2. 22
Learning ObjectivesLearning Objectives
Quick ReviewQuick Review
Definition of a ContractDefinition of a Contract
Simple Contracts and WrittenSimple Contracts and Written
ContractsContracts
Legal Effect of ContractsLegal Effect of Contracts
Why we have a Law of ContractWhy we have a Law of Contract
3. 33
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 unenforceableValid, void, voidable and unenforceable
contractscontracts
4. 44
Quick ReviewQuick Review
In our first class, we saw that youIn our first class, we saw that you
can divide law into differentcan 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
5. 55
Quick Review (cont.)Quick Review (cont.)
Private LawPrivate Law deals with thedeals with the
relationships between ordinaryrelationships between ordinary
people in everyday transactionspeople in everyday transactions
That includes you and me, as wellThat includes you and me, as well
as businesses and companiesas businesses and companies
Private Law includes the law ofPrivate Law includes the law of
contract and the law of tortcontract and the law of tort
6. 66
Quick Review (cont.)Quick Review (cont.)
In this category,In this category, civil lawcivil law dealsdeals
with the relationships betweenwith the relationships between
individual citizensindividual citizens
Its purpose is to settle argumentsIts 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 LawCivil Law includes all Private Law
so it includes the Law of Contractso it includes the Law of Contract
7. 77
What is a contract? ExamplesWhat is a contract? Examples
I promise to bring chocolates to the wholeI 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 yourI promise to give you 100 yuan if ride your
bike to Tiananmen Square and back to ICBbike 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. IsI give you 2 yuan for your Coca-Cola. Is
there a contract?there a contract?
I promise to give you a new bicycle if youI promise to give you a new bicycle if you
agree not to eat Chinese food for oneagree not to eat Chinese food for one
year. Is there a contract?year. Is there a contract?
8. 88
Definition of a contractDefinition of a contract
A legally binding agreementA legally binding agreement
that means there must be some kind ofthat means there must be some kind of
agreement between two partiesagreement between two parties
However, not all agreements are contractsHowever, not all agreements are contracts
because not all agreements are legallybecause not all agreements are legally
enforceableenforceable
legally enforceablelegally enforceable means that a court willmeans 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
9. 99
Definition of a contract (cont.)Definition of a contract (cont.)
To decide if an agreement isTo decide if an agreement is
legally enforceable as a contract, alegally enforceable as a contract, a
court will apply the rules andcourt will apply the rules and
principles of the law of contractprinciples of the law of contract
Therefore, knowing a little aboutTherefore, knowing a little about
these rules can helpthese rules can help
businesspeople to create validbusinesspeople to create valid
contractscontracts
10. 1010
Simple ContractsSimple Contracts
There isThere is nono general rule in English lawgeneral 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 atIn fact, as we saw from our examples at
the beginning of the class, in manythe beginning of the class, in many
situations people do not realise thatsituations people do not realise that
they are making a contractthey are making a contract
Some contract can be made verbally orSome contract can be made verbally or
by actionsby actions
These are known asThese are known as parolparol oror simplesimple
contractscontracts
11. 1111
Simple Contracts (cont.)Simple Contracts (cont.)
Although there is no requirementAlthough there is no requirement
for a simple contract to be infor a simple contract to be in
writing, sometimes the partieswriting, sometimes the parties
might record the contract inmight record the contract in
writingwriting
This can be useful later if there isThis can be useful later if there is
disagreement about the contractdisagreement about the contract
If the contract is important orIf the contract is important or
involves a lot of money it might beinvolves a lot of money it might be
wise to put it in writingwise to put it in writing
12. 1212
DeedsDeeds
DeedsDeeds are kind of contract whichare kind of contract which
must alwaysmust always be in writingbe in writing
Conveyances of landConveyances of land: this is the: this is the
legal process of transferring thelegal process of transferring the
ownership of land from one partyownership of land from one party
to anotherto another
This is different from theThis is different from the
agreement to sell the landagreement to sell the land
The conveyance follows theThe conveyance follows the
agreement to sellagreement to sell
13. 1313
Contracts which must be inContracts which must be in
WritingWriting
Some contracts must be in writingSome 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 comeMost 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
14. 1414
Legal EffectLegal Effect
As we mentioned earlier, contracts areAs we mentioned earlier, contracts are
agreements, but not all agreements areagreements, but not all agreements are
legally enforceable contractslegally enforceable contracts
In fact, the legal effect of agreementsIn 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
15. 1515
Valid ContractsValid Contracts
These are agreements which areThese are agreements which are
completely binding andcompletely binding and
enforceableenforceable
Parties to valid contracts gainParties to valid contracts gain
rights and responsibilitiesrights and responsibilities
The courts will make sure that theThe courts will make sure that the
parties follow these rights andparties follow these rights and
responsibilities if there is anyresponsibilities if there is any
argumentargument
16. 1616
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 someRequirement of written formalities in some
casescases
Parties must have capacity to contractParties must have capacity to contract
Actual consent by the parties to the termsActual 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
17. 1717
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 areAs we will see in later classes, there are
a number of things which can make aa number of things which can make a
contract voidcontract void
• eg mistake, illegalityeg mistake, illegality
The important thing to remember isThe important thing to remember is
that you cannot enforce a void contractthat you cannot enforce a void contract
18. 1818
Void Contracts - ExampleVoid Contracts - Example
Daniel gives his students soDaniel gives his students so
much homework that theymuch homework that they
decide to kill himdecide to kill him
They pay a Russian hitmanThey pay a Russian hitman
5000 RMB to kill Daniel5000 RMB to kill Daniel
19. 1919
Void Contracts – ExampleVoid Contracts – Example
(cont.)(cont.)
However, the Russian simplyHowever, the Russian simply
spends all the money in bars inspends 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 theirThe students cannot claim their
money back because it is illegal tomoney back because it is illegal to
hire a hitman to kill someonehire a hitman to kill someone
20. 2020
Voidable ContractsVoidable Contracts
This kind of contract is valid unlessThis kind of contract is valid unless
one of the parties has it set asideone of the parties has it set aside
(ie declared void)(ie declared void)
This could happen where one partyThis could happen where one party
is tricked into entering a contractis tricked into entering a contract
by the other partyby the other party
21. 2121
Voidable Contracts - ExampleVoidable Contracts - Example
Daniel pays for a holiday in TibetDaniel pays for a holiday in Tibet
because the travel service shows himbecause the travel service shows him
pictures of a lovely 5 star hotel inpictures of a lovely 5 star hotel in
LlahsaLlahsa
However, when he arrives, Daniel findsHowever, 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, butThere is a room where he can stay, but
not all the facilities are available andnot all the facilities are available and
the hotel certainly doesn’t look like thethe hotel certainly doesn’t look like the
picturespictures
22. 2222
Voidable Contracts – ExampleVoidable Contracts – Example
(cont.)(cont.)
Assuming that the travel company knewAssuming that the travel company knew
about the hotel, then they have made aabout the hotel, then they have made a
misrepresentation to Daniel which mademisrepresentation to Daniel which made
him enter into the contract for thehim enter into the contract for the
holidayholiday
Daniel could now choose to set asideDaniel could now choose to set aside
the contractthe contract
However, he could decide that thingsHowever, he could decide that things
are not to bad and that he can still haveare not to bad and that he can still have
a good holidaya good holiday
23. 2323
Voidable Contracts – ExampleVoidable Contracts – Example
(cont.)(cont.)
So the contract is notSo the contract is not
automatically void (like with theautomatically void (like with the
hitman), it is voidable at Daniel’shitman), it is voidable at Daniel’s
choicechoice
24. 2424
Unenforceable ContractsUnenforceable Contracts
These are agreements which areThese are agreements which are
legal but which cannot be enforcedlegal but which cannot be enforced
in court for some reasonin court for some reason
For example, a time limit forFor example, a time limit for
enforcing the contract may haveenforcing the contract may have
expiredexpired
25. 2525
Why have a Law of Contract?Why have a Law of Contract?
As we saw from the examples atAs we saw from the examples at
the beginning of the class,the beginning of the class,
contracts arise in simple, everydaycontracts arise in simple, everyday
situationssituations
Modern society operates by peopleModern society operates by people
and companies exchanging goodsand companies exchanging goods
and servicesand services
The Law of Contract helps to giveThe Law of Contract helps to give
a structure to thisa structure to this
26. 2626
Why have a Law of Contract?Why have a Law of Contract?
The Law of Contract is part of PrivateThe Law of Contract is part of Private
Law so it is concerned with relationshipsLaw so it is concerned with relationships
between partiesbetween parties
It helps us to decide what is a validIt helps us to decide what is a valid
contractcontract
The Law of Contract is also part of CivilThe Law of Contract is also part of Civil
Law so it is also concerned withLaw so it is also concerned with
remediesremedies
It helps us the other party to a contractIt helps us the other party to a contract
does not keep to the agreementdoes not keep to the agreement
27. 2727
SummarySummary
a contract isa contract is a legally bindinga legally binding
agreementagreement
simple contractssimple contracts do not have todo not have to
be in writingbe in writing
the legal effect of contracts fallthe legal effect of contracts fall
into 4 categories:into 4 categories:
• Valid contractsValid contracts
• Void contractsVoid contracts
• Voidable contractsVoidable contracts
• Unenforceable contractsUnenforceable contracts
28. 2828
Summary (cont.)Summary (cont.)
Business is an important part ofBusiness is an important part of
modern societymodern society
The Law of Contract tells us whatThe Law of Contract tells us what
is necessary to make a validis necessary to make a valid
contractcontract
It also gives us remedies whereIt also gives us remedies where
another person does not follow theanother person does not follow the
terms of the contractterms of the contract
29. 2929
ReadingReading
Chapter 9Chapter 9
• Page 255 last paragraph “The formation of aPage 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 entitledPage 256 first paragraph in section entitled
“Offer and invitation to treat”“Offer and invitation to treat”
• Page 257 paragraph entitled “Invitation toPage 257 paragraph entitled “Invitation to
treat – price indications: price lists andtreat – price indications: price lists and
catalogues”catalogues”