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Chapter฀1฀ Banking฀and ฀the ฀Law ฀in ฀Hong ฀Kong฀ 1.1฀Introductio n฀ All the law of Hong Kon g has som e relevance for banks , though some parts are more important than others. Perhaps th e mos t importan t bod y o f general principl e i s th e law of contract. Banks make contracts, many thousands every day, which are governed by those principles. They are explained for the beginner in Carole Chui and Derek Roebuck Hong Kong Contracts Hong Kong University Press 2nd edition 1991, pp 2-3: People in business need to depend o n others doing wha t they have undertaken to do and on the state either forcin g them to do it if they refuse o r making them pay compensation , a sum of money called damages. If yo u thin k fo r a momen t abou t moder n everyda y business activit y yo u wil l se e that makin g contract s an d doing business go together. Consider a simple model of a business. Whe n abou t t o star t commercia l o r industria l activities, a man o r woma n wil l choos e eithe r t o b e th e sole proprieto r o r t o joi n wit h other s i n som e wa y b y means of contracts. If the y take a partner, their relation s will be governed by a partnership agreement. If they form a limite d company , ther e wil l b e contract s betwee n th e company and each shareholder, and between the company and eac h director . I f the y ar e agents , th e relation s wit h their principals wil l be governe d b y contracts . The business wil l nee d premises , bough t o r lease d b y contracts . The employee s wil l hav e thei r contract s wit h th e com pany . Machinery and other plant will be bought, or taken on hire-purchase, or hired. Raw materials will be needed, and not only wil l supplie s be bought to meet immediat e needs, but careful busines s people may try to ensure supplies well into the future by means of contracts. Similarly, 7฀ 2฀Law ฀Relating฀to฀Banking฀in฀Hong฀Kong฀ they wil l not only make contracts to sell what they hav e made, but also enter into long term contracts to make sure that they have enough orders for their goods for a reasonable time ahead . The y ma y hav e t o ente r int o contract s with customers under which they are responsible for servicing th e product , o r guaranteein g i t fo r a period . The y will make contracts with carriers to transport their goods. Carriage contracts are highly developed and complex, particularly i f the goods ar e going abroad, whether by land , sea o r air . I n connexio n wit h thes e good s an d als o t o protect th e business agains t fire, theft , liabilit y t o claim s for all kinds of negligence, loss of profits, workers' com pensation , and many other possible losses, they will enter into contracts with insurance companies. So fa r i t ha s bee n assume d tha t thos e engage d i n business have enough money of their own or money contributed b y partner s o r shareholders . Thi s wil l rarel y b e so. They will open a current account with a bank, an act which itsel f create s al l kind s o f contractua l obligation s between th e customer s an d th e bank, whic h ar e implie d into th e relatio n whic h exist s onc e a curren t accoun t i s opened, and which have accumulated over three centuries. What has been described is a simple model. The more complex th e busines s th e mor e contracts , an d th e mor e kinds of contract, are used. In particular, the provision of finance and credit has produced the greatest sophistication of th e contract device . Economic growt h depend s o n finance bein g mad e available . Althoug h al l government s now control to some extent the supply of...

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