All statute books are not the same.

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2 CONTRACT LAW

3 All statute books are not the same. Only Blackstone s Statutes have a tradition of trust and quality built on a rock-solid reputation for accuracy, reliability, and authority. thoroughly peer reviewed content based on detailed market feedback from law courses edited by subject specialists employing decades of experience and judgement 91% of students who have used Blackstone s Statutes would recommend them* Blackstone s Statutes... have been essential for my exam success... they re clear, well-structured and comprehensive, allowing easy referencing while studying and therefore peace of mind in exams. Yubing Zhu, Student, University of Cambridge Easy to use and great to have as a study aid, I would definitely not have achieved the marks I wanted without Blackstone s Statute books. Emily Davis, Student, Brunel Law School Buy yours from your campus bookshop, online, or direct from OUP. Core subjects Optional subjects Blackstone s Statutes are the original and best. Setting the standard by which other statute books are measured. Access further statute-related online materials and resources here: Blackstone s Statutes have been trusted in over a million exams why take a chance on anything else? * Survey of over 100 students

4 CONTRACT LAW Text, Cases, and Materials FIFTH EDITION Ewan McKendrick 1

5 3 Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries Ewan McKendrick 2012 The moral rights of the author have been asserted Second Edition copyright 2005 Third Edition copyright 2008 Fourth Edition copyright 2010 Impression: 1 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, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by licence or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer Public sector information reproduced under Open Government Licence v1.0 ( open-government-licence.htm) Crown Copyright material reproduced with the permission of the Controller, HMSO (under the terms of the Click Use licence) British Library Cataloguing in Publication Data Data available Library of Congress Cataloging in Publication Data Library of Congress Control Number: ISBN Printed in Great Britain by Ashford Colour Press Ltd, Gosport, Hampshire Links to third party websites are provided by Oxford in good faith and for information only. Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work.

6 PREFACE TO THE FIFTH EDITION This book has three principal aims. The first is to provide an exposition of the rules that make up the law of contract. To this end it seeks to describe and to analyse the central doctrines of the modern law of contract and to explore the principal controversies associated with these doctrines. It seeks to fulfil this aim through a combination of text, cases, and materials. The function of the text is both to explain and to evaluate the principal rules and doctrines of contract law and to provide a commentary on the leading cases and statutes. The cases chosen for inclusion in the book are the leading cases on the law of contract. The materials consist of statutes, statutory instruments, re-statements of contract law, extracts from textbooks, and academic articles. Secondly, the book aims to explore the law of contract in its transactional context. It is not confined to an analysis of the doctrines that make up the law of contract but extends to the terms that are to be found in modern commercial contracts and the principles that are applied by the courts when seeking to interpret these contracts. The third aim is to explore English contract law in a transnational and comparative perspective. This is not a book on comparative contract law but it does attempt to take account of documents such as the Unidroit Principles of International Commercial Contracts and the Principles of European Contract Law. The book is supported by an Online Resource Centre. The principal purposes of the website will be to provide critical summaries of recent developments in the law and to provide links to helpful websites where further information can be obtained. The website will be updated annually and can be accessed at I would like to thank Esther Kuforiji for a measure of assistance with the proofs of this edition of the book. In preparing the earlier editions I benefited from the assistance of Rachel Kapila, Felicity Maher, Ryan Beckwith, Catherine Button, Jamie Edelman, Emily Elford, Martin Graham, Wenying Li, Vanessa Mak, Danny Priel, Aimée Daruwala, Tim Akkouh, Patricia Edwards, and Sarah Steele. I am grateful to Andrew Burrows for his willingness to allow me in Chapters to draw on material which first appeared in our book (on which we have now been joined by James Edelman), Cases and Materials on the Law of Restitution, also published by Oxford University Press. I am also grateful to the publishers for their assistance and encouragement at every stage. Finally, I would like to thank my wife, Rose, and our children, Jenny, Sarah, Rachel, and Katie for their encouragement and support. My greatest debt is to my wife, Rose, without whose help and support in so many ways, this book would never have been written. This book is dedicated to her with my love and thanks. The law is stated on the basis of the information available to me as at 7 January Ewan McKendrick University Offices Oxford

7 ACKNOWLEDGEMENTS Grateful acknowledgement is made to all the authors and publishers of copyright material which appears in this book, and in particular to the following for permission to reprint material from the sources indicated: Extracts from Law Commission Reports, Consultation Papers, and Discussion Papers are Crown copyright material and are reproduced under Class Licence Number C with the permission of the Controller of OPSI and the Queen s Printer for Scotland. R Brownsword: extract from Retrieving Reasons, Retrieving Rationality? A New Look at the Right to Withdraw for Breach of Contract, 5 Journal of Contract Law 83 (1992). Cambridge Law Journal and the authors: extracts from Cambridge Law Journal (CLJ), S Smith: Contracting Under Pressure: A Theory of Duress, 343 CLJ (1997), and J R Spencer: Signature, Consent, and the Rule in L Estrange v Graucob, 104 CLJ (1973). Cambridge University Press and the author: extracts from Hugh Collins: The Law of Contract (4e, 2003). Council of Law Reporting for New South Wales: extract from the New South Wales Law Reports: Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723, copyright Council of Law Reporting for New South Wales Hart Publishing Ltd: extract from Michael Spence: Protecting Reliance: The Emergent Doctrine of Equitable Estoppel (Hart, 1999). Incorporated Council of Law Reporting: extracts from the Law Reports: Appeal Cases (AC), Chancery (Ch), Industrial Cases (ICR), Kings Bench Division (KB), Queen s Bench Division (QB), and Weekly Law Reports (WLR). Informa Maritime & Professional Publishing: extracts from Lloyd s Maritime and Commercial Law Quarterly: N Bamforth: Unconscionability as Vitiating Factor, LMCLQ 538 (1995): A Burrows: The Contracts (Rights of Third Parties) Act and its Implications for Commercial Contracts, LMCLQ 540 (2000); and R Halson: The Offensive Limits of Promissory Estoppel, LMCLQ 257 (1999); and from Lloyd s Law Reports (LLR). Mohr Siebeck GmbH & Co KG: extracts from H Kotz and A Flessner: European Contract Law Volume 1: Formation, Validity, and Content of Contracts: Contract and Third Parties (1997). Oxford University Press: extracts from P S Atiyah: An Introduction to the Law of Contract (6e, 2006); P S Atiyah: Consideration: A Re-statement in P S Atiyah: Essays on Contract (1986); P S Atiyah: The Rise and Fall of Contract (1979); R Brownsword: Contract Law: Themes for the Twenty First Century (2000); D J Ibbetson: An Historical Introduction to the Law of Obligations (OUP, 1999); A W B Simpson: Quackery and Contract Law: Carlill v Carbolic Smoke Ball Company (1893), and The Beauty of Obscurity: Raffles v Winchelhaus and Busch (1894) in A W B Simpson: Leading Cases in the Common Law (1995); R Stevens: Objectivity, Mistake and Parol Evidence Rule in A Burrows and E Peel (eds): Contract Terms (OUP, 2007); and G H Treitel: Some Landmarks of Twentieth Century Contract Law (2002); also extracts

8 acknowledgements vii from Oxford Journal of Legal Studies: S Gardner: Trashing the Trollope: A Deconstruction of the Postal Rules in Contract, 12 OJLS 170 (1992); and S A Smith: Contracts for the Benefit of Third Parties: In Defence of the Third-Party Rule, 7 OJLS 643 (1997). Penguin Books Ltd: extracts from Roy Goode: Commercial Law revised by Ewan McKendrick (Penguin Books, 2010), copyright R M Goode 1982, 1995, Reed Elsevier (UK) Ltd trading as LexisNexis: extracts from All England Law Reports (All ER). Sweet & Maxwell Ltd: extracts from H Beale: Chitty on Contracts (29e, 2004); R Christou: Boilerplate Clauses: Practical Issues (4e, 2005); B Coote: Exception Clauses (1964); Edwin Peel: Treitel on The Law of Contract (12e, 2007); and G H Treitel: Frustration and Force Majeure (1994); also extracts from Law Quarterly Review: D Capper: Undue Influence and Unconscionability: A Rationalisation, 114 LQR 479 (1998); D Friedmann: The Performance Interest in Contract Damages, 111 LQR 628 (1995); A W B Simpson: Innovation in Nineteenth Century Contract Law, 91 LQR 247 (1975); S A Smith: In Defence of Substantive Unfairness, 112 LQR 138 (1996); Lord Steyn: Contract Law: Fulfilling the Reasonable Expectations of Honest Men, 119 LQR 433 (1997); and J Vorster: A Comment on the Meaning of Objectivity in Contract, 103 LQR 174 (1987); and from Property, Planning and Compensation Reports (P & CR) and Technology and Construction Reports (TCLR). Thomson-Reuters (Professional) Australia Ltd, extract from Commonwealth Law Reports (CLR): Walton Stores (Interstate) Ltd v Maher (1987), 164 CLR 38. John Wiley and Sons via Copyright Clearance Center and the authors: extracts from Legal Studies: the Journal of the Society of Public Teachers of Law: J Adams and R Brownsword: The Ideologies of Contract Law, 7 Legal Studies 205 (1987); Susan Bright: Winning the Battle Against Unfair Contract Terms, 20 Legal Studies 331(2000); and P Luther: Campbell, Espinasse and the Sailors: Text and Context in the Common Law, 19 Legal Studies 526 (1999). The Yale Law Journal Company and William S Hein Company: extract from L L Fuller and William R Perdue Jr: The Reliance Interest in Contract Damages, 46 The Yale Law Journal 52 (1995). Every effort has been made to trace and contact copyright holders prior to going to press but this has not been possible in every case. If notified, the publisher will undertake to rectify any errors or omissions at the earliest opportunity.

9 GUIDE TO USING THE ONLINE RESOURCE CENTRE This book is accompanied by an Online Resource Centre, an open-access website designed to support the book. The website can be found at: The Online Resource Centre that accompanies this book provides students and lecturers with readyto-use teaching and learning materials. These materials are free of charge and are designed to maximize the learning experience. STUDENT RESOURCES Student resources are accessible to all, enabling students to get the most from their textbook. Extra material In-depth material on topics such as illegality and incapacity have been provided in electronic format for those interested in finding out more about these areas of contract law. A symbol in the text highlights when additional material can be found on the Online Resource Centre. This resource is password-protected. The login details to enter this part of the Online Resource Centre are: Username: mckendrick5e Password: agreement

10 guide to using the online resource centre ix Web links A selection of annotated web links, chosen by the author, have been provided to point students in the direction of important research, statistical data, and classic texts to keep them informed of the developments in contract law, both past and present. LECTURER RESOURCES Regular updates This is an indispensable resource which allows students and lecturers to access changes and developments in the law that have occurred since publication of the book. These are added to the website as and when they arise, together with page references to easily enable readers to identify material which has been amended or superseded. Updates allow students to stay informed of key developments without having to buy a new book. Lecturer resources are password-protected to ensure that only lecturers can access them; each registration is personally checked to ensure the security of the site. To register for login details, click on Lecturer Resources on the Online Resource Centre and complete the simple registration form. This allows you to choose your own username and password. Test bank of multiple choice questions A test bank of 150 multiple choice questions, with answers and feedback, enables lecturers to test students on the material they have learned. This resource offers versatile testing tailored to the contents of this book, which can be customized according to the course requirements.

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12 CONTENTS Table of Cases Table of Statutes Table of Statutory Instruments Table of Treaties, Conventions, International Restatements, and European Legislation xx xxxiv xxxvii xxxviii 1 Introduction 1 1. The Aims of this Book 1 2. The Scope of the Law of Contract 3 3. Transactions 7 4. European Contract Law 8 5. Transnational Contract Law Conflicting Policies 11 part i formation 2 AGREEMENT: OBJECTIVE OR SUBJECTIVE? Introduction The Objective Theory Illustrated The Snapping Up Cases The Role of Fault 35 3 OFFER AND ACCEPTANCE Introduction 44 (a) General Application 46 (b) The Intention of the Parties 50 (c) The Inter-Related Nature of the Rules 51 (d) The Time at Which the Contract was Created 51 (e) Offer and Acceptance and the Will Theory of Contract Has an Offer Been Made? 54 (a) Advertisements 56 (b) Displays of Goods for Sale in a Shop 63 (c) Tenders 70 (d) Auction Sales 76

13 xii contents 3. What Constitutes an Acceptance? 80 (a) Must the Acceptance Coincide Exactly With the Terms of the Offer? 81 (b) Must the Acceptance be Communicated to the Offeror? 98 (c) Prescribed Method of Acceptance 102 (d) Can Silence Amount to Acceptance? 103 (e) The Postal Rule 106 (f) Acceptance in Unilateral Contracts 114 (g) Acceptance in Ignorance of an Offer Has the Offer Been Withdrawn or Otherwise Terminated? Conclusion UNCERTAIN AND INCOMPLETE AGREEMENTS Introduction Cases in Which it Has Been Held that the Agreement is Too Vague or Uncertain to be Enforced Cases in Which the Courts Have Held the Agreement to be Valid and Binding 136 (a) Make Use of the Criteria or Machinery that Has Been Agreed by the Parties in Order to Resolve the Uncertainty or to Clarify the Word or Phrase that is Expressed in Vague Terms 136 (b) The Intervention of Statute 141 (c) Severance 141 (d) Implication of Terms Conclusion consideration and promissory estoppel Introduction Consideration: Its Scope 147 (a) Consideration Must Be Sufficient 148 (b) The Pre-Existing Duty Rule 157 (c) Past Consideration 199 (d) Consideration Must Move From the Promisee 208 (e) Establishing the Necessary Link Estoppel: Its Scope 212 (a) Estoppel: A Brief Definition 213 (b) Two Leading Cases 215 (c) The Ingredients of Promissory Estoppel 219 (d) The Different Types of Estoppel 224 (e) Unifying The Estoppels 226

14 contents xiii (f) Locating Estoppels The Future of Consideration formalities Introduction The Reasons for Formal Requirements Formal Requirements in English Contract Law 259 (a) Formal Requirements Which are Sufficient to Render the Promise Binding 259 (b) Formal Requirements Which are Necessary in Order to Render a Contract Binding The Future of Formal Requirements intention to create legal relations Introduction Domestic Agreements 270 (a) The Scope of the Presumption 274 (b) Rebutting the Presumption 276 (c) The Rationale Behind the Presumption 277 (d) The Relationship With Consideration Social Agreements Commercial Agreements 282 (a) Rebuttal of the Presumption 284 (b) Did the Parties Intend to Contract? The Future of the Doctrine of Intention to Create Legal Relations 287 part ii TERMS 8 the terms of the contract Introduction Two Preliminary Issues Terms and Representations 295 (a) Three Illustrative Cases 297 (b) Drawing the Threads Together The Parol Evidence Rule incorporation of terms Introduction Incorporation By Signature 314

15 xiv contents 3. Incorporation By Notice Incorporation By Course of Dealing and By Custom implied terms Introduction Terms Implied By Statute Terms Implied From Usage or Custom Terms Implied By the Courts 346 (a) Terms Implied in Fact 346 (b) Terms Implied in Law Conclusion the interpretation of contracts Introduction The Evolution From Literalism Towards Contextualism Lord Hoffmann s Re-Statement The Scope of Lord Hoffmann s Principles 376 (a) Revolutions, Discarding the Old Baggage, and the Role of Precedent 376 (b) The Objective Nature of the Test 379 (c) The Factual Matrix 380 (d) The Exclusionary Rules 381 (e) The Meaning is Not a Matter of Dictionaries Future Developments? boilerplate clauses Introduction Boilerplate Clauses and Standard Terms Boilerplate Clauses: Some Illustrations 394 (a) General Clause 395 (b) Retention of Title Clauses 395 (c) Price Escalation Clauses 396 (d) Interest 396 (e) Force Majeure Clauses 397 (f) Choice of Law Clauses 398 (g) Arbitration Clauses 399 (h) Jurisdiction Clauses 401 (i) Hardship Clauses 401 (j) Entire Agreement Clauses 402 (k) Termination Clauses 403

16 contents xv (l) Assignment 403 (m) Exclusion and Limitation Clauses exclusion clauses Introduction Interpretation 408 (a) Excluding Liability in Negligence 411 (b) Fundamental Breach 417 (c) Limitation Clauses 419 (d) Indirect or Consequential Loss The Unfair Contract Terms Act Two Illustrative Cases Conclusion: Defence or Definition? unfair terms in consumer contracts regulations Introduction Unfair Terms in Consumer Contracts Regulations Director General of Fair Trading v. First National Bank Enforcement of the Regulations The Future good faith Introduction Walford v. Miles Good Faith: The Negative View Good Faith: The Neutral View Good Faith: The Positive View Good Faith: The Different Models 512 PART III SETTING THE CONTRACT ASIDE 16 mistake Introduction Mistake: The Difficulties Mistakes and Formation 523 (a) Knowledge of a Mistake as to the Terms of the Contract 523 (b) Latent Ambiguity 524 (c) Mistake as to Identity 525

17 xvi contents 4. Common Mistake Mistake in Equity Rectification Non Est Factum MISREPRESENTATION Introduction What is a Misrepresentation? 579 (a) Statements of Opinion 582 (b) Statements of Intention and Inducement 584 (c) Statements Made by Conduct Duty of Disclosure Rescission 595 (a) What is Rescission and When is it Available? 595 (b) Loss of the Right to Rescind Damages 607 (a) Section 2(1) of the Misrepresentation Act (b) Common Law Negligence 616 (c) Deceit 616 (d) Section 2(2) of the Misrepresentation Act (e) Rescission and an Indemnity Exclusion of Liability for Misrepresentation duress Introduction Duress of the Person Duress of Goods Economic Duress Conclusion 650 (a) Lack of Consent 650 (b) Illegitimacy undue influence Introduction Three-Party Cases Two Leading Cases The Post-Etridge Cases 677

18 contents xvii 20 unconscionability and inequality of bargaining power Introduction Unfairness in the Cases The Role of Statutes A General Principle? The Search for Coherence frustration and force majeure Introduction Construction of the Contract Foreseeable Events Self-Induced Frustration Frustrating Events 722 (a) Impossibility 723 (b) Illegality 723 (c) Frustration of Purpose The Effects of Frustration The Basis of Frustration 743 PART vi REMEDIES FOR BREACH 22 breach of contract and termination Introduction What is a Breach of Contract? The Existence of a Right to Terminate 757 (a) Breach of a Condition 758 (b) Breach of a Warranty 773 (c) Breach of an Intermediate Term 774 (d) Making the Choice 780 (e) Termination Clauses 789 (f) The Relevance of Good Faith 793 (g) Some Comparative Reflections Election Loss of the Right to Terminate Anticipatory Breach 801

19 xviii contents 23 damages Introduction Damages: The Different Measures The Performance Interest The Reliance Interest The Restitution Interest Non-Pecuniary Losses The Date of Assessment Limiting the Protection of the Performance Interest 867 (a) Remoteness 867 (b) Mitigation 894 (c) Contributory Negligence Account of Profits Punitive Damages Agreed Damages Clauses Deposits and Part Payments specific performance What is Specific Performance? Specific Performance and the Adequacy of Damages The Range of Factors to Which the Courts Will Have Regard 928 (a) Personal Service Contracts 929 (b) Mutuality 931 (c) Undue Hardship Co-operative Insurance Society Ltd v. Argyll Stores (Holdings) Ltd Injunctions Future Directions 945 PART v third party rights 25 third parties Introduction Contract Structures Third Parties and the Acquisition of Contractual Rights 955 (a) The General Rule at Common Law: Third Parties Have No Right of Action 956

20 contents xix (b) The Rights of the Promisee 962 (c) The Exceptions to Privity 980 (d) Third Parties, Exclusion Clauses, and Exclusive Jurisdiction Clauses 989 (e) The Case For Reform 1003 (f) Contracts (Rights of Third Parties) Act Third Parties and the Imposition of Liabilities Conclusion 1031 Index 1033 In-depth material on topics such as illegality and incapacity is provided in electronic format for those interested in finding out more about these areas of contract law. A symbol, as used in the margin here, indicates when additional material can be found on the Online Resource Centre: