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Contract Laws In China and America Essay

I.Concepts and Features of Contract and Contract Law I.Concepts A.Concept and Features of Contract 1. Concept of Contract According to the provision of Article 2 of the Contract Law of People’s Republic of China (hereinafter referred to as Contract Law), contract is the agreement in which natural persons, legal persons or other organizations with equal status declare a common intention to establish, alter and terminate civil rights and obligations. Contract was once divided into agreement and contract. Agreement refers to the civil legal act established by both parties’ consensus with regard to opposite intentions, such as sales agreement. Contract refers to the civil legal act established by two or above three parties’ consensus with regard to collateral intentions, such as partnership contract. However, such division can no longer be seen in our current laws and the two are collectively referred to as contract.

Contract has its broad and narrow meanings. In the broad sense, contract refers to all agreements generating rights and obligations, such as labor contract, administrative contract, civil contract, etc. Furthermore, civil contract may also be divided into creditor’s right contract, real right contract, intellectual property contract, identity contract, personality right contract, etc. In the narrow sense, contract refers to the agreement for involved parties with equal status to establish, alter and/or terminate civil rights and obligations. The contract adjusted by the contract law is generally confined to the contract of creditor’s right, real right and/or intellectual property, etc. 2. Features of Contract It can be seen from the concept of contract — contract is the agreement in which natural persons, legal persons or other organizations with equal status declare a common intention to establish, alter and terminate civil rights and obligations that, contract has the following legal features: Contract is a kind of civil legal act implemented by natural persons, legal persons and/or other organizations with equal status.

As the most important legal fact, civil legal act is the lawful act implemented by civil subjects, which can generate, alter or terminate civil right and obligations. Since contract is a kind of civil legal act, it is different from fact behavior in nature. Fact behavior refers to the act which does not take the declaration of intention as an essential condition and cannot generate the legal effect expected by the party involved, such as infringing act, picking up lost property, etc. In nature, contract as the civil legal act belongs to lawful act.

That is to say, only under the circumstance that the declaration of intention made by the contracting parties is lawful, the contract is legally binding and protected by national laws. On the contrary, in case contracting parties make illicit declaration of intention, the agreement, even already reached, may not have the effect as a contract. As contract is a kind of civil legal act, general regulations of civil law concerning civil legal acts, such as essential condition of civil legal act, the ineffectiveness and revocation of civil act, are all applicable to contract. 3

Contract is the civil legal act in which two or more parties declare a common intention. The establishment of a contract shall have two or more parties who declare intention to each other and achieve a consensus. If such declared intentions are not consistent, no contract will be formed. Even though “one party cheats or threats or take advantage of the other party’s precarious situation to make such other party to conclude a contract which violates its real intention”, the party suffering damages is entitled to request people’s court or arbitration agency to alter or revoke the contract (Article 54.2 of the Contract Law. For similar notes cited in the following text, Contract Law will be omitted).

Contract is the civil legal act with a view to establishing, altering and terminating civil rights and obligations. Establishing civil rights and obligations refers to that after parties involved conclude the contract pursuant to the law, civil rights and obligations thus emerge between; altering civil rights and obligations refers to that after parties involved conclude the contract pursuant to the law, the previous civil rights and obligations between them is changed and new civil rights and obligations are formed; terminating civil rights and obligations refers to that after parties involved conclude the contract pursuant to the law, the civil rights and obligations previously existing between them are abolished. ④Contract is a civil legal relationship generated on an equal and voluntary basis by parties involved. That is to say, the subjects concluding the contract have equal legal status and no party may impose its will on the other party.

“Parties of a contract have equal legal status and one party may not impose its will on the other party” (Article 3); “Parties have the right to conclude a contract voluntarily according to law and no unit or individual may intervene illegally” (Article 4). ⑤Contract is the civil legal act which is legally binding. “The contract concluded according to law is legally binding upon parties involved. Parties shall perform their obligations as agreed and may not alter or terminate the contract with no consent”; “The contract concluded according to law is protected by law” (Article 8). Unless otherwise specified by law such as force majeure, the party who fails to perform the contract or whose performance of obligations does not conform to that prescribed in the contract shall assume the liabilities for breach of the contract to continue to perform the contract, adopt remedial measures or compensate losses.

B. Concept and Features of Contract Law 1. Concept of Contract Law Generally speaking, the concept of contract law may be comprehended in the broad and narrow sense. In the narrow sense, given contract is the consensus of parties to the contract in nature, contract law is deemed as the law implementing the promise and agreement of parties involved. “The core of contract law is the exchange of promise”. However, the concept of contract law in the narrow sense confines the contract law to normalizing the establishment, effectiveness, performance and default liability of the contract, but excluding the non-establishment, ineffectiveness and revocation thereof.

Therefore, the scope contained is not comprehensive. Just as Bayless stated, “The contract law pays attention not only to enforceable contracts and   agreements, but to adjusting the result of no contract or agreement concluded”. Therefore, the concept of contract law in the narrow sense is not suitable to apply. The concept of contract law in the broad sense proceeds from the object normalized thereby, namely the transaction relation, and defines the contract law as “the law relating to the individual transfer of property or labor service”. Most scholars in our country also consider that contract law is the law adjusting the dynamic property relations.

Both contract law and real right law adjust the property relations, however, “the real right law stipulates and adjusts the static state of property relation while the contract law stipulates and adjusts the dynamic state of property relation”. Given that the contract law comprehensively adjusts the transaction relation and the establishment of a contract equals to the formation of a transaction, the performance, alteration, cancellation and termination of the contract constitute the transaction process. Consequently, it’s necessary for the contract law to stipulate the procedures to conclude the contract by parties involved, ineffectiveness and revocation of the contract, remedies upon the failure or part failure to perform the contract, various specific contracts, etc. In a word, any and all transaction relations may be adjusted by the contract law. The definition of contract law as the law adjusting the transaction relation precisely summarizes the nature and functions of the contract law.

2. Features of Contract Law The contract law takes adjusting the transaction relation as its content and is applicable to various civil contracts, which determines the contract law has the features different from those in other departments of civil law (such as personality right law). These features are: Contract law has strong randomicity. Under the condition of market economy, the transaction development and property growth require the market subjects to be independent and fully express their wills. Laws shall leave broad space for the transaction activities of market subject and the intervention of government in economic activities shall be limited to the extent prescribed in the contract. The requirements put forward by the market economy against the law which endow parties with freedom to act as far as possible are thoroughly expressed in the contract. Therefore, the contract law mainly regulates the transaction through random norms rather than mandatory norms.

For example, though the contract law stipulates various contracts with certain titles, it does not necessarily require parties to design the contract content precisely in accordance with the provisions prescribed in law concerning the contract with certain title, but parties may negotiate to determine the contract articles freely. As long as the articles negotiated by parties don’t violate the prohibitive regulations of laws, social public interest or public morality, the effect of the contract is acknowledged by law. Notwithstanding law stipulates the contracts with certain titles, parties are not prohibited from creating new contract forms. Although the form to establish a contract is stipulated by law, unless otherwise specially prescribed about the contract form, parties are allowed to freely choose the contract form in principle. In short, a majority of norms of the contract law may be altered by parties through agreements.

The contract law also takes the freedom of contract as its basic principle; therefore, the contract law can be called as law at will in this connection. ②Contract law emphasized the principle of consultation on an equal footing and compensation of equal value The object normalized by the contract law is transaction relation, which requires the principle of consultation on an equal footing and compensation of equal value in nature. Just as Marx indicated, the commodity is “equal by nature”. In the exchange of commodities, “only the owners of commodities with equal status stand at opposite sides, and the means of occupying others’ commodities may only be used to alienate their own commodities.”

The exchange of commodities inevitably requires conforming to the law of value so as to carry out the exchange of equivalent labor, which determines that the contract law attaches more importance to the principle of consultation on an equal footing and compensation of equal value than other laws of civil law. ③Contract law is a uniform property law. Market economy is an open economy, which demands for the integration of domestic market with international market, domestic trade and international trade. As the basic law of the market economy, the contract law should not only reflect the requirements for a uniform market with a set of uniform rules, but also integrate with international conventions. ④Contract law is the law producing social wealth. Market economy is a developed credit economy, with all credit systems established on the basis of contract relations. A developed credit economy needs promise and agreement.

At the same time, the more solid and universal the promise and agreement are, the more developed the credit economy is. II. Comparison of Development History and Textural Difference between Chinese and American Contract Laws A. Different Development Histories of Contract Legal Systems in China and US 1. Emergence of Contract and Contract Law Contract is the result of commodity economy, which emerges along with the emergence of commodity economy and develops along with the development of commodity economy. The contract law is accompanied with the emergence and development of the contract.

In later period of clan society, due to the emergence and accumulation of private property, the exchange of products among people was becoming increasingly extensive and certain rules came into shape gradually. In the beginning, these rules were guaranteed by oaths, customs and other ways. When the oaths, customs and other ways were incapable to guarantee the implementation of trading rules, the social community emerging as the times required (organ of state power) thus formulated legal norms to supersede the foregoing. The earliest contract law of human society was developed from customs, so it’s called as customary law. However, the continuous development of society, especially the development and change of social   imbalance, made the customs different in various regions and groups, which resulted in customs here and now being inconsistent with those there and then, thus leading to transaction disputes.

This determined that the written law would gradually substitute the customary law. The Code of Hammurabi promulgated by ancient Babylonian Empire in the 18th century BC is the most ancient and most well-preserved written law discovered so far in the whole world, which has 282 articles in total, among which over 120 stipulates contract norms directly. The Twelve Tables and Corpus Juris Civilis promulgated by ancient Rome have more complete legal norms about contract, acting as the most complete and typical law reflecting the production and exchange of commodities among ancient laws and playing an important role in the legislation of capitalist countries in later ages. The French Civil Code in 1804 was based on Roman law.

The civil laws in European countries, except Britain, mostly originated from Roman law and formed the so-called “Roman Law System”. Along with the colonial expansion of these countries, the impact of Roman law was further extended to more regions of the world. After the Second World War, the contract law of early modern period was properly modified to become the modern contract law. 2. Development History of China’s Contract Law The ancient laws in our country had some regulations about the contract. According to the records of Rites of Zhou, there appeared written contracts such as “panshu (bamboo or wooden slips on which the texts of borrow and loan are written)”, “zhiji (sales contract)”, “fubie (borrow and loan contract)” in Zhou Dynasty. “Where any party asks for the government authority to deal with any dispute arising from debt borrow and loan, the case may only be accepted with the “panshu” previously concluded present”.

“Where any dispute arises from a borrow and loan contract, the official in charge of trying such dispute should make a judgment according to the articles specified in fubie”. “Where any dispute arises from a sales contract, the official in charge of trying such dispute should make an award according to the articles specified in zhiji”. All these written contracts were main basis for government authorities to judge right and wrong and determine the debt liabilities. In the following dynasties of Qin, Han, Sui, Tang, Song, Yuan, Ming and Qing, laws had several regulations about contract and contract system. However, in ancient times, our country was always with the agricultural economy which was self-sufficient and self-supporting, and the commodity economy was not developed. As a result, the norms of contract law centering on trading rules was also not developed, with no specialized civil code.

Even in the collection of various laws such as Tang Code and Great Qing Legal Code, articles pertaining to contract and contract system are also rarely seen. Since the founding of the People’s Republic of China, the contract law of our country has achieved significant development. In the initial stage of new China, the Financial and Economic Committee of the Government Administration Council under Central People’s Government promulgated the Interim Measures for Organs, State-owned Enterprises and Cooperative societies to Conclude Contracts or Agreements on September 27, 1950, and the Trade Department formulated the Decision Pertaining to Earnestly Concluding Contracts and Strictly Implementing

Contracts as well as the norms relating to various specific contracts such as sales contract and contract labor agreement of capital construction in the same year, all of which ascertain the legal norms of contract system and contract in the new China. Needless to say, due to the impact of wrong course and wrong trend of thought, the legal nihilism was rampant and the contract system was once cancelled in late 50’s. Especially in the period of the “Great Cultural Revolution”, all the contract systems, relevant laws and regulations were discarded. In the Third Plenary Session of the Eleventh Central Committee of the Party, the wrong policy of “taking the class struggle as the outline” was abandoned, the focus of work of the Party and the nation was shifted to developing economy, and the strategic decision of reform and opening up to the outside world was made in the session. All of these opened up a promising prospect for the development of contract legislation.

The Economic Contract Law, Economic Contract Law Involving Foreign Interest and Technology Contract Law were successively approved by the Standing Committee of the National People’s Congress on December 13, 1981, March 21, 1985 and June 23, 1987. It is especially worth mentioning that the General Principles of the Civil Law approved in the Fourth Session of the Sixth National People’s Congress explicitly regulates the system of civil rights and the system of civil liabilities, playing a very important role in perfecting the system of contract laws in our country. Through more than a decade’s legislation, our country has formed the legal system of contract laws which is guided by the General Principles of the Civil Law, backboned with Economic Contract Law, Economic Contract Law Involving Foreign Interest and Technology Contract Law, and based on the contract norms in specialized laws such as Maritime Law, Civil Aviation Law and Copyright Law and a set of administrative laws and regulations normalizing contracts.

All these laws have greatly promoted the economic development and the establishment and development of socialist market economy in our country. However, along with the establishment and development of socialist market economy, this legal system gradually presented new defects. In order to adapt to the requirements of economic construction and development, it’s necessary to proceed from the actual situations of our country, summarize the experience of ten years’ contract legislation and borrow general international practices to formulate a uniform and relatively complete contract law.

On October 1993, the Commission of Legislative Affairs of the Standing Committee of the National People’s Congress embarked on drafting the contract law on the basis of the legislation program approved in the Eighth Standing Committee of the National People’s Congress. According to the advice from all sources, the Standing Committee of the National People’s Congress further modified the draft for many times to form the Contract Law of People’s Republic of China (Draft) and submitted it to the Second Session of the Ninth National People’s Congress for deliberation. Through serious and earnest deliberation by people’s representatives, this important law was finally approved on March 15, 1999, which is a glorious page in the legislation history of the Republic, marking that the legislation of our country’s socialist market economy is ushering a new phase.

3. Development History of American Contract Law

As a whole, the American laws are developed on the basis of inheriting British laws. Although American laws are influenced by British laws at different levels in different fields, the contract rules formed in the British common law and equity law have a significant impact on American contract law. Therefore, when investigating the historical evolution of American contract law, it’s necessary to review the early development history of British contract law. a. Lawsuit of Promise in Early Britain In the medieval period, British law had not formed the concept of contract. The earliest to emerge was the so-called lawsuit of promise, namely, when the promisor violated his/her promise, the promisee might file a lawsuit with the court to force the promisor to implement the promise. The principle pursued by common court when trying such lawsuit was: only making a promise cannot generate a right of action; under normal conditions, promise doesn’t have the effect of compulsory execution, exceptional situations excluded. In contrast to the practice of common court as mentioned above, other courts showed more active attitude towards accepting the lawsuit of promise.

First of all, ecclesiastical court regarded the promise with oath as an irreversible one according to canon law and rendered the implementation. Secondly, in the court of equity, the Chancellor decided that since one party suffered loss because of the other party’ failure to perform his/her promise, such party shall obtain the compensation. However, till the 16th century AD, common court won the battle with the court of equity and ecclesiastical court striving for jurisdiction. In this process, the jurisdiction of common court was increasingly enlarged and the common law became the main part of British law. The opportunity for the contract law to develop through the judgments of ecclesiastical court and court of equity was always limited. From the 15th to the 16th century, along with the development of the relations of commodity production within the feudal society, to develop a kind of general basis for enforceable promise within the previous lawsuit procedures of common law was the urgent task to be resolved which was confronted by common court.

At the beginning, common court just confirmed more exceptional situations under which the promise may be executed mandatorily. However, this didn’t change the basic principle that promise doesn’t have the effect of compulsory execution under normal conditions. Since the second half of the 12th century, common court started to confirm the enforceable effect of sealed covenant, which was a kind of written promise with a seal on. Some people considered, if common court could loosen its requirements about the form of this written document, such document may also be mandatorily executed even with no seal on.

The existence of such covenant might become the general basis of the compulsory execution of promise, while till the 14th century, this possibility disappeared. Common court considered, the seal not only proved that one party had already made a promise, but also indicated that the promisor had seriously expressed that he/she would perform the promise for the promisee. Therefore, a covenant which was not sealed couldn’t be compulsorily executed. At the end of the 12th century, common court started to confirm the debt of a borrow and loan relation as the cause of action: In case one person borrowed an   amount of money from another person, the borrower should pay back the money to the lender. If not, the lender might file a lawsuit with the court to force the borrower to pay back money. Later on, common court further expanded the scope of lawsuit of debt repayment: Once a person granted a kind of material interest to another person, such person might lodge a lawsuit of debt repayment against the latter one, no matter the interest provided was a valuable thing or personal service.

However, the existence of such debt also didn’t become the general basis of the compulsory execution of promise for this debt was only confined to the interest which was already granted to others. If a promisee just accepted a promise from the promisor while obtained no actual interest from the promisor, he still couldn’t lodge a lawsuit of debt repayment. In the beginning of the 15th century, common court developed such a principle in its judgment: If someone made a promise of undertaking some kind of obligation to another one, and the promisee suffered damages in the process of the promisor’s performance of the obligation, the promisee might lodge a lawsuit to require the promisor to compensate. This is called the Action of Assumpsit for Misfeasance, whose basis was the theory of law of torts then already approved.

In this kind of lawsuit, if the promisor didn’t perform the obligation it undertook, the promisee couldn’t obtain the remedy. In the second half of the 15th century, the judges of common court realized that, in order to win the battle for jurisdiction with other courts, the scope of lawsuit of commitment must be expanded. New legal precedent rule in this period was: If the promisor changed his status due to his dependence on the promise and the non-performance of the promisor made the promisee suffer damages, the promisee might also obtain the remedy. Till the 16th century, the previous scope of lawsuit of commitment was newly expanded, namely, when two persons made promises to each other and the promise of one party constituted the transaction object promised by the other person, even if no party of the two performed his obligation, the promise to be carried out shall have the effect of compulsory execution.

The reason to adopt such rule was that, once the promise was made, the promisee has an expectation for the implementation of the promise, which should be protected, even if the promisee didn’t perform the corresponding obligation, nor suffered “damages”. Generally speaking, the 17th and the 18th centuries were the period during which British contract law slowly developed. b. Evolution of American Contract Law in Modern Society The American historian Henry Maine said in 1861 that, “till now, the movement of this developing society has always been a movement from identity to contract.” This sentence indicates the profound revolution undergone by western society from the feudal times of middle ages to the times of “laissez-faire capitalism”: In the feudal society, human relation was determined by their identity; in the period of “laissez-faire capitalism”, human relation was determined by the agreement reached between them. The whole 19th century is regarded as the century of contract by western historians.

The United States, just independent from the colonial domination of the Great Britain, entered in such a century soon after its establishment. In this period, main systems of British and American contract laws were both confirmed. With regard to the main body, American contract law remained consistent with British contract law. In this period, the consistency of American contract law with that of western countries was: The contract concluded by parties involved was generally considered as having the effect of compulsory execution. Once confirmed, such effect shall become absolute, and may not be changed by state will. In the second half of the 19th century, as the laissez-faire economy developed toward an extreme orientation, to safeguard individual’s right to freely conclude contracts had become the primary goal of laws. In the eyes of Americans at that time, “in nature, justice is to safeguard lawful contracts”.

The freedom of contract in the 19th century gave a full display of personal “independent will” and made private economy taking the “struggle for existence” as the motive power obtain rapid development with no government restraint and intervention. However, in late 19th century and early 20th century, the defects caused by this unlimited freedom of contract had fully appeared. In this period, contract laws of western countries underwent a new round of modification. The result was, the previous social movement “from identity to contract” started to turn to the social movement “from contract to identity”. In the US, since this century, especially since the Roosevelt’s New Deal in the 30’s, personal freedom of contract has received more and more restrictions.

Today, the “identity” is playing an important role in determining the relation of rights and obligations among people for the second time: Workers are protected by “workers compensation law” due to their identity, and the article of employment contract preventing the employer from undertaking the compensation liability for industrial accidents is no longer legally binding. Similarly, the lessee of rental agreement, the insurer of insurance contract and the demanders of various contracts of public service are all protected by certain laws due to their special identities. It can be seen from the aforementioned change that, in modern American contract law, to provide special legal protection for the vulnerable party of a transaction has already become a consistent policy.

Another feature displayed by American contract law in the process of its modern development and evolution is that, the impact of traditional British common law and systems and principles of other laws is decreasing, which is fully reflected from the fact that the Uniform Commercial Code abandoned and modified the traditional system of British contract law. B. Textual Difference and its Reasons between Chinese and American Contract Law Systems Given the development history of contract and the difference between Chinese and American political systems, there are following features when comparing Chinese contract law with American contract law: First, the contract law in our country is a uniform contract law applicable to all regions of China, whether in capital Beijing or western provinces. Second, this contract law is drafted with a round axis structure.

Basic principles  are firstly stipulated, and then some specific contracts, such as sales contract, lease contract, etc. In this way, the basic principles are regarded as the axis, and many specific contracts are radiated to satisfy different transaction requirements. For example, the transport contract has the problem which cannot be covered by basic principles. This problem can be resolved by combining the axis and the excircle. American political system is different from Chinese political system, and the development history of American contract law is also different. In America, it’s impossible for the legislative body to approve a law with the two features as mentioned above. America has no uniform contract law, nor state contract law. The international contract laws, such as the United Nations Convention on Contracts for the International Sale of Goods (CISG) and New York Arbitration Treaty are commonly used in all used in the whole United States.

However, with regard to the contract among American individuals, no law is promulgated by the federation. Consequently, there is no federal legislation with a round axis structure in America. Basically, each state has its own contract law and is responsible for developing basic principles of such law. The contract law of one state is not only applicable to the court of the state, but also binding on the federal court sometimes. In other words, as long as the state contract law exists, the federal court shall apply it. Of course, when 50 different contract laws are adjusting the same legal fact, the court will be confronted with a problem, namely, how to achieve the consistency of application of law? It’s also necessary to notice that American contract law is developed by the court rather than the legislative organ. You must be familiar with the concept of common law, which was formed in Britain and then introduced to America. The contract concept of the common law is formed through a long time. Their judges make the judgment and give opinions on the judgment.

Now, in this connection, the greatest exception is the UCC. American UCC is a uniform law. In America, every state has its own laws, but these laws cannot cover all transactions. Some are involved with transaction of several properties, such as the transaction and lease of products and some are related to bank business, security trading, e-commerce, etc. However, the construction contract and real estate contract are adjusted by commercial law. Since different state laws may result in different court judgments, if the Congress can approve a law with the round axis structure, these problems will be soon resolved, because doing that can get all transactions under the adjustment of one law.

C. Summary The development histories of Chinese and American contract law systems are different. Chinese culture has a long history and the contract law system was born very early. On the contrary, the US is a new country breaking away from the colonization. Although American economy is developing rapidly, its legal systems are mainly inherited from the Britain; especially the American contract law is significantly influenced by the contract rules formed in Britain common law and equity law. In short, China has a uniform contract law applicable to the whole nation, while America has no uniform contract code other than international contract laws.

In addition, the difference of Chinese and American political systems leads to a great difference in the textural structures of Chinese and American contract law   systems: Chinese contract law system is based on basic principles which guides various specific contract law systems so as to form a complete set, while America has neither guidance of basic principles in the contract law nor uniform contract law applicable to the whole nation. All in all, the development history and political system of a country influence its legal system. III. Conclusion The economic globalization and political polarization are two trends of the world development. Since China has joined the WTO, how to coordinate our laws is the central issue in the field of law. Nowadays, the world has ushered in the era of knowledge economy and the advancement of science and technology is crucial to the economic development.

However, the development of economy as well as the development, transfer and application of technology will inevitably require reforming the traditional contract law system. Some countries have already been reforming the current contract law systems quietly. The birth of China’s new Contract Law is confronted with the era of knowledge economy rather than that of planned economy or the transitional period from planned economy to market economy. The development of science and technology in the era of knowledge economy is so vigorous that it’s probable that difficulties in application will soon emerge after the implementation of new contract law, or even some regulations are already outdated. This situation may be considered as normal because law is the superstructure, which is always behind the economic development. Therefore, any law has to be continuously reformed and perfected.

Bibliography

1. http://legal-dictionary.thefreedictionary.com 2. Wilmot et al, 2009, Contract Law, Third Edition, Oxford University Press 3. Ewan McKendrick, Contract Law – Text, Cases and Materials (2005) Oxford University Press 4. P.S. Atiyah, The Rise and Fall of Freedom of Contract (1979) Clarendon Press 5. Randy E. Barnett, Contracts (2003) Aspen Publishers 6. Scott Fruehwald, “Reciprocal Altruism as the Basis for Contract,” 47 University of Louisville Law Review 489 (2009).


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