1. Background of Contracts

Contracts are promises that the law will enforce. The law provides remedies if a promise is breached. To be legally binding as a contract, a promise must be exchanged for adequate consideration.

Contracts are mainly governed by state statutory and common law and private law. Private law principally includes the terms of the agreement between the parties who are exchanging promises.

The UniformCommercial Code, whose original articles have been adopted in nearly every state, represents a body of statutory law that governs important categories of contracts. The main articles that deal with the law of contracts are Article 1(General Provisions) and Article 2 (Sales). Sections of Article 9 (SecuredTransactions) govern contracts assigning the rights to payment in security interest agreements. Contracts related to particular activities or business sectors may be highly regulated by state and/ or federal law.

In 1988, the United States joined the United Nations Convention on Contracts for the International Sale of Goods which now governs contracts with in its scope.

 

2. Definitions of Contracts

Black’s LawDictionary defines a contract “an agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law, the writing that sets forth such an agreement.”

The nature of contract, under civil law, is a “meeting of minds” or “mutual assent.” Article1101 of French Civil Code states: “Contract is a mutual assent with which one person or more is obligated to give a thing, to do or not to do a thing to one person or more persons.”

 

3. Classification of Contracts

Contracts may be classified in the following categories:

3.1 Executed (已履行合同) and Executory （待履行合同）Contracts

Executed contracts are those in which the party or parties concerned have done all that they are,under the contract, required to do.

Executory contracts are those in which one or both sides have not yet performed the contractual obligations, for example, goods have not actually been delivered.

3.2 Specialty and Simple Contracts

A specialty contract is made by deed. It is legally binding because of the special solemnity attached to its form. It does not derive its legally binding quality from the operation of the law of contract but from its solemnity; so it does not need to be a true contract at all. To take effect as a deed, an instrument must make it clear on its face that it is intended to be a deed and must be validly executed.

Simple contracts are not made by deed. They derive their legal status entirely from the law of contract. It is with this kind of contracts that we are primarily concerned.

3.3 Void (无效的), Voidable （可撤销的）and Unenforceable （不可执行的）Contracts

A void contractis one which does not exist and which has never existed. A contract is void when it is destitute of all legal effect.

A contract is voidable when the law allows one of the contracting parties to withdraw from the contract if he so wishes.

A contract is unenforceable when, although it is valid if the parties perform it; it can not be enforced in the courts of law if either party fails to do.

The distinction between void and voidable contracts is crucial where the interest of a third party is involved. A voidable contract remains effective unless and until the innocent party chooses to avoid it. Therefore, in case of a contract for the sale of goods, if the buyer resells the goods before the contract is avoided, the sub-buyer becomes the owner and retains the property provided that he took it in good faith. When a contract is void, ownership of the property which has been sole will not pass to the buyer, who will not be able to sell it to anyone else. The original seller will be able to recover the property from whoever has it.

 

4. Formalities: Form of a Contract

• Under seal

• In writing

• Evidenced in writing

• Oral contracts

 

5. The Essentials of a Valid Contract

A valid contractcontains a number of elements:

(1) There must be an offer and acceptance to make an agreement.

(2) Certain types of agreement are only valid if made in a particular form.

(3) The contract parties must have the intention to create legal relations.

(4) The parties must have the appropriate capacity to contract.

(5) There must be genuine consent by the parties to the terms of the contract, and the terms shall be clear and certain.

(6) The contract must not have been concluded as a result of undue influence, duress or misrepresentation.

(7) The contract must not contradict public policy or be otherwise illegal.

(8) The contract must be capable of being performed.

(9) The contract must not be frustrated by an intervening event.