Acceptance in unilateral contracts

Particular difficulties arise in connection with acceptances in unilateral contracts. We have already seen that one of the characteristics of the unilateral contract is that the ‘acceptance’ occurs through the performance of an act, rather than the expression of agreement. It has also been noted that in certain cases, the offeror in a unilateral contract may be taken to have waived the need for communication of the fact of acceptance. Indeed, there may be an argument for saying that a unilateral contract does not really involve an agreement at all, but rather simply a promise which becomes enforceable once a certain condition is fulfilled. This issue will be considered further once certain other difficulties with acceptance in unilateral contracts have been considered.

There is, first, a problem as to when acceptance is complete. Is it when the acceptor starts to perform? Or when performance is complete? If I offer a prize of £100 for the first person to walk from the Town Hall in Leicester to Trafalgar Square in London during the month of February, do you accept this offer when you take your first step away from Leicester, or only when you arrive at Trafalgar Square? An acceptor in a unilateral contract is generally regarded as incurring no obligations until the specified act is completed, so that if you decide to give up halfway to London, I will have no claim against you for breach of contract. This would suggest that acceptance only occurs with complete performance. There are problems with this, however, in relation to the offeror’s power to withdraw the offer. As will be seen below, the offeror is generally free to withdraw an offer at any point before it has been accepted. If, in a unilateral contract, acceptance means complete performance, then this means that the offeror would be able to back out at any point before performance was complete. So, to use the example given above, if you have started out to walk from Leicester to London, and have managed two-thirds of the distance, I would be entitled to come up to you and say: “I’m sorry, I have changed my mind. My offer of £100 is withdrawn.” You would have no redress, despite the fact that you might be perfectly willing to continue the walk, because we would not at that stage have a contract. The possibility of withdrawal by notice in this type of contract was given judicial recognition in Great Northern Railway Co v Witham, but the court did not on the facts need to decide whether, and in what circumstances, it might be allowed. In an American case, Petterson v Pattberg, an Appeals Court took the view that a unilateral offer to allow a reduction on a mortgage if it was paid off before a particular date could be withdrawn at any time before tender of the payment was made. Thus, Petterson had gone to Pattberg’s house and announced that he had come to pay off the mortgage, but Pattberg had responded by indicating that the offer was withdrawn. It was held that he was entitled to do so.

Such a result clearly has the potential to operate unfairly, and there have therefore been attempts to argue that partial performance may at least in some circumstances amount to a sufficient indication of acceptance so as to prevent withdrawal by the offeror. In Errington v Errington, a father had promised his son and daughter-in-law that if they paid off the mortgage on a house owned by the father, he would transfer it to them. The young couple started to make the required payments, but made no promise that they would continue. This appeared to be, therefore, a unilateral contract. The father died, and his representatives denied that there was any binding agreement in relation to the house. They argued that his offer could be withdrawn, because there had not been full acceptance. The Court of Appeal refused to allow this conclusion. Lord Denning recognised that this was a unilateral contract, but nevertheless held that the offer could not be withdrawn:

The father’s promise was a unilateral contract - a promise of the house in return for their act of paying the instalments. It 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.

The reasons behind this conclusion are not made clear, other than that this was a fair result where the young couple had acted in reliance on the father’s promise. This approach has clear links with the idea of estoppel, of which as we shall see Lord Denning made inventive use in other areas, but this concept was not raised directly in this case.

The approach taken by Lord Denning in Errington received support from the later Court of Appeal decision in Daulia v Four Millbank Nominees Ltd. The parties were negotiating over the sale of some properties. The unilateral contract here was that the defendants promised the plaintiffs that if they produced a signed contract plus a banker’s draft by 10 am the next morning, the defendants would go ahead with the sale to the plaintiffs. The plaintiffs did what was requested, but the defendants refused to go through with the contract. In the course of his judgment, Goff LJ considered the question of when the offeror in a unilateral contract is entitled to withdraw that offer. He started by confirming that in general the offeror cannot be bound to a unilateral contract until the acceptor has provided full performance of the condition imposed. That general rule is, however, subject to an important qualification, namely:

... 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 provided no authority for this proposition, but it received the support of Buckley LJ. It was not, however, part of the ratio of the case, since the court decided against the plaintiffs on other grounds. It seems likely, nevertheless, that the approach taken by Denning and Goff in these two cases would be followed in similar circumstances.

A case which might appear to cause difficulties for such a conclusion is the earlier House of Lords’ decision in Luxor (Eastbourne) Ltd v Cooper. This was a case in which a company wished to sell some cinemas, and Cooper agreed to act as agent try to provide a purchaser, at a price of not less than £185,000. He was to be paid his commission (£10,000) ‘on completion of the sale’. Cooper provided a willing purchaser, but the company withdrew from the sale. The House of Lords refused to imply a term that the principal would not unreasonably prevent the completion of the transaction. The clause referred to payment ‘on completion’; since that had not occurred, the agent was not entitled to his commission. This type of arrangement might well be treated as a bilateral contract, but the House of Lords took it to be unilateral. As Lord Russell put it, in this type of estate I agency contract:

No obligation is imposed on the agent to do anything. The contracts are merely promises binding on the principal to pay a sum of money on the happening of a specified event, which involves the rendering of some service by the agent.

The question then became whether any term should be implied into the principal’s promise to the effect that the principal would not refuse to complete the sale to a client introduced by the agent. The House of Lords refused to imply any such term, since there was no necessity to do so - necessity being the normal basis for the implication of terms at common law. In effect, therefore, the House was saying that the principal could withdraw his offer at any time before the specified event occurred. Since the sale had not been completed, the event had not occurred, and the agent was not entitled to the commission. The decision could be seen as the House upholding ‘party freedom’, in that the principal should be entitled to refuse to contract with whomever the agent produces. It may well be, however, that an important aspect in in reaching this decision was the House’s view that risk was inherent in the role of the estate agent. The risk of the principal withdrawing his offer was just one more to put alongside all the others. The rewards of success were great. As Lord Russell pointed out, £10,000 was at the time equivalent to the annual salary of the Lord Chancellor. The risk was therefore worth taking. If that is the case, then it is probably best to view Luxor v Cooper as being a case of relevance primarily to the law of agency. Certainly it does not seem to have troubled the Court of Appeal in expressing apparently contradictory views about the possibility of withdrawing unilateral offers in Errington v Errington or Daulia v Four Millbank Nominees. Even as far as agents are concerned, it is important to remember that Luxor v Cooper turned on the precise wording of the promise made by the principal. As later cases have shown, agents are quite able to protect their commission against the kind of withdrawal that took place in Luxor v Cooper, by making it payable on the production of a purchaser ‘ready, willing and able’ to purchase, rather than the completion of a sale.

In conclusion, despite the difficulties raised by Luxor v Cooper, it is still suggested that in general, where the offeror knows that the offeree is trying to perform, there will be an implied obligation on the offeror not to withdraw the offer, at least until a reasonable time for performance has been allowed.

2.9.8 Position in ‘reward’ contracts

It may be significant, however, that in both Errington and Daulia, the offeror was aware that the other person had embarked upon performance. In such a situation it is relatively easy to conclude that the offeror should be under an obligation not to withdraw - though whether such an obligation arises as an implication of the intention of the parties or is simply imposed by the courts is not clear. On the other hand, where the offer, such as the offer of a reward or prize, is one that is made to the world made to the world, it is by no means certain that precisely the same approach should apply. In the case, for example, of the offer of £100 for the return of a lost dog, it seems right that where a person is seen at the opposite end of the street, bringing the dog home, the offeror should not be able to shout out a withdrawal of the reward. But, suppose the offeror has run into financial problems since offering the reward, and cannot now afford to pay it: must the offeror remain committed to keeping the offer open as regards anyone who has started looking for the dog, even if the offeror is unaware of this? It would seem more reasonable that the offeror should be allowed, by giving notice in a reasonable manner (perhaps in the same way as which the offer was made), to withdraw the offer. It is an issue on which there is no English authority, so it is not possible to say with any certainty what the approach of the courts would be, but it is submitted that the fairest rule to all parties would be to hold that the Errington /Daulia approach should only apply where the offeror is aware that the other person is trying to perform the condition.

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