The Importance of Contract Law.docx

The Importance of Contract Law.docx

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TheImportanceofContractLaw

TheImportanceofContractLaw

Contractlawdealswith,amongotherthings,theformationandkeepingofpromises.Thelawencouragescompetentpartiestoformcontractsforlawfulobjectives.Noaspectofmodernlifeisentirelyfreeofcontractualrelationships.Indeed,eventheordinaryconsumerinhisdailyactivitiesacquiresrightsandobligationsbasedoncontractlaw.Youacquirerightsandobligations,forexample,whenyouborrowmoneytomakeapurchaseorwhenyoubuyahouse.Contractlawisdesignedtoprovidestabilityandpredictabilityaswellascertainty,forbothbuyersandsellers.

Thestudyofcontractlawisimportantbecauseitisthebasisforallcommerciallaw.Thelawdescribedinthefollowingchaptersisthebasisformuchofthelawinmorespecializedareas,suchasthesaleofgoods.InChapter1,youwillbeintroducedtothenatureandterminologyofcontracts.Asyouwillsay,therearemanytypesofcontracts.Therearealsobasicrequirementsthatmustbemetbeforeavalidcontractcomesintoexistence.Thesebasicrequirementsarediscussedindetailinchapters2through6.Sometimes,athirdparty（onewhoisnotadirectpartytothecontract）acquiresrightsunderthecontract.ThirdpartyrightsarecoveredinChapter7.Partiestoacontractneedtoknowwhentheirdutiesunderthecontracthavebeenfulfilled.TheperformanceanddischargeofcontractualdutiesarecoveredinChapter8.Finally,youwilllearninChapter9whatremediesareavailabletothenonbreachingpartywhentheotherpartybreachesthecontract.

Chapter1NatureandTerminology

1.1Introduction

Contractlawshowswhatpromisesorcommitmentsoursocietybelievesshouldbelegallybinding.Itshowswhatexcusesoursocietywillacceptforthebreakingofsuchpromises.Anditshowswhatkindsofpromiseswillbeconsideredasbeingagainstpublicpolicyandthereforelegallyvoid.

Acontractmaybedefinedasapromiseenforceableatlaw.Apromiseisanundertakingthatsomethingwillorwillnothappeninthefuture.Thus,acontractmaybeformedwhentwoormorepartieseachpromisetoperformorrefrainfromperformingsomeactnoworinthefuture.Thepromisesneednotbeinwritingtoconstituteacontract,althoughsomecontractsmustbeinwritingtobeenforceable.Onthecontract’sbreach（abreachofcontractoccurswhenacontractualpromisesisnotfulfilled）,thebreachingpartymaybesubjecttosanctions.Thesesanctionsmayincludeapaymentofmoney（damages）tothenonbreachingpartyforthefailuretoperform.Undersuchcircumstances,thebreachingpartymayberequiredtorendertheperformancepromisedinthecontract.

Acontractualrelationshipinvolvesthegivingofapromiseinexchangeforeitheranactorantherpromise.Allcontractualrelationshipsthusinvolvepromises.Allpromises,however,donotestablishcontractualrelationships.Forexample,ifyourfriendpromisestogotothemovieswithyouandthendecidesnottogo,youcannotsueyourfriendforbreachofcontract.Althoughpromiseswereexchanged—togotothemoviestogether—thelegalsystemwillnotexpendresourcestoenforcethesepromises.Inessence,contractlawreflectssociety’sdeterminationofthekindsofpromisesthatshouldbelegallyenforced.

Theuseofcontractprinciplestogoverntherelationshipsofthosewhomakepromisestooneanotherdatesbackthousandsofyears.Earlyinhistorytheimportanceofcontractswasrecognizedandgivenlegaleffect.Thefollowingchapterswillexplainhowcontractsareformed,howtheyaredischarged,andwhathappenswhentheyarenotperformed.Therulesrelatingtotheformation,discharge,andbreachofenforceablepromisesarecalledthelawofcontract.

Societyasweknowittodaycouldnotexistwithoutthelawofcontracts.Thefoundationforalmostallcommercialactivityisthecontract.Thepurchaseofgoods,suchasautomobiles,isgovernedbyasalescontract;thehiringofpeopletoworkforustomakerepairs,byservicecontracts;thesharingofrisksonourproperty,byinsurancecontracts.Inshort,wecouldnotorderourdailyactivitieswithoutcontracts.

Contractlawisbasedonthecommonlawandgovernsallcontractsexceptwhenthecommonlawofcontractshasbeenmodifiedorreplacedbystatutorylaworadministrativeagencyregulations.Contractrelatingtoservices,realestate,employment,insurance,andsoongenerallyaregovernedbygeneralcontractlaw.Allcontractsforthesaleofgoods,however,aregovernedbystatutorylawintheUnitedStates–particularlytheUniformCommercialCode（UCC）—totheextentthatstatutorylawhasmodifiedorreplacedgeneralcontractlaw.Inthediscussionofgeneralcontractlawinthisunit,weindicatedtheareasinwhichtheUCChassignificantlyalteredcommonlawcontractprinciples.

ContractsfortheinternationalsaleofgoodsbetweenfirmsorindividualslocatedindifferentcountriesaregovernedbytheUnitedNationsConventiononContractfortheInternationalSaleofGoods（CISG，联合国国际商品买卖公约）.ChineselawrelatingtothesaleofgoodsarecontainedinChapter2（ContractforSaleofGoods）ofContractLawofthePeople’sRepublicofChina（中华任命共和国合同法，第二章，买卖合同）.

1.2TheFunctionofContract

Contractlawisnecessarytoensurecompliancewithapromiseortoentitleanonbreachingpartytosomeformofreliefwhenacontractisbreached.Byprovidingproceduresforenforcingprivateagreements,contractlawprovidesanessentialconditionfortheexistenceofamarketeconomy.Withoutalegalframeworkwithinwhichtoplan,businessmenwouldbeabletorelyonlyonthegoodfaithofothers.Dutyandgoodfaithareusuallysufficient,andmostcontractualpromisesarekeptsimplybecausekeepingthemisinthemutualself-interestofthepromiserandthepromisee.Butwhenpricechangesoradverseeconomicfactorsmakeitcostlyforoneofthepartiestocomplywithapromise,dutyorgoodfaithalonemaynotbeenough.

Contractlawprovidesamajorpartoffoundationonwhichmorespecializedareasofthelawhavebeenbuilt.Abasicunderstandingoftheprinciplesgoverningcontractsfacilitatesanunderstandingofthesalesofgoods;inthetransferoffundsbycheck,draft,note,orelectronicmeans;inrelationsbetweendebtorsandcreditors;inrelationsamongemployers,employees,andagents;inthecreation,operation,andterminationofpartnershipsandcorporations;intheregulationoftradeandmonopolies;andintransfersofpropertyotherthangoodsorbymeansotherthansalesorbetweenpartieswhoarenotmerchants.

1.3FreedomofContractandFreedomfromContract

Asageneralrule,thelawrecognizeseveryone’sabilitytoenterfreelyintocontractualarrangements.Thisrecognitioniscalledfreedomofcontract.Butasthecharacterofinstitutionsandsocietychanges,thefunctionsofcontractlawanditsenforcementmustalsochange,and,infact,therighttoapersontoenterintoacontractintheUnitedStatesisnodifferentthantherightundercurrentChineselaw.

Suchchangesincontractlawcanbeperceivedtodayinthefactthatcertaintypesofagreementsarenolongerconsideredvalid.Forexample,illegalbargains,betweenonepartywithagreatamountofbargainingpowerandanotherwithlittlepoweraregenerallynotenforced.Inaddition,certaincontractswithconsumers,aswellascertainclauseswithinthosecontracts,arenotenforceable,becausetheyhavecometobeconsideredincompatiblewithpublicpolicy,fairness,andjustice.Thelawofcontractsisbroadeningtoincludenewcontrolsonthemannerofcontractingandontheallowabletermsofagreements.Thesecontrolsaremeanttoprovidefreedomfromcontractforcertainmembersofsocietywhoheretoforemayevenhavebeenforcedintomakingcontractsunfavorabletothemselves.

1.4BasicRequirementsofaContract

Themanytopicsthatwillbediscussedinthisunitoncontractsrequireanunderstandingofthebasicrequirementsofacontractandtheprocessesbywhichacontractiscreated.Thefollowinglistbrieflydescribestheserequirements.Theywillbeexplainedmorefullyinsubsequentchapters.

1.Agreement.Anagreementincludesavalidofferandavalidacceptance.Onepartymustvoluntarilyoffertoenterintoalegalagreement,andanotherpartymustvoluntarilyacceptthetermsoftheoffer.

2.Consideration.Generally,considerationistheinducement（reason,cause,motiveorprice）toacontract.Anypromisesmadebythepartiesmustbesupportedbylegallysufficientandbargainedforconsideration.

3.ContractualCapacity.Bothpartiesenteringintothecontractmusthavethecontractualcapacitytodoso;theymustberecognizedbythelawaspossessingcharacteristicsthatqualifythemascompetentparties.

4.Legality.Thecontractmustbemadetoaccomplishsomegoalthatislegalandnotagainstpublicpolicy.

Thesefourrequirementsconstitutewhatareformallyknownastheelementsofacontract.Alsoimportantarepossibledefenses（thatis,reasonswhyapartyshouldnotbeawardedwhatheseeksinanactionorsuit）totheformationorenforcementofacontract.Theseincludingthefollowing:

1.GenuinenessofAssent.Apparentconsentofbothpartiesmustbegenuine.

2.Form.Thecontractmustbeinwhateverformthelawrequiressuchasinwriting—ifanyspecialformisrequired.

1.5ObjectiveTheoryofContract

Theintentorapparentintenttoenterintoacontractisofprimeimportanceintheformationofthecontract.Thisintentisdeterminedbywhatiscalledtheobjectivetheoryofcontracts,notbythepersonalorsubjectiveintent,orbelief,ofaparty.Thetheoryisthataparty’sintentiontoenterintoacontractisjudgedbyoutward,objectivefactsasthey