Professional Documents
Culture Documents
CONTRACT LAW
2.1 Introduction
2.2 Making a contract
2.3 Capacity of parties
2.4 Terms of the contract
2.5 Exemption/exclusion clauses
2.6 Vitiating factors
2.7 Discharge of contract
2.8 Remedies
2.1 Introduction
Model:
2 parties : may be extended to 3 parties…etc.
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Relationship of the parties: rights & duties
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Context : different needs & environment requires different adaptation of the model
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Enforcement of rights
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Negotiation – different stages
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2.1 Introduction
A Relationship
B
2.1 Introduction
A Relationship
B
2.1 Introduction
Negotiation
no
Offer
Acceptance Contract
2.1 Introduction
Definition of “contract”:
Party A Party B
I promise to do Y
There are 2 independent offers:
Tinn v Hoffman & Co (1873) 29 LT 271: Crossing in post –
ignorance of the other’s offer – no contract
Acceptance
Communication of acceptance
General rule: Acceptance must be communicated
Exceptions:
1. Offeror waives the necessity to communicate acceptance
2. Certain conditions (like conduct of the offeree) can be deemed to
be acceptance (see Carlill)
3. Offeror may be estopped to deny his failure to receive acceptance
because of his own conduct (e.g. he did not read the message)
4. Acceptance received by the offeror’s agent
5. Postal acceptance rule: acceptance by posting (see later notes)
Acceptance
Silence Silence is no acceptance. Felthouse v
Bindley (1862) 11 DBNS 869 : Uncle said, “I heard no more
from my nephew, I shall consider the horse is mine.”Horse
sold by mistake. Nephew never communicated acceptance to
his uncle. Held: No acceptance.
Contrast:
Brodgen v Metropolitan Railway Co (1877) 2 App Cas 666: P
sent a draft contract to D offering to sell coal. D did not
expressly accept the offer but used the coal when they were
supplied. Held: Implied acceptance.
Acceptance
This rule is sometimes relaxed in favour of the offeree who had suffered
some loss: Pao On v Lau Yiu Long [1986] AC 614 – conditions:
1. act was done at the promisor’s request;
2. parties understood that the act was to re remunerated by payment
or conferment of some other benefits; and
3. Payment or conferment of the benefits are enforceable if it had
been promised in advance.
Consideration
Pao On principles were followed in L&D Associates v Chan
Man Chon Civ App No.80 of 1987, [1987] HKLY 138: P
sued D for agency fees. Q: whether introduction is past
consideration re signing of inspection record (contract) ?
Held: Yes + violation of principles of agency (see later
notes)
Consideration
Consideration must move from the promisee: McEvoy v
Belfast Banking Co Ltd [1935] AC 24: Father
deposited $ in a bank and the receipt indicated that the
bank received money from him and his son. Father died.
Held: bank contacted with father and son.
Consideration
No consideration if:
1. Performance of a public duty
2. Performance of a personal legal duty
3. Performance of an existing duty owed to the same
promisor
- gist: find extra bit of consideration
Consideration
Performance of an existing contracting duty owed to a 3/p
is good consideration : Shadwell v Shadwell (1860) I
CBNS 159: promisor obtains direct benefit from the
contract and has an independent irght o enforce the
promise.
Presumptions:
1. Commercial agreements have such intention: Edwards v Skyways
[1964] 1 WLR 349: ex gratia payment (Contra: “subject to contract”
clauses, “honourable pledge clause”, “letter of intent”, etc.)
2. Social and domestic agreements do not have such intention: Belfour
v Belfour [1919] 2 KB 571: agreement to pay maintenance –
domestic agreement- followed in Sun Er Jo v Lo Ching [1996] 1
HKC 1
The capacity of the parties
There are 2 typical situations:
1. Minors
2. Mentally disordered, drunk or drugged persons
3. Companies
Minors
3 typical situations:
1. Contracts for necessaries
2. Contracts which are binding unless repudicated by the
minor
3. Contracts which are enforceable against a minor
unless ratified by the minor
Contracts for necessaries
These includes contracts to provide the following to a
minor:
1. Goods
2. Beneficial education/training/services
In the light of the minor’s status of life and the environment
Contracts for necessaries
Section 4(1) of the Sales of Goods Ordinance (“SOGO”): …
where necessaries are sold and delivered to a minor or
infant, he or she must pay a reasonable price – I.e. only
such contracts are binding on a minor
Consider:
1. Statements made in preliminary negotiations
2. Statements made at the conclusion time
3. Statements made by persons with special skill &
knowledge
4. Statements made by persons without such skill &
knowledge
Expressed and implied terms
Expressed terms
Terms that are expressed agreed by the parties orally, in
writing or partly orally, party in writing.
Implied terms
Terms that work on the presumed intention of the parties to
give effect to the business efficacies of the contract.
Implied terms
Terms can be implied:
1. By custom and usage of a trade : e.g. a manufacturer will remedy
any defects in the garments manufactured, whether they are
attributable to supplied materials, etc. (Crocodile Garments Ltd v
Law Kwai Yuk [1998] HKCU 1988)
2. To give effect to business efficacy: implied to be fit for the purpose
used (The Moorcock (1889) 14 PD 64)
3. For necessity: Wong Mee Wan v Kwan Kin Travel Services Ltd
[1995] 2 HKLR 541: sub-contracting does not absolve the supplier
from its contractual obligations
Implied terms
4. By legislation: SOGO – Every contract of sale goods –
implied terms:
(1) seller has the right to sell;
(2) goods are of mercantable quality;
(3) goods are fit for the purpose;
(4) goods correspond with the description.
Expressed terms (Conditions &
warranties)
Differences between conditions and warranties:
1. Even a minor breach of a condition entitles the other
party to terminate the contract and sue for damages.
Breach of a warranty (that excludes repudiation) does
not entitle the other party to terminate the contract; he
can only sue for damages.
2. Breach of a condition can be waived by the innocent
party. The innocent party may also lose the right to
terminate the contract. SOGO, s.13(1) and (3)
The courts look into the effects of the breach rather than
the pre-fixed dicotomy of conditions/warranties. If the
breach goes to the root of contract, the innocent party
can terminate the contract and/or sue for damages(like
condition). If it does not, he can only sue for damages
(like warranty).
Parol evidence
No extrinsic evidence, oral or written,
relating to matters outside the contract can
be given to contradict, vary or add to the
written terms of the contract.
Interpretation and construction of terms
Courts do not favour such clauses and will interpret them strictly
against the relying party (Contra Proferendum Rule).
Incorporation
2 situations:
a. Contracts made by correspondence
b. Contracts made face to face
Contracts made by
correspondence
Effect: Contract void
See Shum Kong v Chu Ting Lin [2001] HKEC 651 – sale of a
village house (own property, 700 sq.ft) with garden (leased)
under misrepresentation
Misrepresentation
Distinguish from:
1. Future facts
2. Intention of future conduct
3. Opinion
Misrepresentation
2 types of misrepresentations:
(1) Fraudulent
(2) Innocent
(3) Negligent
Fraudulent misrepresentation
= a false statement made by a person with a dishonest (“fraud”) intent
Remedy: voidable
Right to avoid may be lost if the innocent party chooses to
affirm (The Atlantic Baron [1979] QB 705))
Undue Influence
Conditions:
(1) A relationship between the parties;
(2) One party acquired over another a measure of
influence or ascendancy; and
(3) The ascendant person takes unfair advantage.
(see Royal Bank of Scotland plc v Etridge (No.2) [2001]
3 WLR 1021, 1029; Bank of China (Hong Kong) Ltd
v Wong King Sing [2002] 1 HKLRD 358)
Undue Influence
2 types of undue influence:
1. Actual undue influence
2. Presumed undue influence
Actual Undue Influence
Conditions:
1. The wrongdoer had the capacity to influence the
complainant;
2. Influence was in fact exerted;
3. Influence was undue;
4. The effect: the complainant enter into the contract
- sufficient: the influence was a significant reason for
causing
- no need to prove manifestly disadvantage
“Accord” – agreement
“Satisfaction” – consideration
Discharge by breach
2 types of breach:
(1) Repudiatory breach
(2) Anticipatory breach
Repudiatory breach
= No performance by the contracted time, place and
conditions
Effects:
(1) Condition or innominate term (with serious
consequences) innocent party can treat the contract
as discharged.
(2) Warranty or innominate term (with less serious
consequences) innocent party can only sue for
damages
Anticipatory breach
(1) A party express its intention not to perform,
(2) A party acts in such a way as to sow its intention not to
perform
Remedies:
(1) The innocent party may accept the breach and treat
the contract as discharged then, and sue for damages
(2) The innocent party may wait until the due date and sue
for loss incurred by him as a result of such a breach
(i.e. damages) or may seek specific performance
Discharge by frustration
“…Without fault of either party, a contractual obligation
has become incapable of being performed because
circumstances in which performance is called for would
render it a thing radically different from that which was
undertaken..” per Lord Radcliffe in Davis Contractors v
Fareham UDC [1956] ACC 696
- Extraneous change of circumstances which makes
performance impossible – examine : the subject matter
of the contract – and ask: what are such circumstances ?
No frustration under:
(a) Performance more expensive
(b) Self-induced frustration: failure to apply for a licence (Maritime
National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524)
Money paid lies where it falls except when there is a total failure of
consideration (Fibrosa case [1943] AC 32)
Remedies
1. Damages (compensation for loss)
2. Specific performance
3. Injunction