Contract law

CONTR ACT LAW

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CONTRACT

LAW

Text, Cases, and Materials

FIFTH EDITION

Ewan McKendrick

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

Th e moral rights of the author have been asserted

Impression: 1

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

(http://www.nationalarchives.gov.uk/doc/open-government-licence/

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: 2012936277

ISBN 978–0–19–969938–4

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.

PREFACE TO THE FIFTH EDITION

Th is book has three principal aims. Th e fi rst 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 fulfi l this aim through a combination of text, cases, and materials.

Th e 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. Th e cases

chosen for inclusion in the book are the leading cases on the law of contract. Th e ‘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 confi ned 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.

Th e third aim is to explore English contract law in a transnational and comparative perspective. Th is 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.

Th e book is supported by an Online Resource Centre. Th e 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. Th e website will be

updated annually and can be accessed at www.oxfordtextbooks.co.uk/orc/mckendrick5e/.

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 benefi ted 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 18–20 to draw on material which fi rst 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. Th is book is dedicated to her with my love and thanks.

Th e law is stated on the basis of the information available to me as at 7 January 2012.

Ewan McKendrick

University Offi ces

Oxford

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 C2006010631

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 Th eory 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: Th e Law of

Contract (4e, 2003).

Council of Law Reporting for New South Wales: extract from the New South Wales Law

Reporting for New South Wales 1994.

Hart Publishing Ltd: extract from Michael Spence: Protecting Reliance: Th e 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: ‘Th e Contracts (Rights of Th ird Parties) Act and its Implications

for Commercial Contracts’, LMCLQ 540 (2000); and R Halson: ‘Th e Off ensive 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 Th ird 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: Th e Rise and Fall of Contract (1979); R Brownsword: Contract Law: Th emes

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 ‘Th e Beauty of Obscurity: Raffl es 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

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 Benefi t

of Th ird Parties: In Defence of the Th ird-Party Rule’, 7 OJLS 643 (1997).

Penguin Books Ltd: extracts from Roy Goode: Commercial Law revised by Ewan McKendrick

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 Th e Law of Contract (12e, 2007); and G H Treitel: Frustration and Force

Majeure (1994); also extracts from Law Quarterly Review: D Capper: ‘Undue Infl uence and

Unconscionability: A Rationalisation’, 114 LQR 479 (1998); D Friedmann: ‘Th e 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: Fulfi lling 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).

Th omson-Reuters (Professional) Australia Ltd, www.thomsonreuters.com.au: 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:

‘Th e 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).

Th e Yale Law Journal Company and William S Hein Company: extract from L L Fuller and

William R Perdue Jr: ‘Th e Reliance Interest in Contract Damages’, 46 Th e Yale Law Journal

52 (1995).

Every eff ort has been made to trace and contact copyright holders prior to going to press but

this has not been possible in every case. If notifi ed, the publisher will undertake to rectify

any errors or omissions at the earliest opportunity.

GUIDE TO USING THE ONLINE

RESOURCE CENTRE

Th is book is accompanied by an Online Resource Centre, an open-access website designed to support

the book. Th e website can be found at:

www.oxfordtexbooks.co.uk/orc/mckendrick5e/

Th e Online Resource Centre that accompanies this book provides students and lecturers with readyto-use teaching and learning materials. Th ese 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 fi nding 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.

Th is resource is password-protected. Th e login details to enter this part of the Online Resource Centre

are:

Username: mckendrick5e

Password: agreement

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.

Regular updates

Th is 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. Th ese 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

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. Th is 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.

Th is resource off ers versatile testing tailored to

the contents of this book, which can be customized according to the course requirements.

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CONTENTS

Table of Cases xx

Table of Statutes xxxiv

Table of Statutory Instruments xxxvii

Table of Treaties, Conventions, International Restatements,

and European Legislation xxxviii

1 Introduction 1

1. Th e Aims of this Book 1

2. Th e Scope of the Law of Contract 3

3. Transactions 7

4. European Contract Law 8

5. Transnational Contract Law 10

6. Confl icting Policies 11

part i formation

2 AGREEMENT: OBJECTIVE OR SUBJECTIVE? 19

1. Introduction 19

2. Th e Objective Th eory Illustrated 22

3. Th e ‘Snapping Up’ Cases 32

4. Th e Role of Fault 35

3 OFFER AND ACCEPTANCE 44

1. Introduction 44

(a) General Application 46

(b) Th e Intention of the Parties 50

(d) Th e Time at Which the Contract was Created 51

(e) Off er and Acceptance and the ‘Will Th eory’ of Contract 52

2. Has an Off er Been Made? 54

(a) Advertisements 56

(b) Displays of Goods for Sale in a Shop 63

(d) Auction Sales 76

xii | contents

3. What Constitutes an Acceptance? 80

(a) Must the Acceptance Coincide Exactly With the Terms of the Off er? 81

(b) Must the Acceptance be Communicated to the Off eror? 98

(d) Can Silence Amount to Acceptance? 103

(e) Th e Postal Rule 106

(f) Acceptance in Unilateral Contracts 114

(g) Acceptance in Ignorance of an Off er 115

4. Has the Off er Been Withdrawn or Otherwise Terminated? 116

5. Conclusion 122

4 UNCERTAIN AND INCOMPLETE AGREEMENTS 124

1. Introduction 124

2. Cases in Which it Has Been Held that the Agreement is Too Vague or

Uncertain to be Enforced 133

3. 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) Th e Intervention of Statute 141

(d) Implication of Terms 142

4. Conclusion 143

5 consideration and promissory estoppel 145

1. Introduction 146

2. Consideration: Its Scope 147

(a) Consideration Must Be Suffi cient 148

(b) Th e Pre-Existing Duty Rule 157

(d) Consideration Must Move From the Promisee 208

(e) Establishing the Necessary Link 208

3. Estoppel: Its Scope 212

(a) Estoppel: A Brief Defi nition 213

(b) Two Leading Cases 215

(d) Th e Diff erent Types of Estoppel 224

(e) Unifying Th e Estoppels 226

contents | xiii

(f) Locating Estoppels 240

4. Th e Future of Consideration 245

6 formalities 255

1. Introduction 255

2. Th e Reasons for Formal Requirements 257

3. Formal Requirements in English Contract Law 259

(a) Formal Requirements Which are Suffi cient to Render the Promise

Binding 259

(b) Formal Requirements Which are Necessary in Order to Render a

Contract Binding 261

4. Th e Future of Formal Requirements 267

7 intention to create legal relations 269

1. Introduction 269

2. Domestic Agreements 270

(a) Th e Scope of the Presumption 274

(b) Rebutting the Presumption 276

(d) Th e Relationship With Consideration 279

3. Social Agreements 280

4. Commercial Agreements 282

(a) Rebuttal of the Presumption 284

(b) Did the Parties Intend to Contract? 286

5. Th e Future of the Doctrine of Intention to Create Legal Relations 287

part ii TERMS

8 the terms of the contract 293

1 Introduction 294

2. Two Preliminary Issues 295

3. Terms and Representations 295

(a) Th ree Illustrative Cases 297

(b) Drawing the Th reads Together 307

4. Th e Parol Evidence Rule 308

9 incorporation of terms 313

1. Introduction 314

2. Incorporation By Signature 314

xiv | contents

3. Incorporation By Notice 322

4. Incorporation By Course of Dealing and By Custom 331

10 implied terms 337

1. Introduction 338

2. Terms Implied By Statute 338

3. Terms Implied From Usage or Custom 343

4. Terms Implied By the Courts 346

(a) Terms Implied in Fact 346

(b) Terms Implied in Law 354

5. Conclusion 367

11 the interpretation of contracts 370

1. Introduction 371

2. Th e Evolution From Literalism Towards Contextualism 371

3. Lord Hoff mann’s Re-Statement 373

4. Th e Scope of Lord Hoff mann’s Principles 376

(a) Revolutions, Discarding the ‘Old Baggage’, and the Role of Precedent 376

(b) Th e Objective Nature of the Test 379

(d) Th e Exclusionary Rules 381

(e) Th e Meaning is Not a Matter of Dictionaries 382

5. Future Developments? 387

12 boilerplate clauses 389

1. Introduction 389

2. Boilerplate Clauses and Standard Terms 390

3. Boilerplate Clauses: Some Illustrations 394

(a) General Clause 395

(b) Retention of Title Clauses 395

(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

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