THE MODERN LAW OF CONTRACT Fifth edition This book is supported by a Companion Website, created to keep The Modern Law of Contract up to date and to provide enhanced resources for both students and lecturers. Key features include: N termly updates N self-assessment tests N links to useful websites N links to ‘ebooks’ for introductory and further reading N revision guidance N guidelines on answering questions N ‘ask the author’ – your questions answered www.cavendishpublishing.com/moderncontract THE MODERN LAW OF CONTRACT Fifth edition Professor Richard Stone, LLB, LLM Barrister, Gray’s Inn Visiting Professor, University College, Northampton Fifth edition first published in Great Britain 2002 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 Published in the United States by Cavendish Publishing c/o International Specialized Book Services, 5804 NE Hassalo Street, Portland, Oregon 97213-3644, USA Published in Australia by Cavendish Publishing (Australia) Pty Ltd 3/303 Barrenjoey Road, Newport, NSW 2106, Australia This title was originally published in the Cavendish Principles series © Stone, Richard 2002 First edition 1994 Second edition 1996 Third edition 1997 Fourth edition 2000 Fifth edition 2002 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, without the prior permission in writing of Cavendish Publishing Limited, or as expressly permitted by law, or under the terms agreed with the appropriate reprographics rights organisation. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Cavendish Publishing Limited, at the address above. You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer. British Library Cataloguing in Publication Data Stone, Richard, 1951 – The modern law of contract 1 Contracts I Title 346'.02 Library of Congress Cataloguing in Publication Data Data available ISBN 1-85941-667-5 1 3 5 7 9 10 8 6 4 2 Printed and bound in Great Britain PREFACE My aim in writing this book has been to produce a comprehensive, but readable, account of what I have termed ‘the modern law of contract’. By this I mean the law of contract as applied by the English courts at the beginning of the 21st century. This I see as being still rooted in the forms of the classical theory of contract (which is generally accepted as dating from the late 19th century), but with those forms increasingly being stretched to adapt to the modern world. The inadequacies of the classical model which are thus exposed have been the subject of much commentary and analysis, together with suggestions of better models which might be adopted. Understanding the modern law requires an awareness of these critical analyses and this I have attempted to provide throughout the text. What results is not, however, and is not intended to be, a radical re- reading of this area of law. A quick look at the chapter headings will show an overall structure that will be familiar to all contract lecturers. For the purposes of exposition many familiar authorities have been used. Throughout, however, and in particular through the footnotes, I have tried to indicate ways in which the classical model of contract may be, or is being, challenged and developed, whether openly or surreptitiously. I hope that the result is a treatment of the law which is easy to follow (to the extent possible given the complexity of some areas) but which is also sufficiently rich to provide a challenge to more discerning readers. At the very least I hope that such readers will be encouraged to think about and explore new lines of thought on a variety of topics. The text has been developed from a much simpler primer on Contract which has variously appeared as ‘Lecture Notes’ and ‘Principles’: hence the label ‘5th edition’. But this is essentially a new book, albeit one that I hope retains the clarity that I am pleased that students and lecturers have found in its previous incarnations. I am grateful to Jo Reddy for encouraging me to undertake this enterprise in the first place, and to Ruth Massey and Sonny Leong for seeing it through to publication on a very tight timescale. I am also grateful to Professor David Campbell of Cardiff University for taking the time to read and comment on early drafts of some of the chapters in the first half of the book. Those who are familiar with David Campbell’s work will realise that this text shows more respect for the classical theory of contract than he would ever countenance: but his comments were very helpful to me, and I am sure that they have resulted in a better book. It is customary in a preface to a new edition to alert readers to new material that is covered. Given the expansion from the previous edition, a comprehensive list is impossible. But the House of Lords’ decisions in Alfred McAlpine Construction Ltd v Panatown Ltd (privity); Royal Bank of Scotland v Etridge (No 2) (undue influence); Farley v Skinner (non-pecuniary damages); and Attorney General v Blake (restitutionary damages for breach) are all covered at the appropriate points. As regards statutory material, the impact of the Consumer Protection (Distance Selling) Regulations 2000 on the finality of acceptance is dealt with in Chapter 2. One omission which has occurred as a result of the changes in this edition is that there is no longer a separate chapter on sale of goods, though the implied terms are now dealt with alongside other implied terms in Chapter 8. One issue which caused me uncertainty in relation to the previous edition remains unresolved in this one. That is the change in the Civil Procedure Rules, effective from 2000, from ‘plaintiff’ to ‘claimant’. My approach has again been the compromise of using the label which will be found in the report of any particular case (which will depend on when the action was brought). Where the word is used generically, rather than in relation to a particular case, then ‘claimant’ is used. This results in some clumsiness of expression, and potential for confusion: I hope to have found a better solution by the time of the next edition. vi The Modern Law of Contract Finally, my thanks to my wife, Maggie, and my youngest daughter, Anna, for their support during the writing process. The law is stated, as far as possible, as it stood on 1 July 2002. Richard Stone Oadby July 2002 CONTENTS Preface v Table of Cases xxiii Table of Statutes xxxix Table of Statutory Instruments xliii 1 INTRODUCTION 1 1.1 The classical law of contract 1 1.2 The subject matter of contract law 3 1.2.1 Voluntary transactions 7 1.3 Discrete and relational transactions 8 1.4 Contract, tort and restitution 10 1.5 A law of contract or law of contracts? 11 1.6 Different approaches to analysing contract 14 1.6.1 Economic analysis 14 1.6.2 Socio-political analysis 15 1.6.3 Empirical research 16 1.6.4 Which approach? 16 1.7 International influences 17 2 FORMING THE AGREEMENT 21 2.1 Introduction 21 2.2 Deeds and other formalities 22 2.3 General lack of formal requirement 23 2.3.1 Promisor, promisee and detached objectivity 24 2.3.2 State of mind 24 2.4 The external signs of agreement 24 2.5 Historical background 25 2.6 Offer 25 2.6.1 Distinction from ‘invitation to treat’ 26 2.6.2 Self-service displays 28 2.6.3 Shop window displays 29 2.6.4 Issues of principle 30 2.6.5 Advertisements 31 2.6.6 Carlill v Carbolic Smoke Ball Co (1893) 32 2.7 Unilateral and bilateral contracts 34 viii The Modern Law of Contract 2.8 Tenders 34 2.9 Auctions 36 2.10 Acceptance 38 2.10.1 Distinction from counter-offer 39 2.10.2 Request for information 40 2.10.3 Battle of the forms 40 2.10.4 The traditional view 42 2.10.5 An alternative approach 43 2.11 Methods of acceptance 44 2.11.1 Acceptance by conduct 44 2.11.2 Acceptance by silence 45 2.11.3 Bilateral contracts 46 2.11.4 Inertia selling 46 2.11.5 Conclusions on ‘silence’ 47 2.11.6 Acceptance by post 48 2.11.7 Limitations on the postal rule 49 2.11.8 Acceptance by private courier 50 2.11.9 Acceptance by electronic communication 51 2.11.10 The Entores approach 51 2.11.11 Time of acceptance 53 2.11.12 Acceptance in internet transactions 54 2.11.13 Acceptance in unilateral contracts 56 2.11.14 Position in ‘reward’ contracts 59 2.11.15 Acceptance in ignorance of an offer 59 2.11.16 Unilateral contracts and ‘agreement’ 60 2.11.17 Cross-offers 61 2.12 Acceptance and the termination of an offer 61 2.12.1 Need for communication 62 2.12.2 Effect of lapse of time 62 2.12.3 Revocation and tenders 63 2.13 Retraction of acceptance 63 2.13.1 Formalist approach 65 2.13.2 Purposive approach 65 2.13.3 Unfairness to offeror 66 2.13.4 Guidance from authority 66 2.14 Certainty in offer and acceptance 67 Contents ix 2.14.1 Meaningless phrases 67 2.14.2 Incomplete agreements 68 2.14.3 Obligations distinguished from ‘machinery’ 69 3 TESTS OF ENFORCEABILITY 73 3.1 Deeds 73 3.2 Consideration or reliance 74 3.3 Benefit and detriment 76 3.4 Mutual promises 76 3.5 Consideration need not be ‘adequate’ but must be ‘sufficient’ 77 3.5.1 Economic value 78 3.6 Past consideration is no consideration 81 3.6.1 The common law exceptions 81 3.6.2 Exceptions under statute 82 3.7 Performance of existing duties 83 3.7.1 Existing duty imposed