilateral contract must in general be that the offeror is entitled to require full performance of the condition which he has imposed and short of that he is not bound, that must be subject to one important qualification, which stems from the fact that there must be an implied obligation on the part of the offeror not to prevent the condition becoming satisfied, which obligation it seems to me must arise as soon as the offeree starts to perform. Until then the offeror can revoke the whole thing, but once the offeree has embarked on performance it is too late for the offeror to revoke his offer.’ (Goff LJ at 239)

‘[t]he defendants’ offer to exchange contracts must have been subject to an implied obligation that the defendants would not render the performance by the plaintiffs of the acts necessary for acceptance impossible, and I agree with Goff LJ that the defendants could not withdraw their offer once the plaintiffs had embarked upon those acts.’ (Buckley LJ at 245).

Do these dicta in Errington and Daulia mean that an offeror can never revoke his offer of a unilateral contract once the offeree has begun to perform? Consider the case of Luxor v Cooper:

Luxor (Eastbourne) Ltd v Cooper [1941] AC 108

Cooper alleged an agreement with the two defendants whereby they would each pay him £5,000 if he introduced a purchaser who agreed to pay at least £185,000 for the four cinemas which the defendants were looking to sell. Cooper introduced such a person to the defendants, but the defendants decided not to enter any sale agreement. Cooper sued the defendants claiming he was entitled to either his £10,000 commission or damages in the same amount for the defendants’ breach of an implied term that the defendants would ‘do nothing to prevent the satisfactory completion of the transaction so as to deprive [Cooper] of the agreed commission.’ The House of Lords held that Cooper was not entitled to any payment from the defendants.

‘The owner is offering to the agent a reward if the agent’s activity helps to bring about an actual sale, but that is no reason why the owner should not remain free to sell his property through other channels. The agent necessarily incurs certain risks, eg, the risk that his nominee cannot find the purchase price or will not consent to terms reasonably proposed to be inserted in the contract of sale. I think, upon the true construction of the express contract in this case, that the agent also takes the risk of the owner not being willing to conclude the bargain with the agent’s nominee. This last risk is ordinarily a slight one, for the owner’s reason for approaching the agent is that he wants to sell.

If it really were the common intention of owner and agent that the owner should be bound in the manner suggested, there would be no difficulty in so providing by an express term of the contract. But in the absence of such an express term, I am unable to regard the suggested implied term as “necessary”.’ 

 

Viscount Simon LC at 117-118

‘I can find no safe ground on which to base the introduction of any such implied term. Implied terms, as we all know, can only be justified under the compulsion of some necessity. No such compulsion or necessity exists in the case under consideration. The agent is promised a commission if he introduces a purchaser at a specified or minimum price. The owner is desirous of selling. The chances are largely in favour of the deal going through, if a purchaser is introduced. The agent takes the risk in the hope of a substantial remuneration for comparatively small exertion. In the case of the plaintiff his contract was made on September 23, 1935; his client’s offer was made on October 2, 1935. A sum of £10,000 (the equivalent of the remuneration of a year’s work by a Lord Chancellor) for work done within a period of eight or nine days is no mean reward, and is one well worth a risk. There is no lack of business efficacy in such a contract, even though the principal is free to refuse to sell to the agent’s client.’

Lord Russell of Killowen at 125-126

Although the reasoning of the House of Lords is focused on the existence of an implied term, the effect of their decision was that the defendants, the offerors, were free to revoke their offer notwithstanding that Cooper had begun to perform the requested act (finding someone who agreed to buy the cinemas).

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