BUTTERWORTHS COMMON LAW SERIES The Law of Contract Second Edition SERIES EDITOR Andrew Grubb MA (Cantab), LLD (Lond), FMedSci, Barrister Professor of Medical Law and Head of Cardiff Law School, Cardiff University GENERAL EDITOR Michael Furmston TD, MA, BCL, LLM, Bencher of Gray's Inn Emeritus Professor and Senior Research Fellow, University of Bristol CONTRIBUTORS Roger Brownsword LLB Professor of Law, King's College London, and Honorary Professor of Law, University of Sheffield Robert Bradgate MA (Cantab), Solicitor Professor of Commercial Law, University of Sheffield Elizabeth Macdonald LLB (Bristol), LLM (Cantab) Reader, University of Wales, Aberystwyth Malcolm Clarke MA, LLB, PhD Professor of Commercial Contract Law, University of Cambridge Andrew Phang LLB (NUS), LLM, SJD (Harvard), Advocate and Solicitor (Singapore) Professor of Law, Singapore Management University John Adams MA, Solicitor Professor of Intellectual Property, University of Sheffield GJTolhurst LLM(Syd) Lecturer, Faculty of Law, University of Sydney JW Carter BA, LLB (Syd), PhD (Cantab) Professor of Commercial Law, University of Sydney Consultant, Freehills Roger Halson LLB,MLit(Oxon) Professor of Law, University of Leeds LexisNexis™UK Contents Series preface v Foreword vii Preface to the second edition ix Preface to the first edition x Stop press xi Abbreviations xxxi Table of statutes xxxv Table of statutory instruments xlvii Table of cases li CHAPTER I General Considerations I Roger Brownsword A The Nature of Contract 1 Definition 1 Agreement, exchange, and promise as essential definitions of contract 2 Promise as a necessary condition 4 Promise as a sufficient condition 6 Synthesis 8 Is the definitional question merely academic? 9 The essential ethic of contract 11 The function of contract law 18 The classification of contracts and contractors 21 B Freedom of Contract 24 The classical law of contract 24 Freedom of contract 27 The decline of freedom of contract 32 The coherence of freedom of contract 38 Synthesis 41 C Inequality of Bargaining Power 41 Inequality of bargaining power: from the classical to the modern view 41 Relative bargaining strength and inequality of bargaining power 46 Rejection of a general doctrine of inequality of bargaining power 52 Correcting bargaining inequality: between collapse and reconstruction 56 xiv Contents D Reasonableness 57 Reasonableness: four steps from the classical to the modern law 57 Reasonableness as a supplementary principle 60 Reasonableness as a limiting principle 66 E GoodFaith 70 A general principle of good faith 70 The sceptical view 72 Neutrality and scepticism 76 Against scepticism 78 Three models of good faith 84 Good faith and reasonableness 87 F The Tendency of the Modern Law 88 The ideologies of contract 88 Static and dynamic market-individualism contrasted 90 Case law indications 94 Dynamic market-individualism, reasonable expectation, and contextual interpretation 102 Dynamic market-individualism as the ruling ideology 108 Beyond dynamic market-individualism 110 . G The Globalisation of Contract Law 112 The meaning and relevance of globalisation 112 Electronic contracting environments 113 Integration: the two principal questions 115 The Lando Commission 120 Harmonisation within the European Union 121 Convergence within the common law world 125 An international law of contract: esperanto or lingua franca? 129 H The Interfaces of Contract Law 131 Contract in the context of domestic law 131 The common law of obligations 132 Background (fixed) obligations and contractual obligations 133 Difficulties at the interface between contract and negligence 134 Disputes between contracting parties 134 Disputes between a contracting party claimant and a non-contracting third- party defendant 142 Disputes between a non-contracting third-party claimant and a contracting party defendant 148 An intelligible mosaic? 155 Contract and public law 157 Where the private contractor claims that contract governs 158 Where the public contractor claims that contract governs 163 Synthesis 165 I Contract Law and the Human Rights Act 1998 165 The impact of the Human Rights Act 1998 165 Wilson v First County Trust Ltd 167 The question of horizontality 171 The application of the Convention rights to contract law questions 176 Freedom of contract and waiver or restriction of the benefit of a Convention right 178 Public authorities under the Human Rights Act 1998 181 Conclusion 184 J The Rationality of Contract Law 186 Theideaofrationalityinthelaw 186 Contents xv Formal rationality 186 Instrumental rationality 192 Substantive rationality 197 CHAPTER 2 Formation of Contracts 203 Robert Bradgate A Introduction 203 The elements of contract 203 Relationship between the elements of contract 204 The role of offer and acceptance 206 The significance of intention 208 Alternative bases for the enforcement of promises 211 Promises enforceable on the basis of waiver or estoppel 211 Promises in deeds 212 Other factors affecting enforceability 212 Statutory modification of formation rules 213 B Tests of Enforceability 214 The doctrine of consideration 214 Relaxation of the doctrine 215 Alternative bases for enforcement 216 History and development of the doctrine of consideration 217 Definitions of consideration 218 Are benefit and detriment both necessary? 221 Maxims 223 Consideration and bargains 223 Consideration in a commercial context 225 Consideration must move from the promisee 226 Consideration must be sufficient 232 Consideration need not be adequate 232 Consideration must be something of value in the eyes of the law 237 Forbearance as consideration 239 Promises as consideration 243 Consideration distinguished from motive 247 Consideration and conditional promises 248 Past consideration 252 Performance of existing duties 256 Type (a): Performance of pre-existing public duties 257 Type (b)(l): Performance of existing duties arising under a contract between promisee and a third party 259 Type (b)(2): Performance of duties under existing contract between promisor and promisee 263 Consideration and the variation of contracts 276 Consideration and the part payment of debts 280 Exceptions to the rule in Foakesv Beer 284 Waiver and estoppel 289 A general principle? 290 Common law waiver 292 Promissory estoppel 300 Estoppel as a cause of action in English law 318 Proprietary estoppel 319 xvi Contents Estoppel by convention 325 Potential for development 327 Deeds as an alternative to consideration 334 Requirements for a valid deed 335 C The Concept of Agreement and the Assessment of Intention 336 The concept of agreement 336 Offer and acceptance analysis 337 An alternative analysis 339 Legal obligations arising from inchoate agreements 340 Intention and objectivity 344 Basis of the objective principle 345 The meaning of objectivity 347 The relevance of subjective intention 348 Inferred contracts 352 Certainty and Completeness 356 Parties must agree all essential terms 357 Uncertain or ambiguous terms 367 Intention to Create Legal Relations 370 Introduction 370 Relationship with requirement of certainty 372 Objective assessment of intention 372 Family and social agreements 373 Business arrangements 378 Preliminary agreements and agreements subject to contract 390 Offer 397 Introduction 397 Intention to make offer 399 Offer must set out main terms of contract 400 Offers and invitations to treat 401 Offers under the Vienna Convention 414 Acceptance 415 Introduction 415 Offer may only be accepted by offeree 416 Acceptance must be absolute and unconditional 416 How is acceptance effected? 421 Offeree must intend to accept the offer 426 Is the offer still open for acceptance? 428 Communication of acceptance 433 When is communication effective? 435 Offer and acceptance in unilateral contracts 443 Nature of unilateral contract 443 Offer and acceptance in unilateral contracts 444 D Form and Formality 449 Introduction 449 Qualifications to the general rule 449 Formal requirements and the Human Rights Act 1998 450 Formal requirements and electronic commerce 453 The Statute of Frauds 458 Written contract or written memorandum 460 Memorandum may be in more than one document 467 The effects of non-compliance 468 The effect of non-compliance in equity: the doctrine of part performance 470 Contents xvii Contracts of guarantee 472 Guarantee distinguished from indemnity 473 Excluded contracts 474 Requirements 475 Guarantees and the Consumer Credit Act 1974 476 Application of doctrine of part performance to guarantees 476 Estoppel 476 Contracts for the sale or disposition of interests in land 477 Contracts made prior to 1989 477 Contracts made after 1989 481 Bills of exchange, cheques and promissory notes 493 Signature 494 Unconditional order 494 A sum certain 495 Time for payment 495 Additional information in bills 496 Effect of non-compliance 496 Alteration of a bill of exchange 497 Bills of sale 497 Consumer credit and hire agreements 499 Regulations 499 Execution of regulated ageements 499 Contracts made away from business premises 502 Distance sales contracts 503 Provision of information 503 Non-compliance 505 Financial Services 505 Distance Selling of Financial Services 506 Contracts of employment 508 Reference to other documents 509 Time limits 509 Exceptions 509 Relationship between written statement and contract 510 Effect of non-compliance 510 Statement of deductions from wages 510 Insurance 511 Other cases 511 Estate agents 511 Solicitors 512 Commercial agency 512 Directory entries 512 Sales of ships 512 Loans to businesses 512 Arbitration agreements