Unit 3

Nature of the Contract

25-1
 Contract Law in the U.S.
 Definition of Contract
 Source of Contract Law
 Classifications of Contract
 Equity ( 权益法 )
 Words:
 Breach contract 违反合同
 Perform contract 履行合同
 Consideration 对价
 Capacity 能力
 Definition of a Contract
 Contract: A promise or a set of promises for the brea
ch of which the law gives a remedy or the performanc
e of which the law in some way recognizes a duty
 Contracts are voluntarily entered into by parties
 Terms of the contract become private law between the
parties
 Legally enforceable
 Definition of a Contract
 Parties to a contract

offer
Offeror Offeree
要约人 受要约人
Acceptance
 Definition of a Contract

Agreement Consideration

Elements of a Contractual
Lawful Object Contract Capacity
 Some possible defects to a contract
 Genuineness of Assent
 Lacking if consent is obtained by:
 Duress 胁迫
 Undue influence
 Fraud 欺诈
 Writing and Form
 Some contracts require correct form
 Sources of Contract Law (U.S.)
 Common law of contracts
 Contract law developed primarily by state courts
 Uniform Commercial Code (UCC)
 Comprehensive statutory scheme that includes law
s that cover aspects of commercial transactions
 Sources of Contract Law (U.S.)
 Restatement of the Law of Contracts
 Compilation of model contract law principles draft
ed by legal scholars
 Not legally binding
 Lawyers and judges often refer to it for guidance i
n contract disputes
 Objective Theory of Contracts
 Intent to enter into a contract is judged by the reasona
ble person standard
 Words and conduct
 Surrounding circumstances
 Subjective intent is irrelevant
 Classification of Contracts
 Bilateral ( 双边 ) Contract
 Mutual obligations by both parties
 Mary: If you paint my shop, I will pay you $300.
 Peter: I accept
 Both could sue if the other party failed to perform

 Unilateral ( 单边 ) Contract
 Promise made but only if the other party performs:
 Mary: If you paint my house by July 1, I will pay you $100
 The offer can be accepted only by Peter painting the house by July
1.
 If he does not, there is no contract and neither party can sue for
breach
 Classification of Contracts
 Formal Contracts
 Require a special form or method of creation
 Negotiable Instruments 可转让票据
 Letters of Credit 信用证
 Classification of Contracts
 Informal Contracts
 No special form or method is required
 Leases
 Sales Contracts
 Service Contracts
 Classification of Contracts
 Valid ( 有效 ) Contract
 Contract that meets all of the essential elements to
establish a contract
 Enforceable by both parties
 Void ( 无效 ) Contract
 Contract that has no legal effect
 Neither party is obligated to perform
 Neither party can enforce the contract
 Classification of Contracts
 Voidable Contract
 One or both parties can avoid contractual
obligations
 If a contract is avoided, both parties are released
from their contractual obligations
 Unenforceable Contract
 Legal defense to the enforcement of the contract
 Parties may voluntarily perform
 What about a promise to give a gift?
 Classification of Contracts
 Executed Contract
 Fully performed on both sides
 A completed contract
 Executory Contract
 Not fully performed by either or both sides
 “execute” – other meanings

 Carry out 执行

 Kill a person 处死

 Sign a document 签名
 Express and Implied （隐含）
Contracts
 Express Contract
 Expressed in writing or verbally
 Implied-in-fact Contract Agreement inferred by parties’
conduct
 Implied-in-law contract
 No actual contract
 Court imposes agreement to avoid unjust enrichment
 E.g.: Jane is seriously hurt in an accident and is taken to a
hospital. The doctors perform medical care. Jane is
responsible for the cost of medical care.
 Implied contract?
Wrench LLC v. Taco Bell Corp. (6th Cir. 2001)
 Equity 权益法
 Equity: A doctrine that permits judges to make
decisions based on fairness, equality, moral rights,
and natural law
 There is no right to a jury trial in an equitable action
 Equity other meanings:
 Ownership 股权
 Value above the debt
 Property is worth $200. I owe $75. My equity in the
property is $125.
 Romasanta v. Mitton (Cal. App. 1987)
 Facts:
 A landlord leased a motel he owned to lessees for a ten years period. The
lessees had an option to extend the lease for another ten years provide that
they gave written notice to the landlord three months before the term
expired.
 For almost ten years, the lessees devoted most of their assets and a great
deal of their energy to building up the business.
 However, the lessees gave the written notice 13 days late. The landlord
rejected it.
 Issue:
 Should the court have applied the doctrine of equity and saved the lessees
from their mistake?
 Consider: (1) seriousness of the mistake; (2) consequence to the lessor;
(3) consequence to the lessee
 PRC Contract Law
 Definition of Contract
 Source of Contract
 General Contract Principles
 Forms of Contract
 Definition of a Contract
 Article 2:
 For purposes of this Law, a contract is an agreement between n
atural persons, legal persons or other organizations with equa
l standing, for the purpose of establishing, altering, or discharg
ing a relationship of civil rights and obligations.
 An agreement concerning any personal relationship such as m
arriage, adoption, guardianship, etc. shall be governed by other
applicable laws.
 Definition of a Contract
 Article 8: Binding Effect; Legal Protection
 A lawfully formed contract is legally binding on the parties. T
he parties shall perform their respective obligations in accorda
nce with the contract, and neither party may arbitrarily amend
or terminate the contract.
 A lawfully formed contract is protected by law.
 Source of Contract Law
 In 1999, China dramatically overhauled its contract law by ena
cting the Unified Contract Law.
 The UCL was designed to provide users with a consistent and
easy-to-understand set of statues that more closely resembled i
nternational business contracting principles.
 The UCL covers all the parts of contract that should be similar
to Western businesses.
 General Contract Principles

 Equality of the parties: Article 3

 Voluntariness: Article 4

 Fairness: Article 5

 Good faith: Article 6

 Legality: Article 7
 PRC Contract Law Basic

 Article 4 The parties shall, pursuant to law, have the right to enter into a
contract on their own free will, and no unit or person may unlawfully interfere.

 Article 5 The parties shall observe the principle of equity in defining each
other's rights and obligations. 【当事人应当遵循公平原则确定各方的权利和义
务。】

 Article 6 The parties shall observe the principle of good faith in exercising their
rights and fulfilling their obligations.

 Article 7 The parties shall, in making and fulfilling the contract, abide by laws
and administrative regulations and respect social ethics, and may not disrupt
the socio-economic order nor impair social and public interests.
 Forms of Contract

 Article 10 :

 A contract may be made in a writing, in an oral conversation, a

s well as in any other form.
 A contract shall be in writing if a relevant law or administrativ
e regulation so requires.
 A contract shall be in writing if the parties have so agreed.
 Forms of Contract

 Article 11:

 A writing means a memorandum of contract, letter or

electronic message (including telegram, telex, facsimi
le, electronic data exchange and electronic mail), etc.
which is capable of expressing its contents in a tangib
le form.
 PRC Contract Law Basics

 Article 10 The parties may, when making a contract, use written

form, verbal form or any other form.

 The written form shall be adopted if laws or administrative

regulations so require. The written form shall be adopted if the
parties so agree.

 Article 11 "Written form" as used herein means any form which

renders the information contained in a contract capable of being
reproduced in tangible form such as a written agreement, a letter, or
electronic text (including telegram, telex, facsimile, electronic data
interchange and e-mail).