Question 1 Hugo owns a theatre company and has recently entered into a number of

Question

Question 1

Hugo owns a theatre company and has recently entered into a number of contracts.

He rented a lorry from Go Van Hire Ltd for a period of 12 months, while he took a play on tour throughout Hong Kong. The contract provided that the lorry would be roadworthy. Unfortunately, there was a fault in the engine and, due to a shortage of spare parts, the lorry was unavailable for the first two months of the contract period. Hugo had to hire another lorry on a weekly basis at a considerably higher cost, until Go Van Hire Ltd was able to provide him with their lorry.

Two months before the show was due to open, Mark, the stage manager, died suddenly. Hugo asked his daughter, Nina, who had recently graduated in theatre studies, to take over as stage manager and she agreed.

Hugo had hired the famous actors Indy and Jack as lead actors in his play. Before rehearsals began, Indy fell ill and Jack broke a rib.

Indy and Jack failed to attend the start of rehearsals. Consequently, Hugo hired Kev (to replace Indy) and Les (to replace Jack).

Indy was only ill for the first three days of rehearsals, but was available for the remaining rehearsals and for the play.

Jack missed all the rehearsals and the first two weeks of the play. Hugo had to pay Les at a significantly higher rate than he had agreed to pay Jack.

Six months into the tour, a theatre, owned by Ken, in which the company was due to perform, accidentally burned down. Hugo had paid Ken a deposit of $10,000, which Ken is refusing to return.

Required:

ai) The terms of a contract may be classified in relation to their importance. Identify and explainthese three classifications.

aii) Explain whether the term regarding the lorry’s roadworthiness could be classified as an innominate term and explain the consequences of its breach.

aiii) Explain whether Indy is in breach of the terms of her contract with Hugo and, if so, explain the consequences of her breach.

aiv) Explain whether Jack is in breach of the terms of his contract with Hugo and, if so, explain the consequences of his breach.

b) Explain how a court would determine whether there is an intention to create legal relations in the agreement between Hugo and Nina.

ci) Explain the effect of the theatre burning down on the contract between Hugo and Ken.

cii) Explain whether Hugo is entitled to reclaim his deposit.

Explanation / Answer

Ans ai) Contractual terms may be of 3 types: Warranties, Conditions and Innominate terms. In the above case, rent for 12 months for the lorry may be counted as a condition. That the lorry would be raodworthy for duration the whole tour may be regarded as a Warranty. The agreement with the actors Indy and Jack and the lorry company may be regarded as Innominate terms since in both cases, the innocent party (Hugo) sustained substantial losses due to their breach.

Ans aii) Yes. Although the engine failure was an unfortunate circumstance and could not possibly be prevented, it caused the innocent party Hugo to incur significant extra expenditure to hire a different mode of conveyance to continue the tour as promised. Hence it qualifies as an Innominate clause.

Ans aiii) Yes she is. Hugo had to find a replacement for her at a higher price thereby incurring more expenditure. Indy may be charged with a fine for unintentional breach of contract using the same principle of innominate terms as stated in previous answer.

Ans aiv) Yes. Jack is also liable for a fine using the same reasoning as in the previous answer.

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