Contract Classified
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Contract ClassifiedGenerally, contracts are of two types: consumer contracts and business or commercial contracts. Buying stock, negotiating an employment contract, setting up sales agreements, advertising a business, marketing—all of these activities are business contracts, which, for the most part, are open to negotiation. That is to say, the terms of the contracts—price, quantity, delivering date, etc.—are discussed and agreed upon by the parties doing business together so that the contract is mutually beneficial in the circumstances. The essential difference between a business contract and a consumer contract is this element of negotiability. Consumer contracts are usually ‘take it or leave it’, with no element of ‘bargaining’involved. When a consumer buys a shirt, a pair of shoes, or a meal in a restaurant, the color, design, and price are generally fixed and not negotiable.This essential difference between business or commercial contracts and consumer contracts has led to rules being developed to safeguard the rights of consumers whose lack of bargaining power denies them the rights they would otherwise enjoy under strict contract law. However, several approaches of classification can be found in western law of contracts. (I) Classification by formalityIn light of the English contract law contracts can be made orally, or by conduct or in writing. In most cases a contract made orally is just as valid as a written one. Contracts made by conduct refer to those that need not be stated in words (written or spoken), but by an ordinary everyday act of conduct, such as a bus driver pulling up at a bus stop. In this case, passengers’getting on the bus indicates their acceptance of the offer and conclusion of contract.Of these three forms of contracts our discussion is to focus on written contracts in particular. Generally they can be classified into three categories:1. Contracts which must be made by deed.A lease of more than 3 years should be made by deed otherwise no legal estate is created. Ifthere is no deed then there is in equity a contract for a lease, which is an estate contract under §2 (3), Law of Property Act, 1925. It is enforceable against third parties who acquire the freehold from the landlord only if it has been registered at the Land Registry. Registration gives notice to the whole world. Failure to register makes the contract void against a later purchaser of the freehold from a landlord for a consideration even though, in fact the purchaser knows the lease exists. The purchaser could turn out the tenant if the lease was not registered. However, where it is registered the tenant is protected.2. Contracts which must be in writing.For example, the following simple contracts are required by statute to be in writing otherwise they are affected in various ways. (a) Regulated consumer credit agreements, including hire-purchase agreements, under which the amount of credit does not exceed £15,000 and the customer is not a company. If these agreements are not in appropriate written form they cannot be enforced by the dealer, unless the court thinks it is fair in the circumstances to allow him to enforce the contract. (b) Contracts of marine insurance, which must be embodied in a written policy otherwise the contract is not effective, being inadmissible in evidence unless embodied in a written policy signed on behalf of the insurer. (c) Contracts for the sale or other disposition of land are required by statute to be in writing otherwise they are invalid, i.e. there is no contract.3. Contracts which must be evidenced in writing.Here we are concerned with contracts of guarantee where the Statute of Frauds, 1677 requires writing which, though not essential to the formation of the contract, is needed as evidence if a dispute about it comes before a court. The court will not enforce the guarantee in the absence of written evidence. This provision applies to guarantee and not to indemnities. It is therefore necessary to distinguish between these two. In a contract of indemnity the person giving the indemnity makes himself primarily liable by using such words as ‘I will see that you are paid’.In a contract of guarantee the guarantor expects the person he has to carry out his obligations and the substance of the wording would be: “If he does not pay you, I will.”An indemnity does not require writing because it does not come within the Statute of Frauds; a guarantee requires a memorandum.An additional distinction is that it is an essential feature of a guarantee that the person who gives it is totally unconnected with the contract except by reason of his promise to pay the debt. Thus a del credere agent who, for an extra commission, promises to make good losses incurred by his principal in respect of the unpaid debts of third parties introduced by the agent, may use the guarantee form ‘if they do not pay you, I will’but no writing is required.Such a promise is enforceable even if made orally because even where a person does not promise to be liable for the debt of another that promise is not within the Statute of Frauds where it is, as here, an incident of a wide transaction, i.e. agency. The memorandum in writing to satisfy the court need not exist when the contract is made but must be in existence when an action, if any, is brought for breach of guarantee. A guarantee cannot be proved orally—writing is required as evidence. The memorandum must identify the parties, normally by containing their names. The material terms must be included, e.g. that it is a guarantee of a bank overdraft facility limited to £50,000. The memorandum must also contain the signature of the party to be charged or his agent properly authorized to sign. However, the law is not strict on this point and initials or a signature will do. The party to be charged is the proposed defendant and there may be cases where one party has a sufficient memorandum to commence an action thereas the other may not since the memorandum does not contain the other party’s signature. This could happen where the memorandum was in a letter written by Bloggs to Snooks. The letter could presumably be signed by Bloggs.According to the American law of contract the following contracts are invalid, unless the same, or some note or memorandum thereof, is in writing and subscribed by the party to be chargedor by his agent. The following contracts must be in writing under the Statute of Frauds: (1) An agreement that by its terms cannot be performed within a year from the making thereof; (2) A promise to answer for the debt, default or miscarriage of another; (3) An agreement made upon consideration of marriage, other than a mutual promise to marry; (4) An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein; and such agreement, if made by an agent of the party sought to be charged, is invalid, unless the authority of the agent is in writing, subscribed by the party sought to be charged; (5) An agreement authorizing or employing an agent or broker to purchase or sell real estate for compensation or a commission; (6) An agreement that by its terms is not to be performed during the lifetime of the promisor, or an agreement to devise or bequeath any property, or to make any provision for any person by will; (7) An agreement by a purchaser of real property to pay an indebtness secured by a mortgage or deed of trust upon the property purchased, unless assumption of said indebtness by the purchaser is specifically provided for in the conveyance of such property.In addition, U.C.C.§2-201 provides that a contract for the sale for goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing... If a contract does not satisfy the requirements of subsection (1), although it is valid in other respects, it is not enforceable. In the case where the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business, or where a contract has been performed partially this part is still enforceable.As to the formality of contract the laws of the continental countries require some legal forms. In France a contract shall be in a legal form. The purpose of so doing is to use this form as a requirement for the validity of a contract, or as evidence of its existence. In Germany a contract shall be ineffective if it lacks a legal form. A competent organ or an official in chargeor a notary must notarize a manifestation of intention in writing.According to the Chinese contract law, a contract shall be made orally, by conduct, in writing, or in other forms; notices or agreements on the modification or rescission of contracts shall be communicated to the other party in any form.Article 11 of Convention on Contracts for the International Sale of Goods stipulates that a contract of sale need not be subject to any other requirements as to form. It may be proved by any means, including witnesses. In this article no restriction as to form of contract can be found and it is for the purpose of coping with the features of international commerce. Any state which is a party to the convention may be allowed to make any declaration or reservation to it.(II) Classification by interrelation between rights and dutiesA. Bilateral contractsIn a bilateral contract both parties shall equally execute their promises respectively. Either party shall perform his own duties and have his own rights. An example of typical bilateral contracts is a contract for sale of goods--the buyer promises to pay for certain goods whereas the seller promises to render them.B. Unilateral contractsIn a unilateral contract, one side is bound to perform it. A typical unilateral contract is a reward contract. It is different from a bilateral one. A unilateral contract is a one-sided contract, in the sense that one party binds himself by a conditional promise leaving the other party free to perform the condition or not, as he pleases. Where a promisor offers a reward for the return of his lost property, none must seek or find it for the promisor. If the finder returns the property, he is entitled to the reward. If this person refuses to look for or find the lost property of thepromisor, he does not breach the contract.(III) Classification by modes of expressing termsA. Express contractsIn an express contract, whether written or oral, an offer-acceptance-consideration trilogy can be found. Rights and duties of parties are clearly expressed so that the parties may perform it correctly and avoid misunderstanding. Once a dispute arises, the court can promptly settle it by judging who's right and who's wrong according to an express manifestation of their intentions.B. Implied-in-fact contractImplied-in-fact contracts is generally made by conduct. Suppose P, a professional gardener with a truck advertising his services, drives in his truck to D’s front yard while D is sitting on the front porch. P mows the lawn while D is watching. P expected to be paid. D should have known of the expectation. From this transaction arises an implied-in-fact contract.The intentions of the parties are implied by conduct. When a person has a coin drop in an automatic vending machine, he can get a certain article. In this case we say an implied-in-fact contract is formed. When a dispute arises the parties to the implied-in-fact contract may use a means of proof different from that of an express contract to explain to the court what they have done and the judge may infer whether there exists an implied-in-fact contract from their conduct. As can be seen from Brogden v. Metropolitan Railway Co. (1877) Brogden had for years supplied the Railway Company with coal without a formal contract. Wishing to regularize the situation, the company sent a draft form of agreement to Brogden. He inserted a new term into the draft and returned it, marked “approved”. The company’s agent put it in his desk and there it lay for two years. And for two years Brogden sent, and the company paid for, deliveries of coal in accordance with the terms of the draft. Then a dispute arose, and Brogden denied that any binding contract existed. The House of Lords held that acontract had been created by conduct, and that it came into existence either when the company ordered its first load of coal upon the terms of the draft or at least when Brogden supplied it.C. Implied-in-law contractsImplied-in-law contracts or quasi(准契约的)-contracts are a method of giving a remedy in nature of contract relief in order to prevent unjust enrichment.Thus, where one renders services or delivers goods to another and confers a material benefit, an obligation to pay the reasonable value of the services or goods arises so long as the conduct is not that of an officious “intermeddler”, or volunteer. Examples include reasonably necessary medical treatment rendered to a person who is unconscious or provision of reasonably necessary goods or services to a person who lacks the capacity to contract because of insanity, gross intoxication or similar cause. The law implies a promise to pay reasonable value of such goods or services. This promise is enforceable even though the recipient may subsequently indicate that he did not wish them. Examples include the husband and the father. The husband, who is legally responsible for the necessities of his wife, may be held liable for the legal services rendered by a lawyer to obtain a judicial declaration that the wife is no longer legally incompetent. The father who “wrongfully”refused to provide for emergency medical treatment for his seriously injured child shall be liable for these services. Quasi-contracts are often used to fill the legal void where no consensual contract liability exists and no tort has been committed.(IV) Classification by legal effect of contractA. Valid contractsValid contracts are legally binding and they have legal effect. A valid contract requires for some fixed form. Both parties under the contract shall perform their duties stipulated in it. A valid contract may be enforceable when necessary if one side refuses to perform it.B. Void contractsVoid contracts tend to lack some essential conditions for their formation. Void contracts tend to run foul of public policy. When forming a contract one or both parties breached the rules regarding offer, acceptance, consideration, competency, intention to create legal relations, reality of apparent assent, etc. The concluded contract is void. The following are contracts violating public policy: (a) contracts to oust the jurisdiction of the courts. A contract, which purports to take away the right of one or both parties to submit questions of law to the courts, is contrary to public policy and is void. Only the non -commercial contract in which the parties expressly manifest their non-intention of legal relations and their moral obligations can oust the jurisdiction of the courts; (b) contracts damaging to family relationships. A contract to settle family relationships must conform to public policy. Family relationships are regarded as a vital matter relating to public policy or social peace and order. However, it is rather difficult to handle these agreements, for individual status is a decisive factor in these relations, whose range is almost stipulated by law, and the agreements between the parties are put aside. Such contracts involve marriage brokage contracts, contracts for future separation, contracts for the abandonment of parent's right to correct child, etc. (c) contracts in restraint of personal freedom. Contracts in restraint of marriage freedom and contracts of employment with additional terms on enslavement are void; (d) contracts in restraint of free trade. Restraint of free trade is not consistent with public policy because it will lead to monopoly. Such a contract results where one party taking advantage of his economy prominence restrained the other party from engaging in a certain trade or business operation. Therefore it is unreasonable. In Kores Manufacturing Co. Ltd. v. Kolak Manufacturing Co. Ltd. (1959) two companies, manufacturing similar products, agreed that neither would employ any person who had been employed by the other during the last five years. The Defendant Company broke its promise. The court held that the Plaintiff Company’s action failed. But not all restraints are void. Forexample, a restraint involving some proprietary interest of the employer that requires protection is reasonable. (e) Gambling contracts or wagering contracts. All these contracts are held to be void, but not illegal. In England the winner is not allowed to sue if the loser does not pay. If the loser does pay, he cannot sue to recover back his money. But in the United States one state had a law which made bookmaking a crime but which did not make the act of placing a bet with the bookmaker a crime. A rather successful bettor that had won substantially more than he had lost over the years sued his neighborhood bookie for rescission and the return of his bets in all of the contracts relating to his losses. (f) Contracts to waive(give up)a legal right. Any natural and legal persons with capacity cannot waive their legal rights by the forming of a contract. An administrative official cannot agree upon a contract not to execute his legal rights.Contracts violating public policy result in invalidity in whole or in part. If the main terms violate public policy the contract will be void; if a portion of the contract violated public policy the court may sever the illegal portion and enforce the balance. The payment or property transferred under a void contract may be recovered back to its owner. It is clear that a void contract is not equal to a voidable contract. Whether a contract itself is void or voidable and whether its terms are void in whole or in part are determined upon the factors to damage. The victim may sue, or claim for damages, or ask for recovery of his property, or rescind the contract.In light of the Chinese contract law, a contract is deemed to be void in the case where:(1) a party or parties have no legal capacity.(2) the competent organ does not invest the party who is Chinese with authority to operate business involving foreign interests.(3) the agent makes a contract in the name of the principal who is not aware of it after expiration of his authority although the contract may be valid now in the case where the agentengages in business beyond his power.(4) the subject matter of contract is illegal. is not in writing.(5) any party to a contract do not approve conclusion of, material alteration of, or assignment of the contract.(6) a contract is made owing to fraud, duress or threat to the state interests.(7) one party enters into a contract by forcing the other party to accept his unfair conditions.(8) both parties maliciously collude to injure the interests of the country, collective or other persons.(9) A contract is against the law of the PRC or public interests.。