2015-8-301 INTRODUCTION TO CONTRACT LAW Am I lumbered with a dodgy contract?

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INTRODUCTION TO

CONTRACT LAW

Am I lumbered witha dodgy contract?

Table of Contents

• 1. Vocabulary P158• 2. Contract Law(1) Intention ( 订约意图 )

(2) agreement ( 协议 )

(3) consideration ( 对价 )

(4)capacity ( 订约能力 )

(5)consent ( 意思表示真实 )

(6)legality ( 订约目的合法 )

(7)form ( 合同形式合法 )

• Exceptio Non Adimpleti Contractus: Latin: exception of a non-performed contract

• “Exceptio non adimpleti contractus ... the right to refuse to perform one’s obligations under a reciprocal contract unless or until the other party dos so.

• “No performance is due to one who has not himself performed.”

• Clausula rebus sic stantibus (Latin): “things thus standing.”

• It is a legal doctrine in public international law which allows treaties to become inapplicable because of a fundamental change of circumstances. This is an exception to the general rule of pacta sunt servanda (promises must be kept).

• Clausula rebus sic stantibus does not apply if the parties to a contract had contemplated for the occurrence of the changed circumstance. It only relates to the changed circumstances that were never contemplated by the parties.

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Contract law- Introduction

3.1.1 Definition of Contract (p68) An agreement made between two or more

persons, with the intention of creating certain legal rights and duties, which is enforceable at law.

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Contract law- Introduction Contract ( 合同 ) & agreement （协议） to be distinguished -strictly speaking, contract is a combination of agreements and other compulsory requirements by contract law. -not every agreement leads to a legal contract, but a contract must contain a legally enforceable agreement.

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Formation of Contracts

type of

contract

contract elements Type of contract

apparent simple contract( 相当于合同的成立 )

(1) Intention ( 订约意图 ) (2) agreement ( 协议 )

(3) consideration ( 对价 )

Valid simple contract( 相当于合同的生效 )

(4)capacity ( 订约能力 )

(5)consent ( 意思表示真实 )

(6)legality ( 订约目的合法 )

(7)form ( 合同形式合法 )

• 3.1.2. Sources of Commercial Contract Law

• 3.1.2.1 Domestic

• 3.1.2.2 International convention

• 3.1.2.3 International practice about contracts P71

• 3.1.4 General Principles of Int’l Commercial Contracts P72

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• Contracts Under Seal

- also known as Deeds, must be completed in a particular way (form) in order to be valid ,

• i.e• in writing; • signed by both parties;• Witnessed;• Sealed.

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Chapter 6 -Contract law- Introduction

Simple Contracts ( 简式合同） Not required to be in any particular form but

are required to have consideration （对价） . simple contract could be made either expressly or impliedly, orally or writing form. There are statutes which require some simple

contracts to be in writing, eg. contract of real estates or evidenced in writing

eg. bill of lading( 提单 ).

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Avoidable contract/ Unenforceable contract/ Void contract/ Illegal contract

Avoidable contract （可撤销合同） : -remains valid until repudiated by a party Unenforceable contract （不可强制执行的合同） : -valid on its face but no legal action can be brought on it . eg. Contract needs to be evidenced in writing,but no evidence could be presented.

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Void contract （无效合同） :

-no legal rights and duties .

- Void contract is of civil nature relating to

extreme unfairness

Illegal contract （非法合同） :

- it contravenes a statute and then treated as being

void so there are no legal rights and duties.

- Illegal contract is of criminal nature such as

robbing a bank with a friend.

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Express Contract and Implied Contract

Express Contract( 明示合同 ) Terms of the contract expressly agreed upon in writing, orally or combination of both. Implied Contract( 默示合同 ) contract reached through acts or conducts of both parties , not through writing or words.

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Essential elements of a valid contract

Intention to create legal relations. （订约意图）

Offer and Acceptance - an agreement. （协议）

Consideration. （合同须有对价）

Capacity of the parties. （合同当事人须有订约能力）Genuine consent by the parties or Certainty of terms.( 当事人订约意图真实或合同条款真实）

Legality of object(purpose).( 合同标的或目的合法 )

In order to create a valid simple contract, certain essential elements must be present:

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Contract law- Intention (step 1)

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Intention of the parties to create legal relations

The parties must have intended to enter into a legally binding agreement.

2 types of agreements

- Family/ domestic or social agreements.

- Business or commercial agreements.

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• Two presumptions （推定） about legal intention:

• Presumption one:• it is presumed that parties to an agreement of a

family/domestic or social do not intend to be legally bound

eg: Cohen v Cohen (1929)

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Intention of the parties to create legal

relations

• domestic agreement -example • Cohen v Cohen (1929) -husband promised to wife

dress allowance before the marriage,but after marriage, payments fell into arrears and when couple separated Mrs Cohen sued for that sum.

• court held: this was an ordinary domestic agreement - no intention; plaintiff was unsuccessful in her claim for breach of contract

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•Two presumptions about legal intention:

•Presumption two:

it is presumed that parties to an agreement concerning commerce or business intend to be legally bound.

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Intention of the parties to create legal relations - Rebuttal( 推翻推定 )

• Either of the presumptions can be rebutted (changed) when something happens.

• Eg:Todd v Nicol (1957)

• Eg: Rose & Frank Co. v J. R. Crompton & Bros Ltd [1923] 2 KB 261 (“Honor Clauses”)

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Todd v Nicol[1957] - a rebuttal to the presumption that family agreements

are not contracts.

Facts: plaintiffs were promised a house by the defendant if they left Scotland to join her in Adelaide. The defendant broke her promise after the plaintiffs went to great expense.

Court held: the presumption could be rebutted in the circumstances due to the serious nature of the financial consequences involved.

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Honor Clauses a rebuttal to the presumption that business agreements are

intended to be binding the meaning of “ Honor Clauses” are clauses that demonstrate the parties to the contract do

not have intention to be legally bound in their contract made.

example of honor clause:“this agreement is not entered into … as a formal or legal agreement … but it is only a definite record of the purpose and intention of the parties … to which they each honorably pledge themselves …that will be carried through …with mutual loyalty and friendly cooperation.”

Rose & Frank Co. v J. R. Crompton & Bros Ltd [1923] 2 KB 261

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Honor Clausesthe legal effect （法律后果） of honor clause:

Contract containing an “honor clause” is not legally effective . The contract is actually regarded as honorable agreement , which has no any legal binding force upon the parties, although the contract functions to promote both parties to carry it out morally.

Therefore, “honor clause ” in contract rebuts the presumption that agreements of a business nature are intended to be binding.

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Summary• Presumption one: an agreement of a family/domestic

or social does not intend to be legally bound, it is not a contract .

Rebuttal: when serious financial consequences were involved in it, it is a contract.

• Presumption two: an agreement concerning commerce or business intends to be legally bound, it is a contract.

Rebuttal: when a business agreement contained “honor clauses”, it is not a contract.

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Contract law- Intention (step 1)

-END-

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OFFER- DEFINITION

• An offer （要约） is a definite proposal, made with the intention that it will become BINDING on the person making it, as soon as it is accepted.

• OFFEROR （要约人） = person making the offer

• OFFEREE （受要约人） = person to whom the offer is made (if the offeree accepts the offer he will become accepter （承诺人） )

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A statement for sale

• We would like to place an order with you for this type of steel, totaling 100 tons at today’s market price of London Metal Exchange, other terms as per our agreement made before. This offer is subject to your acceptance by fax, reaching us before April 10th.

• Question: Is this an offer?

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Contract law- agreement (step 2)

Offer rules8.3 Rules relating to offer

(1) The offer must be communicated to the offeree.

(2) An offer may be made to an individual, a group of people, or the world at large.

See Carlill v Carbolic Smoke Ball Co. [1893]

(next slides)

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Carlill v Carbolic Smoke Ball Co.(1893)

• The defendants (Carbolic) advertised their smoke ball suggesting that anyone who became ill with influenza after using it would be rewarded with 100 pounds. They claimed in the advertisement that the promotion was genuine since they had placed 1000 pounds in the bank to pay anyone out if necessary. Mrs Carlill used the smoke ball, became ill and sued for the reward.

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Carlill v Carbolic Smoke Ball Co [1893]

• Court held : the offer was made to the world at large (general public) and any person reading the advertisement would have taken it as a firm offer, binding if accepted.

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Offer - rules

(3) The terms of the offer must be clear and definite.

(4) an offer can be kept open to give an offeree a period of time to consider it.

(5) request/supply of information is not an offer

see:Harvey v Facey [1893](next slides)

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Offer - request for further information

• Harvey v. Facey [1893]- plaintiffs asked defendants how much they would like for their property, the defendants replied describing lowest possible price. Plaintiffs took this to be an offer and sued when defendants said they did not want to sell

• Court held: Defendants’ reply was merely a supply of information not an offer.

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Invitations to Treat(ITT)

(6) An offer must be distinguished from an invitation to treat

An invitation to treat (ITT)is a statement to others inviting them to make an offer.

Examples of invitations to treat

eg: announcement for auction( 拍卖公告 )

(notice: bidding in auction 拍卖叫价 )

eg: notice of tender （招标公告）

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eg: Goods on display （陈列在货架上的商品）

price attached to goods is not an offer - it is an inducement to customers to consider buying the product.

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Invitations to Treat (ITT) Gold Blend( 麦氏咖啡）

“How perfect, My three favourite things.” “Which are?” “Soft candlelight.” “It’s more romantic.” “Gold blend.” “The only coffee to serve.” “And last…” “…last?” “Your undivided attention.”

• eg: advertisements （商业广告） Generally speaking, advertisements are

ITT, they are not the firm offer, they just want to induce the customers to make an offer to them.

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• The presumptions regarding situations which are generally considered to be ITTs can be rebutted by using an objective test (looking at the facts of an individual case)

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ITT-REBUTTAL-TEST TEST of Determining an invitation to treat Whether a reasonable and impartial bystander would

consider, in all the external circumstances, is

that the maker of the statement intended to be bound by the terms of his statement if it were accepted or

that whether he would say that it was merely made

as an inducement to the entry into negotiations on the matter.

see Carlill v Carbolic Smoke Ball Co. [1893] 1QB256

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Carlill v Carbolic Smoke Ball Co.(1893) a rebuttal to the presumption

that advertisement is an ITT

• The defendants (Carbolic) advertised their smoke ball suggesting that anyone who became ill with influenza after using it would be rewarded with 100 pounds. They claimed in the advertisement that the promotion was genuine since they had placed 1000 pounds in the bank to pay anyone out if necessary. Mrs Carlill used the smoke ball, became ill and sued for the reward.

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Carlill v Carbolic Smoke Ball Co [1893]

• Court held : the offer was made to the world at large (general public) and any person reading the advertisement would have taken it as a firm offer, binding if accepted

• This case leads to the classification of ordinary advertisement and reward for the public( 悬赏广告）

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Reward for the public （悬赏广告）

• When an advertisement offers a reward for information that might lead to the arrest of a criminal or for the return of a lost article, it is regarded as general offer to the public at large.

• Acceptance of a public offer by anyone, as indicated by the performance of the act, results in an enforceable contract.

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An example of reward for the public

My book, “international business law”, was lost two days ago.

Anyone who found it could get RMB 50 as a reward if he(she) returned it to me.

Please contact me by 13813256799. Mary April 4th,2011

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ITT - REBUTTAL

• The presumptions regarding situations which are generally considered to be ITTs (announcement for auction/ notice of tender/ goods on display / advertisements ) can be rebutted by using an objective test (looking at the facts of an individual case)

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ITT-REBUTTAL-TEST

• Automatic selling machine is a rebuttal to the presumption that the goods on display are ITT

• Automatic selling machine makes the offer by presenting their goods on display to the potential buyer. When the buyer accepts the offer by putting money into the machine, contract is completed when goods rolls out.

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Short summary of offer and ITT

An ITT is a party’s intention to invite the other party to make an offer.

Eg (1)ordinary advertisement

(2) goods on display

( 一般货物陈列 )

(3) announcement for auction

An offer is a party’s intention to enter into a contract with the other party.

Eg(1) reward ( 悬赏广告 )

(2) automatic selling machine( 自动售货机 )

(3) bidding in auction

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Reconsideration of the example of a statement for sale

• “ we would like to place an order with you for this type of steel, totaling 1000 tons at today’s price of London Metal Exchange , other terms as per our agreement made before. This order is open for your acceptance by fax, reaching us before May 10th our time.”

• Question: is this an offer ? Why?

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consideration of the changed example of a statement for sale

• “ we would like to place an order with you for this type of steel, totaling 1000 tons at today’s price of London Metal Exchange , other terms as per our agreement made before. This order is open for your acceptance by fax, reaching us before May 10th our time. Your acceptance is subject to our final confirmation.”

• Question: is this an offer ? Why?

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-end-

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STEP 2: AGREEMENT BETWEEN THE PARTIES

Agreement – Acceptance P80

• ACCEPTANCE- DEFINITION

• Acceptance is a final expression of assent to the terms of an offer.

Acceptance converts a promise by an offeror into an agreement.

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Agreement - Acceptance

Rules of Acceptance

(1) Only the offeree or its authorized agent can accept the offer.

(2) Acceptance must be communicated

see: communication of acceptance

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Agreement – Acceptance-RulesCommunication

Point 1 : communication of the acceptance could be

expressed by writing/words/conduct. Point 2: Generally, the “acceptance”, is ineffective until it

has been received by the offeror. Eg. silence is not acceptance See next slide: Felthouse v Bindley [1862]

Communication [refer to rule (4)]

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Acceptance - communication

• Felthouse v. Bindley(1862) - Felthouse wrote to nephew offering to buy a horse. In the letter Felthouse told his nephew that if he did not get a response he would consider the offer accepted.

• Court held: nephew’s acceptance had not been communicated, therefore horse did not belong to Felthouse.

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Point 3: Exceptionally, Acceptance by post ( 投邮 )(letter /telegram) becomes effective once the acceptance is posted, regardless of whether the acceptance is delayed or lost in the postal system. (This is for common-law countries. What is the rule in civil-law countries?

see next slide: Adams v Lindsell [1818]


communication- The Postal Rule

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Acceptance - Postal rule

• Adams v. Lindsell (1818) - Defendant sent a letter to plaintiffs offering to sell wool and required a response by post. The offer was delayed in the mail but eventually received. Plaintiffs posted an acceptance but defendants had already sold the wool to someone else before he received the acceptance.

• Court held: acceptance took place at the exact moment when the letter of acceptance was posted and the defendants were liable.

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The Postal Ruleacceptance offer

Fax/email/telephone

Reception rule( 到达规则 ) The mail of acceptance is not valid until it has reached to destination

Reception rule

Letter

telegram

Postal rule （投邮规则） Once letter/telegram posted ,agreement is formed.

Reception rule

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Agreement - Acceptance

Rules of Acceptance

(3) Acceptance must be in response to and in reliance of an offer. [refer to rule(3)]

See :R v Clarke [1972] 40CLR227

Clarke had been arrested on a murder charge. He gave information to police which led to a conviction of the actual offenders and then tried to claim a reward to the public ( 悬赏广告 )

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Acceptance - in reliance of offer

• Court held :

• Clarke was not entitled to claim reward because his acceptance was not based on the reward to the public but on the desire to clear himself of the charge.

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Agreement – Acceptance-rules

Rules of Acceptance

(4) Acceptance must be made strictly in accordance with the terms of the offer

counter- offer( 反要约 )

mode of acceptance ( 承诺方式 )

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Agreement – Acceptancecounter-offer

Acceptance must be unqualified.( 接受必须无条件 )

Counter offer （反要约） Occurs when a new term is introduced into the

original offer. putting forward an alternative new offer plays a

role to reject the original offer and then to make a new offer.

see next slide: Hyde v Wrench [1840] 3 Beav.334

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Counter offer - Hyde v Wrench(1840)

• Wrench offered to sell property to Hyde for $1000;

Hyde made an offer for $950 (counter offer -Hyde now became offeror);

Wrench refused this new offer (he now became the offeree);

Hyde tried to accept the original offer of $1000.• Court held - no contract, because counter offer

cancels original offer, and then makes a new offer.

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Agreement – Acceptance-rules

Rules of Acceptance

(4) Acceptance must be made strictly in accordance with the terms of the offer

offer may prescribe the mode of acceptance ,for instance, “please reply by mail (by fax / by email)”

see: mode of acceptance ( 承诺方式 )

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Agreement – Acceptance-Mode If an offeror prescribes a mode of acceptance as the only

mode of acceptance then it must be followed. Eg. “Please reply by letter.”

If an offeror prescribes a mode of acceptance but does not specify it as the only mode then acceptance can be made by any other mode if it proves to be quicker or equally as quick as the mode requested. Eg. “please reply by any quickest way in addition to letter”.

If no mode of acceptance is prescribed, it may be communicated the same way as the offer was made. Eg. “Please reply as soon as possible.”

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Agreement – Acceptance-rules(5) Acceptance must be made within the time

specified or, if not specified, within a reasonable time

(6) Acceptance must be clear and certain.

This rule means: acceptance must not be

conditional

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Agreement – Acceptance-rulesconditional

Conditional Acceptance （有条件的承诺） A conditional acceptance is not an effective

acceptance unless the offeror agrees to the condition.

One example of this rule is made with wording -“subject to some reservation ” （遵从保留条件）see next slide:Masters v Cameron [1954] 91 CLR 353

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Conditional Acceptance - Masters v Cameron(1954)

• Masters agreed to buy Cameron’s farm subject to obtaining advice from solicitors

• Masters withdrew from the agreement.

• Court held: contract was not enforceable because it was not in its final form.

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offeree’s Options to an offer1. if offeree accepts the offer - agreement forms.2. if offeree requests for further information -there will be no acceptance but an ITT.3. If offeree rejects the offer - the offer ends.4. If offeree makes a counter offer ( 反要约 )

- original offer terminated, new offer occurs

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Termination of an offer(to be continued)

(1) Lapse of time

(2) Death of the offeror or offeree

(3)Withdrawal of an offer （撤回要约）

(4) Revocation of an offer （撤销要约）

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The difference between Withdrawal and Revocation

Withdrawal ( 撤回 ) of offer must be made before it is communicated to the offeree;

Revocation ( 撤销） of an offer must be made before it is accepted. The revocation of offer must be communicated/ received to the offeree.

see:Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344 (next slide)

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Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344

• Facts: on 1st Oct Van Tienhoven posted letter offering goods for sale to Byrne. Byrne received the letter on 11 Oct and accepted by telegram same day. On 8 Oct Van Tienhoven posted letter cancelling the offer which reached Byrne on 20 Oct.

• Issue: Was revocation of offer effective?

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Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344

• Held: no, because contract had already been concluded on 11 October when Byrne accepted the letter dated on 1 Oct by sending telegram on 11 Oct. (post rule)

• Once acceptance has been communicated , it can not be revoked without agreement from both parties since apparent simple contract has been formed.

• The revocation of offer is not effective until it has reached to offeree.

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Termination of an offer

(5) Rejection or counter offer see Hyde v Wrench (1840) 2 Beav.334

(6) Non-occurrence of a condition (eg.subject to finance -finance falls through)

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Summary-rules of acceptance(1)Only the offeree or its authorized agent can accept

the offer.(2) Acceptance must be communicated.(3) Acceptance must be in response to and in reliance

of an offer.(4) Acceptance must be made strictly in accordance

with the terms of the offer.(5) Acceptance must be made within the time specified

or, if not specified, within a reasonable time.(6) Acceptance must be clear and certain.

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Summary- Termination of an offer

(1) Lapse of time

(2) Death of the offeror or offeree

(3) Withdrawal of an offer （撤回要约）(4) Revocation of an offer （撤销要约 )

(5) Rejection or counter offer

(6) Non-occurrence of a condition

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-end-

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3.2.3.1 What is consideration? ( 对价 )

the price given by the promisee （受允诺方） to

pay for the promissor's promise.

What could be used as consideration ?

any right, interest, or benefit offered to the promisor,

or forbearance （克制） ,detriment （伤害） , loss or responsibilities suffered by the promisee.

Contract law- consideration (step 3)

Consideration P86

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consideration 3.2.3.2 Why is consideration needed ? Consideration is needed to pursue fairness to promisor by drawing a distinction between onerous promise ( 负有义务的认真做出的承诺 ) and gratuitous promise( 无根据的随意做出的承诺 ) 。If a promise is supported by consideration made by promisee, the promise must be legally kept valid, if not supported by consideration, promisor need not to keep his promise.

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3.2.3.2 legal requirement for consideration

for a simple contract to be regarded as

valid it must be supported by consideration;

while for a formal contract, consideration

is not required because its special form has

sufficiently demonstrated parties’ legal

intention in entering into a contract .


consideration

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consideration -rulesRules relating to consideration:

1.Consideration must come from promisee Eg.1 Seller promises to sell sth to buyer (promisor) (promisee) consideration from promisee: either immediate payment (present consideration) or promise to pay (future consideration) Eg.2 Buyer promises to buy sth from seller (promisor) (promisee) consideration from promisee: either act of delivering goods or promise to deliver the goods

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2. Consideration must consist of something of value in the eyes of law ( 对价不必等价 )

as long as consideration exists the court is not concerned as to the equal amount in value

eg.

a car can be quite legally sold for $2

- the $2 is of “some” value in the eyes of the law


consideration -rules

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3. Consideration must have legally recognized

value.( i.e. consideration must be sufficient)

duties imposed by law or contract is not sufficient


Consideration -rules

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Consideration -exercise

• case. a witness may be notified formally to appear in court by prosecution and promised $1000 by police for doing so. if police do not fulfill promise

• Can they be sued for breach of contract?.

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Consideration -exercise

• Held: No, because the witness is imposed by law to appear in the court, so witness’s appearing in the court can not constitute consideration.

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Consideration - insufficient?• Stilk v. Myrick (1809)- a ship was in danger

because its machine broke down and two sailors deserted the ship. The rest of sailors were promised extra wages during the voyage if they worked harder in returning the ship safely back to London ,but the sailors were not paid,so they sued for the extra pay.

• Court held: Bringing the ship back safely was part of the seamen’s existing contractual duty.

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Consideration - Sufficient?

• Glasbrook Bros Ltd. v. Glamorgan City Council [1925] - Police offered a mobile patrol during an industrial dispute but mine owners insisted that police stay on the premises of the mine offering to pay for the service. After the dispute the miners did not pay.

• Court held: police worked above and beyond their duty - this was sufficient consideration.

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4. Past consideration is not a valid consideration .

Consideration can be present or future, but not past

.

see:

Anderson v Glass [1869]

Roscorla v Thomas [1842]

Chapter 9 -Contract law- consideration (step 3)

consideration -rules

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Past consideration is not valid

• Anderson v.Glass (1869) - Glass promised extra money to an employee for work he had previously completed. Glass later refused to honour the promise.

• Court held : promise to pay extra money for work already done was not binding because past consideration is not legally valid consideration ,which could be used to buy promise.

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The difference between present or future consideration and past consideration

1. Seller offers to sell buyer

(promisor) (promisee)

buyer’s act of payment- present consideration

buyer’s promise to pay - future consideration

both present or future consideration are made after promisor’s promise, but past consideration is made before promisor’s promise.



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• past consideration is not a valid consideration, why? • Would you like to pay the already rendered service which you had thought free of change ?

• If you have to pay the disagreed service as requested by the law, think what sort of consequences it would bring to this world?

• Terrible!

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5. consideration to be given by promisee must be possible of performance

• eg. • If consideration requests promisee to walk from • Shanghai to Beijing within 24 hours in exchange

for the promisor’s promise.• •

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Contract law- agreement (step 3)consideration

• -END-

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Contract law- (step 4)capacity of the parties

• To form a valid simple contract the parties must have contractual capacity to enter into the contract.

• Contractual capacity( 合同的订约能力 ) means the ability of parties to contract in fully understanding the rights & duties that they have stipulated in the contract.

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• common law and statute law recognise certain sorts of people who may be restricted in making contracts for various reasons:

• - minors/infants

– mentally ill need to be protected

– intoxicated persons

– bankrupts society needs protection

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• Minors/infants （未成年人） : means persons under legal age.

• The effectiveness of the contracts made by the minors could be classified into contracts according to their understanding of the contract being entered into.

• -valid contract ( 有效合同 ): enforceable on both parties.

• -voidable contract （可撤销合同） :valid until minor terminates it.

• -void contract （无效合同） : no legal effect.

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• Valid contracts made by minors:

• 1) contract for necessaries• ( 购买生活必需品的合同 )

• 2) contract of service beneficial to the minors （对未成年人有益的劳动合同）

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1) Contract for necessaries• “necessaries”: • are not only confined to articles necessary to support • daily life but also include articles and services fit • to maintain a particular person in a particular• situation he is in. eg. wheel-chair may be a necessary for

the cripple • minor but not for normal minor.• tests for determining “necessaries”

– Is it capable of being a necessary ?– Is it a necessary under the circumstances?

• See case next slides

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Scarborough v Sturzaker (1905)• D ,a minor , had to go to study on an old

bike. He bought a new bike from P who took the old one as part payment. D failed to complete payment arguing the bike was not a necessary.

• Court held - in the circumstances bike was a necessary because old bike had been used as a study tool. So D loses the case.

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• 2) contracts of service are valid if they are beneficial to the minors.

• Eg.

• contract of apprenticeship ( 学徒合同 ), that is in favour of the minor.

• see : case ( next slide)

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De Fancesco v Barnum (1890)• A 14- year- old minor entered 7- year

apprenticeship contract with De Francesco to learn stage dancing .The contract included a term not allowing the minor to dance for any other professional engagement. In defiance of the term ,the minor signed to dance for a dancing group.

• De Francesco sued for injunction & damages.• Successful ?

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• Court held: The term of the contract was unreasonable and unenforceable. Normally

• a contract by which a minor binds himself to learn an art or trade is valid and binding but

• minor should not be bound to unreasonable terms.

• This term of the contract is too harsh on the minor so it is not valid.

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• voidable contracts made by minors:• If subject matter is of permanent and continuous

nature ,these contracts are avoidable contracts.

• Voidable contract ( 可撤销合同 ) is a valid contract unless it is terminated by the minor unilaterally .

e.g. purchase and lease of land,shares in a company and

partnership. •

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• Void Contracts made by minors: • The contracts ,which minors do not have • capacity to enter into , are void so they have• no binding force upon the minors.

• Eg: contracts for repayment of loan• Eg: contracts for goods other than necessaries.

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• A loan agreement made by minor is a void contract.

• A minor is not liable to repay the interests

• of a loan even the the loan involves purchase of necessaries for the minor’s daily life.

• see :

• Mercantile Union Guarantee Corp Ltd

• v Ball (1937)2K. B498 (next slides)

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Mercantile Union Guarantee Corp Ltd v Ball (1937)

• Facts: D. was a minor carrying on a business as a moving contractor, entered a hire-purchase loan agreement to buy a truck. He fell into arrears( 欠款 ) and was sued

• Held: D was not liable for the interests, however the money borrowed should be returned to the lender since the loan agreement is void.

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Short summary-The effectiveness of the contracts made by the minors

Situations Legal effect

Valid contract

(1)Contracts for necessaries;

(2)Contracts of service beneficial to the minor

enforceable on both parties.

Voidable contract

purchase and lease of land and shares

minor has right to terminate

Void contract

(1)contracts for repayment of loan;(2) contracts for goods other than necessaries

no effect

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Mentally unsound/intoxicated persons （神志不清者）

• Mentally unsound/intoxicated person is legally bound by the contract he has made unless he can prove that at the time of contracting ,

• 1) he was suffering from such a degree of mental instability /drunkenness that he was incapable of understanding the contract ; and at the same time

• 2) his state of mind was known or ought to have been known by the other party.– See two cases next slides

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Blomley v Ryan (1956)

• Facts: D. was a grazing property owner ,who had acquired habit of indulging in extended bouts of drinking ( 沉溺于无休止的喝酒 ). During one bout, P’s father approached to D and offered to buy his property on generous terms of substantial undervaluation. When sober D tried to rescind the contract, successful?

• Held: contract was set aside （不生效） because at the time of contracting P was aware that D was incapable of forming rational judgment and took advantage of his drunkenness.

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O’Connor v Hart (1985)

• A farmer entered into a contract to sell a piece of land at low price. After the farmer died, his family members tried to have contract set aside arguing that when contract being made the farmer suffered from mental unsoundness . But the defendant alleged that he had not been aware of the mental unsoundness.

• Should the contract be set aside?

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O’Connor v Hart (1985)

• Court held: mental unsoundness must be established together with the fact that the other party was/should have been aware of this,and then taking advantage of it.The Plaintiffs was unable to demonstrate the awareness of defendant , so they failed in the lawsuit.

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The bankrupts ( 破产者 ) contractual capacity is limited, i.e.

If the bankrupt wish to obtain goods or service in excess of certain amount of money (say $3,100 according to Australian law) ， he must prove his legal status to the provider of the goods or service in view of protecting the creditor in public. In China the bankrupts are prohibited from consuming goods or services of high level According to 《禁止高消费令》

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short summary of contractual capacity

validityMinor/

infant

valid voidable voidNecessaries

Beneficial service

(effective)

Purchase /lease-

land /house

(valid unless ends)

Loan

Not necessaries

(not effective at beginning)

Mentally unsound/

Intoxicated

Person

1 Plaintiff suffers from mental instability /drunkenness so incapable of understanding the contract being negotiated;

and at the same time

2 defendant knew or ought to have been aware of the state and then took the advantage of it.

bankrupt Declares if contractual amount exceeds legal limit

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• -END-

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STEP 5: GENUINE CONSENT

• This part will be concerned with the following issues:

• Mistake （错误）• Misrepresentation （误述）• Duress （胁迫）• Undue Influence （不当影响）• Unconscionability （非良知行为）

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STEP 5: GENUINE CONSENT

• The contract is made by offer and acceptance.The offeror and offeree ,when negotiating the contract, make various kinds of statements , some are legally valid, some are made without genuine consent as follows:

• Mistaken statements ( mistake)• untrue statement of fact (Misrepresentation)• statement under duress (Duress)• statement under undue Influence (Undue Influence)• Unconscionable conduct (Unconscionability)

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GENUINE CONSENT

• when parties enter into an agreement their consent must be genuine

• if an agreement is reached based on a mistake, or misrepresentation or duress or undue influence or unconscionable conduct, the contract may not be formed . Even if it is formed, the injured person may be entitled to rescind the contract.

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Genuine Consent -Mistake

• Mistakes could be divided into two categories: • mistake of law = meaning mistake in

understanding law. If so , generally the person making mistake will not be excused for every body is expected to know law.

• mistake of fact = meaning mistake in understanding relative facts, contract may be valid or void or avoidable depending on the situations.

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Genuine Consent -Mistake • Sometimes the parties do not have a

meeting of the minds (consent ). Various mistakes may be made , summarily they are

as follows : common mistake ( 双方共犯一个错误 )

• mutual mistake （双方各犯一个错误）• unilateral mistake （单方犯错）• non est factum ( 这不是我的真实意思 )

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Genuine Consent –common mistake

• Common mistake – both parties make the same mistake.– agreement made with reference to a set of facts

which parties mistakenly believed to exist– Contract void , no damages available.

• see Prichard v Merchant’s & Tradesman’s Mutual life Insurance Society (1858) 140 ER 885

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Prichard v Merchant’s & Tradesman’s

Mutual Life insurance Society (1858)• A life insurance policy( insurance contract) was

made, but neither insurer （保险公司） nor the applicant （投保人） knew the beneficiary (the insured( 被保险人 ) had been dead at time of contracting. The applicant sought to recover premium （保险费） paid.

• Court held : contract was void due to common mistake - the applicant was entitled to recover premium

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Genuine Consent –mutual mistake

• Mutual mistake• Different from common mistake that both parties

make a same mistake, mutual mistake means both parties make different mistakes.

• parties are at cross purposes • Eg. Tom agrees to sell Jenny his cart but Jenny

actually believes Tom intends to sell his car. Both Tom and Jenny have made mistakes and the mistakes are different.

• Contract is void , no damages available.

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Genuine Consent –unilateral mistake

• Unilateral mistake:

• One party is making a mistake and the other party knows or ought to know that the mistake is being made but does nothing to correct it

• Contract usually void , damages are available.

• see Taylor v Johnson (1983) 151 CLR 422

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Genuine Consent –unilateral mistake Taylor v Johnson (1983)

• Facts: parties entered into contract for sale of 10 acres of land for total amount $15,000. After the contract, the seller did not want to perform the sales contract alleging she had believed she was selling each acre at $15,000 and the other party should have been aware of the mistake and should not have taken advantage of the mistake.

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Genuine Consent –unilateral mistake Taylor v Johnson (1983)

• Held: contract was set aside(terminated) because it was shown that the seller, when contracting, had been obviously mistaken as to a fundamental term of the contract and no contract should have been expected by the buyer.

• If the mistake is so small to be noticeable , then the mistake will not be excused.

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Genuine Consent –-non est factum

• People sometimes sign documents and later discover that they have made mistake about nature of the document,which is fundamentally different from what they thought. In such case, they could claim that the agreement was void because it was Non est factum meaning “ not my doing” or “not my deed ” ( 不是我的真实意思表示 )

• Non est factum is also a unilateral mistake about the nature of document and which is an excusable mistake.

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Genuine Consent –-non est factum

The defences （抗辩理由） are available to the party if

• 1. He is with extreme disability, such as blindness, • illiteracy , etc. And at the same time, • 2. He is mistaken about the essential nature of the • document; but the failure to read / understand • document was not due to carelessness The contract of non est factum is void.

–see Petelin v Cullen 132 CLR 355 (next slides)

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Petelin v Cullen (1975)

• Petelin, who spoke little English and could not read , was encouraged to sign a document for sale of land by defendant , which was radically different from what he had been led to believe.

• Court held: non est factum successfully established - Petelin was able to show that he signed what he thought to be a receipt for something else not an acceptance for sale of land

• Contract void.

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Types of mistakes

Features Legal Results

Common mistake

Same mistake by both parties.

Contract void.

No damages available.

Mutual mistake

Different mistake by each party.

Contract void.

No damages available.

Unilateral mistake

Mistake by one party . Contract usually void.

damages are available.

Non est factum

Person signs a document fundamentally different

from what he thought.

Contract void.

Remedy only available

to the blind or illiterate.

Summary-genuine consent-mistake

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Genuine Consent - Misrepresentation

• Definition-misrepresentation in contract occurs when one party is induced to enter into a contract because he relied on a false statement by the other party.

• misrepresentation only refers to the false statement of facts

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Genuine Consent –Types

• Misrepresentation( 误述 ) could be either • fraudulent （欺诈性误述） or• innocent （无意性误述） or • Negligent （疏忽性误述） :

• Fraudulent misrepresentation- party makes a false statement of fact , intending to induce and actually leading to the contract.

• - contractual remedy : the injured party may rescind the contract & claim damages at the same time.

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Genuine Consent –type• Innocent misrepresentation - party making

misrepresentation actually believes it to be true • - contractual remedy ： the injured party may

rescind the contract but claims no damages .• Eg. a second –hand computer seller innocently

believed that he was selling computers of 1998 model , actually they were not . If seller’s claim was reasonably relied on by the buyer , then the innocent misrepresentation was established.

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Genuine Consent –type

• Negligent misrepresentation - party makes a false statement due to carelessness as to whether it is true.

• - tort remedy: the injured could claim damages based on tort.

• see Shaddock & Ass. V Parramatta City Council (1981) 150CLR 225(next slides)

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Genuine Consent Shaddock and Associates Pty Ltd v. Parramatta City

Council (1981)Shaddock’s solicitor contacted Parramatta City Council and asked whether an intended property would be affected by a road widening governmental projects. The Council employees issued a form and made statements wrongly indicating that the property would not be affected. Shaddock bought the property and suffered losses when the road was widened.•Court held: Shaddock was entitled to $170 000 compensation for negligent misrepresentation - council had a duty to exercise reasonable care that the information was correct.

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Fraudulent misrepresentation

Innocent misrepresentation

Negligent misrepresentation

Features party makes a false statement

of fact , actually leading to the contract.

party believes

his statement

was true,actually wrong.

party makes a false statement due to carelessness.

Remedies Contract voidable.

Damages available

Contract voidable.

No Damages

Tort action.

Damages available.

Summary-genuine consent-misrepresentation

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Genuine Consent -Duress

• Duress ( 胁迫 )

• Means use of violence or illegal threat to force • a person to enter into a contract. The contract

under duress is either void or avoidable at the option of the injured.

• See Robertson v Robertson (1949) QWN 41 （ next slides)

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Genuine Consent -Duress

Robertson v Robertson (1939) QWN 41

• Facts: Mr Robertson made threat that he would disclose his wife’s alleged infidelities( 不贞行为 ) unless she agreed to transfer her real estate to her husband permitting him to be the joint owner .

• Held: this sort of threat amounted to duress.• contract is voidable at option of injured party.

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Genuine Consent -Undue Influence

• Undue influence （不当影响） • Means one party uses superior position of influence to

persuade the other party to enter a contract that provides the superior party with a direct or indirect benefit.

• Contracts under undue influence are usually made between persons who have special relations such as doctor-patient, employer-employee, lawyer-client and so on.

• See Allcard v Skinner (1187)36 CH D 145 （ next slides ）

23/4/19 136

Case reference undue influenceAllcard v Skinner (1887) 36 Ch D 145

• Facts: P was under a religious order( 秩序 ), in which D was mother superior. P took vow( 发誓 ) to donate all her money/ shares to D to be held in trust for the general purposes of the religious order. Later P defied the order and sued to recover her gift , claiming the money / shares were transferred under undue influence.

• Held: at the time of gift-giving , P was under undue influence and should be entitled to recover.

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Genuine Consent -Unconscionability

• unconscionable conduct （昧良心 / 非良知的行为）

• Under common law it means the stronger party takes undue advantage of the weaker’s position to prevent the weak from making independent decision in the contract.

• So it is is unjust, unfair, inequitable.

23/4/19 138

Genuine Consent -unconscionability

• three requirements to make out the plea( 请求 )• 1.The weaker party must have been with special

disability so that there was no real equity between the parties

• 2.the stronger party must have been aware of that special disability

• 3.this prevented the plaintiff from making independent decision about the contract.

• see Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447

23/4/19 139

Genuine Consent –Commercial Bank of Australia Ltd v Amadio

• Facts: Mr & Mrs. Amadios were elderly migrants with poor business/English skills ， they were induced to enter mortgage ( 抵押 )and to guarantee （担保） their son’s loan in favour of the bank. At time of deal, they believed that their son’s company was financially solid and their liability was for only $50,000 for 6 months, but both beliefs were incorrect but it was known by the bank. The bank kept silent and did not disclose to Mr & Mrs. Finally Amadios son’s company got bankrupt and bank demanded Mr & Mrs. Amadios to pay the debts of their son.

23/4/19 140

Genuine Consent – Commercial Bank of Australia Ltd v Amadio

• Held: contract was set aside( 终止 )… court found that the guarantee had been entered

• into as the result of the bank’s unconscionable conduct and therefore it could not be enforced.

23/4/19 141

Genuine Consent –Undue influence &Unconscionability

• The both concepts are closely related but they are still distinctive as follows:

• Undue influence is looked at from the weaker party to find whether the the weaker party has given true consent ;

• Unconscionability is looked at form the stronger party to find how the stronger party behaves towards the weaker party and whether it is consistent with the principles of equitability , conscience （良心） & fairness in which the stronger party should be .

23/4/19 142

Situations types Legal Results

Mistake Common mistake Contract void

Mutual mistake Contract void

Unilateral mistake Contract usually void

Non est factum Contract void

Misrepresentation Fraudulent misrepresentation Contract voidable

Innocent misrepresentation Contract voidable

Negligent misrepresentation Tort action

Duress The use of violence or illegal threat

Contract voidable

Undue influence doctor-patient,

employer-employee etc.

Contract voidable

unconscionable conduct

Two parties cannot bargain on an equal basis.

Contract voidable

Summary-genuine consent

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Contract law- (step 6)legality of object

• Legality of object means the intentional purposes of parties must be lawful, if not ,the effect of the contract will be either illegal or void.

• Illegal contract ( 非法合同 ) is a contract that violates the compulsory legal rules. Eg. Contract to commit a crime or a fraud against a third party.

• Void contract （无效合同） is a contract that does not conform with the requirements of law.

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• The main differences of illegal contract and void contract

• -illegal contracts are totally void and unenforceable and often lead to administrative penalties( 处罚 )

• -void contracts do not lead to penalties and may be valid if the void term can be separated from other valid terms in the contract.

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Contract law- (step 6)

legality of object • Illegal contract under common lawEg1. Contract that promote corruption in public lifeEg2. Contract that prejudice the administration of justice such as to block or

delay criminal or bankruptcy proceedingsEg3. Contract that defraud public authorities of taxes or revenueEg4. Contract to commit a crime tort or fraud against a third partyEg5. Contract that prejudice public safety by dealing with foreign aliens

during time of warEg6. Contract that promotes sexual immorality

23/4/19 146


• Illegal contract by statute law

• expressly prohibited

• impliedly prohibited

•

• illegal at formation of contract

• illegal after formation of contract

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Illegal contract by statute law

• expressly prohibited by statute law• -Some statutes that prohibit certain types of conduct will

impose penalties and expressly state that contracts associated with that conduct cannot be enforced by the parties.

• Re Mahmoud v Ispahani (1921) (next slide)

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Re Mahmoud v Ispahani (1921) (illegal contract)

• A law provided that no one could buy, sell/ deal in linseed oil （亚麻籽油） without licence. S falsely told B that he had licence and entered into agreement to supply linseed oil. B refused to take delivery and then was sued by S for non- performance of the contract

• Court Held: contract was made without legal license , which was expressly prohibited by statute therefore the contract was illegal and then unenforceable.

23/4/19 149


Illegal contract by statute law• impliedly prohibited by statute law• -Many statutes impose penalties for specific conduct without

indicating whether a contract associated with that conduct should be unenforceable in all circumstances.The court must look at the purpose of the Act and determine whether an innocent party could enforce a contractual rights.

• Eg. If law expressly states “ man is not allowed and woman is not allowed” impliedly means “nobody

• is allowed including someone of neutral sex.”

•

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• Illegal contract by statute law

• illegal at formation of contract ( 合同成立时非法 )

Eg. Contracts related to illegal gaming will be illegal from the time they are made. Therefore, you cannot take legal action to collect an illegal winning bet, or be forced to pay a losing one.

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• Illegal contract by statute law•

• illegal after formation of contract （合同履行时非法）

• -A contract that is legal when it is formed may become illegal .

Anderson Ltd v Daniel (1924) (next slide)

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Contract law- (step 6)Anderson Ltd v Daniel (1924)

Statute required that seller of artificial fertiliser had to provide purchaser with invoice stating percentages of certain chemicals contained in fertiliser sold - a sale was made by plaintiffs with invoice which did not comply with statutory requirements.

• Court held: plaintiffs could not recover agreed price as non-compliance with statute rendered contract illegal as performed although it was legal at the time of formation.

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void contract• - void contract under common law • eg. lack of essential elements for valid

• simple contract

• eg.contrary to public policy ( 社会利益 ) • see: Everett v Williams (1725)

- void contract by statute law

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Everett v Williams (1725) 1899 1QB 816 at 826( void contract)

• Facts: robbers P and D were in contract dispute over the proceeds (benefit and income) of a robbery they undertook - submitted their case to a court disguising the case as a partnership dispute about profits.

• Held: action was dismissed, contract of how to allocate proceeds of robbery was void and then unenforceable.

P and D were hanged

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legality of objects • Case: Everett v Williams (1725) - void contract• My comment on the difference between illegal contract

and void contract:• The robbery contract between P and D is illegal contract

because the the object harmed in the contract is public society or public interest

• The contract between P and D to allocate • assets of robbery is void contract , because the object

harmed is the grieved party, one of the two robbers, not public society .

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Contract law- (step 7)form

• The form of contract must be in conformity with statutory procedural requirement.

• It should be kept in mind that the great majority of simple contract will not be subject to any statutory requirement to make them enforceable.They may be reduced to writing but this will be done for business convenience.

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Terms of contract-The basic concept of terms

• The basic concept of terms( 条款 )

• The contents of a contract are called terms, they contain the following for the parties concerned :

• rights( 权利 )

• duties （义务） and

• obligations （责任 ) if the duties not performed.

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Terms of contract -Terms and (statement) representations

• The terms representations (statements) • （表述）

• sometimes there may be a need to determine whether a statement or representation is in fact a term.

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Terms of contract -Terms and (statement) representations

• law draws distinctions between “mere representations” and terms – the distinction depends on individual circumstances.Usually speaking, mere representation will not form a term until it is agreed by both parties.

• damages are awarded for breach of terms but not breach of “ mere representations”

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Terms of contract

• Offer and acceptance , either in the form of promise (language or verbal),or in the form of act, constitute various of “terms” according to the contents in the offer and acceptance .

• Offers or acceptances themselves are not terms until they are agreed by both parties.

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Terms of contract –The types of terms

• The types of terms• Type 1: express terms and implied terms• Since terms are the combinations of offer and

acceptance, and since offer and acceptance could be made expressly and impliedly , so terms could be either express terms or implied terms.

– Express terms = verbal/written– Implied terms = suggested by conduct/action

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Terms of contract –Implied terms

• 1. implied Terms inferred by courts based on the contractual intention of parties - i.e the implied term is so obvious in a particular situation that it goes without saying, based on the principle of fairness and equity

• 2.Implied terms inferred by custom - agreed practice/behaviour in a trade

• see Hutton v Warren (1853)• Oscar Chess Ltd v Williams (1957)

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Terms of contract –Implied terms

• 3. implied Terms imposed by law • some statutes impose specific implied terms into

certain contracts.• eg. TPA(Trade Practice Act ) implies that in all

contracts for the sale of goods, the seller’s statements of the goods must be reasonably relied on unless the buyer does not rely on it.

• See Dick Bentley Productions v Harold Smith Motors (1965)

23/4/19 164

Terms of contract –Dick Bentley Productions Ltd v Harold Smith (Motors)Ltd (1956) 2 All ER 65

• Facts: during negotiations for purchase of Bentley (vehicle) ,seller told buyer that car had new engine and gearbox…driven only 20 ,000 kms. The Statement was untrue (car had in fact travelled 161,000 kms ). buyer sued for breach of contract

• Held: seller’ s statement about distance travelled constitutes a implied term because seller’s statement and special skill has been reasonably relied upon by the buyer. So seller breached the implied terms of the contract.

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Terms of contract –Types of Terms

• Type 2: Conditions and warranties• conditions = major (essential) terms of contract -

breach of a condition = entitled to rescind (terminate) contract and claim damages

• warranty = minor (non essential) terms of contract, breach of warranty = entitled only to damages

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Terms of contract –Types of Terms

• whether term is condition or warranty depends on facts of each case

• Test of essentiality: does it go to the heart of the contract ? If yes, it is a term of condition.

• see Poussard v Spiers & Pond (1876) 1QBD 410

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Terms of contract • Poussard v Spiers & Bond (1876)• Facts: Poussard was engaged to play a leading part in

an opera from the start. She fell ill and was unable to take part until later in the season. The organiser then refused her services

• Issue: was Poussard’s failure to attend constituting a condition which entitled organiser to repudiate contract?

• Decision: yes- because this stipulation = to heart of contract- if breached it entitled organisers to cancel

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Terms of contract –Express term /implied

term/Conditions/warranties

• Express terms = could be either condition or warranty depending on their importance

• implied terms also could be either conditions or warranties

23/4/19 169

Termination of contract

• Basically there are five situations where the contracts could be terminated

• 1. by express agreement （明示约定终止）• 2. by operation of law （依法终止）• 3. by performance of contract （因履约终止）• 4. by breach of contract （违约终止）• 5. by frustration ( 合同受挫 )

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Termination of contract- Termination by agreement

• 1. contract terminated by express agreement• There are three situations under this heading:• A. terminated by a provision in the original contract;• condition precedent 使合同生效的先决条件• condition subsequent 使合同失效的后决条件

• B. terminated by a new agreement for the original one( 新合同代替旧合同 )

• C. terminated by the creditor giving up his rights or interest owned by debtor

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Termination of contract- Termination by operation of law

• 2. Terminated by operation of law• Under common law, a contract can not be

discharged with one party wishing to terminate it. The operation of the law brings the contract discharged on the occurrence of certain events.

• Eg• death of either party in a contract for personal service will

discharge the contract.

• lapse of time bar ( 时效 ) will discharge the contract.

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Termination of contract –Termination by performance of contract

• 3. terminated by performance of contract

• A contract is discharged when all the obligations under the contract have been performed.

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Termination of contract- Termination breach of contract

• 4. terminated by breach of contract

• A. anticipatory breach ( 一方预期违约 )

• repudiation by one of the parties, the innocent party is given two choices:either to accept the breach and then to exercise the option to rescind the contract;

• or to try to keep the contract alive by continuing to expect the performance.

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Termination of contract- Termination breach of contract

B. impossibility of performance of the contract created by one party; ( 一方无力履约 )eg. A contracted singer is too weak to sing for performing his service contract.

C. failure of performance of one party;( 一方未能如约履约 )

D. delay in performance by one party ( 一方延迟履约 )

this situation occurs where “time has become essence” , meaning that both parties have specifically agreed that performance must occur by a specific date.

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Termination of contract- Termination by frustration

• 5. Frustration of the contract ( 合同落空 )• Concept of frustration• Frustration is used when there is a fundamental change to the bases of the

contract after the formation of the contract whereby the contract is rendered impossible to fulfill.

• The main requirements are that the event• 1. Was not anticipated by the contracting parties when the contract was made;• 2. significantly changed the rights and duties under the contract;• 3. was not directly caused by the either party of the contract;• 4.it would be unjust to insist on the parties to continuously perform the

contract.

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Termination of contract-

Termination by frustration•When does frustration occur•A. the subject matter of the contract is destroyed. A contract that depends on the existence of a particular object would be frustrated if that object was destroyed.•Taylor v. Caldwell (1863)

A hall had been hired to stage a concert. It was destroyed by fire before the date of the concert. there was no any provisions in the contract to indicate how the contracting parties would be affected by such a event.The English court held that neither party could enforce their rights,as the contract was frustrated by the destruction of the subject matter of the contract. The contract is terminated.

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Termination by frustration• B. an event, on which the contract was based, does not occur.• Krell v Henry (1903)• A person contracted to rent premises to view the coronation

procession( 加冕游行 )but the procession was postponed.The landlord sought to collect his unpaid rent.

• Held: the substantial purpose of the contract was to view the procession . Since the event did not occur the contract was discharged through frustration and the landlord had no rights to the rent.

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Termination by frustration• C. A substantial change in circumstances

• Means: the performance will be fundamentally different from the performances agreed to under the original contract.

• The Codelfa case (1982)

• Codelfa Co. Ltd contracted to build part of the Sydney suburbs railway line for a specific price within 136 weeks. Both parties knew Codelfa could not achieve its end unless it worked 24 hours a day, 7 days per week. The company failed to complete the project by the deadline because local residents had obtained injunction restricting working during night and imposed noise restrictions on construction equipment

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• Codelfa claimed that the contract was frustrated by the injunctions. Therefore ,the contract was discharged and Codelfa had the right to discharge its contractual duty and at same time was entitled to the payment under quantum meruitan , for the work that had been done.

• Held: the contract has been frustrated because there had been a fundamental or radical change in the surrounding circumstances and in the significance of the obligations undertaken. Codelfa was entitled to be paid on the basis of quantum meruit.

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• D. frustration through illegality . A contract that becomes illegal because of change of statute can not be performed.

• Example:• Suppose you contracted to supply bush hats made from

animal skin. To satisfy the environmental conservation and animal welfare,the government passes legislation to prohibit the sale of the like products. Your contract to provide bush hats would be frustrated because the performance has become illegal.

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• E. personal service are unavailable. Contract for personal service will be frustrated if the performer dies,or is too ill to perform, or is made to serve in the army or is imprisoned.

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• Summary of occurrences of frustration • A. the subject matter of the contract is

destroyed;• B. an event, on which the contract was based,

does not occur; • C. A substantial change in circumstances; • D. frustration through illegality;• E. personal service are unavailable.

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Termination by frustration

• The effect of frustration on contracts

• Frustration would cause the contract either void or performance of the contract delayed.

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Remedies for breach of contract

• The concept of remedy （救济）• Remedies are the legal assistance given by

the court to one party( innocent party 守约方 or aggrieved party 受害方 ) in the situation where the contract is breached by other party (breaching party or party in breach 违约方 )

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• Types of remedies:• 1. Damages ；（损害赔偿）• 2.specific performance; （依约实际履行合

同）• 3.injunction; （不得做某事的禁令）• 4. Rescission （撤约）

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Remedies for breach of contract1. Damages A. nature of damages ;

B. remoteness of damages （损害赔偿的直接性） ;

C. rules calculating the amount of damages ： Natural loss by breach of contract; The losses within reasonable contemplation of breaching party; Causation between the breach of contract and losses; Mitigation by the innocent party （减轻义务所造成的损失）•

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D. quantum meruit ( 按合理价格计酬 )

- concept: reasonable pay for reasonable service or work

- the likely situations of applying this rule

a. where there is a “gentleman’s agreement” or where there is no express contract for payment;

b. the contract may have provided for a fixed payment, however if specific events have happened or not happened, so it would be hard to calculate the fixed payment for partial performance provided.

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Remedies for breach of contract• 2.specific performance ( 依约实际履行合同 )

• -concept: is an equitable award ordered by the court to force the party in breach to perform his obligation in strict accordance with the contract,rather than other remedies.

• （ 1 ） .Specific performance will not be ordered where damages would adequately compensate the injured party.

• （ 2 ） .court will refuse to order specific performance of a contract obtained by unfair means ,or where it would cause severe hardship to the defendant ,or it requires constant supervision.

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• 3.injunction

• - concept ： an injunction is an order of the court to restrain a party from committing a breach of contract or from doing something. In a short,injunction is an order not to do something.

- Mareva injunction( 防止转移财产的禁令 )

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4. Rescission A . The condition where this remedy could be awarded. － breach of condition terms• B. the effect of this remedy if applied.• -void. • - Recovery of money /property to be returned• - the right of rescission may be lost if the

innocent party choose to continue with the contract or wait too long before seeking rescission.

Documents

2015-8-301 INTRODUCTION TO CONTRACT LAW Am I lumbered with a dodgy contract?