the modern law of contract

545 Pages·2009·1.7 MB·English

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
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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
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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 Alaw 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 by law: public policy 83
3.7.2 Public duty: exceeding the duty 85
3.7.3 Existing contractual duty owed to third party 86
3.7.4 Duty to third party: commercial application 87
3.7.5 Performance or promise? 87
3.7.6 Existing duty to the same promisor 88
3.7.7 Going beyond the existing duty 89
3.7.8 Are-consideration: Williams v Roffey 90
3.7.9 Williams v Roffey: effect on Stilk v Myrick 91
3.7.10 Limitation on Williams v Roffey 92
3.8 Consideration and the variation of contracts 93
3.8.1 Need for accord and satisfaction 93
3.8.2 The concept of ‘waiver’ 94
3.9 The doctrine of promissory estoppel 96
3.10 Promissory estoppel and consideration 97
3.10.1 There must be an existing legal relationship 98
3.10.2 There must have been (detrimental) reliance 99
3.10.3 The doctrine can only be used as a
‘shield not a sword’ 100
3.10.4 It must be inequitable for the promisor
to go back on the promise 101
3.10.5 The doctrine is only suspensory in its effect 101
x The Modern Law of Contract
3.11 Promissory estoppel and the part payment of debts 103
3.11.1 The decision in Foakes v Beer 103
3.12 Other types of estoppel 105
3.13 Alternative tests of enforceability 106
3.13.1 What does ‘consideration’ really mean? 106
3.13.2 ‘Reliance’ as a test of enforceability 108
3.13.3 ‘Promise’ as a test of enforceability 111
4 INTENTION TO CREATE LEGALRELATIONS 115
4.1 Domestic agreements 117
4.2 Commercial agreements 120
4.3 Collective agreements 122
4.4 Is a requirement of intention necessary? 123
5 PRIVITY 127
5.1 The rationale for the doctrine 127
5.2 Development of the doctrine 130
5.2.1 Affirmation by the House of Lords 131
5.2.2 Aspecial case: multi-party contracts 132
5.3 Evading the doctrine 133
5.4 The Contracts (Rights of Third Parties) Act 1999 134
5.4.1 The main effect 134
5.4.2 Changing the agreement 135
5.4.3 Defences 136
5.4.4 Protection from double liability 137
5.4.5 Exceptions 137
5.4.6 Effect of the Act 138
5.5 Principles of European Contract Law 138
5.6 Damages on behalf of another 139
5.7 The trust of a promise 143
5.7.1 Intention to create a trust 143
5.7.2 Need for a clear intention to benefit the third party
rather than the promisee 144
5.7.3 Intention to benefit must be irrevocable 144
5.7.4 Effects of a trust 145
5.7.5 Conclusion on trust device 145
5.8 Collateral contracts 145
Contents xi
5.9 The tort of negligence 146
5.10 Statutory exceptions 149
5.11 Privity and exclusion clauses 149
5.11.1 Vicarious immunity 150
5.11.2 Modification of the duty of care 152
5.12 Imposing burdens: restrictive covenants 153
5.12.1 Application outside land law 153
5.12.2 The current position 154
5.13 The role of the law of tort 155
6 AGENCY AND ASSIGNMENT 157
6.1 Agency 157
6.1.1 Relevance of labels 157
6.1.2 Relationship to doctrine of privity 158
6.1.3 Commercial agents 158
6.1.4 Creation of agency 159
6.1.5 The powers of an agent 160
6.1.6 Ratification 163
6.1.7 Duties of the agent 164
6.1.8 Duties of the principal 167
6.1.9 Position of third party vis à vis the principal 168
6.1.10 Liability of principal 169
6.1.11 Position of third party vis à vis the agent 169
6.1.12 Termination of agency 171
6.2 Assignment 173
6.2.1 Section 136 of the Law of Property Act 1925 174
6.2.2 Equitable assignment 175
6.2.3 Protection of the debtor 176
6.2.4 Unassignable rights 176
6.2.5 Assignment of contractual liabilities 177
7 CAPACITY 179
7.1 Reasons for limitations on capacity 179
7.2 Minors’ contracts 179
7.2.1 Contracts for necessaries 180
7.2.2 The definition of ‘necessaries’ 181
7.2.3 Beneficial contracts of service 181
xii The Modern Law of Contract
7.2.4 Other contracts related to work 182
7.2.5 Voidable contracts 182
7.3 Effects of entering into a contract with a minor 183
7.3.1 Void contracts 183
7.3.2 Voidable contracts 184
7.3.3 Enforceable contracts 184
7.4 Minors’ liability in tort 185
7.5 Mental disability 186
7.6 Intoxication 187
8 THE CONTENTS OF THE CONTRACT 189
8.1 Introduction 189
8.2 Distinction between representations and terms 189
8.2.1 Was the contract put into written form? 191
8.2.2 Was the claimant relying on the skill and knowledge
of the defendant? 192
8.2.3 Was there a significant lapse of time between
the statement and the contract? 193
8.2.4 Pre-contractual statements under the
Principles of European Contract Law 194
8.3 Remedies for pre-contractual statements 194
8.3.1 Misrepresentation 194
8.3.2 Collateral contract 195
8.3.3 Limitations of the ‘collateral contract’ 196
8.3.4 Negligent misstatement 196
8.3.5 Conclusion on pre-contractual statements 197
8.4 Express terms 198
8.4.1 Incorporation 198
8.4.2 Construction 199
8.4.3 ‘Purposive’ or ‘commercial’ interpretation 201
8.4.4 Interpretation under the Principles of European Contract Law 204
8.4.5 Conditions, warranties and innominate terms 205
8.5 Implied terms 205
8.5.1 Terms implied by the courts 206
8.5.2 Terms implied by custom 206
8.5.3 Terms implied in fact 207
8.5.4 The Moorcock test 207