Law of Attraction. Law of firms and business. Before you open business you have to read law. There are many laws in Cambodia . If you have done any wrong from the laws, you will be fine or punish by the level of you against the laws. Laws is laws. However, you have to obey the laws. As human, we live in society in order to help each other to obey the law. Laws is created by human. Human have to follow what it say in it. Communication is about Laws too. PUC have one subject called Laws. Laws can learn in every school in Cambodia. Because it is Laws.

1. BUSINESS LAW (LAW 273)BUSINESS LAW (LAW 273)
Contract LawContract Law
Instructor: Samnang Sun, LL.M
September 2013
1

2. Introduction to Contract Law
• What will we discuss about?
• General Concepts of Contract Law
• Types of Contracts
• Formality of Contracts
• Capacity of Contract
• Contract Formations
• Interpretation of Contracts
2

3. What is Contract and Contract Law?
• Contract is free will agreement that
each party forms to create, change, and
terminate obligations which bind them.
• The law between the parties
• Contract law governs contracts and
relationship between parties
3

4. Why is CONTRACT important?
More or less, our daily life is involved in
making Contract.
Contracts are essential to the activities of
businesses, governments, and individuals
in free market society.
Basic understanding of contract leads to
ease in resolving contract disputes.
4

5. Why is CONTRACT important?
Contracts are used to trade from small
family business to multinational
corporation.
Contracts are crucial in the activities of
government trying to protect and improve
well-being of their people.
5

6. Why is CONTRACT LAW important?
Disputes are common in human relations,
people tend to disagree on many things and
contract law can help resolve them in a fair,
efficient way.
6

7. Legal Basis of Cambodian Contract Law
• Civil Code (as amended by the Law on
Implementation of Civil Code)
7

8. What is Contract?
“Contract is free will agreement that
each party forms to create, change,
and terminate obligations which bind
them..”.
• Does it mean it covers anything as
long as it is a “free will”?
8

9. How are contracts
classified?
9

10. Classify contracts by Enforceability
Potential Contract
Valid Voidable Void
Enforceable Enforceable Not enforceable
By all parties but at least one by anyone
party can void
No formation Formation problem Formation problem
Problem but enforceable
unless victim avoids
10

11. What is Valid Contract?
• Vuth offers to buy Sophea’s car. Sophea
accepts. They sign a written agreement in
which Vuth agrees to buy the car for $5000.
Both parties are mentally competent aduts.
They both freely make the agreement with
accurate understanding the basic elements of
the transaction.
Valid Contract?
11

12. What is Valid Contract?
• Real and free agreement
• Parties with capacity to enter into a contract
• Subject matter which is certain, possible to
perform, lawful, and consistent with public
order and good custom
A valid contract is a contract that is
enforceable by all parties to the contract
12

13. What is Voidable Contract?
• A contract that is enforceable but which at
least one party to the contract can disobey or
avoid the duty of the contract.
Rath who was 16 years old, made an
agreement with his neighbor Mony, 25 years
old that Rath would buy Mony’s car for
$8000. Later on, Mony chose not to obey
that agreement. Can Rath sue Mony to
enforce the contract?
13

14. • Rath who was 16 years old, made an
agreement with his neighbor Mony, 25
years old that Rath would buy Mony’s car
for $8000. Later on, Rath chose not to obey
that agreement.
• Rath who was 16 years old, made an
agreement with his neighbor Mony, 25
years old that Rath would buy Mony’s car
for $8000. Later on, Mony delivered that car
and Rath chose not pay.
14

15. • When it does not result from a real or
free agreement
• Made by a party lacking capacity to
contract
• Made by mistake, duress, or fraud
What is Voidable Contract?
15

16. Is Voidable Contract enforceable?
• Voidable contract works like a valid
contract unless a party with the right to
avoid actually exercises that right.
• The contract law desires to promote
enforcement of contract but also provides
basic fairness by giving victim the option
to proceed with the contract.
16

17. What is rationale behind Voidable
Contract?
• The rule is to protect parties who are
victims of the formation problems and deter
parties from making most kinds of contracts
with persons who lack capacity and from
using unfair formations practices
• Usually the person who has the full capacity
to enter into the contract makes a well-
informed conscious decision, so he or she
should be bound by it. 17

18. What is Void Contract?
• A void contract is an agreement that is not
enforceable by anyone. Void contracts are
not really contracts at all.
Sok and Sam agreed that Sok would give
Sam USD 300 and Sam would kill Mony.
Later on Sok refused to give money to Sam
who then asked the court to enforce the
agreement.
18

19. Classification based on
basic nature of contract
• Bilateral contract
• Unilateral contract
19

20. Bilateral Contract?
• Bopha agrees to make a chair for Sophea
and Sophea agrees to pay 200$ to Bopha.
• Both parties basically exchange promises
to do the other wants. They are two sided.
20

21. Unilateral Contract?
“I will reward $300 to anyone who found
my puppy and return her to me”
Is that a contract?
Does it matter whether you know a person
who actually returns that puppy before and
agree in advance?
21

22. Contracts classified
by their form
• Express
• Implied
• Party express and implied
22

23. • Express contract is made in words, may
be oral or written.
• Vuth offers to buy Sophea’s car. Sophea
accepts. They sign a written agreement in
which Vuth agrees to buy the car for
$5000.
What is Express Contract?
23

24. Implied Contract
• Parties make their contract through their
actions, non-verbal conduct.
• You board on a bus and give a ticket to the
driver.
• Neary rides a ferry across the river to get to
work. Before the ferry reaches other side,
she pays for the ride without having to
speak to operator. 24

25. Partly express and partly implied
• Samneang made a written offer to sell
Vantha a radio for $100. Vantha wrote back
saying she accepted the offer?
What is missing here?
When and where it is delivered is not
stated; usually, it will imply based on
circumstances surrounding the parties’
agreement 25

26. What are elements for a
valid contract?
• Real Agreement
• Capacity
• Legality
• Formality
• No Formation Problems
26

27. How the Contract is created?
• The contract is created when there is
meeting of the mind
• A contract is formed when an offer and an
acceptance thereof conform to each other.
27

28. What is Offer?
• An offer is a proposal to make a contract
• The party who makes an offer is called
Offeror, and the party to whom the offer is
made is called an offeree
• Sothea says to Dara, “I will buy your watch
if you sells it to me for $200”.
28

29. What is Valid Offer?
• Is a joke a valid offer? Is it seriously
intended to create legal obligations?
1) An offer must be seriously intended
to create legal obligations
29

30. • “I want to sell my house for $30,000”, is it
definite or clear enough?
• “I offer to sell you my house for $30,000”
2) Definite and reasonably clear
30

31. What if you have your offer in mind or in
writing but never it sent to another party,
which means he or she does not know
about it, could you consider it as an offer?
3) Communicated to the offeree
31

32. What examples are not valid
offers?
• Preliminary negotiations
• Invitations to Negotiation or Make Offers
(Bid Solicitations)
32

33. Can you revoke or take back your
offer without forming a contract?
Usually after communicating an offer,
a party may revoke that offer and will
not be bound by the contract. What
kind of situations that allow such a
revocation?
33

34. • The contract law generally allows the
offeror an ability to revoke as he is viewed
as the “master of his contract” and should
be allowed a power to change his mind
prior to acceptance. It is also important as
part of the “freedom of contract”—the
freedom to change one’s mind and NOT
make a contract.
• However, those changes of mind are
subject to some conditions.
34

35. • “..,an offer shall not take effect if a notice
of revocation has reached the other party
simultaneously with or prior to the offer.”
35

36. Offer subject to acceptance period?
• On September 5, 2010, Sophal sends a
letter to offer to sell his house to Neary for
$ 30,000 and Neary has one week to think
and tell Sophal whether she buys it or not.
After three days, Sophal sells the house to
someone else. Can Neary sue to enforce
that offer?
36

37. • “If the offeror does not receive notice of
acceptance within specified acceptance
period, offer shall be terminated upon the
expiration of acceptance period.
• Also, the offer shall be terminated if the
notice of refusal from another party reaches
the offeror, even within time period.
37

38. • On September 5, 2010, Neary sends
Sophal a letter, telling him that she is not
interested and will not buy that house.
• On September 7, she changes her mind
and sends a letter to Sophal, telling that
she accepts that offer.
38

39. OR?
• On September 10, 2010, Neary sends
Sophal a letter, telling him that she is
interested and will buy that house.
However, the letter does not reach Sophal
until September 14, 2010.
• Can Neary claims that the contract exists?
39

40. • On September 10, 2010, Neary sends
Sophal a letter, telling him that she is
interested and will buy that house for
$25,000. Can that be regarded as the
acceptance?
• Or should it be characterized as a new
offer?
40

41. Acceptance by act
In the event that a notice of acceptance is
not required under the intention of the
offeror or under applicable trade customs,
the contract shall be formed when the act
that is recognized as an acceptance is
performed.
41

42. • Sophal to Bopha, “I want you to bring me
to three tons of rice by tomorrow morning”.
The next morning, Bopha brings the rice to
Sophal
Acceptance by act
42

43. 1. Acceptance Contract
(Based on the offer
of the offeror)
2. New Offer No Contract Yet
Original Offer ended
New offer Open
for original offeror to
accept if he wishes
3. Rejection No Contract 43

44. How does offeree usually
response?
1) By directly rejecting the offer
2) By making a new offer
3) An inquiry
4) Grumbling acceptance
5) Acceptance
44

45. What is
Rejection?
A refusal to accept an offer.
Rejection is basically a negative response
which shows the offeree will not accept or
further consider the offer. A rejection
terminates the offer.
45

46. What is the new offer?
Also known as Counter-offer, an offer that
the original offeree makes back to the
original offeror, in reponse to the original
Offer.
A: I will buy your watch for $500.
B: I will sell you my watch for $600.
46

47. What is inquiry?
Inquiry happens without indicating
a rejection or making a new offer.
The offeree generally just needs to
acquire more information before
making a decision.
47

48. Grumbling acceptance
Offeree properly accepts but complaints
about the offer, but which still forms a
contracts because it stills expresses
agreement.
48

49. How does acceptance
become affective?
1) The offeree must communicate to his
acceptance to the offeror
-Words
-Conduct
-Silence is not a proper acceptance
-Silence is a proper acceptance because of
a prior dealing, agreement between parties
49

50. “I might agree to accept your offer next
week”
“Your offer seems to be acceptable”
A offers to sell his house to B who agrees to
buy that house if someone else buys his land
2) The offeree’s acceptance must be
Unequivocal and Unconditional.
50

51. 3) The offeree’s acceptance must
generally be Identical to the offer,
“Mirror Image” rule
A offers B a position of manager in his
company with salary $1,000. B tells A that
he accepts his offer at $1,500.
51

52. 4) The acceptance must occur in a
proper
manner, including meeting any special
requirements of the offeror
“If you wish to accept, you must fax your
Acceptance to my agent before the end of
this week”
52

53. How does an offeree
express his acceptance in
unilateral contract?
• He could accept only by actually performing
the act.
• Does the offeree have to notify the offeror?
• What if the offeror requests the notificaiton?
53

54. Is a gift a contract?
A gift is a contract which comes into effect
when one party declares the intention to
give property to another party free of
charge, and the other party accepts it.
54

55. Gift not in writing
Even where a promise of gift is made, if it is
not put into writing, either party to the contract
of gift may revoke the contract by withdrawing
his declaration of intention; provided however
that the declaration of intention may not be
withdrawn in respect of any portion of the gift
of which performance has been completed.
55

56. Capacity
• A person’s legal power or qualification to do
something.
• Why living adults generally have contractual
capacity is when they are able to understand
the nature of making the contract, can
control their actions, and are permitted by
the law to make contract.
56

57. Who would have capacity?
• General rule is that living adults have the
capacity to make valid contracts, (with
certain limits)
• Natural persons and legal entities
generally have legal capacity to make
contracts.
57

58. Who may NOT have full capacity to
make contracts
1) Minor
2) Mentally incompetent
3) Intoxicated
4) Persons convicted of and imprisoned for
serious crimes
5) Foreigners, but only in some limited
situations 58

59. Capacity
• How old should a person be allowed to
enter into a contract?
• Is 18 a reasonable age to allow a person
to enter into a contract?
• Does it means minor below 18 can never
enter into a contract?
59

60. Why are contracts minor make are
generally voidable?
• Because minors lack full capacity, the law
protects them from consequences of
making contracts.
• They lack mature judgment and may be
vulnerable to the actions of people who
may take advantage of them in
marketplace.
60

61. • Minor may not be able to understand fully
the consequences of making contracts.
• The law may actually seem unfair to adults
because a clever minor may be able to
take advantage of an adult. However, that
should really encourage people from
dealing with minors
61

62. Entering into a contract with a minor?
17. (Definition of minor)
• Minors are persons under the age of eighteen.
18. (Right to rescind act)
• An act conducted by a minor without the consent of
his parental power holder or guardian may be
rescinded. However, this shall not apply to an act
performed in order to obtain a right or to discharge
a duty or obligation, or to an act conducted in the
course of daily life.
62

63. What about a person with mental
problem?
• Is it right to classify them in the same
group with minor?
• Do they understand consequences of the
contract?
• Usually the contracts with a person with
mental problem is voidable
63

64. What about an intoxicated person?
• Why would intoxicated be classified as
someone without capacity?
• They might have full age capacity but do
they understand the meaning of the
contract or can they control their behavior
with respect to the contract?
64

65. Contracts made by intoxicated persons can
Be valid if the person is voluntarily
intoxicated and the other party has no
reason to know of the intoxication.
What happens if you enter into a contract
with someone who you think is obviously
drunk?
65

66. Persons convicted of and
imprisoned for serious crimes
Generally, it applies to a person convicted of
a major criminal offense and only while the
convicted person is imprisoned. After he’s
released, he can generally make valid
contracts like anyone else.
66

67. Do foreigners have full
capacity to enter contracts?
If they have capacity to enter
into contracts, can they just
buy anything?
67

68. Legality
• What agreement is illegal?
• Would the court enforce an agreement that is
illegal?
• Sometimes, they are illegal because they
violate specific law, while others violate public
policy (promotion of the good of society)
68

69. A and B make an agreement.
A allows B to stay in his house free of
Charge. B is a sex worker and she
agrees to pay 20% of her daily earning
to A so that she lives and use that house
for her business.
69

70. Why agreements that violate law are
generally UNENFORCEABLE?
• Laws are designed to protect public,
enforcing contracts that violate such laws
would hurt public
• Could the court achieve justice or promote
rule of law if they enforce illegal
agreements?
70

71. Are they enforceable?
• Gambling agreement?
• Usurious agreement (a loan agreement in
which the amount of interest charge is
higher than the rate allowed by the law)
71

72. How the contract is formed?
• Someone threatens you enter into a
contract to sell your property. If you are
very scared and sells it, is the contract
enforceable?
• Someone sells you a fake diamond ring for
$2000, later on after you find out, you
refuse to pay. Can he sue to get the
contract enforced?
72

73. Formation Problems
• Mistake
• Misrepresentation
• Abuse of circumstances
• Duress
73

74. Mistake
What is a mistake under the contract law?
A belief that is not in accord with the facts
What is mistake of fact? A wrong belief
about an existing fact
Ex. A agrees to move a piles of rocks
believing that the rock weigh 500 kilos, but in
fact they weigh 1,000 kilos.
74

75. Mistake
“Where a party gives a declaration of intention
based on a mistake with regard to a material
aspect of the contract, if the other party could
have been aware of such mistake, such party
may rescind the declaration of intention”, Art
346
75

76. Misrepresentation
• What is Misrepresentation?
A statement that is not in accord with the
facts.
Sometimes one party makes an agreement
because of a false statement or deceptive
act of the other party to the agreement
76

77. A party selling a house tells a potential
buyer that there is never any flooding
around the house, when in fact there is a
bad flooding every rainy season. Statements
like that are called misrepresentations
77

78. • Misrepresentation may be fraudulent or
innocent.
• Fraudulent misrepresentation occurs
where a party intentionally misrepresents
a material (important) fact
• Innocent misrepresentation occurs
where a party unintentionally
misrepresents a material fact
78

79. Rules of Misrepresentation
1) One party makes a misrepresentation
about an agreement
2) The misrepresentation is about a material
fact
3) The other party to the agreement
justifiably relies on that misrepresentation
79

80. A is a buyer, and B a seller.
A: Is this a Pailin diamond?
B: Yes, of course, it is a real Pailin diamond
What if B is just a third party standing
nearby who just wants to appear
knowledgeable? Would it be misrepresentation?
80

81. What is a fact?
“I earned $ 10,000 from this business last
year” Is that a fact?
“This business will earn you $ 10,000 next
year”
81

82. 2) What is Material Fact?
Misrepresentation cannot generally occur
because of a statement of opinion.
Would “this is a very great car” constitute
misrepresentation?
82

83. Material means something that is important
to a party’s decision to make or not make
the contract.
Whether a car has been in traffic accident
may be important to a reasonable person’s
decision about whether to buy that car or
not.
83

84. 3) Justifiable Reliance: in order to show
misrepresentation, a party must generally
also show that he justifiably relied on the
misrepresentation the other party made.
Misstatement actually caused the other
party to act to his own detriment.
84

85. Misrepresentation (348)
Where a fact asserted by the other party in the
course of entering a contract is not in accord with
the truth, a party who gave declaration of intention
believing in the truth of the asserted fact rescind the
declaration of intention if such party would not have
such declaration of intention if the party had known
that the asserted fact was untrue.
If the person making the misrepresentation was
negligent, paragraph (1) shall not preclude the other
party who gave the declaration of intention from
seeking damages.
85

86. Types of Misrepresentation
• Affirmative misrepresentation occurs
where one party involved in an agreement
actually makes a statement.
• Concealment or failure to disclose: a party
actively conceals materials fact from
another party or remains silent when
having a duty to speak or disclose
information.
86

87. Duress
• What is Duress?
The use of improper threat to induce a party
to do something the party would not
otherwise do.
87

88. A threatened to kill B with a gun if she did
not sell him some land he wanted. This
agreement would be the result of duress,
and it would be voidable by B. The threat
need not involve violence to be duress. It
may be a threat to commit a non-violent act
such as defamation
88

89. “A person who gives a declaration of
intention while under duress exerted by
the other party or a third party may
rescind such declaration of intention.”
Civil Code, Art. 350
89

90. Why does the law not recognize the contract
made under duress?
Does the party suffering duress voluntarily
consent to the agreement?
90

91. Duress to exist
There are two required elements
1) One party makes an improper threat
2) The threat actually induces another party
to make an agreement
91

92. Form of Duress
• Threats to start criminal litigation against
the victim or his family
• Threats to start civil litigation against the
victim or his family, without a legitimate
basis
• Threats to disclose embarrassing fact
about a person to others (which is a crime,
blackmail)
92

93. • Threats not to perform contracts where the
threats are intended to obtain a contract
modification and there is no legitimate
commercial reason for the threat
93

94. • NOT all threats are “improper”, the threat to
bring a legitimate civil action against a party is
not usually duress.
Ex. In a bad accident on the road, A threatens B
to bring a tort lawsuit for compensation for his
injuries. So if B agrees to pay certain amount in
return for a promise not to bring lawsuit against
him, this is not agreement from duress, it is the
legitimate settlement of a legal dispute.
94