Business Law

Topic Two Contract Law: Formation of Contracts

[A] Introduction

Contract law concerns with regulation of the legal relationship of the parties to contracts. A contract is an agreement having legally binding effects on its parties. In other words, generally speaking, the party who broke the contract has to compensate the innocent party for his loss.

How to form a contract?

All the 4 following elements are needed for forming contracts: -

a. Offer

b. Acceptance

c. Intention

d. Consideration

[B] Offer

What is an offer?

• The expression of a person’s intention to others to have a legally binding agreement.

• The maker of the offer is called the offeror. The recipient is called the offeree.

Important rules about offers: -

(a) Certainty of the offer

A contract must contain the basic terms of the relevant transaction. Normally, the following 2 items are needed to form an agreement: -

i. Price (e.g. how much is the house that I am going to sell to you?)

ii. Property (the seller has to show the buyer the goods or to describe them briefly: Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494).

* Under the Sale of Goods Ordinance (cap.26 of the Laws of Hong Kong), the buyer is required to pay a reasonable price for his purchased goods if there has not been a specified price in the agreement. Under the Supply of Services Ordinance (cap.457 of the Laws of Hong Kong, the party contracting with the supplier has to pay a reasonable price for the relevant service if there has not been a specified price in the agreement.

Contracts not involving sale of goods or supply of services include those involving sale of land, sale of shares, sale of copyright and hire of goods. The courts would not provide for a reasonable price for these agreements.

* Note that the price or property may not have to be stated in the contract if it can be understood by the parties (this can be proved by previous dealings: Hillas & Co Ltd...