Legal Environment Contract 1 What is a contract?

Legal Environment Contract 1 What is a contract?

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

3 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

4 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

5 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 doesn’t really punish people Civil Law includes all Private Law so it includes the Law of Contract

6 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

8 Simple Contracts There is no general rule in English law that a contract must be in writing In fact, as we saw from our examples at the beginning of the class, in many situations people do not realise that they are making a contract 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 don’t 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

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 doesn’t 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 Keith’s 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 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 fall into 4 categories: Valid contracts Void contracts Voidable contracts Unenforceable contracts

25 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

26 Reading Chapter 4 page 104 section 4.2 first paragraph pages 104-7 section 4.3 – 4.4 page 109 chapter summary