How doing business in China without a master written contract in Chinese is like playing roulette in Macau (but playing roulette, even when you lose, can still be so much more fun!)

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A contract is a fundamental basis of commerce. In fact, it’s really a cornerstone of modern society (for example, think of the so-called “social contract” and the “contract with America”). Without going into what every law student suffers through in the first year of law school, a contract sets forth an agreement between (or if there are more than two parties involved, among) a number of parties on who is to do what, and when, and for how long, on the basis that each party is giving something to, and receiving something from, the other party or parties (consideration). There is also a concept of material terms, which will differ based on the terms and subject matter for various contracts, but usually will involve such fundamental factors as identification of who the parties are and where they are located, when the contract starts and ends, what the fundamental duties for each party are and what dates and quantities and qualities or standards are involved, and what the economic terms are.

In the United States, contracts are incredibly important. But in the past, and particularly during the past 60 years or so, numerous steps have been taken to make establishing commercial contracts, and figuring out the terms, somewhat simpler. Among many other things, the Uniform Commercial Code (known as the UCC) was adopted (albeit with some variations in different states), and has been revised repeatedly, so that there are certain uniform standards of conduct that apply to nearly all commercial and financial transactions involving personal property in the United States. Within that same framework, courts in the United States (and that includes state courts as well as federal courts), in the absence of clear written contracts, have established doctrines and precedents (and many of these are also set forth, or codified, in the UCC) whereby they may infer the terms of a contract between or among parties based on such factors as the written communications between the parties, and/or their behavior or course of conduct between (or among) the parties, or the standard of how similar parties tend to behave or act within that particular industry in America. So a series of purchase orders between two parties, or even just emails between them, or even telephone calls that are “followed up” with sales and shipping and other activities, may be deemed to create a “contract” in America, and if something later is deemed to have somehow gone wrong, that may give rise to a valid legal claim for a breach of a contract, and related damages. And in the United States, damages for a breach of contract tend to follow almost a mathematical determination of liability, and assessment of actual damages proximately caused by the breach of contract, without assessment of liquidated or punitive damages.

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Topics:  China, Contract Drafting, Contract Formation, UCC

Published In: Civil Remedies Updates, General Business Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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