SOURCEBOOK ON CONTRACT LAW Second Edition CP Cavendish Publishing Limited London • Sydney SOURCEBOOK ON CONTRACT LAW Second Edition David Oughton Professor of Commercial Law De Montfort University, Leicester Martin Davis Principal Lecturer in Law De Montfort University, Leicester CP Cavendish Publishing Limited London • Sydney Second edition first published in Great Britain 2000 by Cavendish Publishing Limited, The Glass House, Wharton Street, London WC1X 9PX, United Kingdom Telephone: +44 (0)20 7278 8000 Facsimile: +44 (0)20 7278 8080 Email: [email protected] Website: www.cavendishpublishing.com © Oughton, D and Davis, M 2000 First edition 1996 Second edition 2000 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE, UK, without the permission in writing of the publisher. British Library Cataloguing in Publication Data Oughton, DW Sourcebook on contract law – 2nd ed – (Sourcebook series) 1 Contracts – England 2 Contracts – Wales I Title II Davis, Martin, 1949– 346.4'2'02 ISBN 1 85941 584 9 Printed and bound in Great Britain ACKNOWLEDGMENTS The publishers and authors wish to thank the following publishers, authors and copyright holders for their permission to reprint materials from the books and periodicals listed: Basil Blackwell Publishers Ltd for extracts from Beale, H (with Dugdale, A), ‘Contracts between businessmen: planning and the use of contractual remedies’ (1975) 2 British Journal of Law and Society 45. Butterworths/Tolley Publishers Ltd for extracts from: the All England Law Reports; Cooke, PJ and Oughton, D, The Common Law of Obligations, 3rd edn, 2000; Collins, H, The Law of Contract, 3rd edn, 1997. Cambridge Law Journal and MP Thompson for extracts from: Thompson, MP, ‘From representation to expectation – estoppel as a cause of action’ [1983] CLJ 257, pp 275–77. Columbia Law Review for extracts from Fuller, L, ‘Consideration and form’ (1941) 31 Columbia Law Review 799, pp 800–03. Crown copyright material is reproduced with the permission of the Controller of Her Majesty’s Stationery Office. Fontana Press and HarperCollins Publishers for extracts from Brownsword, JN and Adams, JN, Understanding Contract Law, 2nd edn, 1994. Foundation Press Ltd for extracts from Macneil, I, Contract: Exchange Transactions and Relations, 2nd edn, 1978, pp 11–12. The Incorporated Council of Law Reporting for England and Wales for extracts from the Law Reports and the Weekly Law Reports. Lloyd’s of London Press Ltd for extracts from Lloyd’s Law Reports. Northwestern University Press for extracts from Macneil, I, ‘Contracts adjustment of long term economic relations under classical, neo-classical and relational contract law’ (1978) 72 NWULR 854. Oxford University Press for extracts from Atiyah, PS, Essays on Contract, revised edn, 1990; Promises, Morals and the Law, 1981. Sweet & Maxwell Ltd for extracts from: Hamson, C, ‘The reform of consideration’ (1938) 54 LQR 233, p 234; (1939) 55 LQR 518 (Winfield); Atiyah, PS, ‘Contracts, promises and the law of obligations’ (1978) 94 LQR 193, p 203; Harris, D, Ogus, A and Phillips, J, ‘Contact remedies and the consumer surplus’ (1979) 95 LQR 581, pp 582–83, 586–89, 596–97; Treitel, GH, ‘Mistake in contract’ (1988) 104 LQR 504, pp 504–07; Adams, JN, ‘The battle of forms’ [1983] JBL 297, p 298; Phang, A, ‘Implied terms in English law – some recent developments’ [1993] JBL 242, pp 243–46; Treitel, GH, The Law of Contract, 10th edn, 1999, pp 1–6 (with omissions) and pp 853–54; Frustration and Force Majeure, 1994, pp 490–93. Every effort has been made to trace all the copyright holders, but if any have been inadvertently overlooked, the publishers will be pleased to make the necessary arrangements at the first opportunity. v PREFACE In this book, the authors have attempted to compile a selection of materials on the law of contract consisting of case law, statutory material and academic commentary which will assist students in this subject at both degree level and higher non-degree level. It is hoped that the selection of materials and accompanying text will permit an appreciation of the key issues relevant to the study of this branch of the law. By selecting academic commentary, as well as case law and statutory materials, the authors hope that students will be able to glean an understanding of the wider context in which the law of contract operates. The materials selected are also augmented by a brief analysis of the relevant issues in text form, thereby providing readers with the opportunity to engage in wide reading by reference to footnoted material. The book is based on an issues approach, being subdivided into four parts, namely: (I) Introduction; (II) Contract Formation and Negotiation; (III) Obligations and Risks; and (IV) Performance, Breach and Remedies for Breach of Contract. The first of these parts examines briefly the purposes served by the various rules gathered together under the banner of contract law and pays some attention to policies and ideologies underlying many of the case extracts which follow in later chapters of the book. Part II, on contract formation and negotiation, critically examines the so called classical rules of contract formation and questions whether agreement supported by bargain based consideration is really the basis for contract formation. This part also includes a chapter on the notion of good faith in contract negotiation and the modern expectation that a contracting party will not seek to gain an unfair advantage over others. Part III deals with the issues of obligations and risks arising from the contract and the role of the court as an allocator of risks arising from the contracting process. This part also considers the rules on contractual fairness and generally examines the legal concepts which allow a court to police the contract in the interests of justice. The final part is the longest and concentrates on what is, in practical terms, the most important aspect of contract law, namely, the rules applicable to performance of the contract and the remedies for breach of contract. Throughout the book, the authors have attempted to relate rules of the law of contract to other aspects of the law of civil obligations. As a result, there is reference to relevant rules of tort law and the law of restitution, which should enable students to place this subject in its wider context. The part on remedies in particular makes a number of comparisons between ‘contractual’ rules and ‘tortious’ rules, especially in relation to the issues of remoteness of loss, quantification of damages and factual causation. Readers should note the changes to terminology since the coming into force of the Civil Procedure Rules 1999. We have used the new term ‘claimant’ when discussing general principles of law and the decided cases post-CPR, but have kept the old style ‘plaintiff’ in extracts from and discussion of pre- CPR cases. vii Sourcebook on Contract Law In this edition, there have been changes in the responsibilities of the authors. While the first edition of this book was written substantially by the first named author, Martin Davis has taken a much bigger responsibility for updating work in this edition. For taking this additional responsibility, David Oughton is very appreciative. The authors would like to express their thanks and appreciation to all the staff at Cavendish Publishing, especially Cara Annett for her unfailing patience in waiting for the arrival of the manuscript. Furthermore, we both very much appreciate the considerable help afforded by Veronica Matthew at De Montfort University, particularly for her unstinting help in reviewing the first edition and helping at proof stage. Authors invariably need support from those closest to them. David Oughton would like to thank Sue, Gareth and Karen for putting up with a sometimes grumpy husband and father as he sat staring at a computer screen awaiting inspiration. Their support is much appreciated. Martin Davis would similarly like to thank Jennie. As far as possible, we have attempted to state the law as it stood at the end of September 2000. David Oughton Martin Davis October 2000 viii CONTENTS Acknowledgments v Preface vii Table of Cases xiii Table of Statutes xlv Table of Statutory Instruments li PART I: INTRODUCTION 1 WHAT IS CONTRACT LAW ALL ABOUT? 1 LAW OF CONTRACT, LAW OF CONTRACTS OR THE LAW RELATING TO CONTRACTS? 1 PROMISES AND RELIANCE 3 IDEOLOGIES OF CONTRACT LAW 4 VOLUNTARILY ASSUMED AND LEGALLY IMPOSED OBLIGATIONS 15 PROTECTED INTERESTS 16 CONCURRENT CONTRACTUAL AND TORTIOUS LIABILITY 17 PART II: CONTRACT FORMATION AND NEGOTIATION 2 AGREEMENT 21 AGREEMENT: MYTH OR REALITY? 21 OFFER AND ACCEPTANCE 24 OFFER 26 ACCEPTANCE 38 THE CONTENT OF AGREEMENTS 70 MISTAKE AND MISUNDERSTANDING IN AGREEMENT FORMATION 81 3 THE ENFORCEMENT OF PROMISES 91 REASONS FOR ENFORCING PROMISES 91 FORMALITIES 94 CONSIDERATION 97 PROMISES WHICH INDUCE RELIANCE 136 4 NEGOTIATING IN GOOD FAITH 159 DISCLOSURE OF MATERIAL FACTS AND THE REQUIREMENT OF GOOD FAITH 161 MISREPRESENTATION 169 OTHER ASPECTS OF FAIRNESS IN THE NEGOTIATION PROCESS 177 ix Sourcebook on Contract Law PART III: OBLIGATIONS AND RISKS 5 THE TERMS OF THE CONTRACT 189 TERMS AND REPRESENTATIONS 190 CERTAINTY OF