Introduction LAW EUT440

Introduction to Law Introduction to Law

Contract 1 Contract 1

What is a contract?What is a contract?

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Learning ObjectivesLearning Objectives

Quick ReviewQuick Review Definition of a ContractDefinition of a Contract Simple Contracts and Written Simple Contracts and Written

ContractsContracts Legal Effect of ContractsLegal Effect of Contracts Why we have a Law of ContractWhy we have a Law of Contract

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Important DefinitionsImportant Definitions

Legally bindingLegally binding Legally enforceableLegally enforceable RemediesRemedies Parol (simple) contractsParol (simple) contracts DeedDeed Conveyances of landConveyances of land Bill of exchangeBill of exchange Valid, void, voidable and unenforceable Valid, void, voidable and unenforceable

contractscontracts

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Quick ReviewQuick Review

In our first class, we saw that you In our first class, we saw that you can divide law into different can divide law into different categoriescategories

Some of those categories wereSome of those categories were• private law v. public lawprivate law v. public law• civil law v. criminal lawcivil law v. criminal law

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Quick Review (cont.)Quick Review (cont.)

Private LawPrivate Law deals with the deals with the relationships between ordinary relationships between ordinary people in everyday transactionspeople in everyday transactions

That includes you and me, as well That includes you and me, as well as businesses and companiesas businesses and companies

Private Law includes the law of Private Law includes the law of contract and the law of tortcontract and the law of tort

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Quick Review (cont.)Quick Review (cont.)

In this category, In this category, civil lawcivil law deals with deals with the relationships between individual the relationships between individual citizenscitizens

Its purpose is to settle arguments Its purpose is to settle arguments between individualsbetween individuals

It helps people to find remediesIt helps people to find remedies• it doesn’t really punish peopleit doesn’t really punish people

Civil Law includes all Private Law so it Civil Law includes all Private Law so it includes the Law of Contractincludes the Law of Contract

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What is a contract? ExamplesWhat is a contract? Examples I promise to bring chocolates to the whole I promise to bring chocolates to the whole

class. Is there a contract?class. Is there a contract? I promise to give you 100 yuan if ride your I promise to give you 100 yuan if ride your

bike to Tiananmen Square and back to ICB bike to Tiananmen Square and back to ICB in less than 2 hours. Is there a contract?in less than 2 hours. Is there a contract?

I give you 2 yuan for your Coca-Cola. Is I give you 2 yuan for your Coca-Cola. Is there a contract?there a contract?

I promise to give you a new bicycle if you I promise to give you a new bicycle if you agree not to eat Chinese food for one year. agree not to eat Chinese food for one year. Is there a contract? Is there a contract?

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Definition of a contractDefinition of a contract

A legally binding agreementA legally binding agreement that means there must be some kind of that means there must be some kind of

agreement between two partiesagreement between two parties However, not all agreements are contracts However, not all agreements are contracts

because not all agreements are legally because not all agreements are legally enforceableenforceable

legally enforceablelegally enforceable means that a court will means that a court will say that an agreement is a contractsay that an agreement is a contract

See first sentence, p. 253, See first sentence, p. 253, English LawEnglish Law, for , for complete definitioncomplete definition

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Definition of a contract (cont.)Definition of a contract (cont.)

To decide if an agreement is To decide if an agreement is legally enforceable as a contract, a legally enforceable as a contract, a court will apply the rules and court will apply the rules and principles of the law of contractprinciples of the law of contract

Therefore, knowing a little about Therefore, knowing a little about these rules can help these rules can help businesspeople to create valid businesspeople to create valid contractscontracts

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Simple ContractsSimple Contracts

There is There is nono general rule in English law general rule in English law that a contract must be in writingthat a contract must be in writing

In fact, as we saw from our examples at In fact, as we saw from our examples at the beginning of the class, in many the beginning of the class, in many situations people do not realise that situations people do not realise that they are making a contractthey are making a contract

Some contract can be made verbally or Some contract can be made verbally or by actionsby actions

These are known as These are known as parolparol or or simplesimple contractscontracts

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Simple Contracts (cont.)Simple Contracts (cont.)

Although there is no requirement Although there is no requirement for a simple contract to be in for a simple contract to be in writing, sometimes the parties writing, sometimes the parties might record the contract in writingmight record the contract in writing

This can be useful later if there is This can be useful later if there is disagreement about the contractdisagreement about the contract

If the contract is important or If the contract is important or involves a lot of money it might be involves a lot of money it might be wise to put it in writingwise to put it in writing

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DeedsDeeds

DeedsDeeds are kind of contract which are kind of contract which must alwaysmust always be in writing be in writing

Conveyances of landConveyances of land: this is the : this is the legal process of transferring the legal process of transferring the ownership of land from one party to ownership of land from one party to anotheranother

This is different from the agreement This is different from the agreement to sell the landto sell the land

The conveyance follows the The conveyance follows the agreement to sellagreement to sell

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Contracts which must be in Contracts which must be in WritingWriting

Some contracts must be in writing Some contracts must be in writing but they don’t have to be by deedbut they don’t have to be by deed

Most of these requirements come Most of these requirements come from Statutefrom Statute

Some examplesSome examples• bills of exchangebills of exchange• contracts for the sale of landcontracts for the sale of land

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Legal EffectLegal Effect

As we mentioned earlier, contracts are As we mentioned earlier, contracts are agreements, but not all agreements are agreements, but not all agreements are legally enforceable contractslegally enforceable contracts

In fact, the legal effect of agreements In fact, the legal effect of agreements fall into 4 categoriesfall into 4 categories

Valid contractsValid contracts Void contractsVoid contracts Voidable contractsVoidable contracts Unenforceable contractsUnenforceable contracts

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Valid ContractsValid Contracts

These are agreements which are These are agreements which are completely binding and enforceablecompletely binding and enforceable

Parties to valid contracts gain rights Parties to valid contracts gain rights and responsibilitiesand responsibilities

The courts will make sure that the The courts will make sure that the parties follow these rights and parties follow these rights and responsibilities if there is any responsibilities if there is any argumentargument

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Essentials of a Valid ContractEssentials of a Valid Contract

Offer and acceptanceOffer and acceptance Intention to create legal relationsIntention to create legal relations Requirement of written formalities in some Requirement of written formalities in some

casescases Parties must have capacity to contractParties must have capacity to contract Actual consent by the parties to the terms Actual consent by the parties to the terms

of the contractof the contract Contract must not be against public policyContract must not be against public policy

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Void ContractsVoid Contracts

In fact, these are not contracts at allIn fact, these are not contracts at all They have no legal effectThey have no legal effect As we will see in later classes, there are As we will see in later classes, there are

a number of things which can make a a number of things which can make a contract voidcontract void• eg mistake, illegalityeg mistake, illegality

The important thing to remember is that The important thing to remember is that you cannot enforce a void contractyou cannot enforce a void contract

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Void Contracts - ExampleVoid Contracts - Example

Daniel gives his students so Daniel gives his students so much homework that they much homework that they decide to kill himdecide to kill him

They pay a Russian hitman They pay a Russian hitman

5000 RMB to kill Daniel5000 RMB to kill Daniel

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Void Contracts – Example Void Contracts – Example (cont.)(cont.)

However, the Russian simply However, the Russian simply spends all the money in bars in spends all the money in bars in Sanlitun and then goes homeSanlitun and then goes home

He does not kill DanielHe does not kill Daniel The students cannot claim their The students cannot claim their

money back because it is illegal to money back because it is illegal to hire a hitman to kill someonehire a hitman to kill someone

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Voidable ContractsVoidable Contracts

This kind of contract is valid unless This kind of contract is valid unless one of the parties has it set aside one of the parties has it set aside (ie declared void)(ie declared void)

This could happen where one party This could happen where one party is tricked into entering a contract is tricked into entering a contract by the other partyby the other party

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Voidable Contracts - ExampleVoidable Contracts - Example

Daniel pays for a holiday in Tibet Daniel pays for a holiday in Tibet because the travel service shows him because the travel service shows him pictures of a lovely 5 star hotel in Llahsapictures of a lovely 5 star hotel in Llahsa

However, when he arrives, Daniel finds However, when he arrives, Daniel finds that the hotel is still being constructed.that the hotel is still being constructed.

There is a room where he can stay, but There is a room where he can stay, but not all the facilities are available and not all the facilities are available and the hotel certainly doesn’t look like the the hotel certainly doesn’t look like the picturespictures

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Voidable Contracts – Example Voidable Contracts – Example (cont.)(cont.)

Assuming that the travel company knew Assuming that the travel company knew about the hotel, then they have made a about the hotel, then they have made a misrepresentation to Daniel which made misrepresentation to Daniel which made him enter into the contract for the him enter into the contract for the holidayholiday

Daniel could now choose to set aside Daniel could now choose to set aside the contractthe contract

However, he could decide that things However, he could decide that things are not to bad and that he can still have are not to bad and that he can still have a good holidaya good holiday

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Voidable Contracts – Example Voidable Contracts – Example (cont.)(cont.)

So the contract is not So the contract is not automatically void (like with the automatically void (like with the hitman), it is voidable at Daniel’s hitman), it is voidable at Daniel’s choicechoice

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Unenforceable ContractsUnenforceable Contracts

These are agreements which are These are agreements which are legal but which cannot be enforced legal but which cannot be enforced in court for some reasonin court for some reason

For example, a time limit for For example, a time limit for enforcing the contract may have enforcing the contract may have expiredexpired

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Why have a Law of Contract?Why have a Law of Contract?

As we saw from the examples at As we saw from the examples at the beginning of the class, the beginning of the class, contracts arise in simple, everyday contracts arise in simple, everyday situationssituations

Modern society operates by people Modern society operates by people and companies exchanging goods and companies exchanging goods and servicesand services

The Law of Contract helps to give a The Law of Contract helps to give a structure to thisstructure to this

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Why have a Law of Contract?Why have a Law of Contract?

The Law of Contract is part of Private The Law of Contract is part of Private Law so it is concerned with relationships Law so it is concerned with relationships between partiesbetween parties

It helps us to decide what is a valid It helps us to decide what is a valid contractcontract

The Law of Contract is also part of Civil The Law of Contract is also part of Civil Law so it is also concerned with remediesLaw so it is also concerned with remedies

It helps us the other party to a contract It helps us the other party to a contract does not keep to the agreementdoes not keep to the agreement

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SummarySummary

a contract is a contract is a legally binding a legally binding agreementagreement

simple contractssimple contracts do not have to do not have to be in writingbe in writing

the legal effect of contracts fall into the legal effect of contracts fall into 4 categories:4 categories:• Valid contractsValid contracts• Void contractsVoid contracts• Voidable contractsVoidable contracts• Unenforceable contractsUnenforceable contracts

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Summary (cont.)Summary (cont.)

Business is an important part of Business is an important part of modern societymodern society

The Law of Contract tells us what The Law of Contract tells us what is necessary to make a valid is necessary to make a valid contractcontract

It also gives us remedies where It also gives us remedies where another person does not follow the another person does not follow the terms of the contractterms of the contract

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ReadingReading

Chapter 9Chapter 9• Page 255 last paragraph “The formation of a Page 255 last paragraph “The formation of a

contract”contract”• Page 256 paragraph entitled “Agreement”Page 256 paragraph entitled “Agreement”• Page 256 first paragraph in section entitled Page 256 first paragraph in section entitled

“Offer and invitation to treat”“Offer and invitation to treat”• Page 257 paragraph entitled “Invitation to Page 257 paragraph entitled “Invitation to

treat – price indications: price lists and treat – price indications: price lists and catalogues”catalogues”