The Modern Law of Contract Eighth Edition Written by a leading author and lecturer with over thirty years’ experience teaching and examining contract law, The Modern Law of Contract continues to equip students with a clear and logical introduction to contract law. Exploring all of the recent developments and case decisions in the field of contract law, it combines a meticulous examination of authorities and commentar- ies with a modern contextual approach. An ideal accessible introduction to con- tract law for students coming to legal study for the first time, this leading textbook offers straightforward explanations of all of the topics found on an undergraduate or GDL contract law module. At the same time, coverage of a variety of theoretical approaches: economic, sociological and empirical encourages reflective thought and critical analysis. New features include: boxed chapter summaries, which help to consolidate learning and understanding; additional ‘For thought’ think points throughout the text where students are asked to consider ‘what if’ scenarios; new diagrams to illustrate principles and facilitate the understanding of concepts and interrelationships; new Key Case close-ups designed to help students identify key cases within contract law and improve their understanding of the facts and context of each case; a Companion Website with half-yearly updates; chapter-by-chapter Multiple Choice Questions; a Flashcard glossary; contract law skills advice; PowerPoint slides of the diagrams within the book; and sample essay questions; new, attractive two-colour text design to improve presentation and help consolidate learning. Clearly written and easy to use, this book enables undergraduate students of contract law to fully engage with the topic and gain a profound understanding of this pivotal area. www.routledge.com/textbooks/9780415481373 Richard Stone is Head of Law at the University of Lincoln. THE MODERN LAW OF CONTRACT Eighth Edition Richard Stone Fifth edition published 2002 by Cavendish Publishing Limited Sixth edition published 2005 by Cavendish Publishing Limited Seventh edition published 2008 by Routledge-Cavendish Eighth edition published 2009 by Routledge-Cavendish 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge-Cavendish 270 Madison Ave, New York, NY 10016 This edition published in the Taylor & Francis e-Library, 2009. To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. Routledge-Cavendish is an imprint of the Taylor & Francis Group, an informa business © 2002, 2005, 2008, 2009 Richard Stone All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Stone, Richard, 1951 Mar. 7– The modern law of contract / Richard Stone.—8th ed. p. cm. 1. Contracts—England. 2. Contracts—Wales. I. Title. KD1554.S758 2009 346.4202—dc22 2009002007 ISBN 0-203-87675-X Master e-book ISBN ISBN10: 0–415–48136–8 (hbk) ISBN13: 978–0–415–48136–6 (hbk) ISBN10: 0–415–48137–6 (pbk) ISBN13: 978–0–415–48137–3 (pbk) ISBN10: 0–203–87675–X (eBook) ISBN13: 978–0–203–87675–6 (eBook) Contents Preface xvii Table of Cases xxi Table of Legislation xlv Table of International Instruments li 1 Introduction 1 2 Forming the Agreement 35 3 Consideration and other Tests of Enforceability 105 4 Intention to Create Legal Relations 163 5 Privity 181 6 Capacity 223 7 The Contents of the Contract 241 8 Clauses Excluding or Limiting Liability 289 9 Misrepresentation 345 10 Mistake 381 11 Duress 419 12 Undue Influence 437 13 Illegality and Public Policy 477 14 Contracts in Restraint of Trade 513 15 Frustration 529 16 Discharge by Performance or Breach 559 VI Contents 17 Remedies 591 18 Restitution 645 Bibliography 657 Index 667 Detailed contents Preface xvii Table of Cases xxi Table of Legislation xlv Table of International Instruments li 1 INTRODUCTION 1.1 Overview 1 1.2 Introduction 2 1.3 Contractual theory 7 1.4 The classical law of contract 7 1.5 The subject matter of contract law 10 1.6 Discrete and relational transactions 16 1.7 Contract, tort and restitution 18 1.8 A law of contract or law of contracts? 20 1.9 Different approaches to analysing contract 24 1.10 International influences 28 1.11 Further reading 33 2 FORMING THE AGREEMENT 2.1 Overview 36 2.2 Introduction 36 2.3 Deeds and other formalities 38 2.4 General lack of formal requirement 39 2.5 The external signs of agreement 41 2.6 Historical background 42 VIII Detailed contents 2.7 Offer 42 2.8 Unilateral and bilateral contracts 53 2.9 Tenders 54 2.10 Auctions 56 2.11 Acceptance 59 2.12 Methods of acceptance 68 2.13 Acceptance and the termination of an offer 90 2.14 Retraction of acceptance 93 2.15 Certainty in offer and acceptance 97 2.16 Principles of European Contract Law 102 2.17 Summary of key points 103 2.18 Further reading 103 3 CONSIDERATION AND OTHER TESTS OF ENFORCEABILITY 3.1 Overview 106 3.2 Introduction 106 3.3 Deeds 108 3.4 Consideration or reliance? 109 3.5 Benefit and detriment 111 3.6 Mutual promises 111 3.7 Consideration need not be ‘adequate’ but must be ‘sufficient’ 112 3.8 Past consideration is no consideration 118 3.9 Performance of existing duties 120 3.10 Consideration and the variation of contracts 135 3.11 The doctrine of promissory estoppel 137 3.12 Promissory estoppel and consideration 140 3.13 Promissory estoppel and the part payment of debts 147 3.14 Other types of estoppel 150 3.15 Alternative tests of enforceability 151 3.16 Principles of European Contract Law 159 3.17 Summary of key points 160 3.18 Further reading 161 Detailed contents IX 4 INTENTION TO CREATE LEGAL RELATIONS 4.1 Overview 163 4.2 Introduction 164 4.3 Domestic agreements 167 4.4 Commercial agreements 172 4.5 Collective agreements 176 4.6 Is a requirement of intention necessary? 177 4.7 Principles of European Contract Law 178 4.8 Summary of key points 179 4.9 Further reading 179 5 PRIVITY 5.1 Overview 182 5.2 Introduction 183 5.3 The rationale for the doctrine 183 5.4 Development of the doctrine 188 5.5 Evading the doctrine 192 5.6 The Contracts (Rights of Third Parties) Act 1999 193 5.7 Damages on behalf of another 198 5.8 The trust of a promise 203 5.9 Collateral contracts 206 5.10 The tort of negligence 208 5.11 Statutory exceptions 211 5.12 Privity and exclusion clauses 211 5.13 Imposing burdens: restrictive covenants 216 5.14 The role of the law of tort 218 5.15 Principles of European Contract Law 219 5.16 Summary of key points 219 5.17 Further reading 220 6 CAPACITY 6.1 Overview 223 6.2 Introduction 224 X Detailed contents 6.3 Minors’ contracts 225 6.4 Effects of entering into a contract with a minor 231 6.5 Minors’ liability in tort 233 6.6 Mental disability 236 6.7 Intoxication 237 6.8 Summary of key points 237 6.9 Further reading 238 7 THE CONTENTS OF THE CONTRACT 7.1 Overview 241 7.2 Introduction 242 7.3 Distinction between representations and terms 243 7.4 Remedies for pre-contractual statements 249 7.5 Pre-contractual statements under the Principles of European Contract Law 253 7.6 Express terms 254 7.7 Implied terms 266 7.8 Statutory controls 284 7.9 Summary of key points 285 7.10 Further reading 286 8 CLAUSES EXCLUDING OR LIMITING LIABILITY 8.1 Overview 289 8.2 Introduction 290 8.3 Common law rules 292 8.4 Incorporation 293 8.5 Construction 300 8.6 Statutory controls 310 8.7 Unfair Contract Terms Act 1977 311 8.8 Unfair Terms in Consumer Contracts Regulations 1999 332 8.9 Proposals for reform 338 8.10 Principles of European Contract Law 340 Detailed contents XI 8.11 Summary of key points 341 8.12 Further reading 342 9 MISREPRESENTATION 9.1 Overview 345 9.2 Introduction 346 9.3 Definition of misrepresentation 350 9.4 Remedies for misrepresentation 359 9.5 Exclusion of liability for misrepresentation 373 9.6 Summary of key points 378 9.7 Further reading 379 10 MISTAKE 10.1 Overview 381 10.2 Introduction 382 10.3 Categories of mistake 383 10.4 Mistakes nullifying agreement (‘common mistake’) 385 10.5 Mistakes negativing agreement 394 10.6 Mistake in equity 407 10.7 Forms of equitable relief 409 10.8 Contracts signed under a mistake 411 10.9 Conclusions on ‘mistake’ 413 10.10 Mistake in the Principles of European Contract Law 414 10.11 Summary of key points 416 10.12 Further reading 417 11 DURESS 11.1 Overview 419 11.2 Introduction 420 11.3 Duress by physical threats or other coercion 421 11.4 Economic duress 426 11.5 Remedies for duress 433 11.6 Duress under the Principles of European Contract Law 434 XII Detailed contents 11.7 Summary of key points 435 11.8 Further reading 436 12 UNDUE INFLUENCE 12.1 Overview 438 12.2 Introduction 439 12.3 Actual undue influence 441 12.4 Presumed influence: recognised relationships 443 12.5 Presumed influence: other relationships 446 12.6 Relevance of the disadvantageous nature of the transaction 449 12.7 Summary of current position on presumed undue influence 452 12.8 Undue influence and third parties 452 12.9 Remedies for undue influence 466 12.10 Unconscionability and inequality of bargaining power 469 12.11 Undue influence, unconscionability and the Principles of European Contract