2. contract law - lankaneth-pawanlankaneth-pawan.com/wp-content/uploads/2016/07/qs-25-law-of...offer...

2. CONTRACT LAW2. CONTRACT LAW

2.12.1 IntroductionIntroduction2.22.2 Making a contractMaking a contract2.32.3 Capacity of parties Capacity of parties 2.42.4 Terms of the contractTerms of the contract2.52.5 Exemption/exclusion clausesExemption/exclusion clauses2.62.6 Vitiating factorsVitiating factors2.72.7 Discharge of contractDischarge of contract2.82.8 RemediesRemedies

2.1 Introduction2.1 Introduction

Model: Model: • 2 parties : may be extended to 3 parties…2 parties : may be extended to 3 parties…

etc.etc.• Relationship of the parties: rights & dutiesRelationship of the parties: rights & duties

• Context : different needs & environment Context : different needs & environment requires different adaptation of the modelrequires different adaptation of the model

• Enforcement of rightsEnforcement of rights• Negotiation – different stagesNegotiation – different stages


A A RelationshipRelationship BB


Negotiation Negotiation nono

Offer Offer

Acceptance Acceptance ContractContract


Definition of “contract”:Definition of “contract”:

A contract is an A contract is an agreementagreement between between 2 or 2 or more partiesmore parties which is which is enforceableenforceable at at lawlaw. .


Format:Format:

May be in May be in writingwriting, by , by word of mouthword of mouth ( (orallyorally) ) by by conductconduct, or by , or by any combinationany combination of of such. such.


Contract law = foundation of all commercialContract law = foundation of all commercial

activitiesactivities

Wide range of contracts:Wide range of contracts:

e.g. simple consumer contracts to e.g. simple consumer contracts to construction contracts, sale and purchase construction contracts, sale and purchase agreements in conveyancing transactionsagreements in conveyancing transactions


General principleGeneral principle: Freedom of contract – : Freedom of contract – everyone is free to enter into any everyone is free to enter into any contractcontract


ExceptionsExceptions: : (2)(2) Those against public moralityThose against public morality(3)(3) Those against national securityThose against national security(4)(4) Those against public interestsThose against public interests(5)(5) Those regulated by statutes for Those regulated by statutes for

protection of consumers (e.g. Sale of protection of consumers (e.g. Sale of Goods Ordinance, Control of Exemption Goods Ordinance, Control of Exemption Clauses Ordinance) and employees (e.g. Clauses Ordinance) and employees (e.g. Employment Ordinance)Employment Ordinance)


(5)(5) Those provide for regulating certain Those provide for regulating certain relationships – Landlord and Tenants relationships – Landlord and Tenants (Consolidation) Ordinance Those require (Consolidation) Ordinance Those require specific formalities - Conveyancing specific formalities - Conveyancing transactions (e.g. Conveyancing and transactions (e.g. Conveyancing and Properties Ordinance)Properties Ordinance)

(6)(6) Domestic agreements with no intention to Domestic agreements with no intention to create legal relationships – e.g. pre-marital create legal relationships – e.g. pre-marital arrangements, separation agreementsarrangements, separation agreements

2.2 Making a Contract2.2 Making a Contract

2.2.12.2.1Unilateral and Bilateral ContractsUnilateral and Bilateral Contracts

2.2.22.2.2Essential elements of a contractEssential elements of a contract

2.2.12.2.1 Unilateral and Bilateral Unilateral and Bilateral ContractsContracts

Unilateral contractUnilateral contract – the performance – the performance remains outstanding on 1 party only (i.e. remains outstanding on 1 party only (i.e. the offeror), while the other party (i.e. the the offeror), while the other party (i.e. the offeree/acceptor) having already offeree/acceptor) having already performed what is required of it.performed what is required of it.


Example: Ad -Example: Ad -

Anyone who found my puppy, Buggie which Anyone who found my puppy, Buggie which has a name tag on its collar and return it to has a name tag on its collar and return it to me shall be rewarded HK$100. me shall be rewarded HK$100.

Mr AMr AMr B found the puppy and returned it to Mr A. 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 refused to pay Mr B HK$100 but only agreeing to pay him HK$50. Can B sue A ? If so, for how to pay him HK$50. Can B sue A ? If so, for how much ? much ?


Example:Example:

Anyone who found my puppy, Buggie Anyone who found my puppy, Buggie which has a name tag on its collar and which has a name tag on its collar and return it to me shall be rewarded. return it to me shall be rewarded.

Mr AMr AMr B found the puppy and returned it to Mr Mr B found the puppy and returned it to Mr

A. Mr A is only willing to pay $1 to Mr B. A. Mr A is only willing to pay $1 to Mr B. Can Mr B sue him ? If so, for how much ?Can Mr B sue him ? If so, for how much ?


Example:Example:

Anyone who found my puppy, Buggie which Anyone who found my puppy, Buggie which has a name tag on its collar, please return has a name tag on its collar, please return him to me. him to me.

Mr AMr AMr B found the puppy and returned it to Mr A. Mr B found the puppy and returned it to Mr A.

Mr A thanked Mr B but refusing to pay him a Mr A thanked Mr B but refusing to pay him a single cent. Can Mr B sue him ? If so, for how single cent. Can Mr B sue him ? If so, for how much ?much ?


Example:Example:

Anyone who jumps into Victoria Harbour off Anyone who jumps into Victoria Harbour off Queen’s Pier and swims to Tsimshatsui Ferry Queen’s Pier and swims to Tsimshatsui Ferry Pier shall be rewarded with HK$100,000. Mr Pier shall be rewarded with HK$100,000. Mr AA

Mr Tung did so. Mr A refused to pay. Can Mr Mr Tung did so. Mr A refused to pay. Can Mr Tung sue Mr A ? If so, for how much ? Would it Tung sue Mr A ? If so, for how much ? Would it make any difference if Mr Tung did not reach make any difference if Mr Tung did not reach Tsimshatsui Ferry Pier ?Tsimshatsui Ferry Pier ?


Jump into Victoria Harbour. I will give you Jump into Victoria Harbour. I will give you HK$100. HK$100.

Jump into Victoria Harbour and I will give Jump into Victoria Harbour and I will give you HK$100.you HK$100.

Is there any difference Is there any difference between the 2 ads ?between the 2 ads ?

2.2.2 2.2.2 Essential elements of a Essential elements of a contractcontract

1.1. OfferOffer2.2. AcceptanceAcceptance3.3. ConsiderationConsideration4.4. Privity Privity 5.5. Intention to create legal relationshipIntention to create legal relationship

When a When a definitedefinite offer made by offer made by 1 party1 party is is unconditionallyunconditionally acceptedaccepted by by another partyanother party, an agreement comes , an agreement comes into existence.into existence.

Offer (def)Offer (def)

An offerAn offer – a – a definitedefinite promise or proposalpromise or proposal made by made by the the offerorofferor to the to the offereeofferee (NB: (NB: not necessarily the not necessarily the performerperformer) with the ) with the intention to be boundintention to be bound by by such promise or proposal such promise or proposal without further without further negotiationnegotiation. .

e.g. “I give you $100 for [your] doing some work.”e.g. “I give you $100 for [your] doing some work.”

e.g. “I give you $100 for [your] not suing me.“e.g. “I give you $100 for [your] not suing me.“

e.g. “I will not sue you if you repay me $100.” e.g. “I will not sue you if you repay me $100.”

Offer (def)Offer (def)

OfferOffer must be distinguish from “ must be distinguish from “invitation to invitation to offeroffer”/””/”invitation to treatinvitation to treat””

Starting point: Is there a contract/agreement Starting point: Is there a contract/agreement ? (check the definition of a ? (check the definition of a contact/agreement) contact/agreement)

- Ask: Is there any acceptance (check the - Ask: Is there any acceptance (check the definition of acceptance)definition of acceptance)

- The step before acceptance is an offer.The step before acceptance is an offer.- The step before an offer is invitation to The step before an offer is invitation to

offer. offer.

Acceptance (def)Acceptance (def)

Acceptance Acceptance – comes into existence after the – comes into existence after the offeree offeree unconditionally acceptsunconditionally accepts the the offeroffer..

When 1 party introduces When 1 party introduces variations/conditions to the terms of variations/conditions to the terms of the latest proposal, there is no the latest proposal, there is no acceptance (i.e. conditional acceptance (i.e. conditional acceptance is not acceptance). Such acceptance is not acceptance). Such variations/conditions amount to a variations/conditions amount to a counter-proposal/offer. No counter-proposal/offer. No agreement. agreement.

Consideration (def)Consideration (def)

• Something of value in the eyes of the law Something of value in the eyes of the law (need not be of market value). Hence, the (need not be of market value). Hence, the saying :”Consideration must be saying :”Consideration must be sufficientsufficient but but not adequatenot adequate.”.”

• Price to be paid for the promisePrice to be paid for the promise• May consists of money, goods, promise, May consists of money, goods, promise,

suffering some detriment (e.g. suffering some detriment (e.g. forbearance to sue)forbearance to sue)

• Consideration must flow from the Consideration must flow from the proposee in respect of any promise.proposee in respect of any promise.

Privity (def)Privity (def)

General ruleGeneral rule: A person who is not a party to a : A person who is not a party to a contract cannot sue upon it (i.e. contract cannot sue upon it (i.e. rightright) or be ) or be sued upon it (i.e.sued upon it (i.e.dutyduty).).

Exceptions:Exceptions:

3.3. Statutory exceptions: Married Person Status Statutory exceptions: Married Person Status Ordinance Cap 182Ordinance Cap 182

4.4. Contract made by an agent for his principalContract made by an agent for his principal

5.5. Rights/Benefits assigned/transferred (e.g. Rights/Benefits assigned/transferred (e.g. Deed of Mutual Covenants)Deed of Mutual Covenants)

Intention to create legal Intention to create legal relationship (def)relationship (def)

BothBoth parties must parties must intendintend that the that the agreement is to be agreement is to be binding binding on them on them (i.e. they have agreed to bear the (i.e. they have agreed to bear the duties under the contract). duties under the contract).

• ObjectiveObjective test : reasonable man’s test : reasonable man’s testtest

Offer (details)Offer (details)

Invitation to treat/offerInvitation to treat/offer - The proposal before - The proposal before the actual “offer” the actual “offer” e.g. goods catalogue, mail order catalogue, e.g. goods catalogue, mail order catalogue, advertisements in newspaper, display of goods advertisements in newspaper, display of goods in the shelves of a supermarketin the shelves of a supermarket

Fisher v BellFisher v Bell [1961] 1 QB 394 : Restriction of [1961] 1 QB 394 : Restriction of Offensive Weapons Act 1959 (UK) – “offer for Offensive Weapons Act 1959 (UK) – “offer for sale” offensive weapons is illegal – self-service sale” offensive weapons is illegal – self-service window displaying a flick knife with a price tag – window displaying a flick knife with a price tag – an invitation to treat an invitation to treat


Fisher v BellFisher v Bell was followed in was followed in HKSAR v Wan HKSAR v Wan Hon SikHon Sik [2001] 3 HKLRD 283 – display of [2001] 3 HKLRD 283 – display of pirated videos discs was an invitation to pirated videos discs was an invitation to treat treat

Pharmaceutical Society of Great Britain v Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) LtdBoots Cash Chemists (Southern) Ltd [1953] 1 QB 401 – Display of drugs - [1953] 1 QB 401 – Display of drugs - invitationinvitation


Tenders:Tenders:

Invitation for tenders = invitation to Invitation for tenders = invitation to treattreat

A bidder = an offerorA bidder = an offeror

See See City Polytechnic v Blue CrossCity Polytechnic v Blue Cross [1995] 2 HKLR 103 – CP through an [1995] 2 HKLR 103 – CP through an insurance broker invited tenders insurance broker invited tenders from insurance companies to cover from insurance companies to cover its employees’ medical & life its employees’ medical & life insurance insurance


An advertisement may sometimes be An advertisement may sometimes be an offer and sometimes be an an offer and sometimes be an invitation to treat – the crucial point – invitation to treat – the crucial point – definite intention to be bound definite intention to be bound

Carlill v Carbolic Smoke BallCarlill v Carbolic Smoke Ball [1893] 1 [1893] 1 QB 256 QB 256

Partridge v CrittendenPartridge v Crittenden [1968] 2 All ER [1968] 2 All ER 421421


Auction salesAuction sales – ads to sell goods by – ads to sell goods by auctions = invitation to offerauctions = invitation to offer

bidder = offerorbidder = offeror

A person incurring expenses in going A person incurring expenses in going to the place of auction cannot sue to the place of auction cannot sue the auctioneer if the auction were the auctioneer if the auction were not held – because – auctioneer is not held – because – auctioneer is not bound to hold the auction (not bound to hold the auction (Harris Harris v Nickersonv Nickerson (1872-73) LR 8 QB 286) (1872-73) LR 8 QB 286)


Offer must be communicatedOffer must be communicated. See . See R v ClarkeR v Clarke ( 1927) 40 CLR 227 – ( 1927) 40 CLR 227 – Western Australian government Western Australian government offered a reward for capturing some offered a reward for capturing some murderers – Clarke was an murderers – Clarke was an accomplice, saw the ad but never accomplice, saw the ad but never addressed his mind to it and addressed his mind to it and informed the government – held: no informed the government – held: no reward to Clark reward to Clark


Termination of offer2. By acceptance3. By rejection – a counter-offer is a

rejection ; a request for information is not a rejection

4. By revocation5. By lapse of reasonable time6. By death of the offeror ? Of the offeree ?

After termination, the offer is no longer a valid offer and cannot be accepted.


Revocation of offerRevocation of offer

General RuleGeneral Rule: an offer can be : an offer can be revoked at any time before revoked at any time before acceptance (acceptance (Routledge v GrantRoutledge v Grant (1828) 130 ER 920)(1828) 130 ER 920)

ExceptionException: when the offeror : when the offeror undertakes a contractual obligation undertakes a contractual obligation or the offeror “receives or the offeror “receives consideration” to keep the offer openconsideration” to keep the offer open


Revocation of offerRevocation of offerGeneral Rule: General Rule: Revocation of an offer Revocation of an offer

becomes binding only when it becomes binding only when it has come to the knowledge of the offeree of the offeree

Exceptions:Exceptions:• Letter of revocation sent to a commercial Letter of revocation sent to a commercial

organisation (organisation (Eaglebill Ltd v J Needham Eaglebill Ltd v J Needham Builders LtdBuilders Ltd [1973] AC 992, 1011 [1973] AC 992, 1011

• Offer to the public – revocation takes Offer to the public – revocation takes place when the offeror had taken place when the offeror had taken reasonable steps to bring it to the notice reasonable steps to bring it to the notice of the public of the public


Knowledge of revocation may be Knowledge of revocation may be actualactual or or implied implied Dickinson v DoddsDickinson v Dodds (1875-76) LR 2 Ch D 463: (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 Date 3: P wrote to P “accepting his offer” before 9:00 am.am.Held: Held:

7.7. P’s acceptance was too late – he knew the property P’s acceptance was too late – he knew the property had been sold.had been sold.

8.8. D had effectively withdrawn his offerD had effectively withdrawn his offer


Lapse of offerLapse of offer

An offer lapses if it is not accepted within:An offer lapses if it is not accepted within:

(4)(4) A stipulated time; orA stipulated time; or

(5)(5) Reasonable time – a question of fact Reasonable time – a question of fact depending on the circumstances of the depending on the circumstances of the case (see S.90)case (see S.90)


Death of a partyDeath of a party(2)(2) Death of the offeror : when the offeree accepts Death of the offeror : when the offeree accepts

the offer unaware of the offeror’s death, and the offer unaware of the offeror’s death, and the deceased’s contractual obligations can still the deceased’s contractual obligations can still be performed by his estate, a valid contract be performed by his estate, a valid contract exists. If the offeree knows of the offeror’s exists. If the offeree knows of the offeror’s death, the offer cannot be accepted. death, the offer cannot be accepted.

(3)(3) Death of the offeree: depends on the intention Death of the offeree: depends on the intention of the parties. If the offeree dies after of the parties. If the offeree dies after accepting the offer, check the initial proposal. accepting the offer, check the initial proposal.

AcceptanceAcceptance

Acceptance – comes into existence upon Acceptance – comes into existence upon the offeree unconditionally accepts the the offeree unconditionally accepts the offeroffer

e.g. The offeree says, “OK, I accept.”e.g. The offeree says, “OK, I accept.”

Contrast withContrast with

e.g. The offeree says, “I accept subject to e.g. The offeree says, “I accept subject to conditions….”conditions….”

e.g. The offeree says, “I accept but…..”e.g. The offeree says, “I accept but…..”


Cross offersCross offersI promise to do XI promise to do X

Party AParty A Party BParty B

I promise to do YI promise to do YThere are 2 independent offers:There are 2 independent offers:Tinn v Hoffman & CoTinn v Hoffman & Co (1873) 29 LT 271: Crossing in post – (1873) 29 LT 271: Crossing in post –

ignorance of the other’s offer – no contractignorance of the other’s offer – no contract


Communication of acceptanceCommunication of acceptance General rule: Acceptance must be communicatedGeneral rule: Acceptance must be communicated

Exceptions: Exceptions:

• Offeror waives the necessity to communicate acceptanceOfferor waives the necessity to communicate acceptance

• Certain conditions (like conduct of the offeree) can be deemed to Certain conditions (like conduct of the offeree) can be deemed to be acceptance (see be acceptance (see CarlillCarlill))

• Offeror may be estopped to deny his failure to receive acceptance Offeror may be estopped to deny his failure to receive acceptance because of his own conduct (e.g. he did not read the message)because of his own conduct (e.g. he did not read the message)

• Acceptance received by the offeror’s agentAcceptance received by the offeror’s agent

• Postal acceptance rule: acceptance by posting (see later notes)Postal acceptance rule: acceptance by posting (see later notes)


SilenceSilence Silence is no acceptance. Silence is no acceptance. Felthouse v Felthouse v BindleyBindley (1862) 11 DBNS 869 : Uncle said, “I heard no (1862) 11 DBNS 869 : Uncle said, “I heard no more from my nephew, I shall consider the horse is more from my nephew, I shall consider the horse is mine.”Horse sold by mistake. Nephew never mine.”Horse sold by mistake. Nephew never communicated acceptance to his uncle. Held: No communicated acceptance to his uncle. Held: No acceptance.acceptance.

Contrast: Contrast:

Brodgen v Metropolitan Railway CoBrodgen v Metropolitan Railway Co (1877) 2 App Cas (1877) 2 App Cas 666: P sent a draft contract to D offering to sell coal. D 666: P sent a draft contract to D offering to sell coal. D did not expressly accept the offer but used the coal when did not expressly accept the offer but used the coal when they were supplied. Held: Implied acceptance.they were supplied. Held: Implied acceptance.


Acceptance must be communicated by the offeree or his Acceptance must be communicated by the offeree or his authorised agent. authorised agent. Power v LeePower v Lee (1908) 99 LT 284: (1908) 99 LT 284: P P applied to be a headmaster. Management board agreed applied to be a headmaster. Management board agreed to accept his offer but the decision was communicated to accept his offer but the decision was communicated by a member who was not authorised. Held: No by a member who was not authorised. Held: No acceptance.acceptance.


Methods of acceptance:Methods of acceptance:

2.2. When method is prescribed by the offer, it must be When method is prescribed by the offer, it must be accepted by the prescribed method. accepted by the prescribed method.

3.3. When methods are prescribed by the offer, acceptance When methods are prescribed by the offer, acceptance by any such method. by any such method.

4.4. When no method is prescribed by the offer, When no method is prescribed by the offer, acceptance by an equally or more efficacious or faster acceptance by an equally or more efficacious or faster method is OK. method is OK.

Tin v HoffmanTin v Hoffman: “Reply by return of post” not “reply by : “Reply by return of post” not “reply by return of post return of post onlyonly”. ”.


When parties are not face to faceWhen parties are not face to face• By post and telegram – By post and telegram – Postal RulePostal Rule• Other instantaneous means of communicationOther instantaneous means of communication

Acceptance: Postal RuleAcceptance: Postal Rule

Conditions of application:Conditions of application:

(2)(2) Where post is the prescribed method of acceptance; orWhere post is the prescribed method of acceptance; or

(3)(3) It is reasonable to use post to send an acceptance;It is reasonable to use post to send an acceptance;

Then, acceptance is deemed to be completed when the Then, acceptance is deemed to be completed when the acceptance, properly stamped and addressed letter of acceptance, properly stamped and addressed letter of acceptance is posted (acceptance is posted (Adams v LindsellAdams v Lindsell (1818) 1 B & Ald 681: (1818) 1 B & Ald 681:

Date 1: D offered to sell goods to PDate 1: D offered to sell goods to P

Date 2Date 2: letter reached P and P accepted by post : letter reached P and P accepted by post

Date 3: D sold the goods to a 3/pDate 3: D sold the goods to a 3/p

Date 4: D received the acceptanceDate 4: D received the acceptance

Held: accptance)Held: accptance)

The receipt of acceptance by D is irrelevant.The receipt of acceptance by D is irrelevant.


Also applies to telegrams (Also applies to telegrams (Cowan v O’ConnorCowan v O’Connor (1888) 20 QBD 640) (1888) 20 QBD 640)

Not applied:Not applied:• When offeror requires actual receipt of acceptance by When offeror requires actual receipt of acceptance by

him(him(Holwell Securites Ltd v HughesHolwell Securites Ltd v Hughes [1974] 1 WLR 155 [1974] 1 WLR 155• When it is unreasonable to accept by post;When it is unreasonable to accept by post;• When offer was made by email or fax;When offer was made by email or fax;• When the transaction involves large sums of money;When the transaction involves large sums of money;• When other methods are contemplated.When other methods are contemplated.

*Intention of the parties – most crucial*Intention of the parties – most crucial


Postal rule does not apply to a revocation by post – Postal rule does not apply to a revocation by post – Byrne Byrne v Van Tienhovenv Van Tienhoven (1880) 5 CPD 344: The offeree cannot (1880) 5 CPD 344: The offeree cannot be bound by a revocation when he is not aware of at the be bound by a revocation when he is not aware of at the moment of acceptance, I.e. offeror sets up the rules,he is moment of acceptance, I.e. offeror sets up the rules,he is bound his own rules. bound his own rules.

Acceptance: instantaneous Acceptance: instantaneous communicationscommunications

Contracts concluded by instantaneous means of Contracts concluded by instantaneous means of communication like email, telex, telephone, fax, etc. – communication like email, telex, telephone, fax, etc. – acceptance must be received by the offeroracceptance must be received by the offeror

Entores Ltd v Miles Far East CorporationEntores Ltd v Miles Far East Corporation [1955] 2 QB [1955] 2 QB 327: P in London sent a telex to D in Amsterdam offering 327: P in London sent a telex to D in Amsterdam offering to buy goods from D. D sent a telex in return to P to buy goods from D. D sent a telex in return to P accepting the offer. Held: acceptance must be received. accepting the offer. Held: acceptance must be received.

HK : Contracts by email is governed by Electronic HK : Contracts by email is governed by Electronic Transactions Ordinance (Cap. 553 Laws of Hong Kong). Transactions Ordinance (Cap. 553 Laws of Hong Kong).

Consideration Consideration

Consideration = price of the offerConsideration = price of the offer= may be service, goods, = may be service, goods,

another promiseanother promiseConsideration must Consideration must be sufficient but not be sufficient but not adequate adequate = of some value but = of some value but

need not be of need not be of market valuemarket value

ConsiderationConsideration

Consideration must be sufficient but not adequate:Consideration must be sufficient but not adequate:

Chappell & Co. Ltd v Nestle & Co. LtdChappell & Co. Ltd v Nestle & Co. Ltd [1960] AC 87: [1960] AC 87: D D advertised for sale to the public records of the tune advertised for sale to the public records of the tune “Rockin Shoes” for 1s 6d and 3 chocolate wrappers. “Rockin Shoes” for 1s 6d and 3 chocolate wrappers. Held: the 3 chocolate wrappers are considerationHeld: the 3 chocolate wrappers are consideration

Consideration must be executed or executory but not past:Consideration must be executed or executory but not past:

Executed considerationExecuted consideration : Consideration of the offeree is the : Consideration of the offeree is the performance of the required actperformance of the required act

Executory considerationExecutory consideration : Consideration = offeree’s : Consideration = offeree’s promisepromise


Past consideration is no considerationPast consideration is no consideration: : Roscorla v ThomasRoscorla v Thomas (1842) 3 (1842) 3 QB 234: P agreed with D to purchase a horse. D later guaranteed QB 234: P agreed with D to purchase a horse. D later guaranteed that the horse was free of lice (in fact, not). Held: P’s agreement that the horse was free of lice (in fact, not). Held: P’s agreement is past consideration for the guarantee. is past consideration for the guarantee.

This rule is sometimes relaxed in favour of the offeree who had This rule is sometimes relaxed in favour of the offeree who had suffered some loss: suffered some loss: Pao On v Lau Yiu LongPao On v Lau Yiu Long [1986] AC 614 – [1986] AC 614 – conditions:conditions:

4.4. act was done at the promisor’s request;act was done at the promisor’s request;

5.5. parties understood that the act was to re remunerated by payment parties understood that the act was to re remunerated by payment or conferment of some other benefits; andor conferment of some other benefits; and

6.6. Payment or conferment of the benefits are enforceable if it had Payment or conferment of the benefits are enforceable if it had been promised in advance. been promised in advance.


Pao OnPao On principles were followed in principles were followed in L&D Associates v Chan L&D Associates v Chan Man ChonMan Chon Civ App No.80 of 1987, [1987] HKLY 138: P Civ App No.80 of 1987, [1987] HKLY 138: P sued D for agency fees. Q: whether introduction is past sued D for agency fees. Q: whether introduction is past consideration re signing of inspection record (contract) ? consideration re signing of inspection record (contract) ? Held: Yes + violation of principles of agency (see later Held: Yes + violation of principles of agency (see later notes)notes)


Consideration must move from the promisee: Consideration must move from the promisee: McEvoy v McEvoy v Belfast Banking Co Ltd Belfast Banking Co Ltd [1935] AC 24: Father [1935] AC 24: Father deposited $ in a bank and the receipt indicated that the deposited $ in a bank and the receipt indicated that the bank received money from him and his son. Father died.bank received money from him and his son. Father died.

Held: bank contacted with father and son. Held: bank contacted with father and son.


No consideration if:No consideration if:

2.2. Performance of a public dutyPerformance of a public duty

3.3. Performance of a personal legal dutyPerformance of a personal legal duty

4.4. Performance of an existing duty owed to the same Performance of an existing duty owed to the same promisorpromisor

- gist: find extra bit of considerationgist: find extra bit of consideration


Performance of an existing contracting duty owed to a 3/p Performance of an existing contracting duty owed to a 3/p is good consideration : is good consideration : Shadwell v ShadwellShadwell v Shadwell (1860) I (1860) I CBNS 159: promisor obtains direct benefit from the CBNS 159: promisor obtains direct benefit from the contract and has an independent irght o enforce the contract and has an independent irght o enforce the promise.promise.

New Zealand Shipping Co. Ltd v AM Satterthwaite & Co New Zealand Shipping Co. Ltd v AM Satterthwaite & Co Ltd, The EurymedonLtd, The Eurymedon [1975] AC 154: A contacted with B [1975] AC 154: A contacted with B to unload C’s goods. C contracted with A – if A unloads to unload C’s goods. C contracted with A – if A unloads the goods, C will not sue A. Held: A is protected.the goods, C will not sue A. Held: A is protected.


Part payment of a debt (“payment of a lesser sum”) on the Part payment of a debt (“payment of a lesser sum”) on the due date is no consideration for the satisfaction of a due date is no consideration for the satisfaction of a larger debt (The Rule in larger debt (The Rule in Pinnel’s casePinnel’s case (1602) 5 Co Rep (1602) 5 Co Rep 117)117)

Applied in Applied in Foakes v BeerFoakes v Beer (1884) 9 App Cas 605: B sued (1884) 9 App Cas 605: B sued F. Both signed a settlement agreement that F could pay F. Both signed a settlement agreement that F could pay principal by instalments. Later, B sued for interests due. principal by instalments. Later, B sued for interests due. Held: F did not provide any consideration for the non-Held: F did not provide any consideration for the non-payment of interests. payment of interests.


Exceptions to the Pinnel’s case:Exceptions to the Pinnel’s case:

2.2. Goods of lesser value are given;Goods of lesser value are given;

3.3. Lesser sum is paid and other goods are given;Lesser sum is paid and other goods are given;

4.4. Lesser sum is paid by a 3/p;Lesser sum is paid by a 3/p;

5.5. Creditor’s claim is disputed in good faith;Creditor’s claim is disputed in good faith;

6.6. Composition agreement;Composition agreement;

7.7. Doctrine of promissory estoppel or equitable estoppel Doctrine of promissory estoppel or equitable estoppel applies. applies.


Doctrine of equitable estoppel (promissory estoppel):Doctrine of equitable estoppel (promissory estoppel):2.2. Parties by their own act or own consent enter upon an Parties by their own act or own consent enter upon an

agreement;agreement;3.3. The agreement provides that the strict rights under The agreement provides that the strict rights under

another contract will not be enforced or suspended; another contract will not be enforced or suspended; andand

4.4. It would be inquitable to enforce itIt would be inquitable to enforce it- the other party cannot enforcethe other party cannot enforce- Hughes v Metropolitan Railway CoHughes v Metropolitan Railway Co (1877) 2 App (1877) 2 App

Cas 439Cas 439- Applied in Applied in Central London Property Trust v High Central London Property Trust v High

Trees HouseTrees House [1947] 1 KB 130 [1947] 1 KB 130


Only applies only when:Only applies only when:• EquitableEquitable• The is real accordThe is real accord• As a defence : As a defence : Combe v CombeCombe v Combe [1951] 2 KB 215 – [1951] 2 KB 215 –

promise just a gift promise just a gift • The promise is definite and precise. Ambiguity ruins The promise is definite and precise. Ambiguity ruins

the application.the application.

• To suspend the creditor’s legal rightsTo suspend the creditor’s legal rights

• Debtor had acted on the promise and had suffered Debtor had acted on the promise and had suffered detriment or change his positiondetriment or change his position


Forbearance to sue is good consideration in return for Forbearance to sue is good consideration in return for promisor’s promise but is not good consideration if the promisor’s promise but is not good consideration if the promisee knows, that he does not have any promisee knows, that he does not have any ground/cause of action against the promisor. (ground/cause of action against the promisor. (Cook v Cook v WrightWright (1861)). (1861)).

If the promisor honestly believes or has reasonable ground If the promisor honestly believes or has reasonable ground for believing he has a cause of action, such forbearance for believing he has a cause of action, such forbearance is still good consideration. is still good consideration.

Consideration and privity Consideration and privity

A person who is not a party to a contact cannot sue upon it A person who is not a party to a contact cannot sue upon it or be sued upon it. or be sued upon it.

Dunlop Pneumatic Tyre Co v Selfridge & CoDunlop Pneumatic Tyre Co v Selfridge & Co [1915] AC [1915] AC 847: D contracted with its buyer with a bottom price 847: D contracted with its buyer with a bottom price clause. Its buyer contracted with S with a similar clause. Its buyer contracted with S with a similar clause. S in breach of this clause. Held: D cannot sue clause. S in breach of this clause. Held: D cannot sue S as D is not a party to the contract between the buyer S as D is not a party to the contract between the buyer and S. and S.

Consideration and privityConsideration and privity

Exceptions:Exceptions:2.2. Statutes allowed such enforcement: Statutes allowed such enforcement:

- Married Person Status Ordinance (Cap 182) – - Married Person Status Ordinance (Cap 182) – beneficiaries can sue on policies providing for them.beneficiaries can sue on policies providing for them.- Motor Vehicles Insurance (Third Party Risks) - Motor Vehicles Insurance (Third Party Risks) Ordinance (Cap 272) – a person driving a vehicle can Ordinance (Cap 272) – a person driving a vehicle can claim under the insurance policy taken out by the car claim under the insurance policy taken out by the car ownerowner

5.5. Contract made by agent binds the principalContract made by agent binds the principal6.6. Rights or benefits assigned under contract or other Rights or benefits assigned under contract or other

instruments (NB: Duties cannot be assigned; NB: instruments (NB: Duties cannot be assigned; NB: DMCs)DMCs)

Intention to create legal Intention to create legal relationshipsrelationships

General Rule: An agreement is enforceable only if both parties intend to have legal consequences – intention: objective test – a reasonable persons’ test

Presumptions:

• 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.)

• 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 partiesThe capacity of the parties

There are 2 typical situations:There are 2 typical situations:

2.2. MinorsMinors

3.3. Mentally disordered, drunk or drugged personsMentally disordered, drunk or drugged persons

4.4. CompaniesCompanies

MinorsMinors

Persons under 18 are minors,with limited contractual capacities.

3 typical situations:

4. Contracts for necessaries

5. Contracts which are binding unless repudicated by the minor

6. Contracts which are enforceable against a minor unless ratified by the minor

Contracts for necessariesContracts for necessaries

These includes contracts to provide the following to a minor:

2. Goods

3. Beneficial education/training/services

In the light of the minor’s status of life and the environment

Contracts for necessariesContracts 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

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.

Questions:• Is a tailor-made suit worthing HK$10,000

necessaries ? See Roberts v Gray [1913] 1 KB 520

Contracts binding unless repudicated by the minor

Both the contracting party and the minor are bound if Both the contracting party and the minor are bound if making a contract:making a contract:

• Relating to an interests in land (Relating to an interests in land (Davies V Beynon-Davies V Beynon-HarrisHarris (1931) 47 TLR 424 (1931) 47 TLR 424

• For the acquisition of shares in a company (For the acquisition of shares in a company (Capper’s Capper’s casecase (1868) LR 3 Ch App 458 (1868) LR 3 Ch App 458

• To enter into a partnership agreement (To enter into a partnership agreement (Lovell & Lovell & Christmas v BeauchampChristmas v Beauchamp [1894] AC 360 [1894] AC 360

Unforceable contracts unless Unforceable contracts unless affirmed by minoraffirmed by minor

Category 1 contracts are not enforceable unless and until Category 1 contracts are not enforceable unless and until being affirmed by minor upon his coming of age.being affirmed by minor upon his coming of age.

Contracts made by mentally Contracts made by mentally handicapped, drunk, druggedhandicapped, drunk, drugged

Mental capacity of understanding the transaction is crucial. The same rules in minors apply to this class.

Mental Health Ordinance (Cap 136): All patients under Cap 136 have no contractual capacity (s.11).

Contracts by companyContracts by company

Contracts entered into by an officer who Contracts entered into by an officer who has authority to do so binds the company. has authority to do so binds the company. Authority may be actual, apparent or Authority may be actual, apparent or usual. usual.

Terms of a contractTerms of a contract

Mere representation and contractual termsMere representation and contractual termsIntention of the parties – Contractual liability in respect of Intention of the parties – Contractual liability in respect of

any particular statement ? any particular statement ?

Consider:Consider:5.5. Statements made in preliminary negotiations Statements made in preliminary negotiations 6.6. Statements made at the conclusion timeStatements made at the conclusion time7.7. Statements made by persons with special skill & Statements made by persons with special skill &

knowledgeknowledge8.8. Statements made by persons without such skill & Statements made by persons without such skill &

knowledgeknowledge

Expressed and implied termsExpressed 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 termsImplied terms

Terms can be implied:Terms can be implied:• By custom and usage of a trade : e.g. a manufacturer By custom and usage of a trade : e.g. a manufacturer

will remedy any defects in the garments manufactured, will remedy any defects in the garments manufactured, whether they are attributable to supplied materials, etc. whether they are attributable to supplied materials, etc. ((Crocodile Garments Ltd v Law Kwai Yuk Crocodile Garments Ltd v Law Kwai Yuk [1998] [1998] HKCU 1988)HKCU 1988)

• To give effect to business efficacy: implied to be fit for To give effect to business efficacy: implied to be fit for the purpose used (the purpose used (The MoorcockThe Moorcock (1889) 14 PD 64) (1889) 14 PD 64)

• For necessity: For necessity: Wong Mee Wan v Kwan Kin Travel Wong Mee Wan v Kwan Kin Travel Services LtdServices Ltd [1995] 2 HKLR 541: sub-contracting does [1995] 2 HKLR 541: sub-contracting does not absolve the supplier from its contractual obligationsnot absolve the supplier from its contractual obligations

Implied termsImplied terms

1.1. By legislation: SOGO – Every contract of sale goods – By legislation: SOGO – Every contract of sale goods – implied terms:implied terms:

(1)(1) seller has the right to sell;seller has the right to sell;

(2)(2) goods are of mercantable quality;goods are of mercantable quality;

(3)(3) goods are fit for the purpose;goods are fit for the purpose;

(4)(4) goods correspond with the description. goods correspond with the description.

Expressed terms (Conditions & Expressed terms (Conditions & warranties)warranties)

Differences between conditions and warranties:Differences between conditions and warranties:2.2. Even a minor breach of a condition entitles the other Even a minor breach of a condition entitles the other

party to terminate the contract and sue for damages. party to terminate the contract and sue for damages. Breach of a warranty (that excludes repudiation) does Breach of a warranty (that excludes repudiation) does not entitle the other party to terminate the contract; he not entitle the other party to terminate the contract; he can only sue for damages.can only sue for damages.

3.3. Breach of a condition can be waived by the innocent Breach of a condition can be waived by the innocent party. The innocent party may also lose the right to party. The innocent party may also lose the right to terminate the contract. SOGO, s.13(1) and (3)terminate the contract. SOGO, s.13(1) and (3)

How to distinguish conditions and warranties: intention How to distinguish conditions and warranties: intention of the parties – reasonable man testof the parties – reasonable man test

Expressed terms (Innominate terms)Expressed terms (Innominate terms)

The courts look into the effects of the breach rather than The courts look into the effects of the breach rather than the pre-fixed dicotomy of conditions/warranties. If the the pre-fixed dicotomy of conditions/warranties. If the breach goes to the root of contract, the innocent party breach goes to the root of contract, the innocent party can terminate the contract and/or sue for damages(like can terminate the contract and/or sue for damages(like condition). If it does not, he can only sue for damages condition). If it does not, he can only sue for damages (like warranty). (like warranty).

Hong Kong Fir Shipping Co. Ltd v Kawasaki Kisen Hong Kong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha LtdKaisha Ltd [1962] 2 QB 26: seaworthiness in question – [1962] 2 QB 26: seaworthiness in question – commercial purpose not frustrated – innominate termcommercial purpose not frustrated – innominate term

Interpretation and construction of termsInterpretation and construction of terms

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.


Exceptions to the Parol evidence rule:• Only parts of the contract are in writing: Lam Tun Ming

v Hu Chun Leung [1991] HKLY 552 – purchase of shares – bought and sold notes produced – acceptable.

• 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

• Where there are causes affecting the validity of the contract (I.e. no consideration, identity of the subject matter (Raffles v Wichelhaus (1864) 2 H & C 906 – id of the ship)


• Where the law permits implying of certain terms into Where the law permits implying of certain terms into the contract : SOGO the contract : SOGO

• Where there is a collateral contract: Where there is a collateral contract: De Lassale v De Lassale v GuildfordGuildford [1901] 2 KB 215 – Conveyancing transaction [1901] 2 KB 215 – Conveyancing transaction – vendor gave assurance that the drains are in good – vendor gave assurance that the drains are in good order – a collateral contract – implied termorder – a collateral contract – implied term

Exemption/Exclusion clausesExemption/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).

HK legislature enacted the Control of Exemption Clauses Ordinance (Cap 71) (“CECO”) to curb the use of such clauses.


To be effective, such clauses must pass a 3 stage test:To be effective, such clauses must pass a 3 stage test:

2.2. Incorporation into contract ?Incorporation into contract ?

3.3. Clear and wide enough to protect the relying party ?Clear and wide enough to protect the relying party ?

4.4. No contravention of the CECONo contravention of the CECO


Incorporation

By: (1) Signature: L’Estrange v F Graucob Ltd [1934] –

Signature without looking – bound – NB: comm

(2) Reasonable notice: Olley v Marlborough Court [1949] followed by Seapower Resources v Assure Co Ltd [2001] HKEC 1517

(3) Consistent cause of dealings: J Spurling Ltd v

Bradshaw [1956] 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

Control of Exemption Clauses

E clauses become ineffective:(2) When they attempt to exempt liability for death or

personal injuries (s.7(1));(3) When they attempt to exempt liability in respect of

seller’s implied undertaking as to title (s.11(1))(4) When they attempt to exempt liability in respect of

seller’s obligations in respect of quality under sections 15, 16, 17 of the SOGO. (s.11(2))

General test of reasonableness: objective test – all the circumstances which the parties knew or should have known at the time of contracting.

Vitiating Factors

A contract may be tainted by defects that could affect its validity making it void, voidable, illegal or unenforceable. Vitiating factors include:

2. Mistake

3. Misrepresentation

4. Duress

5. Undue influence

6. Unconscionable contracts

7. Illegality

8. Restraint of trade

MistakesMistakes

3 types:3 types:

2.2. Common mistakesCommon mistakes

3.3. Mutual mistakesMutual mistakes

4.4. Unilateral mistakesUnilateral mistakes

Common mistakesCommon 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- mistake as to ownership – Held: void

Common mistakes as to quality of the subject matter:Oscar Chess v Williams [1957] 1 All ER 325: unless of some fundamental nature, contract not void.

Mutual mistakesMutual mistakes

No meeting of minds – no contract

Scriven Bros v Hindley [1913] 3 KB 564: mistake as to the lots of goods – Held: no contract

Unilateral MistakesUnilateral Mistakes

Mistake by one party while the other party knows the Mistake by one party while the other party knows the truth. Mainly on identity of the parties. Normally 3 truth. Mainly on identity of the parties. Normally 3 parties are involved:parties are involved:

2.2. The innocent party who mistakensThe innocent party who mistakens

3.3. The rogueThe rogue

4.4. The innocent party who was being mistakenedThe innocent party who was being mistakened

2 situations:2 situations:

g.g. Contracts made by correspondenceContracts made by correspondence

h.h. Contracts made face to faceContracts made face to face

Contracts made by Contracts made by correspondencecorrespondence

Effect:Effect: Contract voidContract void

Cundy v LindsayCundy v Lindsay (1876) 1 QBD 348 (1876) 1 QBD 348

A ordered some handherchiefs from B and sold them to C A ordered some handherchiefs from B and sold them to C (being absolutely innocent)(being absolutely innocent)

Held: A does not have a good title, cannot therefore Held: A does not have a good title, cannot therefore transfer a good title to C. transfer a good title to C.

Contracts made face to faceContracts made face to face

Contract may be voidable.Contract may be voidable.

Phillips v Brooks LtdPhillips v Brooks Ltd [1919] 2 KB 243 [1919] 2 KB 243A pretended to be a rich and famous person, bought a diamond ring A pretended to be a rich and famous person, bought a diamond ring from B. He sold the ring to C, dishonoured the cheque and then from B. He sold the ring to C, dishonoured the cheque and then disappeared. Held: valid contract and was bound. B cannot claim disappeared. Held: valid contract and was bound. B cannot claim the ring from C. the ring from C.

Levis v AverayLevis v Averay [1972] 1 198 – similar result – voidable [1972] 1 198 – similar result – voidable

Gist:(1) Gist:(1) what the innocent contracting party thought he was what the innocent contracting party thought he was contracting with?contracting with?

(2) is the identity vital influence his decision to contract or not ?(2) is the identity vital influence his decision to contract or not ?

MisrepresentationMisrepresentation

Misrepresentation = a Misrepresentation = a falsefalse representationrepresentation of of factfact made made orallyorally or in or in writingwriting or by or by conductconduct. .


Representation must be:Representation must be:2.2. On existing factsOn existing facts3.3. On false existing factsShum Kong On false existing factsShum Kong 4.4. On false material existing factsOn false material existing facts5.5. Induce the innocent contracting party to enter into the Induce the innocent contracting party to enter into the

contractcontract6.6. the innocent party has suffered loss as a result of such the innocent party has suffered loss as a result of such

inducementinducement

See See Shum Kong v Chu Ting LinShum Kong v Chu Ting Lin [2001] HKEC 651 – sale [2001] HKEC 651 – sale of a village house (own property, 700 sq.ft) with garden of a village house (own property, 700 sq.ft) with garden (leased) under misrepresentation(leased) under misrepresentation


Distinguish from:Distinguish from:

2.2. Future factsFuture facts

3.3. Intention of future conductIntention of future conduct

4.4. OpinionOpinion


2 types of misrepresentations:2 types of misrepresentations:

(2)(2) Fraudulent Fraudulent

(3)(3) InnocentInnocent

(4)(4) NegligentNegligent

Fraudulent misrepresentationFraudulent misrepresentation

= a = a falsefalse statement statement made by a person with a made by a person with a dishonestdishonest (“ (“fraudfraud”) ”) intentintent

FraudFraud is proved if the misrep is made by the maker: is proved if the misrep is made by the maker:•KnowinglyKnowingly•Without belief in its truth, Without belief in its truth, oror•Recklessly Recklessly (don’t care if it is true or not)(don’t care if it is true or not)An honest belief at the material time is a good defence:An honest belief at the material time is a good defence:Derry v PeekDerry v Peek (1889) 14 App Cas 337: DIR rep that the company could (1889) 14 App Cas 337: DIR rep that the company could run trams by steam or mechanical power – reality: it could not do so – run trams by steam or mechanical power – reality: it could not do so – DIR held an honest belief- Held: good defenceDIR held an honest belief- Held: good defenceSmith New Court Securities Ltd v Scrimgeour Vickers (Asset Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) LtdManagement) Ltd [1992] BCLC 1104 : D said that there were [1992] BCLC 1104 : D said that there were interested parties to buy the shares and led P to purchase them – 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 reality: no interested buyer and D knew that at the time of making rep Held: fraudHeld: fraud

Fraudulent misrepresentationFraudulent misrepresentation

Remedies: depends on whether fraudulent misrep had Remedies: depends on whether fraudulent misrep had become a term of the contract : become a term of the contract :

a. Become a term a. Become a term the other party may: the other party may: (1) rescind the contract, or(1) rescind the contract, or

(2) affirm the contract and claim damages (2) affirm the contract and claim damages for breach of contract, for breach of contract,

(3) affirm the contract and claim damages (3) affirm the contract and claim damages

under the tort of deceitunder the tort of deceit

b. Not become a term b. Not become a term the other party may: the other party may:

(1) rescind the contract, and/or (1) rescind the contract, and/or

(2) claim damages under the tort of deceit(2) claim damages under the tort of deceit

Innocent misrepresentationInnocent misrepresentation

= false statement = false statement honestlyhonestly believingbelieving to be true and has to be true and has reasonable groundsreasonable grounds to believe so up to the to believe so up to the momentmoment of of contractingcontracting

Remedies: Remedies: Rescission (not Rescission (not plusplus damages) damages)

Misrepresentation Ordinance s. 3(2) : Misrepresentation Ordinance s. 3(2) : Damages in lieu of rescission if equitableDamages in lieu of rescission if equitable

Negligent misrepresentationNegligent misrepresentation

Elements to be proved:Elements to be proved:•a a dutyduty on the representor to refrain from making a false statement; and on the representor to refrain from making a false statement; and•The representor is The representor is in breach of this dutyin breach of this duty

Duty exists with special relationships between representor and Duty exists with special relationships between representor and representee, e.g. professionals in their areas of expertiserepresentee, e.g. professionals in their areas of expertise

Remedies: rescission, damages and/or indemnityRemedies: rescission, damages and/or indemnity

MO s.3(2): court has a wide discretion to affirm the contract and award MO s.3(2): court has a wide discretion to affirm the contract and award damages in lieu of rescissiondamages in lieu of rescission

DuressDuress

Duress = Duress = actualactual or or threatenedthreatened violenceviolence, or , or unlawful unlawful restraintrestraint or or threatsthreats, directed towards the , directed towards the contracting partycontracting party or a or a member of his closed familymember of his closed family..

Effect : contract voidable Effect : contract voidable

Barton v ArmstrongBarton v Armstrong [1975] 2 All ER 465: former chairman [1975] 2 All ER 465: former chairman threatened to kill the MD unless company bought back his threatened to kill the MD unless company bought back his shares – co did so – held: voidableshares – co did so – held: voidable

Rationale: no free choice ; negate consent Rationale: no free choice ; negate consent no genuine no genuine intention to contractintention to contract

Economic duressEconomic duress

Economic duress = Economic duress = Apparent consentApparent consent is induced by is induced by illegitimate economic pressureillegitimate economic pressure from the other party from the other party

Pau On v Lau Yiu LongPau On v Lau Yiu Long [1980] A C 614: consent is [1980] A C 614: consent is revocable revocable contract is voidable contract is voidable

Remedy: voidableRemedy: voidable

Right to avoid may be lost if the innocent party chooses to Right to avoid may be lost if the innocent party chooses to affirm (affirm (The Atlantic BaronThe Atlantic Baron [1979] QB 705)) [1979] QB 705))

Undue Influence Undue Influence

Conditions:Conditions:

(1)(1) A A relationshiprelationship between the parties; between the parties;• One party acquired over another a measure of One party acquired over another a measure of

influenceinfluence or or ascendancyascendancy; and; and• The ascendant person takes The ascendant person takes unfair advantageunfair advantage. .

(see (see Royal Bank of Scotland plc v Etridge (No.2)Royal Bank of Scotland plc v Etridge (No.2) [2001] [2001] 3 WLR 1021, 1029; 3 WLR 1021, 1029; Bank of China (Hong Kong) Ltd Bank of China (Hong Kong) Ltd v Wong King Singv Wong King Sing [2002] 1 HKLRD 358) [2002] 1 HKLRD 358)

Undue InfluenceUndue Influence

2 types of undue influence:2 types of undue influence:

2.2. Actual undue influenceActual undue influence

3.3. Presumed undue influencePresumed undue influence

Actual Undue InfluenceActual Undue Influence

Conditions:Conditions:• The wrongdoer had the The wrongdoer had the capacitycapacity to influence the to influence the

complainant;complainant;• Influence was Influence was in factin fact exerted; exerted;• Influence was Influence was undueundue;;• The effect: the complainant The effect: the complainant enter intoenter into the contract the contract - sufficient: the influence was a sufficient: the influence was a significant reasonsignificant reason for for

causing causing - no need to prove manifestly disadvantageno need to prove manifestly disadvantage

Effect: Contract voidableEffect: Contract voidable

Actual Undue InfluenceActual Undue Influence

Williams v BayleyWilliams v Bayley (1866) LR 1 HL200; (1866) LR 1 HL200; Diners Club v Ng Diners Club v Ng Chi SingChi Sing [1987] 1 HKC 78: father compelled to guarantee son’s debt – guarantee: voidable

Presumed undue influenceConditions:• A relationship of trust and confidence between the wrongdoer and the

innocent party;• 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• Procuring the innocent party to enter into contract; and• The contract was manifestly disadvantageous to the innocent party.

Undue influence can be rebutted by:h. The complainant had exercise free and independent will; ori. The complainant had full knowledge and could not have been misled; orj. The complainant had competent and independent advice from another.

Unconscionable contractsUnconscionable contracts

The law takes a further step in protecting the innocent The law takes a further step in protecting the innocent under the doctrine of “unconscionable contracts”. under the doctrine of “unconscionable contracts”.

Commercial Bank of Australia v AmedioCommercial Bank of Australia v Amedio (1983) 151 (1983) 151 CLR 447 per Mason J: CLR 447 per Mason J: Undue influenceUndue influence: the : the will will of innocent party was of innocent party was notnot independentindependentUnconscionable contractUnconscionable contract: : disadvantage positiondisadvantage position (e.g. (e.g. poverty, sickness, age, sex, infirmity of body and mind, poverty, sickness, age, sex, infirmity of body and mind, drunkeness, illiteracy, lack of education, lack of drunkeness, illiteracy, lack of education, lack of assistance or explanation where assistance is assistance or explanation where assistance is necessary) vis-à-vis the other party [and the other party necessary) vis-à-vis the other party [and the other party knewknew it] it]

Unconscionable contractsUnconscionable contracts

The Unconscionable Contract Ordinance (Cap. 458)The Unconscionable Contract Ordinance (Cap. 458)- A consumer protection legislation (others being: SOGO, Control of A consumer protection legislation (others being: SOGO, Control of

Exemption Clauses Ordinance, MO)Exemption Clauses Ordinance, MO)

- Applies only in consumer salesApplies only in consumer sales- The court may refuse to enforce, enforce the remainder of the The court may refuse to enforce, enforce the remainder of the

contract, limit/revise/alter the unconscionable part of the contractcontract, limit/revise/alter the unconscionable part of the contract

- The court may take the initiative to examine the unconscionble The court may take the initiative to examine the unconscionble provisionsprovisions

- List of matters the court will consider: relative bargaining positions of List of matters the court will consider: relative bargaining positions of the parties, etc. the parties, etc.

See See Hang Seng Credit Card Ltd v Tsang Nga Lee & OthersHang Seng Credit Card Ltd v Tsang Nga Lee & Others [2000] 3 [2000] 3 HKC 269 : credit card debt plus costs on indemnity basis – falls HKC 269 : credit card debt plus costs on indemnity basis – falls under Cap 458 – “greedy bank” case – unconscionable contractunder Cap 458 – “greedy bank” case – unconscionable contract

Illegality

Contracts are not enforceableContracts are not enforceable

Restraint of tradeRestraint of trade

Applicable situation: one party agrees to Applicable situation: one party agrees to restrictrestrict its its freedomfreedom in the future to carry on trade with other parties who are in the future to carry on trade with other parties who are not parties to this contract (via “not parties to this contract (via “restrictive covenantsrestrictive covenants”). ”).

General rule: Restrictive covenants are acceptable only if General rule: Restrictive covenants are acceptable only if they are reasonable with reference to they are reasonable with reference to timetime and and space space and and must not deprive the livelihoodmust not deprive the livelihood of the party being of the party being restrained.restrained.

If restraint of trade is found, the contract is void. If restraint of trade is found, the contract is void.

Restraint of tradeRestraint of trade

Typical situationsTypical situations::(2)(2) Employment contractsEmployment contracts

(3)(3) Sale of businessSale of business

(4)(4) Solus agreement (e.g. sole agent agreement)Solus agreement (e.g. sole agent agreement)

Discharge of a contractDischarge of a contract

A contract coming to an end by:A contract coming to an end by:

2.2. Performance/defective performancePerformance/defective performance

3.3. Agreement (“Accord and satisfaction”)Agreement (“Accord and satisfaction”)

4.4. BreachBreach

5.5. FrustrationFrustration

Performance/Defective PerformancePerformance/Defective Performance

A contract may be discharged by full performance. The A contract may be discharged by full performance. The traditional view as expressed by traditional view as expressed by Cutter v PowellCutter v Powell (1795) 6 (1795) 6 Term Rep 320, may be watered down by the doctrines of :Term Rep 320, may be watered down by the doctrines of :(2)(2)Divisible contractDivisible contract(3)(3)Substantial performanceSubstantial performance- and be paid on a - and be paid on a quantum meruitquantum meruit basis (i.e. pro rata basis (i.e. pro rata basis). basis).

The contract in The contract in Cutter v PowellCutter v Powell is regarded as a “whole” is regarded as a “whole” contract and must be performed in full. contract and must be performed in full. Hoenig v IssacsHoenig v Issacs [1952] 2 Al ER 176, demonstrating the modern approach, [1952] 2 Al ER 176, demonstrating the modern approach, used doctrines (1) and (2) above.used doctrines (1) and (2) above.

Discharge by agreementDischarge by agreement

Accord and satisfaction:Accord and satisfaction:

““Accord” – agreementAccord” – agreement

““Satisfaction” – considerationSatisfaction” – consideration

Discharge by breachDischarge by breach

2 types of breach:2 types of breach:

(1)(1) Repudiatory breachRepudiatory breach

(2)(2) Anticipatory breachAnticipatory breach

Repudiatory breachRepudiatory breach

= = No performanceNo performance by the by the contractedcontracted time, place and time, place and conditionsconditions

Effects:Effects:• Condition or innominate term (with serious Condition or innominate term (with serious

consequences) consequences) innocent party can treat the contract innocent party can treat the contract as discharged.as discharged.

• Warranty or innominate term (with less serious Warranty or innominate term (with less serious consequences) consequences) innocent party can only sue for innocent party can only sue for damagesdamages

Anticipatory breachAnticipatory 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:• The innocent party may accept the breach and treat

the contract as discharged then, and sue for damages

• 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 frustrationDischarge by frustration

“…“…Without faultWithout fault of either party, a of either party, a contractual obligationcontractual obligation has become has become incapable of being performedincapable of being performed becausebecause circumstancescircumstances in which performance is called for would in which performance is called for would render it a thing render it a thing radically differentradically different from that which was from that which was undertaken..” per Lord Radcliffe in undertaken..” per Lord Radcliffe in Davis Contractors v Davis Contractors v Fareham UDCFareham UDC [1956] ACC 696 [1956] ACC 696- - Extraneous changeExtraneous change of of circumstancescircumstances which makes which makes performance impossible performance impossible – examine : the subject matter – examine : the subject matter of the contract – and ask: what are such circumstances ?of the contract – and ask: what are such circumstances ?

Effect: Both parties need not perform – contract Effect: Both parties need not perform – contract dischargedischarge


Examine:Examine:

(1)(1) Subject matter destroyed: Subject matter destroyed: Taylor v CaldwellTaylor v Caldwell (1863) 3 B&S 826 – (1863) 3 B&S 826 – Hall destroyed by fire – contract discharged.Hall destroyed by fire – contract discharged.

(3)(3) Expected event does not occur : Coronation cases : Expected event does not occur : Coronation cases :

Krell v HenryKrell v Henry [1903] 2 KB 740: King George VI sicked – rented [1903] 2 KB 740: King George VI sicked – rented premises not served its purpose – contract discharged.premises not served its purpose – contract discharged.

• Person to perform dies or falls ill: Person to perform dies or falls ill: Robison v DavisonRobison v Davison (1871) LR (1871) LR Ex 269: performer sicked on performance day – contract Ex 269: performer sicked on performance day – contract dischargeddischarged

• Change in law making it impossible to perform: Change in law making it impossible to perform: Baily v Baily v DeeCrespignyDeeCrespigny (1869) LR 4 QBB 180: no blockade clause turns (1869) LR 4 QBB 180: no blockade clause turns impossible because of change of law – contract dischargedimpossible because of change of law – contract discharged


(5)Change in law makes performance illegal: (5)Change in law makes performance illegal: Czarniko Ltd v Czarniko Ltd v RolimpexRolimpex [1979] AC 351: export of goods impossible because of [1979] AC 351: export of goods impossible because of change in law – dischargedchange in law – discharged

(6) Performance become radically different: (6) Performance become radically different: Wong Lai Ying v Wong Lai Ying v ChinachemChinachem [1980] HKLR 1: landslide stopped construction work [1980] HKLR 1: landslide stopped construction work for 3.5 years – discharged.for 3.5 years – discharged.

No frustration under:No frustration under:• Performance more expensivePerformance more expensive• Self-induced frustration: failure to apply for a licence (Self-induced frustration: failure to apply for a licence (Maritime Maritime

National Fish Ltd v Ocean Trawlers LtdNational Fish Ltd v Ocean Trawlers Ltd [1935] AC 524) [1935] AC 524)

Money paid lies where it falls except when there is a total failure of Money paid lies where it falls except when there is a total failure of consideration (consideration (FibrosaFibrosa case [1943] AC 32) case [1943] AC 32)

RemediesRemedies

1.1. Damages (compensation for loss)Damages (compensation for loss)

2.2. Specific performanceSpecific performance

3.3. InjunctionInjunction

Remoteness of damages –reasonable foreseeable lossRemoteness of damages –reasonable foreseeable loss

Duty to mitigate-innocent party must mitigate (minimise) its Duty to mitigate-innocent party must mitigate (minimise) its lossloss

Q & A sessionQ & A session

Please examine the sample tenancy agreement in some details. Discuss:Please examine the sample tenancy agreement in some details. Discuss:

2.2. Is there any offer, acceptance, consideration, or binding intention in it ?Is there any offer, acceptance, consideration, or binding intention in it ?

3.3. What are the condition and warranties ? What are the condition and warranties ?

4.4.What is the subject matter ?What is the subject matter ?

5.5.What does party A provide ?What does party A provide ?

6.6.What does party B provide ?What does party B provide ?

7.7.Any guarantee by party A and/or party B?Any guarantee by party A and/or party B?

8.8.What are the rights of party A ?What are the rights of party A ?

9.9.What are the duties of party A ?What are the duties of party A ?

10.10.How long is the tenancy ? How long is the tenancy ?

11.11.If you were party B, would you accept this tenancy agreement ? What If you were party B, would you accept this tenancy agreement ? What amendments would you like to make ?amendments would you like to make ?

Q & A sessionQ & A session

Examine your own employment contract.Examine your own employment contract.2.2. What is the subject matter ?What is the subject matter ?3.3. What are the terms ?What are the terms ?4.4. Do you think such terms are fair to you ?Do you think such terms are fair to you ?5.5. Can you find terms in the employment contract that are illegal Can you find terms in the employment contract that are illegal

under the Employment Ordinance ?under the Employment Ordinance ?6.6. What can you get if you were dismissed by your employer who 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 gives you one month’s notice ? Do you have to attend office after receiving the notice ? receiving the notice ?

7.7. If you had accumulated 40 days of annual leave and your If you had accumulated 40 days of annual leave and your employment contract provides that annual leave cannot be employment contract provides that annual leave cannot be accumulated, can such annual leave be set off against your accumulated, can such annual leave be set off against your notice period ? What should your employer do in respect of such notice period ? What should your employer do in respect of such annual leave ?annual leave ?

2. contract law - lankaneth-pawanlankaneth-pawan.com/wp-content/uploads/2016/07/qs-25-law-of...offer...

Documents