Daulia v Four Millbank Nominees

Daulia Ltd v Four Millbank Nominees Ltd [1978] 1 Ch 231 is a decision of the Court of Appeal that addresses one of the most doctrinally significant problems in the law of contract: whether the offeror under a unilateral contract may withdraw their offer once the offeree has commenced, but not yet completed, the performance stipulated by that offer. The case arose in the context of a proposed sale of land and was decided at a time when the theoretical basis of unilateral contracts remained imperfectly settled in English law.

Four Millbank Nominees Ltd, the defendants, were the owners of a property which Daulia Ltd, the plaintiffs, wished to purchase. During the course of negotiations, representatives of Four Millbank made an oral promise to the effect that, if Daulia attended at their offices by a specified time on the following morning carrying a banker's draft for the agreed sum, Four Millbank would thereupon exchange contracts for the sale of the property. This promise took the classic form of a unilateral offer: it did not require Daulia to promise anything in return, but instead invited performance of a stipulated act as the mechanism by which acceptance would be constituted.

In reliance upon this promise, Daulia attended at the offices of Four Millbank at the appointed time and brought with them a banker's draft in the required amount, thereby performing or tendering performance of precisely the act which the offer had specified. However, before Daulia could complete the tender of the draft and thus consummate the act of acceptance, Four Millbank purported to withdraw the offer entirely, refusing to proceed with the exchange of contracts and repudiating any obligation to do so.

Daulia brought proceedings claiming that Four Millbank had acted in breach of contract by revoking the offer after the offeree had already embarked upon the performance which the offer required. The case therefore presented the Court of Appeal with the need to determine, as a matter of legal principle, whether the act of commencing performance of a unilateral offer generates any legally enforceable constraint upon the offeror's freedom to revoke.

It is also relevant to note the statutory context. Under section 40 of the Law of Property Act 1925 (as it then stood), a contract for the sale or disposition of land was unenforceable unless evidenced in writing. The Court of Appeal acknowledged that, on this basis, the main contract for the sale of land could not itself be directly enforced. Nevertheless, the question remained whether some other, collateral, obligation had arisen which was capable of enforcement notwithstanding the absence of written formality.

The primary issue before the Court of Appeal was whether a unilateral offer is rendered irrevocable, as a matter of English contract law, once the offeree has commenced the performance which constitutes the stipulated mode of acceptance. The related sub-question was the juridical mechanism by which any such irrevocability is to be explained — that is, whether it arises by operation of an implied collateral contract, or by some other legal doctrine.

A secondary issue arose from the statutory formality requirement applicable to contracts for the disposition of land. Even if the court accepted that some obligation arose upon commencement of performance, it was necessary to determine whether that obligation was itself subject to the writing requirement under section 40 of the Law of Property Act 1925, or whether it fell outside the scope of that provision as a distinct collateral contract.

Ancillary to both of the foregoing issues was the question of how the present case should be distinguished from, or reconciled with, the House of Lords' decision in Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, which appeared to suggest that unilateral offers could in principle be revoked at any time prior to complete performance, and whether the authority of Errington v Errington and Woods [1952] 1 KB 290, which took a more protective approach, should be followed.

Goff LJ, delivering the leading judgment, began by acknowledging the theoretical difficulty that unilateral contracts present within the framework of classical offer and acceptance analysis. In the bilateral contract context, acceptance is constituted by a counter-promise and the contract is complete at that moment. In the unilateral context, by contrast, the traditional analysis holds that no contract comes into existence until performance of the stipulated act is complete, because prior to that point the offeree has neither promised nor performed anything capable of constituting an acceptance. This orthodoxy, taken to its logical conclusion, would permit the offeror to revoke the offer at any moment prior to complete performance, regardless of how far the offeree had progressed.

Goff LJ considered this orthodox conclusion to be productive of manifest injustice and, crucially, to be legally avoidable. He held that, as a matter of legal implication, once the offeree commences performance of the stipulated act, a collateral contract comes into existence between the offeror and the offeree. Under the terms of this collateral contract, the offeror is bound not to revoke the main offer during the period of performance, in exchange for the offeree's commencement of the very performance stipulated by the main offer. The consideration for this implied collateral contract is therefore supplied by the offeree's act of beginning to perform.

The reasoning proceeds on the basis that the law should give effect to the reasonable expectations of the parties. When an offeror frames a unilateral offer requiring a specific act, the implicit understanding on both sides is that the offeree will not be left exposed to revocation mid-performance having already committed themselves by embarking upon what the offeror has requested. To permit revocation at that stage would allow the offeror to take the benefit of the offeree's partial performance — including any detriment or inconvenience incurred in the process of commencing — without incurring any obligation. Goff LJ treated the prevention of this outcome as the animating purpose of the implied collateral contract.

Goff LJ turned to the earlier Court of Appeal decision in Errington v Errington and Woods [1952] 1 KB 290, in which Denning LJ (as he then was) had held that a father's promise to convey a house to his son and daughter-in-law if they paid the mortgage instalments could not be revoked once the couple had begun paying those instalments. That decision had been treated with some scholarly uncertainty given subsequent developments in the law, but Goff LJ affirmed its underlying principle as sound. The essential proposition — that the offeror's power of revocation is curtailed upon commencement of performance — was held to represent the correct position in English law.

The court distinguished the House of Lords' decision in Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, in which the House had declined to imply a term preventing revocation of an estate agent's commission arrangement before the agent had completed the introduction of a purchaser. The distinguishing rationale was that in Luxor the arrangement was of a commercial character in which revocability formed part of the accepted commercial risk undertaken by the estate agent, and where the circumstances did not compel the implication of a term against revocation. Luxor was therefore not authority for a general rule that unilateral offers are always revocable prior to complete performance; rather, it illustrated that the question of revocability is fact-sensitive and depends upon the particular circumstances and the reasonable expectations they generate.

Goff LJ was careful to identify the precise moment at which the collateral contract against revocation comes into existence. The trigger is commencement of performance of the stipulated act. It is not sufficient that the offeree has merely formed an intention to perform, or has taken preparatory steps that fall short of the act itself. However, once the act has been embarked upon in a meaningful sense, the offeror's power of revocation is extinguished by the arising of the collateral obligation. On the facts of the present case, Daulia's attendance at the offices of Four Millbank with the banker's draft constituted precisely such a commencement of performance.

Buckley LJ agreed with the conclusion reached by Goff LJ, and expressed agreement with the analysis that an implied term or implied collateral contract arises to prevent revocation once performance has been commenced. The underlying rationale, in Buckley LJ's view, was the avoidance of a result that would be both commercially unreasonable and morally objectionable, namely allowing the offeror to exploit the offeree's reliance upon the offer and then withdraw the promised benefit at the last moment.

On the issue of statutory formality, the court addressed the argument that any obligation arising out of an oral promise relating to land must satisfy the requirements of section 40 of the Law of Property Act 1925 in order to be enforceable. The court held that the implied collateral contract — being directed not to the disposition of land itself but to the conduct of the offeror in keeping the offer open — was a separate and distinct contractual obligation which did not require written evidence. The main contract for the sale of land remained subject to the statutory requirement, and to the extent it was not evidenced in writing it remained unenforceable in that capacity. The collateral obligation, however, operated independently of the main contract.

It is important to note the court's obiter observations concerning the broader policy rationale. The judges emphasised that the approach they endorsed was required to prevent manifest unfairness. An offeror who has invited a specific act of performance has in a real sense set the mechanism of acceptance in motion, and cannot in good conscience — or, as the law now holds, in law — withdraw the offer once the offeree has acted upon that invitation and commenced doing what was requested. The obiter remarks underline that the doctrine is grounded not merely in technical analysis but in a principled concern with the equitable treatment of parties who act in good faith in reliance on promises made to them.

The court also implicitly confirmed that the doctrine is confined to cases of genuine commencement of the stipulated act. It does not extend to situations where the offeree has merely incurred costs or taken steps in anticipation of beginning performance but has not yet engaged with the act itself. This qualification preserves the offeror's freedom to revoke in the early stages while protecting the offeree against revocation during the period when they are actively doing what the offeror asked them to do.

The Court of Appeal held in favour of Daulia. The oral unilateral offer made by Four Millbank could not lawfully be revoked at the point at which Daulia had attended with the required banker's draft, because at that point Daulia had commenced performance of the act stipulated by the offer. By reason of an implied collateral contract arising upon the commencement of performance, Four Millbank were bound not to revoke the main offer during that period, and their purported withdrawal of the offer was therefore ineffective and constituted a breach of that collateral obligation.

The court further held that the collateral contract against revocation was not rendered unenforceable by the writing requirements applicable to contracts for the disposition of land under section 40 of the Law of Property Act 1925, since the collateral obligation was directed to the conduct of the offeror and not to the disposition of land as such.

The principle endorsed by the court is accordingly that, in English law, a unilateral offer becomes irrevocable as against the offeree once the offeree has commenced the performance stipulated as the mode of acceptance, by reason of the arising of an implied collateral contract to that effect. The consideration for that collateral contract is supplied by the offeree's act of commencing performance.

Daulia v Four Millbank Nominees is widely regarded as the leading English authority on the revocability of unilateral offers during performance and is cited in virtually every undergraduate contract law curriculum as the foundation for this area of doctrine. Prior to the decision, the position in English law was genuinely uncertain: while Errington v Errington [1952] 1 KB 290 had pointed in the direction of irrevocability, it had not been universally accepted, and the remarks of the House of Lords in Luxor v Cooper [1941] AC 108 created doctrinal ambiguity. The Court of Appeal in Daulia resolved that ambiguity with clarity and provided a coherent juridical mechanism — the implied collateral contract — through which the protection of the offeree is achieved.

The decision is significant not only for its practical outcome but for the analytical technique it employs. By locating the protection of the offeree in a collateral contract rather than in a modification of the general rules of offer and acceptance, the court preserved the theoretical integrity of the orthodox analysis while avoiding its unjust consequences. This approach has proved influential in subsequent academic commentary and has been adopted in legal systems beyond England and Wales as a workable solution to the revocability problem.

The case is also relevant to ongoing debates about the relationship between contract and promissory estoppel in English law. Although the court in Daulia resolved the matter through the mechanism of the collateral contract, academic commentators have noted that the facts would equally have been amenable to analysis under a promissory estoppel framework, particularly in light of the doctrine's expansion following Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130. The co-existence of these two potential doctrinal routes has contributed to wider discussions about whether English law should move towards a more unified principle of reliance-based protection