Contract Law

The law of contracts considers such questions as: whether a contract exists, its meaning, whether a contract has been broken, and what compensation is due the injured party.

Contract law is the product of a business civilization. It will not be found in precommercial societies. Most primitive societies have other ways of enforcing the commitments оf individuals; for example, through ties of kinship or by the authority of religion. In an economy based on barter, most transactions are self enforcing because the transaction is complete for both sides at the same moment.

Problems may arise if the goods exchanged are later found to be defective, but these problems will be subjects of property law rather than contract law.

Even when transactions do not take the form of barter, primitive societies continue to work with notions of property rather than of promise. In early forms of credit transactions, kinship ties secured the debt, as when a tribe or a community gave hostages until the debt was paid. Other forms of security took the form of pledging land or pawning an individual into a ‘debt slavery’. Some credit arrangements were essentially self-enforcing: livestock, for example, might be entrusted to a caretaker who received for his services a fixed percentage of the offspring. In other cases — constructing a hut, clearing a field, or building a boat — enforcement of the promise to pay was more difficult but still was based on concepts of property. In other words, the claim for payment was based not on the existence of a bargain or promise but on the unjust detention of another's money or goods. When a worker sought to obtain his wages, the tendency was to argue in terms of his right to the product of his labor.

A true law of contracts, that is, of enforceable promises, implies the development of a market economy. Where a commitment's value does not vary with time, ideas of property and injury are adequate and there will be no enforcement of an agreement if neither party has performed, since in property terms no wrong has been done. In a market economy, on the other hand, a person may seek a commitment today to be protected from a change in value tomorrow; the person obtaining such a commitment feels harmed by the fact that the market value differs from the agreed price.

Traditional contract law developed rules and principles controlling the voluntary assumption of obligations, regulating the performance of obligations assumed, and providing sanctions for failure to perform.

Modern commercial practice relies to a growing extent on arbitration to handle disputes, especially those that arise in international transactions. There are several reasons for the growing use of arbitration. The procedure is simple, it is more expeditious, and it may be less expensive than traditional litigation. The arbitrators are frequently selected by a trade association or business group for their expert understanding of the issues in the dispute. The proceedings are private, which is advantageous when the case involves trade or business secrets. In many legal systems, the parties can authorize arbitrators to base their decision on equitable considerations that the law excludes. Finally, when the parties represent different countries, an international panel of arbitrators may offer more guarantee of impartiality than would a national court. Despite these advantages of arbitration, the development of contract law may suffer considerably from withdrawals from the courts of litigation, involving some of the most significant and difficult problems of nowadays because the arbitral awards are usually made in private.

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