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2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 Introduction Making a contract Capacity of parties Terms of the contract Exemption/exclusion clauses Vitiating factors Discharge of contract Remedies
Model: • 2 parties : may be extended to 3 parties…etc. • Relationship of the parties: rights & duties • Context : different needs & environment requires different adaptation of the model • Enforcement of rights • Negotiation – different stages
2.1 Introduction A Relationship B .
1 Introduction Negotiation no Offer Acceptance Contract .2.
1 Introduction Definition of “contract”: A contract is an agreement between 2 or more parties which is enforceable at law.2. .
or by any combination of such.1 Introduction Format: May be in writing.2. . by word of mouth (orally) by conduct.
1 Introduction Contract law = foundation of all commercial activities Wide range of contracts: e. sale and purchase agreements in conveyancing transactions . simple consumer contracts to construction contracts.2.g.
2.1 Introduction General principle: Freedom of contract – everyone is free to enter into any contract .
Sale of Goods Ordinance.2. Employment Ordinance) . Control of Exemption Clauses Ordinance) and employees (e.g.g.1 Introduction Exceptions: (1) Those against public morality (2) Those against national security (3) Those against public interests (4) Those regulated by statutes for protection of consumers (e.
Conveyancing transactions (e.g.1 Introduction (5) Those provide for regulating certain relationships – Landlord and Tenants (Consolidation) Ordinance Those require specific formalities .2. pre-marital arrangements. Conveyancing and Properties Ordinance) (6) Domestic agreements with no intention to create legal relationships – e. separation agreements .g.
1Unilateral and Bilateral Contracts 184.108.40.206 Making a Contract 2.2.2Essential elements of a contract .
2.1 Unilateral and Bilateral Contracts Unilateral contract – the performance remains outstanding on 1 party only (i.e. the offeree/acceptor) having already performed what is required of it.e. the offeror).2. . while the other party (i.
Mr A Mr B found the puppy and returned it to Mr A. Mr A refused to pay Mr B HK$100 but only agreeing to pay him HK$50. Can B sue A ? If so.1 Unilateral and Bilateral Contracts Example: Ad Anyone who found my puppy. for how much ? . Buggie which has a name tag on its collar and return it to me shall be rewarded HK$100.2.2.
2. Mr A is only willing to pay $1 to Mr B.1 Example: Unilateral and Bilateral Contracts Anyone who found my puppy. Buggie which has a name tag on its collar and return it to me shall be rewarded. Can Mr B sue him ? If so.2. for how much ? . Mr A Mr B found the puppy and returned it to Mr A.
please return him to me. Mr A thanked Mr B but refusing to pay him a single cent. Can Mr B sue him ? If so. Mr A Mr B found the puppy and returned it to Mr A.2.2.1 Example: Unilateral and Bilateral Contracts Anyone who found my puppy. Buggie which has a name tag on its collar. for how much ? .
for how much ? Would it make any difference if Mr Tung did not reach Tsimshatsui Ferry Pier ? . Mr A Mr Tung did so. Mr A refused to pay.2.1 Example: Unilateral and Bilateral Contracts Anyone who jumps into Victoria Harbour off Queen’s Pier and swims to Tsimshatsui Ferry Pier shall be rewarded with HK$100.2.000. Can Mr Tung sue Mr A ? If so.
2. I will give you HK$100. Is there any difference between the 2 ads ? .1 Unilateral and Bilateral Contracts Jump into Victoria Harbour. Jump into Victoria Harbour and I will give you HK$100.2.
an agreement comes into existence.2 Essential 1. 2. 5.2.2. 3. 4. elements of a contract Offer Acceptance Consideration Privity Intention to create legal relationship When a definite offer made by 1 party is unconditionally accepted by another party. .
“I give you $100 for [your] not suing me. e. “I give you $100 for [your] doing some work.g.” . “I will not sue you if you repay me $100.Offer (def) An offer – a definite promise or proposal made by the offeror to the offeree (NB: not necessarily the performer) with the intention to be bound by such promise or proposal without further negotiation.“ e.” e.g.g.
Offer must be distinguish from “invitation to offer”/”invitation to treat” Starting point: Is there a contract/agreement ? (check the definition of a contact/agreement) - Ask: Is there any acceptance (check the definition of acceptance) - The step before acceptance is an offer. - The step before an offer is invitation to offer.
Acceptance – comes into existence after the offeree unconditionally accepts the offer. When 1 party introduces variations/conditions to the terms of the latest proposal, there is no acceptance (i.e. conditional acceptance is not acceptance). Such variations/conditions amount to a counter-proposal/offer. No agreement.
• Something of value in the eyes of the law (need not be of market value). Hence, the saying :”Consideration must be sufficient but not adequate.” • Price to be paid for the promise • May consists of money, goods, promise, suffering some detriment (e.g. forbearance to sue) • Consideration must flow from the proposee in respect of any promise.
Rights/Benefits assigned/transferred (e.e.duty).g.e.Privity (def) General rule: A person who is not a party to a contract cannot sue upon it (i. Deed of Mutual Covenants) . Statutory exceptions: Married Person Status Ordinance Cap 182 2. right) or be sued upon it (i. Exceptions: 1. Contract made by an agent for his principal 3.
• Objective test : reasonable man’s test .Intention to create legal relationship (def) Both parties must intend that the agreement is to be binding on them (i. they have agreed to bear the duties under the contract).e.
g.Offer (details) Invitation to treat/offer .The proposal before the actual “offer” e. mail order catalogue. goods catalogue. advertisements in newspaper. display of goods in the shelves of a supermarket Fisher v Bell  1 QB 394 : Restriction of Offensive Weapons Act 1959 (UK) – “offer for sale” offensive weapons is illegal – self-service window displaying a flick knife with a price tag – an invitation to treat .
Offer (details) Fisher v Bell was followed in HKSAR v Wan Hon Sik  3 HKLRD 283 – display of pirated videos discs was an invitation to treat Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd  1 QB 401 – Display of drugs invitation .
Offer (details) Tenders: Invitation for tenders = invitation to treat A bidder = an offeror See City Polytechnic v Blue Cross  2 HKLR 103 – CP through an insurance broker invited tenders from insurance companies to cover its employees’ medical & life insurance .
Offer (details) An advertisement may sometimes be an offer and sometimes be an invitation to treat – the crucial point – definite intention to be bound Carlill v Carbolic Smoke Ball  1 QB 256 Partridge v Crittenden  2 All ER 421 .
Offer (details) Auction sales – ads to sell goods by auctions = invitation to offer bidder = offeror A person incurring expenses in going to the place of auction cannot sue the auctioneer if the auction were not held – because – auctioneer is not bound to hold the auction (Harris v Nickerson (1872-73) LR 8 QB 286) .
saw the ad but never addressed his mind to it and informed the government – held: no reward to Clark . See R v Clarke ( 1927) 40 CLR 227 – Western Australian government offered a reward for capturing some murderers – Clarke was an accomplice.Offer (details) Offer must be communicated.
Termination of offer 1. By acceptance 2. By rejection – a counter-offer is a rejection ; a request for information is not a rejection 3. By revocation 4. By lapse of reasonable time 5. By death of the offeror ? Of the offeree ? After termination, the offer is no longer a valid offer and cannot be accepted.
Revocation of offer General Rule: an offer can be revoked at any time before acceptance (Routledge v Grant (1828) 130 ER 920) Exception: when the offeror undertakes a contractual obligation or the offeror “receives consideration” to keep the offer open
Revocation of offer General Rule: Revocation of an offer becomes binding only when it has come to the knowledge of the offeree Exceptions: (1) Letter of revocation sent to a commercial organisation (Eaglebill Ltd v J Needham Builders Ltd  AC 992, 1011 (2) Offer to the public – revocation takes place when the offeror had taken reasonable steps to bring it to the notice of the public
D had effectively withdrawn his offer . Held: 1.Offer (details) Knowledge of revocation may be actual or implied Dickinson v Dodds (1875-76) LR 2 Ch D 463: Date 1: D gave P a written offer to sell the house and that the offer will open until 9:00 am on Date 3. Date 2: D sold the house to a 3/p and a 4/p informed P of the sale. Date 3: P wrote to P “accepting his offer” before 9:00 am. 2. P’s acceptance was too late – he knew the property had been sold.
90) . or (2) Reasonable time – a question of fact depending on the circumstances of the case (see S.Offer (details) Lapse of offer An offer lapses if it is not accepted within: (1) A stipulated time.
If the offeree knows of the offeror’s death. (2) Death of the offeree: depends on the intention of the parties. check the initial proposal. the offer cannot be accepted. If the offeree dies after accepting the offer. and the deceased’s contractual obligations can still be performed by his estate. a valid contract exists.Offer (details) Death of a party (1) Death of the offeror : when the offeree accepts the offer unaware of the offeror’s death. .
Acceptance Acceptance – comes into existence upon the offeree unconditionally accepts the offer e.. “I accept subject to conditions…. “I accept but….g.g.” e. The offeree says. “OK. I accept.” Contrast with e. The offeree says.g. The offeree says.” .
Acceptance Cross offers I promise to do X Party A 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 Party B .
Acceptance Communication of acceptance General rule: Acceptance must be communicated Exceptions: 1. he did not read the message) 4. Certain conditions (like conduct of the offeree) can be deemed to be acceptance (see Carlill) 3. Acceptance received by the offeror’s agent 5. Offeror waives the necessity to communicate acceptance 2. Offeror may be estopped to deny his failure to receive acceptance because of his own conduct (e.g. Postal acceptance rule: acceptance by posting (see later notes) .
Felthouse v Bindley (1862) 11 DBNS 869 : Uncle said. . Nephew never communicated acceptance to his uncle. Held: No acceptance.”Horse sold by mistake. D did not expressly accept the offer but used the coal when they were supplied. Contrast: Brodgen v Metropolitan Railway Co (1877) 2 App Cas 666: P sent a draft contract to D offering to sell coal. “I heard no more from my nephew. I shall consider the horse is mine. Held: Implied acceptance.Acceptance Silence Silence is no acceptance.
Held: No acceptance.Acceptance Acceptance must be communicated by the offeree or his authorised agent. Power v Lee (1908) 99 LT 284: P applied to be a headmaster. . Management board agreed to accept his offer but the decision was communicated by a member who was not authorised.
. 2. it must be accepted by the prescribed method. When method is prescribed by the offer. When methods are prescribed by the offer. acceptance by an equally or more efficacious or faster method is OK. When no method is prescribed by the offer. acceptance by any such method.Acceptance Methods of acceptance: 1. 3. Tin v Hoffman: “Reply by return of post” not “reply by return of post only”.
Acceptance When parties are not face to face (1) By post and telegram – Postal Rule (2) Other instantaneous means of communication .
Then. acceptance is deemed to be completed when the acceptance. or (2) It is reasonable to use post to send an acceptance. .Acceptance: Postal Rule Conditions of application: (1) Where post is the prescribed method of acceptance. properly stamped and addressed letter of acceptance is posted (Adams v Lindsell (1818) 1 B & Ald 681: Date 1: D offered to sell goods to P Date 2: letter reached P and P accepted by post Date 3: D sold the goods to a 3/p Date 4: D received the acceptance Held: accptance) The receipt of acceptance by D is irrelevant.
*Intention of the parties – most crucial . • When the transaction involves large sums of money.Acceptance: Postal Rule Also applies to telegrams (Cowan v O’Connor (1888) 20 QBD 640) Not applied: • When offeror requires actual receipt of acceptance by him(Holwell Securites Ltd v Hughes  1 WLR 155 • When it is unreasonable to accept by post. • When offer was made by email or fax. • When other methods are contemplated.
e. offeror sets up the rules.Acceptance: Postal Rule Postal rule does not apply to a revocation by post – Byrne v Van Tienhoven (1880) 5 CPD 344: The offeree cannot be bound by a revocation when he is not aware of at the moment of acceptance. I. .he is bound his own rules.
. telephone. Held: acceptance must be received. 553 Laws of Hong Kong). telex. etc. D sent a telex in return to P accepting the offer. HK : Contracts by email is governed by Electronic Transactions Ordinance (Cap.Acceptance: instantaneous communications Contracts concluded by instantaneous means of communication like email. – acceptance must be received by the offeror Entores Ltd v Miles Far East Corporation  2 QB 327: P in London sent a telex to D in Amsterdam offering to buy goods from D. fax.
another promise Consideration must be sufficient but not adequate = of some value but need not be of market value . goods.Consideration Consideration = price of the offer = may be service.
Ltd v Nestle & Co. Ltd  AC 87: D advertised for sale to the public records of the tune “Rockin Shoes” for 1s 6d and 3 chocolate wrappers. Held: the 3 chocolate wrappers are consideration Consideration must be executed or executory but not past: Executed consideration : Consideration of the offeree is the performance of the required act Executory consideration : Consideration = offeree’s promise .Consideration Consideration must be sufficient but not adequate: Chappell & Co.
. 2. act was done at the promisor’s request. This rule is sometimes relaxed in favour of the offeree who had suffered some loss: Pao On v Lau Yiu Long  AC 614 – conditions: 1. parties understood that the act was to re remunerated by payment or conferment of some other benefits. and 3.Consideration Past consideration is no consideration: Roscorla v Thomas (1842) 3 QB 234: P agreed with D to purchase a horse. Payment or conferment of the benefits are enforceable if it had been promised in advance. Held: P’s agreement is past consideration for the guarantee. not). D later guaranteed that the horse was free of lice (in fact.
 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) .80 of 1987.Consideration Pao On principles were followed in L&D Associates v Chan Man Chon Civ App No.
. Held: bank contacted with father and son.Consideration Consideration must move from the promisee: McEvoy v Belfast Banking Co Ltd  AC 24: Father deposited $ in a bank and the receipt indicated that the bank received money from him and his son. Father died.
Performance of a public duty 2.Consideration No consideration if: 1. Performance of an existing duty owed to the same promisor gist: find extra bit of consideration . Performance of a personal legal duty 3.
Ltd v AM Satterthwaite & Co Ltd. C will not sue A. .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. Held: A is protected. New Zealand Shipping Co. C contracted with A – if A unloads the goods. The Eurymedon  AC 154: A contacted with B to unload C’s goods.
. Held: F did not provide any consideration for the nonpayment of interests. B sued for interests due. Both signed a settlement agreement that F could pay principal by instalments.Consideration Part payment of a debt (“payment of a lesser sum”) on the due date is no consideration for the satisfaction of a larger debt (The Rule in Pinnel’s case (1602) 5 Co Rep 117) Applied in Foakes v Beer (1884) 9 App Cas 605: B sued F. Later.
5. 4. Goods of lesser value are given. 3. 2. Composition agreement. Lesser sum is paid and other goods are given. Doctrine of promissory estoppel or equitable estoppel applies. . Lesser sum is paid by a 3/p.Consideration Exceptions to the Pinnel’s case: 1. Creditor’s claim is disputed in good faith. 6.
2. The agreement provides that the strict rights under another contract will not be enforced or suspended. Parties by their own act or own consent enter upon an agreement. and 3. It would be inquitable to enforce it the other party cannot enforce Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 Applied in Central London Property Trust v High Trees House  1 KB 130 .Consideration Doctrine of equitable estoppel (promissory estoppel): 1.
Debtor had acted on the promise and had suffered detriment or change his position .Consideration Only applies only when: 1. As a defence : Combe v Combe  2 KB 215 – promise just a gift 4. Equitable 2. The promise is definite and precise. The is real accord 3. Ambiguity ruins the application. 5. To suspend the creditor’s legal rights 6.
Consideration Forbearance to sue is good consideration in return for promisor’s promise but is not good consideration if the promisee knows. such forbearance is still good consideration. (Cook v Wright (1861)). that he does not have any ground/cause of action against the promisor. If the promisor honestly believes or has reasonable ground for believing he has a cause of action. .
S in breach of this clause. . Dunlop Pneumatic Tyre Co v Selfridge & Co  AC 847: D contracted with its buyer with a bottom price clause. Its buyer contracted with S with a similar clause.Consideration and privity A person who is not a party to a contact cannot sue upon it or be sued upon it. Held: D cannot sue S as D is not a party to the contract between the buyer and S.
Rights or benefits assigned under contract or other instruments (NB: Duties cannot be assigned. NB: DMCs) .Married Person Status Ordinance (Cap 182) – beneficiaries can sue on policies providing for them. . Contract made by agent binds the principal 3.Consideration and privity Exceptions: 1.Motor Vehicles Insurance (Third Party Risks) Ordinance (Cap 272) – a person driving a vehicle can claim under the insurance policy taken out by the car owner 2. Statutes allowed such enforcement: .
followed in Sun Er Jo v Lo Ching  1 HKC 1 . Commercial agreements have such intention: Edwards v Skyways  1 WLR 349: ex gratia payment (Contra: “subject to contract” clauses. etc. Social and domestic agreements do not have such intention: Belfour v Belfour  2 KB 571: agreement to pay maintenance – domestic agreement.Intention to create legal relationships General Rule: An agreement is enforceable only if both parties intend to have legal consequences – intention: objective test – a reasonable persons’ test Presumptions: 1. “honourable pledge clause”. “letter of intent”.) 2.
Companies .The capacity of the parties There are 2 typical situations: 1. Mentally disordered. drunk or drugged persons 3. Minors 2.
Contracts which are enforceable against a minor unless ratified by the minor .with limited contractual capacities. Contracts which are binding unless repudicated by the minor 3. Contracts for necessaries 2.Minors Persons under 18 are minors. 3 typical situations: 1.
Beneficial education/training/services In the light of the minor’s status of life and the environment . Goods 2.Contracts for necessaries These includes contracts to provide the following to a minor: 1.
000 necessaries ? See Roberts v Gray  1 KB 520 . he or she must pay a reasonable price – I.Contracts for necessaries Section 4(1) of the Sales of Goods Ordinance (“SOGO”): …where necessaries are sold and delivered to a minor or infant. Is a tailor-made suit worthing HK$10. Questions: 1.e. only such contracts are binding on a minor Section 4(2) SOGO: “Necessaries” means good suitable to the condition in life of an infant or minor and to his or her actual requirements at the time of the sale and delivery.
For the acquisition of shares in a company (Capper’s case (1868) LR 3 Ch App 458 3. Relating to an interests in land (Davies V BeynonHarris (1931) 47 TLR 424 2.Contracts binding unless repudicated by the minor Both the contracting party and the minor are bound if making a contract: 1. To enter into a partnership agreement (Lovell & Christmas v Beauchamp  AC 360 .
Unforceable contracts unless affirmed by minor Category 1 contracts are not enforceable unless and until being affirmed by minor upon his coming of age. .
drugged Mental capacity of understanding the transaction is crucial. .11). Mental Health Ordinance (Cap 136): All patients under Cap 136 have no contractual capacity (s. drunk.Contracts made by mentally handicapped. The same rules in minors apply to this class.
Authority may be actual. . apparent or usual.Contracts by company Contracts entered into by an officer who has authority to do so binds the company.
Terms of a contract Mere representation and contractual terms Intention of the parties – Contractual liability in respect of any particular statement ? Consider: 1. Statements made by persons without such skill & knowledge . Statements made by persons with special skill & knowledge 4. Statements made in preliminary negotiations 2. Statements made at the conclusion time 3.
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. .Expressed and implied terms Expressed terms Terms that are expressed agreed by the parties orally.
For necessity: Wong Mee Wan v Kwan Kin Travel Services Ltd  2 HKLR 541: sub-contracting does not absolve the supplier from its contractual obligations . whether they are attributable to supplied materials. To give effect to business efficacy: implied to be fit for the purpose used (The Moorcock (1889) 14 PD 64) 3. (Crocodile Garments Ltd v Law Kwai Yuk  HKCU 1988) 2.Implied terms Terms can be implied: 1. a manufacturer will remedy any defects in the garments manufactured. etc. By custom and usage of a trade : e.g.
(4) goods correspond with the description. (3) goods are fit for the purpose. (2) goods are of mercantable quality. By legislation: SOGO – Every contract of sale goods – implied terms: (1) seller has the right to sell. .Implied terms 4.
he can only sue for damages. SOGO. s. 2.13(1) and (3) How to distinguish conditions and warranties: intention of the parties – reasonable man test . Breach of a condition can be waived by the innocent party. 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. The innocent party may also lose the right to terminate the contract.Expressed terms (Conditions & warranties) Differences between conditions and warranties: 1.
If it does not. he can only sue for damages (like warranty). the innocent party can terminate the contract and/or sue for damages(like condition). Hong Kong Fir Shipping Co.Expressed terms (Innominate terms) 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. Ltd v Kawasaki Kisen Kaisha Ltd  2 QB 26: seaworthiness in question – commercial purpose not frustrated – innominate term .
oral or written. . vary or add to the written terms of the contract.Interpretation and construction of terms Parol evidence No extrinsic evidence. relating to matters outside the contract can be given to contradict.
Only parts of the contract are in writing: Lam Tun Ming v Hu Chun Leung  HKLY 552 – purchase of shares – bought and sold notes produced – acceptable. no consideration.Interpretation and construction of terms Exceptions to the Parol evidence rule: 1. identity of the subject matter (Raffles v Wichelhaus (1864) 2 H & C 906 – id of the ship) .e. Where there are causes affecting the validity of the contract (I. 2. Where it is necessary to allow extrinsic evidence to prove that the contract had not come into operation: Pym v Campbell (1856) 6 E & B 370 – condition not satisfied – no contract 3.
Interpretation and construction of terms 4. 5. Where the law permits implying of certain terms into the contract : SOGO Where there is a collateral contract: De Lassale v Guildford  2 KB 215 – Conveyancing transaction – vendor gave assurance that the drains are in good order – a collateral contract – implied term .
HK legislature enacted the Control of Exemption Clauses Ordinance (Cap 71) (“CECO”) to curb the use of such clauses.Exemption/Exclusion clauses Such clauses aim to exempt / exclude liability of the relying party (usually big commercial enterprises) and are often used in standard form contracts. . Courts do not favour such clauses and will interpret them strictly against the relying party (Contra Proferendum Rule).
To be effective, such clauses must pass a 3 stage test: 1. Incorporation into contract ? 2. Clear and wide enough to protect the relying party ? 3. No contravention of the CECO
Incorporation By: (1) Signature: L’Estrange v F Graucob Ltd  – Signature without looking – bound – NB: comm (2) Reasonable notice: Olley v Marlborough Court  followed by Seapower Resources v Assure Co Ltd  HKEC 1517 (3) Consistent cause of dealings: J Spurling Ltd v Bradshaw  2 All ER 121 – similar documents read into the current contract
Control of Exemption Clauses
Control of Exemption Clauses Ordinance (Cap.314) - restricts “business liability” - “business” is widely defined; includes profit-making commercial activities, activity which a person carries on as a means of living, profession, professonal, governmental and semi-governmental bodies - Does not include educational and recreational places
11(2)) General test of reasonableness: objective test – all the circumstances which the parties knew or should have known at the time of contracting.11(1)) (3) When they attempt to exempt liability in respect of seller’s obligations in respect of quality under sections 15. 16.Control of Exemption Clauses E clauses become ineffective: (1) When they attempt to exempt liability for death or personal injuries (s. (2) When they attempt to exempt liability in respect of seller’s implied undertaking as to title (s. (s.7(1)). . 17 of the SOGO.
5. 2. voidable. 4. 6. 3. . illegal or unenforceable.Vitiating Factors A contract may be tainted by defects that could affect its validity making it void. 7. Vitiating factors include: Mistake Misrepresentation Duress Undue influence Unconscionable contracts Illegality Restraint of trade 1.
Mutual mistakes 3. Unilateral mistakes . Common mistakes 2.Mistakes 3 types: 1.
. contract not void.mistake as to ownership – Held: void Common mistakes as to quality of the subject matter: Oscar Chess v Williams  1 All ER 325: unless of some fundamental nature.Common mistakes Common mistakes as to the existence of the subject matter: Couturier v Hastie (1852) 8 Exch 40: contract for the sale of corn – unknown to the parties. corn went bad – Held : no contract Common mistakes as to ownership of the subject matter: Cooper v Phibbs (1867) 2 LR 2 HL 149: contract for sale of a fishery.
Mutual mistakes No meeting of minds – no contract Scriven Bros v Hindley  3 KB 564: mistake as to the lots of goods – Held: no contract .
3. Mainly on identity of the parties. . a. Normally 3 parties are involved: The innocent party who mistakens The rogue The innocent party who was being mistakened 2 situations: Contracts made by correspondence Contracts made face to face 1. 2. b.Unilateral Mistakes Mistake by one party while the other party knows the truth.
.Contracts made by correspondence Effect: Contract void Cundy v Lindsay (1876) 1 QBD 348 A ordered some handherchiefs from B and sold them to C (being absolutely innocent) Held: A does not have a good title. cannot therefore transfer a good title to C.
Held: valid contract and was bound.Contracts made face to face Contract may be voidable. He sold the ring to C. dishonoured the cheque and then disappeared. Phillips v Brooks Ltd  2 KB 243 A pretended to be a rich and famous person. Levis v Averay  1 198 – similar result – voidable Gist:(1) what the innocent contracting party thought he was contracting with? (2) is the identity vital influence his decision to contract or not ? . bought a diamond ring from B. B cannot claim the ring from C.
Misrepresentation Misrepresentation = a false representation of fact made orally or in writing or by conduct. .
700 sq.Misrepresentation Representation must be: 1. the innocent party has suffered loss as a result of such inducement See Shum Kong v Chu Ting Lin  HKEC 651 – sale of a village house (own property. On false existing factsShum Kong 3. On false material existing facts 4.ft) with garden (leased) under misrepresentation . Induce the innocent contracting party to enter into the contract 5. On existing facts 2.
Future facts 2.Misrepresentation Distinguish from: 1. 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 Fraud is proved if the misrep is made by the maker: 1.Recklessly (don’t care if it is true or not) An honest belief at the material time is a good defence: Derry v Peek (1889) 14 App Cas 337: DIR rep that the company could run trams by steam or mechanical power – reality: it could not do so – DIR held an honest belief.Held: good defence Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd  BCLC 1104 : D said that there were interested parties to buy the shares and led P to purchase them – reality: no interested buyer and D knew that at the time of making rep Held: fraud .Knowingly 2.Without belief in its truth. or 3.
or (2) affirm the contract and claim damages for breach of contract. (3) affirm the contract and claim damages under the tort of deceit b. Not become a term the other party may: (1) rescind the contract.Fraudulent misrepresentation Remedies: depends on whether fraudulent misrep had become a term of the contract : a. and/or (2) claim damages under the tort of deceit . Become a term the other party may: (1) rescind the contract.
Innocent misrepresentation = false statement honestly believing to be true and has reasonable grounds to believe so up to the moment of contracting Remedies: Rescission (not plus damages) Misrepresentation Ordinance s. 3(2) : Damages in lieu of rescission if equitable .
damages and/or indemnity MO s.g.Negligent misrepresentation Elements to be proved: 1. and 2.a duty on the representor to refrain from making a false statement. e.The representor is in breach of this duty Duty exists with special relationships between representor and representee.3(2): court has a wide discretion to affirm the contract and award damages in lieu of rescission . professionals in their areas of expertise Remedies: rescission.
Effect : contract voidable Barton v Armstrong  2 All ER 465: former chairman threatened to kill the MD unless company bought back his shares – co did so – held: voidable Rationale: no free choice . negate consent no genuine intention to contract . or unlawful restraint or threats. directed towards the contracting party or a member of his closed family.Duress Duress = actual or threatened violence.
Economic duress Economic duress = Apparent consent is induced by illegitimate economic pressure from the other party Pau On v Lau Yiu Long  A C 614: consent is revocable contract is voidable Remedy: voidable Right to avoid may be lost if the innocent party chooses to affirm (The Atlantic Baron  QB 705)) .
and (3) The ascendant person takes unfair advantage. (2) One party acquired over another a measure of influence or ascendancy.2)  3 WLR 1021. Bank of China (Hong Kong) Ltd v Wong King Sing  1 HKLRD 358) .Undue Influence Conditions: (1) A relationship between the parties. 1029. (see Royal Bank of Scotland plc v Etridge (No.
Presumed undue influence .Undue Influence 2 types of undue influence: 1. Actual undue influence 2.
2. Influence was undue. 3.Actual Undue Influence Conditions: 1. The effect: the complainant enter into the contract sufficient: the influence was a significant reason for causing no need to prove manifestly disadvantage Effect: Contract voidable . The wrongdoer had the capacity to influence the complainant. 4. Influence was in fact exerted.
Diners Club v Ng Chi Sing  1 HKC 78: father compelled to guarantee son’s debt – guarantee: voidable .Actual Undue Influence Williams v Bayley (1866) LR 1 HL200.
. Undue influence can be rebutted by: a. or b. The complainant had exercise free and independent will. The contract was manifestly disadvantageous to the innocent party. The complainant had full knowledge and could not have been misled.Presumed undue influence Conditions: 1. or c. The nature of the relationship is of a nature that it is fair to presume that the wrongdoer had abused that relationship – a rebuttable presumption 3. and 4. The complainant had competent and independent advice from another. 2. A relationship of trust and confidence between the wrongdoer and the innocent party. Procuring the innocent party to enter into contract.
lack of education. infirmity of body and mind. age.g. illiteracy. lack of assistance or explanation where assistance is necessary) vis-à-vis the other party [and the other party knew it] . sex. Commercial Bank of Australia v Amedio (1983) 151 CLR 447 per Mason J: Undue influence: the will of innocent party was not independent Unconscionable contract: disadvantage position (e. drunkeness. sickness. poverty.Unconscionable contracts The law takes a further step in protecting the innocent under the doctrine of “unconscionable contracts”.
limit/revise/alter the unconscionable part of the contract . etc. enforce the remainder of the contract.Unconscionable contracts The Unconscionable Contract Ordinance (Cap.The court may take the initiative to examine the unconscionble provisions .A consumer protection legislation (others being: SOGO.Applies only in consumer sales . 458) . See Hang Seng Credit Card Ltd v Tsang Nga Lee & Others  3 HKC 269 : credit card debt plus costs on indemnity basis – falls under Cap 458 – “greedy bank” case – unconscionable contract .The court may refuse to enforce. Control of Exemption Clauses Ordinance. MO) .List of matters the court will consider: relative bargaining positions of the parties.
Illegality Contracts are not enforceable .
the contract is void. . General rule: Restrictive covenants are acceptable only if they are reasonable with reference to time and space and must not deprive the livelihood of the party being restrained. If restraint of trade is found.Restraint of trade Applicable situation: one party agrees to restrict its freedom in the future to carry on trade with other parties who are not parties to this contract (via “restrictive covenants”).
Restraint of trade Typical situations: (1) Employment contracts (2) Sale of business (3) Solus agreement (e.g. sole agent agreement) .
Agreement (“Accord and satisfaction”) 3. Performance/defective performance 2. Frustration .Discharge of a contract A contract coming to an end by: 1. Breach 4.
pro rata basis). The traditional view as expressed by Cutter v Powell (1795) 6 Term Rep 320. used doctrines (1) and (2) above. Hoenig v Issacs  2 Al ER 176. The contract in Cutter v Powell is regarded as a “whole” contract and must be performed in full.e. demonstrating the modern approach.and be paid on a quantum meruit basis (i. may be watered down by the doctrines of : (1)Divisible contract (2)Substantial performance . .Performance/Defective Performance A contract may be discharged by full performance.
Discharge by agreement Accord and satisfaction: “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. damages) or may seek specific performance .e. 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. (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.
” per Lord Radcliffe in Davis Contractors v Fareham UDC  ACC 696 .. 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.Discharge by frustration “…Without fault of either party.Extraneous change of circumstances which makes performance impossible – examine : the subject matter of the contract – and ask: what are such circumstances ? Effect: Both parties need not perform – contract discharge .
(3) Person to perform dies or falls ill: Robison v Davison (1871) LR Ex 269: performer sicked on performance day – contract discharged (4) Change in law making it impossible to perform: Baily v DeeCrespigny (1869) LR 4 QBB 180: no blockade clause turns impossible because of change of law – contract discharged .Discharge by frustration Examine: (1) Subject matter destroyed: Taylor v Caldwell (1863) 3 B&S 826 – Hall destroyed by fire – contract discharged. (2) Expected event does not occur : Coronation cases : Krell v Henry  2 KB 740: King George VI sicked – rented premises not served its purpose – contract discharged.
5 years – discharged. 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  AC 524) Money paid lies where it falls except when there is a total failure of consideration (Fibrosa case  AC 32) .Discharge by frustration (5)Change in law makes performance illegal: Czarniko Ltd v Rolimpex  AC 351: export of goods impossible because of change in law – discharged (6) Performance become radically different: Wong Lai Ying v Chinachem  HKLR 1: landslide stopped construction work for 3.
3. 2.Remedies 1. Damages (compensation for loss) Specific performance Injunction Remoteness of damages –reasonable foreseeable loss Duty to mitigate-innocent party must mitigate (minimise) its loss .
or binding intention in it ? 2.How long is the tenancy ? 10.What does party B provide ? 6.What are the duties of party A ? 9. would you accept this tenancy agreement ? What amendments would you like to make ? . Discuss: 1.If you were party B. acceptance.Any guarantee by party A and/or party B? 7.Q & A session Please examine the sample tenancy agreement in some details. What are the condition and warranties ? 3.What are the rights of party A ? 8.What does party A provide ? 5. consideration.What is the subject matter ? 4. Is there any offer.
Do you think such terms are fair to you ? 4.Q & A session Examine your own employment contract. 1. What are the terms ? 3. What can you get if you were dismissed by your employer who gives you one month’s notice ? Do you have to attend office after receiving the notice ? 6. If you had accumulated 40 days of annual leave and your employment contract provides that annual leave cannot be accumulated. Can you find terms in the employment contract that are illegal under the Employment Ordinance ? 5. can such annual leave be set off against your notice period ? What should your employer do in respect of such annual leave ? . What is the subject matter ? 2.
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