INTRODUCTION

- A contract is an agreement giving rise to obligations which are enforced or recognized

by law
- Contract vs tort obligations  a contract is based on agreement of contracting parties
- Not all agreements are agreements enforceable in law e.g. social arrangement/illegal
agreements
- Elements of a valid contract
o Capacity to contract
o Agreement (offer & acceptance)
o Intention to create legal relations
o Consideration
o Certainty and completeness
- Privity of contract: only parties to a contract can acquire rights and liabilities under
the contract
o Exception: provided by statue
o Exception: collateral contracts (third party contract relating to same subject
matter)

CONTRACT FORMATION

- Everyone is presumed to have capacity

o Exception: Minors
 Contracts made by children are voidable (enforceable by child but
cannot be enforced against the child)
o Exception: Mental incapacity
 Contracts are voidable if the other party knew or ought to have known
that they have mental incapacity
o Exception: Intoxication
 Contracts are voidable if the person is so intoxicated that they cannot
understand the nature of the contract
o Contracts made during incapacity can be ratified or repudiated when they
later obtain capacity
- Intention to create legal relations from their relationship
o Presumption: social agreements are not enforceable (Balfour v Balfour)
 Rebuttable: families can make business arrangements
o Presumption: commercial agreements are enforceable
 Rebuttable: by express provision e.g. in honor only/gratuitous in nature
o Advertisements often are 'mere puff'  do not create legal relations
- Agreement between two parties
o Offer: a set of proposed obligations the offeror is willing to be bound by as
soon as the offeree accepts (Carbolic Smoke Ball)
 Must be communicated to the offeree
 Advertisement, goods on display, auctions, invitations to tender (not
bound to accept tenders (unless offeror specified to accept highest
bid/lowest offer then bound by it), mere statements of (minimum) price
= invitation to treat
 Counter-offer may be made (Hyde)  counteroffer extinguishes the
previous offer
  Standard form contracts (battle of the forms)  each
communication is considered as a counter offer  if contract is
finally formed (through performance) then it must be on the
terms of the last counter offer
o Conflicting terms can be replaced with reasonable
implications
 Offeree may request for information  original offer remains intact
 Withdrawal: must be communicated to offeree before it is accepted
 Automatic withdrawal if not-accepted within time limited for
acceptance
 If by third party, they must be a reliable source of information,
whom can be relied upon by both parties
o Acceptance: valid when communicated to the offeror
 Cannot be communicated by silence
 Parties may choose how offer is accepted (e.g. signature, conduct)
 Postal acceptance  acceptance finalized the moment it is posted
 Acceptance by post must be requested by offeror, or a normal,
reasonable or anticipated means of acceptance
 Postal rule may be excluded
 Still applies even if letter lost in post (unless due to fault of
offeree)
 Instant communications  acceptance finalized when it is available
on the recipients' server
 Acceptance has to be made with knowledge of the offer
 Tenders: binding contract usually when tender is accepted
 Unless tender is submitted for indefinite subject matter "such
quantities as you may order"  binding contract only when
order is placed
 Unilateral contracts: can be accepted by fully performing the
stipulated act or forbearance, no need to communicate acceptance to
offeror, offer can be withdrawn before it is accepted
 Acceptance by conduct  acceptance inferred from conduct without
being expressly communicated
 Stipulated methods of acceptance  if used different method, may
not be a contract; should use method of equal speeds
- Contract vs gift  consideration
o What is given in order to get the benefit of the contract
o Both parties have to give consideration  money, goods, conduct, promises,
forbearance (refraining from doing something when one had otherwise
intended to do)
o Consideration must move from promisee (i.e. person enforcing promise must
provide consideration for it)
 Cannot be enforced if consideration moved from third party
o Consideration must not be past
 Unless services on request and both parties understand payment will be
made
o Consideration must be sufficient (of some value) but need not be adequate
(Dunton v Dunton)
o Entry into one contract may be consideration for another contract
 o Payments of a lessor amount is not good consideration to discharge a debt
 Exception: If the payment terms change in favour of the creditor, that
may avoid this rule
o Part payment of debt is not good
o Performance of an existing duty is not good consideration for a new promise
 Exception: where a legal/contractual duty is exceeded (did more than
ordinarily would)
 Exception: (i) before A completely performed obligations, and B has
reason to doubt whether A will/will be able to complete them  (ii) B
thereupon promises A additional payment in return for A's promise to
perform his contractual obligations on time  (iii) as a result of giving
B's promise (not under duress or fraud of A), he obtains a benefit or
obviates a disbenefit  benefit received by B is consideration for his
promise, additional payment is legally binding (Williams v Roffey)
- Sufficiently certain and complete
o Uncertain when words of contract are too vague for the parties and court to
understand their obligations under the contract
 But court will make every effort to read some sense into the contract,
especially where one party has completed their end of the contract
 May also be resolved by looking into an external standard or by
severing the uncertain terms (unless term goes to the core of the
contract)
o Incomplete contract leaves out important elements
 Agreements to agree are not acceptable e.g. agreeing to agree on price
after one promise is done
 Agreements to negotiate are acceptable
 Discretion is acceptable unless too broad (i.e. makes one parties'
promise illusory – the party can basically decide whether or not to keep
it)
 External reference: parties can refer aspects of the contract to an
external third party (e.g. get third party to check whether job was
properly done)

CONSTRUING CONTRACTS

- Written contracts vs oral contracts vs contracts by conduct

o Interpretation of oral contracts may be tricky as it is difficult to evidence
anything in writing before the court
- Whether agreement creates a valid contract is assessed objectively  regardless of
parties' real intentions, if a reasonable man would have believed the parties were
assenting to the terms, parties would be equally as bound as if they had actually
intended to agree to the terms
- Express terms: expressed in contracts
o Conditions: if these aren't satisfied, there might as well not be a contract at all
 Court more likely to allow innocent party to get out of the contract
o Warranties: if these aren't satisfied, there is still value in the contract
 Innocent party most likely to be required to keep their promises under
contract but might be paid damages/remedies
o Intermediate terms
  Sometimes act like warranties and sometimes like conditions (i.e.
depends on circumstances)
o Rules of incorporation (incorporating terms into a contract)
 A contract accepted by signature will be binding even if person
signing didn't read it all (but knows it is a contract)
 Terms incorporated by notice only if:
 Notice is reasonable
 Notice is given before contract formation
 Notice is given before contract formation
 Greater notice required for more onerous terms
o Exclusion clauses
 Provides escape hatches and loopholes to allow parties to avoid
liability
 But often used by parties to exclude all liabilities
 If exclusion clause is in a signed contract, likely to be effective
(L'Estrange)
 If exclusion clause is given by notice, it must be given before
formation of contract
 Special rules if parties put forward exclusion clauses but they
misrepresent the nature of the exclusion clause  exclusion clause
likely not to be valid
 Court will read exclusion clauses contra proferentum (against the
interests of the party relying on the clause)  especially in deciding
whether clause covers the damage that was caused
 Exclusion clauses only cover activities within the four corners of the
contract
 Unconscionable Contracts Ordinance (business liability): Prevents
operation of exclusion clauses if unreasonable/relating to death/injury
o Unwritten terms
 Did the spoken words give information or did they make promise?
 Does the party speaking the words have special expertise?
 If spoken by expert  more likely to be binding promises
 What importance did the parties attach to the statement?
 More importance  more likely to be binding promises
 Were the words ever subsequently reduced to writing (even after the
contract was signed)?
 Evidence of intention to make the words binding
 Parol Evidence rule
 Once a written contract is produced, evidence of previous
negotiations not included in the contract won't usually be
considered
 Should include an entire agreement clause  makes clear that
the contract only includes the words of the written contract
o Force Majeure clause
 In the event of an unforeseen event, which is beyond the control of
either party, and causes either party to not be able to carry out their
obligations, there will be no liability
o Choice of law clause
 Sets out which jurisdiction's laws will apply
 o Construction of express terms
 What did the parties actually mean when forming the contract
 Starting point: If there are clear words in the contract, those will
prevail  clear words will be given their natural meanings
 Court will look at surrounding circumstances to resolve
ambiguity from an objective perspective (what a reasonable
person in the situation of the parties would have meant)
- Implied terms (not written nor spoken; either assumed to be in contract or demanded
by law)
o Implied terms by consistent course of dealing
 If two parties have an established practice, it may be implied that the
practice will continue
o Implied terms by industry standards
 Industry standards must be virtually universal to be implied into a
contract
 The hurdle of 'virtually universal' is high
o Implied by business efficacy
 Term must be reasonable and equitable
 Term must be necessary
 Term must be so obvious that it goes without saying (blindingly
obvious)
 Term must be capable of clear expression
 Term must not contract any express terms
o Implied by law generally
 Implied duty to cooperate (have to allow the other party to have the
benefit of the contract)
 Implied duty of good faith (can't prevent the other party from
completing their promises)
 Implied in contracts for the sale of goods (SOGO)
 Protections against consumer contracts
 Unfair provisions in standard form contracts won't be enforced
against consumers
o Unless reasonable to protect a legitimate business
interest of the trader
 Consumer guarantees (title, fit for purpose, quality)

VITIATING CONTRACTS

- Mistake
o Unilateral mistake: only one party has made a mistake
 Generally, will be held to their promise
 Mistake as to identity may cause contract to be void  as though the
contract had never been
 Identity must be material
 Must be intention to contract with someone else
 Other party ought to know that the identity was important
 If dealings were face-to-face  law will assume that it was
intended to contract with the person in front of you
 o Non est factum: if a person is unable to read the document or understand its
nature, they will not be bound  contract void
 Generally, only available to a special class of people (some form of
restraint on understanding)
o Common mistake: both parties make the same mistake as to the existence of
some objects/state of affairs which is crucial to the contract and neither party
took responsibility for the statement that it exists  void
 E.g. buying a book that doesn't exist (not by fault of either party)
o Mutual mistake: parties make different mistakes and nobody can prove they
are right  void
- Misrepresentation
o Must be false statement about a past or present fact
 Statements about the future generally cannot be misrepresentation
 Statement must be made by one contracting party (or agent) to another
 Statement has to be made at or before contract formation
 Statement has to be made intending to induce entry into the contract
 Statement actually does induce entry
o Innocent misrepresentation: representor believes they are telling the truth 
contract can be rescinded (representee can choose to set contract aside)
o Fraudulent misrepresentation (Derry v Peek): representor misrepresents
knowingly or without believing in the statement or recklessly  contract can
be rescinded and damages claimed
o Negligent misrepresentation (Hedley Bryne v Heller): representator under a
duty to tell the truth, but breaches their duty to do so, resulting in representee
suffering loss/damage  contract can be rescinded and damages claimed
o Statutory provisions prohibiting corporations making misleading statements
about goods/services  pecuniary penalty (fine)
- Promissory estoppel (does not require an actual contract being formed, or
consideration & offers wider range of remedies)  use when promisor made a
promise to not insist upon his strict legal rights against promisee in relation to the
promise
o Requirements
 Must be a representation or assumption which turns out to be wrong
 Assumption must be encouraged/induced by the target of the estoppel
 Mere expression of hope is not enough
 Innocent party must actually rely on the assumption/representation
 Party making the statement must intend for it to be relied on/know it
will be relied on
 Innocent party must suffer some harm as a result of relying on the
representation
o Doctrine can only be used as a defence
o Wide range of remedy available at the courts' discretion
- Unconscionable dealing: conduct so contrary to good conscience that it cannot be
permitted
o Occurs when one party is under a special disadvantage and the other party
knows/ought to know the disadvantage and takes advantage of it
o Usual remedy is rescission (to place innocent party in the position before the
contract was formed)
- Undue influence and duress
 o Undue influence: when a party enters into a contract without agreeing to the
terms of the contract but rather talked into contract by improper influence by
some other party
 Influence is improper when there is an ulterior motive
 Actual undue influence: when there is evidence of the influential party
taking advantage of their position
 Presumed undue influence: where the relationship between two parties
gives rise to a presumption that there is undue influence, even if there
is no evidence (Hartigan)
 When two parties are involved in certain relationship (e.g.
parent/child, lawyer/client, doctor/patient) but as long as the
nature of relationship involves someone assuming
responsibility for advising/guiding a vulnerable person
 Person with upper hand will not be able to enforce contract
 But rebuttable – if person can show that they were not taking
advantage of their position & if other person had independent
advice and fully understand what they entered
o Duress: where actual threat is used to secure a contract (physical, economic,
other harm)
 Usual remedy is rescission, or may sometimes be restitution
- Illegality
o Any contract to commit a crime, tort or a fraud will be void
o Courts will not enforce contracts seeking to defeat the administration of justice
o Contracts seeking to oust the jurisdiction of the courts will not be enforced
o Contracts may be specifically invalidated by statutory schemes
- Restraint of trade clauses prevent the other party from becoming your direct
commercial competitor
o Clauses must be reasonably in the interests of the parties (scope, time, activity,
bargaining power) and in the interests of the public (difficulty caused to
public?)  otherwise unenforceable

ENDING A CONTRACT

- Termination by performance
o General principle: Obligations under the contract must be absolutely and
exactly completed (Cutter v Powell)
o Exception: if obligations under a contract can be sensibly divided  party
might be paid for the work they did
o Exception: if an obligation has been substantially performed, some trifling
falling cannot justify a refusal to pay (de minimus rule) (Hoenig v Isaacs)
o Exception: if a party accepts part performance of an obligation, they cannot
rely on Cutter v Powell
- Termination by agreement
o Contract contains term on how/when contract might end (e.g. expiry dates)
o Where the contract commences only if some condition precedent occurs, and
the precedent fails, the contract will have never commenced
o Where a condition subsequent occurs, then this ends the contract
o Contract can also end where parties agree on it
- Termination by frustration
 o Destruction of subject matter at neither parties' fault (Taylor v Caldwell)
o Where whole basis of contract is destroyed at neither parties' fault (Krell v
Henry)
o If contract is simply more difficult or expensive to complete, it is not
frustrated
 Has to be rendered to be a different contract/performance would be
completely different
o Frustration only affects future obligations
o Consequence of frustration:
 If there was total failure of consideration  rescission
 If no total failure of consideration  losses lie where they fall (i.e.
parties walk away at whatever the situation is after frustrating event)
- Termination by breach
o Breach of conditions  innocent party may end contract
o Breach of warranties  contract will continue but innocent party may claim
damages
o Repudiation: when a party walks away from their obligations without
completing them
 Innocent party may terminate contract, demand party to meet their
promise/pay damages otherwise
 Anticipatory breach: when the other party is clearly going to breach 
can terminate contract for breach and sue for damages immediately
- Death of offeror
o Personal representative may still be bound by acceptance unless offeree knew
of offeror's death
- Unilateral contract may be terminated only before performance

REMEDIES FOR TERMINATION BY BREACH

- Unless exceptions of privity of contract  third party has no means of enforcing

contract
o If contract confers benefit on the third party, unlikely that the party who brings
the claim will have suffered loss  nominal damages
o Saved by statue: Contracts (Rights of Third Parties)  person who is not a
party to a contract may enforce a term if (i) contract expressly provides he
may, (ii) the term purports to confer a benefit on him unless parties did not
intend term to be enforceable by third party
- Damages: financial compensation for the harm caused by the breach
o Calculated at the date of the breach
o Calculated on a once and for all basis
o Includes expectation damages (i.e. loss of profits/opportunities)
o Liquidated damages clause are enforceable
 Unless so outrageous that it becomes a penalty
o Causation (Hedly v Baxendale)
 Whether harm arose naturally from the breach
 Whether it was a type of harm reasonably within the contemplation of
parties at the time of contract formation
o Mitigation
  Innocent party under an obligation to take reasonable steps to mitigate
the loss
o Contributory negligence
 If negligence by non-breaching party increases the harm  won't be
able to claim damages for the whole of the harm
- Restitution: if a party is unjustly enriched by their breach, they may be required to pay
restitution to undo that enrichment
- Equitable remedies
o Equity follows the law  starting point is damages if they are reasonably
capable of compensating a party
 If unreasonable to compensate  court may award specific
performance, injunction (possibly interlocutory), rescission (restoring
parties to the position they were in prior to contract)