Contract Law Notes - Lecture 1

Main focus:
1. General common law of contracts (supplied by common law and principles of equity)
2. Rules of equity

Definition of Contract Law

● A set of promises which the law will enforce
● An agreement giving rise to obligations which are enforced or recognised by law
● The breach of it the law gives a remedy
● The performance of which the law in some way recognizes as a duty
*side note: there is no formal definition of contract, what is provided is only provisional, indicative and
illustrative but not party of the law itself (the suggested general principle is developed around the action
of assumpsit)

Characteristics of Contract Law

● Contractual obligations are voluntarily assumed and legally enforceable even in the absence of
fault
● Based on:
1. freedom of contract
2. sanctity of contract

Reasoning of enforcing promises

1. Economic theory (enhances social welfare)
● Welfare-improving exchanges might not occur if parties are uncertain about their partners’
willingness to perform when the time comes
2. Moral theory (dispenses social justice)
Promisee Promisor

Moral right to performance by the promisor Liable to make good any harm arising from breach
if fail to perform

Market individualism Consumer welfarism

1. Market ideology (competitive exchange) ● Principles of fairness and reasonableness

● Promote security of transactions
- doctrinal recognition to the
objective approach to contractual
intention, the traditional caution
to subjective mistake and
protection of third party
purchasers)
● Identify standing of parties
● More regulation than market
individualism
● Potential conflicts may arise when more
than one principle is relevant
● Principles:
- constancy (cannot encourage one to act
in a certain way to form a certain
expectation)
- proportionality (innocent’s remedies
should be proportionate to that of
 - Ground rules and restrictions of
contracting should be clearly
defined, minimal and not hedged
around with qualifications which
leave contractors constantly
unsure of their position
● Facilitate commerce
- Should not overlook the obvious
- A measure of commitment to
facilitate market dealing
1. Individualist ideology (bargaining as
equals)
1. Parties should be free to choose each
other as contractual partners and their own
terms (freedom of contract)
2. Parties should be masters of their
bargains and the court should not lightly
relieve contractors from performance of
their arguments on the basis that they are
held to their arguments (sanctity of
contract)
consequences of breach)
- bad faith (a party who cites a good legal
principle with bad faith is not allowed to
rely on that principle)
- no man should profit from his wrong
- unjust enrichment (cannot enrich
oneself at the expense of another)
- better loss-bearer (allocate the loss to
one that is more capable to carry it)
- exploitation (strong cannot exploit
weak)
- fair deal for consumers (against sharp
advertising, misleading arguments, false
representations and restrictions on their
ordinary rights)
- informational advantage (those that
have the advantage must stand by their
positions, and representee with equal
informational opportunity present no
special case for protectiona0
- responsibility for fault
- paternalistic (contractors who enter
imprudent agreements may relief from
their bargains)

The Logic of The Common Law

Concept Explanation

Legal sources in HK Sources in which laws in HK today are established from:

1) Legislation of HKSAR (Basic Law)

● Article 8: laws previously in force in HK is to be maintained but is
also
a) Exempted from contravention
b) Subject to amendment by legislature of HKSAR
● Article 17: HKSAR is vested with legislative power
● Article 18: laws in force in HKSAR are
a) Basic Law
b) Laws previously in force in HK provided in Article 8 of
Basic Law
c) Laws enacted by legislature of HKSAR

2) The common law and rules of equity

3) Chinese customary law

*side note: where transactions involving human activity are regulated, the
 applicable rules and doctrines are treated separately from contract law

The Common Law ● Used in first distinction in contrast to legislations

● Law has different traditions

Common Law Statutory Law

Judge-made, precedent Non-judge-made,

non-precedent

Common Law Equity

Traditionally applied in the Traditionally applied in the Court

common law courts of England of Chancery

Common Law Civil Law

Cases are authoritative expositions Cases are not authoritative

of the law expositions of the law

Stare Decisis ● To stand by things decided and not to disturb that which is settled
(doctrine of precedent)

Cases decided by a superior Cases decided by an inferior

court court

Binding on inferior courts Non-binding on superior courts but

persuasive
(Condition: under the same hierarchy)

● Cases decided by a court in another hierarchy jurisdiction are

persuasive
● Rationales:
1. Fairness
2. Certainty
3. Predictability
4. Efficiency
Hong Kong Judiciary

English Case Law ● Section 3 of the Application of English Law Ordinance states that:
In Hong Kong 1) Common law and rules of equity shall be in force in Hong Kong
Conditions:
a) Applicable to the circumstances of Hong Kong or its
inhabitants
b) Subject to any modifications thereof made by any order in
council, act or ordinance which applies to Hong Kong
● AELO passed in HK in 1966 till 1997 when it was unadapted as
an HKSAR law

Before the British handover After the British handover

● Courts in HK were bound ● Decisions of the Privy

by the English common
law and its rules of equity
before the handover
● Decisions of the Privy
Council on HKappeals are
binding on HK Courts
except the Court of Final
Appeal
● Decisions of the House of
Lords and the Privy
Council on non-HK
appeals do not bind HK
courts but are persuasive
Council and House of
Lords are non-binding in
HK courts but are treated
with great respect
● Article 84 of Basic Law:
courts in HK may refer to
precedents of other
common law jurisdictions
● HK courts rely primarily
on English cases to
interpret and articulate the
law of contracts

Precedent ● An opinion may have the weight of a precedent when:

1. The opinion is given by a judge
2. Formation of the opinions is necessary for the decision of
a particular case

Ratio Decidendi ● Parts that are necessary to make a judgement

 ● A precedent contains a reason for deciding, i.e. an underlying
principle
● The concrete decision is binding between parties, but the ratio
decidendi alone has the force of law as an overall picture

Obiter Dictum ● Any other part of the cases that are not necessary to make a
judgement
● Statements of opinion upon the law and its values and principles
that relied on instant decision, which in some way go beyond
points necessary to be settled in deciding a case
● Contains varying degrees of persuasiveness
● Those of the highest degree of persuasiveness may often be
indistinguishable from pronouncements which must be treated as
ratio

Quest for ratio Whether a case is a binding precedent for another succeeding case
involves inspection on:
1. Material facts in the precedent case
2. Material facts in the current case
● When material facts are identical, the first case is a binding
preceding for the second
● The court must reach the same conclusion as it did in the first one
● The ground the case covers should be considered
● Too many cases of the same level of jurisdiction may be
contradictory
● A judge can try to circumscribe over the case
● Certain things that are not in the ratio may directly imply wrong
answers, hence reverse questions and how the outcome of the case
changes should be asked

Change and continuity Common law is always changing and as for how to change it, one must:
1. Extract from the precedents the underlying principle
2. Determine the path or direction along which the principle is to
move and develop if not wither and die

When the law of contract applies What makes a contract binding

1. The objective appearance is concerned 1. Parties must reach an agreement

over the actual fact 2. The agreement must be supported by
2. Contrasting parties are often expected to consideration
observe certain standards of behaviour 3. Must have an intention to create legal
3. Qualified to the scope of the freedom of relations
contract
*the binding promise that is given is something
the law recognizes as being of value, hence no
gratuitous promises are counted, except one via
the doctrine of estoppel (see reasons of enforcing
promises)
Breach of contract
● The failure to perform an obligation under the contract without a lawful excuse is breach of
contract
Solutions:
● The innocent party shall claim damages to remain in the same position had the contract been
normally performed and should normally be entitled to terminate the contract without incurring
any liabilities for doing so
● The law is committed to give money as a substitute for the performance of contract but not the
performance itself

● Importance of ratio: Harvey v Facey

- Analysis of possible material facts involved:

1. The appellants are solicitors => normally know that contracts are not
concluded in the way they communicated
2. Negotiations took place between Facey, the Mayor and the Council of Kingston
for the sale of the property, in which Facey offered to sell it to them for the sum
of 900 pounds and the offer was discussed by the council at their meeting and the
consideration of its acceptance deferred => 900 pounds is a price that is not
irrationally concluded by Facey but analyzed to give a relevant and
reasonable value, the value of 900 pounds is not yet confirmed but only of the
latest updated status
3. Facey was travelling in the train from Kingston to Porus => Facey may not have
the time and opportunity to consider thoroughly of his decision in selling and
can only think of a reply briefly in order to retain his potential buyer, did not
have face to face contact with Harvey to discuss the matter or clear up
misconceptions
4. ‘Will you sell us Bumper Hall Pen? Telegraph lowest cash price - answer paid’
=> the telegraph involves 2 steps: first, to answer ‘yes’ or ‘no’ to the request
of selling, second, to provide the lowest cash price
 5. On the same day Facey replied by telegram => Facey does not have the chance
to decide to sell and then retreat his decision afterwards
6. Lowest price for Bumper Hall Pen 900 pounds => Facey only provided answer
to the 2nd part of Harvey’s telegram, which is to provide the lowest price
(not even precisely cash price) yet did not respond to the first question of
whether he is selling, hence a contract is not established + even if Facey
implied to sell within his answer, lowest price may not necessarily equal to
the an unconditional agreement on selling upon the stated time
Final decision: Harvey is to pay Facey the costs of the appeal to the supreme court and the initial
appeal