UNIT ONE

CONTRACT LAW

Section A

Understanding of Contract

1 In the eyes of lawyers the word ―contract‖ is used in common speech, simply to refer to a writing containing terms on which the parties have agreed. ―Contract‖ is often used in a more technical sense to mean a promise, or a set of promises, that the law will enforce or at least recognize in some way. British law defines contract as an agreement arising from offer and acceptance. One party makes an offer, and another party accepts that offer. When this has happened (provided that other necessary factors, namely, consideration and intention to contract, are present) there is a contract.

2 In arguing the definition of contract some jurisprudents think neither promise nor agreement is completely satisfactory as a basis for the definition. They claim that the definition of the American Restatement ignores the bargain—the exchange of equivalents which is the essence of a contract. No indication is made in the definition that the typical contract is a two-sided affair, something being promised or done on one side in return for something being promised or done on the other side. Thus to say that a contract can simply be ―a promise‖ is to overlook the fact that there is generally some act or promise given in return for the other promise before that promise becomes a contract. Even to say that a contract may consist of ―a set of promises‖ gives no indication that some of these promises are usually given in return for some

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others. But it would be wrong to assume that all contracts are genuine bargains in which something is offered on one side for something else of equivalent value on the other.

3 Every promise is an agreement and every set of promises forming the consideration for each other is also an agreement. Agreement implies two or more persons who agree upon the same thing in the same sense. It may create legal obligation or it may not create legal obligation and in this sense not every agreement can become enforceable at law.

4 These scholars also argue that all the definitions in terms of promises or agreements presuppose that people only enter into contractual relations after they have made some agreement or promise. In fact, this is not always the case. People sometimes simply enter into transactions or relations which are not really based on prior agreements or promises. One obvious example is that of the simultaneous exchange, or sale. A person who buys goods in a supermarket and pays cash for them is exchanging his money for the goods that he buys.

5 There is no doubt at all that this is a legal contract, but it is artificial to regard it as a contract created by agreement or promise. To insist that there must be a prior agreement or a set of promises in such a case is to imply that there is a moment of time—before the handing over of the goods and the money—in which the parties are legally bound to perform their agreement or promises. But it seems very doubtful whether that is the case. Still it must be recognized that it might be very well argued that ―in contemplation of law‖ there is an implied agreement before the actual exchange of goods for money.

6 Promises and agreements undoubtedly lie close to the center of the concept of contract, but there are at least two other ideas which also lie very close to that center. One is that a person who induces another to rely upon him and change his position, ought not to let that person down, and the other is that a person who does a service to another or renders him some benefit, ought generally to be recompensed for his trouble. Contractual obligations are often imposed for one or other of these reasons on persons who have not really promised or agreed to bear them. In order to reconcile

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this result with traditional definitions of contract, two devices are often employed. One is to rely on the concept of an ―implied agreement‖ or ―implied promise‖；the other is to argue that the liability being imposed is not ―truly‖ contractual but is in fact a legal liability of a different kind，for instance， a liability in tort.

7 In practice, people can gather some idea of what the word ―contract‖ means from the cases in Bolin Farms v. American Cotton Shippers Ass‘n (1973). That year saw a spectacular rise in the price of cotton on the American market. The causes were said to include large shipments to China, high water and flood conditions in the cotton belt, late plantings forced by heavy rains, and the devaluation of the dollar. In the early months of the year, before planting, a cotton farmer will make a ―forward‖ sale contract for delivery to the buyer of all cotton to be raised and harvested on a specified tract at a fixed price per pound, without guarantee of quantity or quality. The farmer can then use this contract to finance the raising of his crop.

8 Early in 1973, cotton farmers made such contracts to sell at a price roughly equal to the price on the market at that time, some 30 cents a pound. By the time the cotton had been raised and was ready for delivery, however, the market price had risen to about 80 cents a pound. Many refused to perform the ―forward‖ contracts that they had made at the lower price, and scores of lawsuits resulted throughout the cotton belt. Not only were the farmers universally unsuccessful, but the decisions evoked little attention.

9 What promises will the law enforce? What remedies were available to the disappointed cotton buyers on the farmers‘ enforceable promises?The cases here expose three fundamental assumptions made by courts in enforcing promises. One of these is that ―law is concerned mainly with relief of promisees to redress breach and not with punishment of promisors to compel performance.‖ A second assumption is that the relief granted to the aggrieved promisee should generally protect the promisee‘s expectation by attempting to put the promisee in the position in which it would have been had the promise been performed. A third assumption is that the appropriate form of relief is substitutional, in the form of a judgment awarding money damages to be paid to the aggrieved promisee, rather than specific, in the form of a

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court order directing the promisor to perform its promise.

10 After the above discussion we come to know the ―Contract‖ may be defined as an agreement, a promise or a set of promises, which create legal liabilities rather than moral obligations, enforceable by the law between two or more persons to do or forebear from doing some act or acts；their intentions being to create legal relations and not merely to exchange mutual promises, both having given something, or having promised to give something of value as consideration for any benefit derived from the agreement or the promise except a transaction agreement by deed. Although transactions by deed are legally binding they are not true contracts at all. A transaction by deed derives its legally binding quality from the special way in which it is made rather than from the operation of the contract law.

11 The definition of contract in the Chinese contract law stresses its functions, saying that a contract is the manifestation of intention to establish, change or terminate the civil relationship between two or more parties. Lawfully established contract shall be protected by law. According to this definition a contract is of three features：

(1) Making a contract is a civil juristic act done by both sides. At least two parties shall enter, and express their genuine intention. Otherwise a contract cannot be established.

(2) The purpose to make a contract is to bring out a certain civil juristic effect, including establishing, changing or terminating the civil relationship between the two parties.

(3) Making a contract is a legal act rather than illegal act. Unlawfully established contracts are null or void.

12 In some continental countries, for example, in Germany, the BGB uses an abstract concept of Rechtegcsehaft, putting contract into a category of legal act which covers intention of the two parties and some other certain lawful conducts. This intention is viewed as an essential requirement to form a contract, therefore, the two parties can not establish a contract if they do not manifest it to each other. In the French Civil Code there is a more specific concept of Consensus than that of legal act.

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