Category of contract

Kinds of Contract – The Value for Differentiation Dispositive Juristic Act and Its Cause – Contract

Causa

Type Contract – Non-type contract – Mixed-Type contract Financial Lease

Kinds of Contract

Nominate contract (type contract), non nominate contract (non-type contract) Consensual contract, real contract Two-side contract, one side contract Onerous contract, gratuitous contract Informal contract, formal contract Main contract, preliminary contract

Nominated contract (type contract)

Transaction of property – Onerous contract Sale, exchange, lease, loan for consumption, Contracts for the Supply and Use of Electricity, Water, Gas and Heat – Non-onerous Gift, loan for consumption, loan for use

Nominated contract (type contract)

Service Contract – Typical service contract Employment Contract for work Mandate – Mixed type service Employment Contract for work – Construction Project Contract – Carriage – Publishing contract Mandate – Warehousing, brokerage, commission agent, forwarding agent, commercial agent, manager contract, deposit contract

Nominated contract (type contract)

Other contract – A joint undertaking Bid society partnership – Technology Contract – Settlement – Suretyship

non-nominated contract (non-type contract)

Contract

sui generis

Binding Contracts Mixed contract (one contract) – Absorption theory – Combination theory – Analogy theory

Consensual contract v. real contract

Consensual contract (executory contract) – A contract which is formed by the exchange of reciprocal declarations of intention.

– sale, gift (PRC CL § 186), loan for consumption (PRC CL § 210), warehousing (PRC CL § 382), carriage (PRC CL) Real contract (executed contract) – A contract which is formed by the delivery of the subject matter of the contract in addition to the exchange of reciprocal declaration of intention.

– Loan for consumption within natural person (PRC CL § 210) ,loan for consumption (Japan, ROC), deposit (PRC Cl § 367, Japan, ROC Civil C)

Informal contract v. formal contract

Formation of contract – Formation required by law Informal contract – Japan: all type contracts – PRC: sale, gift… – ROC: sale, gift… Formal Contract – A contract which a specific formality shall be excised to form such a contract – Formation agreed by the parties

Financial Lease

Definition of Financial Leasing Contract

A financial leasing contract is a contract whereby the lessor, upon purchase of the lessee-selected lease item from a lessee selected seller , provides the lease item to the lessee for its use, and the lessee pays the rent. (PRC CL Article 237)

Unidroit Conventions on International Financial Leasing Article I para. 2 2.The financial leasing transaction referred to in the previous paragraph is a transaction which includes the following characteristics: – (a) the lessee specifies the equipment and selects the supplier without relying primarily on the skill and judgment of the lessor ; – (b) – (c) the equipment is acquired by the lessor in connection with a leasing agreement which, to the knowledge of the supplier, either has been made or is to be made between the lessor and the lessee; and the rentals payable under the leasing agreement are calculated so as to take into account in particular the amortization of the whole or a substantial part of the cost of the equipment.

3. This Convention applies whether or not the lessee has or subsequently acquires the option to buy the equipment or to hold it on lease for a further period, and whether or not for a nominal price or rental. 4. This Convention applies to financial leasing transactions in relation to all equipment save that which is to be used primarily for the lessee's personal, family or household purposes.

Lender Lessor Owner of the leased item Purchaser Sale of Goods loan Finance lease Pay rent Borrower lessee The possessor of the leased item Deliver the lease goods Seller

Lender

Mortgagee

Loan for consumption Borrower Amortize loans

Mortgage in a chattel

Purchaser Owner and

Mortgagor

Possessor of the item Sale of Goods Deliver the lease goods Seller

Sale of Goods Seller Transferor

Owner of the item Transfer of the title : until condition precedent fulfilled Deliver the goods Payment of the price by installment

Purchaser Transferee

Possessor of the item

Attributes of Finance Lease

Type contract – Lease – Loan for consumption – Sale Non-type Contract

Attributes of Finance Lease

The alleged financial lease enterprise is an enterprise that leases goods to a person who needs the goods after providing the capital to buy the goods leased and obtaining the good title of goods, other than an enterprise from which it lends money to a person who needs capital funds. Such a transaction pattern, without violating mandatory law, public policy, and good moral, is helpful to the industrial and commercial activities of our country. The purpose of such a financial lease is to provide capital fund for the lessee, and the loan for consumption could reach the goal to raise capital fund as well: however, both contract are totally different with each other. Considering the features of a financial lease, it should be interpreted as a “non-type contract” which is similar to a lease contract because a financial lease differs with a loan for consumption regarding the distribution of interest and hazards of the leased goods. Taiwan Supreme Court Civil Decision Case No. 482 (2004).

Case Study The finance lease means an economic activity from which the leasing company purchases an object for lease under the request of the lessee and rents it to the lessee for the purpose of use. On the other hand, an enterprise who needs an equipment or a machine selects an equipment or a machine from a supplier or a distributor. However, the enterprise is reluctant or unable to raise funds to purchase the equipment or machine. Then the enterprise turns to request the leasing company to buy the equipment and machine from the supplier or distributor and lease the item from the leasing company. The lessee then pays rental at stated period to assure of the payment of price, interest, other expenses, and the profit afterward.

Because the lessor is on the position of a fund provider, he don’t own the inventory of equipment or machine and don’t have knowledge about the equipment, in the whole lease activity, the lessor is only obligated to provide a fund to purchase the equipment and machine designated to the use of the lessor. Hence, all the duties pertaining to the owner, such as custody, repair, tax duty, burden of hazard, should be on the side of the lessee.

Lender Zhong Zu Leasing Company (The appellee) Buyer of resale The lessor loan Resale of the machine Payment of the price Lease Rent payment Borrower Seller of resale Da Pi Fa Co. (the purchaser and possessor of the machine) The Lessee compulsory execution of the machine The Original Sale of Machine President Co.

(Creditor of Da Pi Fa Co.) (The appellant) Hong Ying Co.

(the seller of the machine)

ROC Civil Code Article 761

The transfer of rights in rem of personal property will not effect until the personal property has been delivered.

However, if the transferee has been in possession of the personal property, the transfer effects when the parties agree to such transfer.

In the transfer of a right in rem of personal property, where the transferor is still in possession of it, a contract causing the transferee to acquire its indirect possession may be made between the parties in the place of its delivery

.

ROC Civil Code Article 87

A fictitious expression of intent made by the expresser in collusion with other party is void, but the voidance can not be a valid defense against any bona fide third party.

If the fictitious expression of intent was intended to conceal another juridical act, the provisions of the act with respect to such another juridical act shall apply.

ROC Civil Code Article 761

In the transfer of a right in rem of personal property, where a third party is in possession of it, the transferor may transfer the claim against such third party for the return of it to the transferee in place of its delivery.

The lessee’s rights

Lessee's Assumption of Buyer's Rights – Under the sales contract concluded by the lessor according to the lessee's selection of the seller and the lease item, the seller shall deliver the subject matter to the lessee in accordance with the contract, and the lessee enjoys the rights of the buyer in respect of taking delivery of the subject matter . (PRC Contract Code Article 239)

The lessee’s rights

Lessee's Assumption of Buyer's Remedies in Case of Seller's Non performance – The lessor, the seller and the lessee may agree that any claim arising from the seller's non-performance of its obligations under the sales contract will be made by the lessee. Where the lessee makes such a claim, the lessor shall provide assistance. (PRC Contract Code Article 240)

Amendment of Sales Contract

Certain Amendment of Sales Contract Subject to Consent by Lessee – Absent consent by the lessee, the lessor may not amend any lessee-related term in the sales contract concluded by it according to the lessee's selection of the seller and the lease item. (PRC Contract Code Article 241)

Title to the lease item

Exclusion of Lease Item from Bankruptcy Assets of Lessee – Title to the lease item vests in the lessor . In case the lessee enters into bankruptcy, the lease item is not part of its bankruptcy assets. (PRC Contract Code Article 242)

Rent

Determination of Rental Components – Unless otherwise agreed by the parties, the rent under a financial leasing contract shall be determined based on the major portion of or full costs of purchasing the lease item and the lessor's reasonable profit . (PRC Contract Code Article 243)

Warranty for fitness

Lessor Not Liable for Non-fitness of Lease Item; Exceptions – Where the lease item does not comply with the contract or is not fit for the intended purpose, the lessor is not liable , except where the lessee relied on the skills of the lessor in selecting the lease item or the lessor interfered in the selection thereof . (PRC Contract Code Article 244)

Warranty by Lessor

The lessor shall give warranty in respect of the lessee's possession and use of the lease item. (PRC Contract Code Article 245)

Liability for Injury

Lessor Not Liable for Damage or Injury – If while in the possession of the lessee, the lease item caused personal injury or property damage to any third person, the lessor is not liable. (PRC Contract Code Article 246)

Maintenance Obligations

Lessee's Obligation of Due Care; Maintenance Obligations – The lessee shall keep (or keep it in his custody) and use the lease item with due care .

– While in possession of the lease item, the lessee shall perform the obligations of maintenance and repair thereof. (PRC Contract Code Article 247)

Lessor' s Remedies

Lessor' s Remedies in Case of Non payment by Lessee – The lessee shall pay the rent in accordance with the contract. Where the lessee fails to pay the rent within a reasonable period after receiving demand for payment from the lessor, the lessor may require payment of the full rent ; or it may terminate the contract and repossess the lease item. (PRC Contract Code Article 248)

Refund

Partial Refund in Case of Termination by Lessor – Where the parties agreed that title to the lease item will vest in the lessee at the end of the lease term, and after paying a major portion of the rent, the lessee is unable to pay the remaining balance, resulting in the lessor's termination of the contract and repossession of the lease item, if the value of the repossessed lease item exceeds the rent owed by the lessee and other expenses, the lessee may require partial refund . (PRC Contract Code Article 249)

Ownership of Lease Item

Ownership of Lease Item at End of Lease Term – The lessor and the lessee may agree on the ownership of the lease item at the end of the lease term. – Where ownership of the lease item was not prescribed or clearly prescribed, and cannot be determined in accordance with Article 61 hereof, title to the lease item shall vest in the lessor. (PRC Contract Code Article 250)