Legal Environment

Contract 1 What is a contract?

Learning Objectives
Quick Review Definition of a Contract Simple Contracts and Written Contracts Legal Effect of Contracts Why we have a Law of Contract

Quick Review
In our first class, we saw that you can divide law into different categories Some of those categories were
private law v. public law civil law v. criminal law

Quick Review (cont.)

Private Law deals with the relationships between ordinary people in everyday transactions That includes you and me, as well as businesses and companies Private Law includes the law of contract and the law of tort
4

Quick Review (cont.)

Civil law deals with the relationships between individual citizens Its purpose is to settle arguments between individuals It helps people to find remedies or solutions

it doesnt really punish people

Civil Law includes all Private Law so it includes the Law of Contract
5

Common Law System (based on English System)

Civil Law

Private Law Common Law Statute Law

Public Law Criminal Law

Definition of a contract
A legally binding agreement that means there must be some kind of agreement between two parties However, not all agreements are contracts because not all agreements are legally enforceable legally enforceable means that a court will say that an agreement is a contract
7

Definition of a contract (cont.)

To decide if an agreement is legally enforceable as a contract, a court will apply the rules and principles of the law of contract Therefore, knowing a little about these rules can help businesspeople to create valid contracts

Simple Contracts
There is no general rule in English law that a contract must be in writing In fact, people do not realise that they are making a contract in many situations Some contract can be made verbally or by actions These are known as parol or simple contracts
9

Simple Contracts (cont.)

Although there is no requirement for a simple contract to be in writing, sometimes the parties might record the contract in writing This can be useful later if there is disagreement about the contract If the contract is important or involves a lot of money it might be wise to put it in writing
10

Deeds
Deeds are kind of contract which must always be in writing Conveyances of land: this is the legal process of transferring the ownership of land from one party to another This is different from the agreement to sell the land The conveyance follows the agreement to sell
11

Contracts which must be in Writing

Some contracts must be in writing but they dont have to be by deed Most of these requirements come from Statute Some examples
bills of exchange contracts for the sale of land

12

Legal Effect
As we mentioned earlier, contracts are agreements, but not all agreements are legally enforceable contracts In fact, the legal effect of agreements fall into 4 categories Valid contracts Void contracts Voidable contracts Unenforceable contracts
13

Valid Contracts
These are agreements which are completely binding and enforceable Parties to valid contracts gain rights and responsibilities The courts will make sure that the parties follow these rights and responsibilities if there is any argument
14

Void Contracts
In fact, these are not contracts at all They have no legal effect As we will see in later classes, there are a number of things which can make a contract void

eg mistake, illegality

The important thing to remember is that you cannot enforce a void contract
15

Void Contracts - Example

Keith gives his students so much homework that they decide to kill him The students pay a Russian hitman 5000 RMB to kill Keith

16

Void Contracts Example (cont.)

However, the Russian simply spends all the money in bars in Sanlitun and then goes home He does not kill Keith The students cannot claim their money back because it is illegal to hire a hitman to kill someone. Their contract with him is void.
17

Voidable Contracts
This kind of contract is valid unless one of the parties has it set aside (ie declared void) This could happen where one party is tricked into entering a contract by the other party This is an example of fraud

18

Voidable Contracts - Example

Keith pays for a holiday in Yunnan province because the travel service shows him pictures of a lovely 5 star hotel in Li Jiang However, when he arrives, Keith finds that the hotel is still being constructed. There is a room where he can stay, but not all the facilities are available and the hotel certainly doesnt look like the pictures
19

Voidable Contracts Example (cont.)

If the travel company knew about the hotel, then they have made a misrepresentation to Keith which made him enter into the contract for the holiday Keith could now choose to set aside the contract (ie make it void) However, he could decide that things are not too bad and that he can still have a good holiday
20

Voidable Contracts Example (cont.)

So the contract is not automatically void (like with the hitman), it is voidable at Keiths choice

21

Unenforceable Contracts
These are agreements which are legal but which cannot be enforced in court for some reason For example, a time limit for enforcing the contract may have expired

22

Why have a Law of Contract?

As we saw from the examples at the beginning of the class, contracts arise in simple, everyday situations Modern society operates by people and companies exchanging goods and services The Law of Contract helps to give a structure to this
23

Why have a Law of Contract?

The Law of Contract is part of Private Law so it is concerned with relationships between parties It helps us to decide what is a valid contract The Law of Contract is also part of Civil Law so it is also concerned with remedies It helps us if the other party to a contract does not keep to the agreement
24

Summary
a contract is a legally binding agreement simple contracts do not have to be in writing the legal effect of contracts falls into 4 categories:
Valid contracts Void contracts Voidable contracts Unenforceable contracts

25

Contract Exercises
I agree to buy a shipment of coffee to keep my employees awake at work from a food distributor. The clerk accidentally tells me the price is Y10,000 but is was supposed to be Y12,000. Is this contract valid, void, voidable, or unenforceable?

26

Contract Exercises (cont.)

I have always wanted a Rolex watch but can only afford a Chairman Mao watch they sell at Tiananmen Square. I offer Ting Ting 6 Mao to steal one for me. Valid, void, voidable, or unenforceable?

27

Contract Exercises (cont.)

I pay 1 Mao for a years supply of coffee. Valid, void, voidable, or unenforceable?

28

Summary (cont.)
Business is an important part of modern society The Law of Contract tells us what is necessary to make a valid contract It also gives us remedies where another person does not follow the terms of the contract
29

Reading
(MacIntyre book) Pages: 29-37, 41 (refusal,

lapse of time), 43 (Kelly book) Pages: 111-123

Pharmaceutical Society v Boots Partridge v Crittenden Felthouse v Bindley
30