1 Nature of contract

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• 1 Nature of contract
• 2 Elements of contract formation
• 3 Offer
• 4 Acceptance
• 5 Consideration
• 6 Intention to create legal relations
• 7 Capacity to contract
• 8 Legality of object
• 9 Requirement of writing
• 10 Contract interpretation

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1 Nature of contract

• 1.1 Contract
• A promise or set of promises which the law will
  enforce.
• China an agreement the law will enforce.

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• 1.2 Contract law
• Where people make law for themselves
• Where people can express their individual
  preferences
• It accommodates most relationships with minimum
  conflict
• The prime example of law in its facilitative role.

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2 Elements of contract formation

• (1) Offer
• (2) Acceptance
• (3) Consideration
• (4) Intention to create legal relations
• (5) Capacity to contract
• (6) Legality of object
• (7) Requirement of writing

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3 Offer

• 3.1 Nature
• (1) A tentative promise made by offeror subject
  to conditions or containing a request to the
  offeree
• (2) Invitation to treat, invitation to offer
• Display of goods
• Mail of catalogue
• Newspaper mass media advertisement

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• (3)Exception
• Advertisement selling fixed number of items at
  fixed price on first come first to serve basis
• Reward advertisement
• 3.2 Communication
• (1)Orally, or in writing, or by gesture
• (2)Offer is communicated upon receipt.

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• (3) Offeree can not accept an offer until first
  learning of it.
• One may find and return a lost article to the
  owner unaware of the reward ad. N.
• Cross offer
• A writes to B offering to sell her car for 100
  and B has written a letter crossing As letter
  proposing to buy As car for 100. No contract
  unless anyone makes subsequent acceptance.

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• 3.3 Standard form (model form)
• (1) See back, see the reverse side, or
  notices
• (2) Document provider adequate notice to
  offeree. Else, invalid.

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• 3.4 Lapse and revocation
• (1) Lapse
• Expiration if time is fixed
• After reasonable time
• Either party dies or becomes incompetent
• (2) Revocation
• Withdraw anytime before acceptance
• Effective upon receipt by offeree

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Case study

• A sends a letter dated March 5 to B offering to
  sell its house for 1000, saying the offer is
  open until March 9 and it must have heard from B
  by then. B receives it on March 6 and immediately
  prepares letter of acceptance. Before B delivers
  his acceptance in the morning of March 7, A
  changes its mind and calls B saying it cancels
  the offer.

Revocation is valid.
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• (3) Rejection
• Is this good (best) price?
• (4) Counter offer
• It is the rejection of previous offer and birth
  of new offer

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4 Acceptance

• 4.1 Positive nature
• (1) Words or conduct
• Habitual act
• (2) Silence
• Offeror normally cant stipulate it as mode of
  acceptance
• Habitually used, or agreed in advance Y

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• 4.2 Communication
• (1) Same or advantageous method of communication
• (2) By stipulated method as per offerors advice
• (3) Post rule (telegram)
• Valid upon dropping the letter in mailbox
• Exception offeror stipulated speedier method
  than post
• (4) Unilateral contract no communication
• (5) Other situations
• Valid upon receipt of acceptance
• Telephone dead line, acceptance is ineffective.

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• 4.3 Place of formation
• (1) Contract is formed in the place where the
  acceptance takes effect.
• (2) Instantaneous communication place where
  offeror receives acceptance

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5 Consideration

• 5.1 Meaning
• It is the price for which the promise of the
  other is bought
• Exchange of promise contract
• Any party have both gains and losses

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• 5.2 What constitute consideration?
• (1) Anything having market value
• (2) Exception
• Love
• Gratitude
• Past consideration

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• 5.3 Adequacy
• (1) No requirement exchange of equal value
• (2) 1 is adequate consideration

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Case study

• Adams, creditor of Brown, threatened to sue Brown
  for the debt of 1000. Cox, friend of Brown,
  then promised to pay Adams the debt if Adams
  would refrain from suing, and Adams agreed. If
  Cox failed to pay Adams as agreed, and Adams sued
  him for breach of contract, Adams would succeed.

Forbearance to sue is adequate consideration.
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• 5.4 Gratuitous promises N
• (1) Gift promise is gratuitous, not amount to
  contract for lack of consideration.
• (2) Promisor isnt bound by gratuitous promise,
  once he undertakes the performance of it, he
  should do it without negligence. He is liable, if
  he injure the promisee.
• 5.5 Motive contrasted with consideration past
  consideration, N
• (1) Motive is irrelevant. It does not affect
  the question of consideration.

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Case study

• Adams saved Bodnar from drowning. Afterwards
  Bodnar promised to pay Adams 100 out of
  gratitude. Bodnars promise was made for past
  consideration, therefore unenforceable.

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• 5.6 Existing legal duty N
• (1) Statutory duty N
• Police, teacher, etc.
• A promise to members of crew to increase their
  pay if they dont desert the ship, is
  unenforceable.

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• (2) Existing contractual duty N
• Shield against economic blackmail construction
  firm
• Add difficulty for contract modification in
  order for it to be enforceable, peppercorn type
  negligible value or under seal may be good choice.

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• 5.7 Gratuitous reduction of debt N
• (1) Consideration makes debt reduction difficult.
• (2) Way out

• Time is of value. Payment before due date is
  sufficient consideration.

• Trade the debt with object of negligible value.

• Third party purchases the debt from the creditor
  debt transaction.

• Creditor agrees in writing and under seal to
  reduce the debt.

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• A owed B 1000 falling due on March 1. B needed
  money urgently. He would not care if A could not
  repay the same amount. His reduction of the debt
  can only be enforceable under the following
  manners

? B agreed to reduce it to 800, in return A
would repay him before March1.
? B agreed to abandon the debt, in return A gave
him something of value, e.g., a watch
? As friend, C agreed to pay B 800, in return B
would refrain from suing A.
? A and B made the debt reduction agreement in
writing and under seal.
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6 Intention to create legal relations

• 6.1 Business agreement
• (1) Rule such intention is presumed present.
• (2) Exception hard evidence to prove that they
  are not serious.
• 6.2 Family, domestic arrangement
• (1) Rule such intention is presumed not
  present.
• (2) Exception hard evidence to prove that they
  are serious.
• (3) Reliance cost, pre-contract fault liability

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7 Capacity to contract

• 7.1 Minors
• (1) Necessaries enforceable
• Two criteria determining necessity must be
  necessary in relation to his station in life
  must not already have adequate stock of them.
• Food, clothing, lodging, medical attention, legal
  advice and transport Y
• Expensive jewelry, love N
• Only liable for reasonable price, not contract
  price. In Chinese tong sou wu qi

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• (2) Not liable for non-necessaries
• May repudiate if the goods are still in his
  possession
• If he sells, cant repudiate unless returns the
  money paid.
• People trading with minor run two risks whether
  he will pay for it whether he will refund.
• (3) Contract indirectly affecting minor
• Adult can recover money lent to minor only if in
  fact used for necessities.
• If it is spent at races, lender cant recover it.
• Exemption from contract liability, no exemption
  from tort liability.

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Case study

• A minor hires a riding horse promising to handle
  with care. In his exuberance he injures the horse
  by riding too hard.
• The owner cant sue A for breach of contract for
  riding horse is non-necessary. He may not A for
  tort of negligence either. He can only sue A
  something outside of the contract.

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• (5) Upon attaining majority
• Repudiate non-necessity contract acquiring
  permanent continuous interest. Else, enforceable.
• Ratify non-necessity contract without continuous
  interest, then enforceable.

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• 7.2 Other person of diminished capacity
• (1) Unsound mind
• (2) Incapacitated through drink or drugs
• (3) Protection similar to minors.
• 7.3 Corporations
• (1) It can make any contract that natural
  person does. Most company laws adopt this.
• (2) Ultra vires abandoned
• 7.4 Bankrupt debtors
• (1) Under certain contractual disabilities,
  until he receives a discharge from the court.

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8 Legality of object

• 8.1 Void v Illegal contract
• (1) Void restore to position before contract
  was attempted.
• (2) Illegal contract no remedy for plaintiff.
  If property has been transferred, no recovery
  will be allowed.
• 8.2 Illegal by statute
• (1) smuggling, drug traffic, sex dealing etc.

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• 8.3 Illegal by common law and public policy
• (1) Contract contemplating the commission of
  tort, is illegal.
• (2) Promise to pay witness for appearing or not
  appearing to give evidence in criminal procedure
  is illegal.
• 8.4 Void by statute
• (1) Any provision in employment contract
  depriving employees protection of Workers
  Compensation Act.
• (2) Bankruptcy Act transfer of property by
  gift or at inadequate price 12 months before
  bankruptcy is void.

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9 Requirement of writing

• (1) Contract concerning interests in land
• (2) Not to be performed by either party with 1
  year
• (3) Ratifying minors contract
• (4) Guarantee
• (5) Arrangement made in consideration of marriage
• (6) Executors promise to answer damages out of
  his own estate

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10 Contract interpretation

• 10.1 Express terms
• (1) Plain-meaning (strict) approach, liberal
  approach
• 10.2 Parol Evidence rule oral evidence
• 10.3 Implied terms as a method of interpretation