What is a contract?

This session
• What is a contract?

• What are the types of contracts?

• Why is contract important in business world?

• How to regulate contracts?

• Source of contract law
What is contract?

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Where can you find contracts?
• A complex
document?
• Clauses?
• Difficult to
understand?
• Signature?
• Agreements?
• Promises?
• Legal binding?
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• Example 1: Alice vs Tony of promising to pay him acertain amt of $$, but the contract is written tissue, contracts dun have
to a very formal form (vocally is fine), as long as two parties agree on sth together.
• Ex2: Alarm producer and you: the producer promised to provide a well-functioning product but it turns out doesnt; A
contract built automatically when u get into taxi even u haven’t paid, he “promised” to get you there, it is “implied” that u
should pay the driver; The restaurant “promised”to provide the meal and u are implied to pay for the meal according the
the menu price, “It is a promise”; even the deals in vendor machine, “we have made a contract with the producer who
maintains the vendor machine”…..As long as u are buying sth
• Exchange of promises
• Example3: tell a frd to help u walk a dog, the hurt get hurt, ur frd took
him to vet and paid 500, the frd asked him for compensation, u think
ur frd overpaid, it should be 200 only.
Contract
• In simple terms,
• A contract is an agreement of two parties which contains an exchange
of promises.
• (price goes to seller in e-shopping, not the platform)

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• If your friend paid 500 for the vet, do you owe him 500?

• A. Yes
• B. No

• Any other contracts in your daily life?

• Uni offer letter(u need to provide all the documents and make deposit first, the uni
secure a place for u then)
• U cant get back ur deposit even u get a better offer after signing the offer letter above.
• Internship contract.

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Types of contracts
What kinds of contracts do we have?
Bilateral contract
• A bilateral contract is an
agreement between parties, in
which the offeror makes a
promise and the offeree also
makes a promise. (2 parties make
promise”perform obligation in
the future = promise”, for
companies)
• Joey promises to paint Amy’s
house.
• Amy promises to pay Joey
$1,000 for the painting.
• They’ve made a bilateral
contract.

• Most contracts are bilateral

contracts.
Unilateral contract
• A unilateral contract is an
agreement between two parties,
in which the offeror makes a
promise and the offeree renders
a performance. (offeree directly
perform obligation right away,
this kinda cont usually between
individual)
• Amy promises to pay Joey
$1,000, as soon as Joey paints
Amy’s house.
• Joey may accept the offer by a
performance -- painting Amy’s
house. This will be a unilateral
contract.
• Joey may also reject the offer by
not painting Amy’s house.
Variations
• A promise for a performance.
• I go into a store and pick up some apples(provide goods). And I promise to pay for them.(make payment)
• The store staff have given me the apples. And I've given them my promise to pay.
• E.g. someone hire killer to kill john wick

• A promise for a promise.

• I go into an antique shop and see an old desk I like.
• I promise to buy it, to pay for it, and the shop owner promises to deliver it to my house next week.

• A performance for a promise

• I can give the antique dealer the $500. That's the performance(this is ur obligation, the performance,the
payment).
• And he can promise to deliver.
• A performance for a performance?(eg: vendor mchine, taking mtr/buses, immediately provision in
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characteristic?)
Ways of forming contracts
• Expressed – in the form of words
• Implied – in the form of actions(like mtr/bus)
• As combination of words and actions

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Expressed contracts
• Written words(preferred, used in most business cases, not necessary)
• Spoken words(no paper, most cases allowed)

• Very few contracts are required by law to be formed in writing.

• In practice, a written form is often preferred. Most contracts formed

in the course of a business will be in writing.

• Two types of contracts formed in writing: formal and informal

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Formal written contracts
• Contracts which are required to be in formal written form are few in
number. (efficiency is the major concern)

• Exception ：
• What about checks and promissory notes?(should be very formal,
signature at designated places for both parties)

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Informal written contracts
• An informal contract comprises letters or memoranda or other pieces
of paper which together constitute “evidence in writing” of a
contract.(like employment contract, only terms and benefits)

• Generally, it is the parties who decide whether they require a

written contract.
• In the course of business, most contracts are usually in writing,
in order to provide explicit evidence of what has been agreed.

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Contracts created by electronic means
• An electronic record satisfies the
legal requirement of providing
the record of information “in
writing.”

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How to create an electronic contract?
• If a document is required to be
signed, a digital signature satisfies
the requirement
• 1) if the person signing uses a The other party knows who
reliable method to identify himself signs the contract; and the
and the person to whom the other party agrees to use
signature is given consents to that electronic contract.
method or
• 2) if it is supported by a digital
certificate.
Security of electronic signature
• A digital certificate is an electronic “key”
which is used to generate and verify
digital signatures. Such key must be
issued by a certification authority: the
Postmaster General is a certification
authority.

• There must be means for ensuring that

information is complete and has not
been altered, and for displaying
information in a legible form.
You received this in an email. Is this an electronic contract?
Exceptions

• Certain documents are however excluded from these provisions.

• (crucial interest of basic property rights and interest have to get paper
written contract:)They include wills(have to be hand written on
paper), trusts, powers of attorney, instruments requiring stamp duty,
deeds, conveyances and other documents relating to land, mortgages
and charges, oaths and affidavits (sworn or affirmed statements),
statutory declarations, and negotiable instruments.

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Implied contracts
• Many contracts made in daily life are agreements resulting from the
conduct or actions of the parties which involve no written or spoken
words. (To avoid conflicts in the future)

• Agreements may also be implied by conduct in the business world.

• A contract may be formed by a combination of words and actions.

Sometimes, contracts are evidenced by certain documents and by the
conduct of the parties.

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Formal contracts
• A formal contract may be in the
form of either a deed or some
other “purpose-made”
document which is signed by
the parties to the contract.

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• The law no longer requires an individual to seal a deed, as long as the
words used in the document indicate that it is intended to be a deed.

• A company may attach a seal. It will also be bound if the document is

expressed to be binding on the company and is signed by its sole
director or by two directors or by a director and the company
secretary.

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Specialty contract
• Certain contracts are required to be in the form of a deed. Such a
contract is call a specialty contract.

• Examples:
• A lease of property for a period of more than three years is required to
be in the form of a deed.(MORE than 3 years of lease)
• A conveyance for the transfer of land is in the form of a deed.
• If a person is to execute a deed under a power of attorney, his
appointment must be by deed. (A power of attorney is a grant of power
given by one person to another to create a deed on his behalf.)
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One advantage of deed
• An action for breach of the deed may be brought up to 12 years after
the breach occurs.(have 12 years to find reasons and problems to sue
the other party)
• Otherwise, an action for breach of contract may be brought only up
until six years after the breach occurs.

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Contracts are the foundation of business
Why are people able to form contracts

Coordination
Trust on each (preparation for
other obligation and
performance)
Trust
• What is trust?

• One person is willing to

rely on the actions of
another person.
• He abandons control over
the actions performed by
the other one.

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Primitive trade
• You are a jewelry maker.
• You want a pair of sunglasses for this summer.

• I am a sunglasses maker.
• I want a necklace for an event.

• I’ve made a pair of sunglasses already.

• But you are unable to make any jewelry before JMA.
Trade with money
• You need to make a commitment. You promise to give me the necklace and
earrings at the end of the year.
• I have to trust you. Then I will give you the sunglasses now. I trust that you will
give me a necklace and earrings in the future.
• What if I don’t trust you? I will not give you sunglasses. How can we trade?

• We can trade with money. You purchase sunglasses from me with your money.
• And then I can buy whatever I need.
Trade with credit
• What if you don’t have necklace or money but you still want the sunglasses now?
• You take the sunglasses and promise to give me money at the end of the year.
• If I trust you, I will give you the sunglasses now. I trust that you will give me money in the future.
• This is called credit.

• What about strangers? How can we build trust with strangers?(So we need some authorities to
stand behind, so we need contracts, as it is legally binded, if breached, legal consequences)
Trade with contracts
• We form contracts with strangers.

• Contracts are legally binding promises.

• There will be legal consequences if a contract is broken.

• Contracts help build trust between strangers.

• Contracts help strangers coordinate.
• We trust the legal authorities
How to regulate contracts?
Sources of contract law
• Contract law is for the most part found in the cases decided by the
courts.

• The general principles of contract law are not contained in an

ordinance.

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Codification
• Certain aspects of contract law have been codified, and the principles established
by the cases are now found in an ordinance.
• E.g.: the Sale of Goods Ordinance(need pre set rules to protect consumers’
interest as they are much less powerful than the seller), the Partnership
Ordinance.

• Electronic Transactions Ordinance

• The provisions concern the formation of contracts by electronic means, electronic
records, digital signatures, and electronic contracts.