Know the Sources of Contract Law

Let’s look at another aspect of the contracting process, and that is determining the source of contract law. Let’s say, for example, that you’re negotiating with someone and you go to an attorney. And you ask the attorney for advice. Where does the attorney go to find out the law that relates to the contract that you’re making? Or more common today is the do it yourself contract, where you go online, there are a number of services that will help you form contracts. Where does the law come from that forms the basis for those online contracts that you are using? Well, basically there are two variables to determine this source of contract law.

One variable depends on what type of legal system you are in. Fundamentally, the legal world is divided into two parts. Roughly half the world is represented by the Common Law, and half by so-called civil law. Common law developed in England originally, and it’s based on precedence, which means that in addition to laws made by legislatures in addition to constitutions and in addition to rules made by administrative agencies. Courts look at prior decisions to decide particular cases. So in a common law country, which is basically England where it originated or countries that used to be owned by England. Common law countries lawyers spend a lot of time reading and hunting for cases.

Go try to find cases that are very similar to the contract negotiation you’re involved with, in order to give you legal advice. Civil law countries, and the civil law originated on the European continent. Civil law countries, rather than relying so heavily on precedence, use instead a so called code. Which is sort of an encyclopedia of law. And so a lawyer in a civil law country would go to the code, try to find the principles that govern your situation. And then use a deductive process in coming up with legal advice. Again, the civil law developed in Europe of famous civil law code is the Napoleonic code.

Napoleon was once quoted as saying that he had won many wars in his lifetime, but his proudest achievement was the development of the Napoleonic Code. Now what’s the practical difference between negotiating in a civil law or common law country. Well, in many cases, the laws in the two countries overlap. But yet there are some practical differences that you’ll encounter in your everyday negotiations. For example, in a civil law country, given the fact that there’s a large encyclopedia of law of code. The contracts tend to be a little bit shorter because they can incorporate the code by reference.

Whereas in a common law country, the lawyers will spend more time thinking of every possible scenario that might occur in trying to cover all eventualities in the contract. Now today, in a global economy. In fact, when I talk to people in even civil law countries, they tell me that even their contracts are becoming much longer than they did in the past. But traditionally, you probably generalize and say contracts in the civil law country were a bit shorter than those in a common law country. Another basic difference is that in some situations, there might be variance in law.

So when we begin to talk about actual contract law, I’ll point out a couple of situations where the civil law is different from the common law. But in most cases, the law in the two systems overlap especially with the development of a uniform code that I’ll be mentioning in a few minutes. So that’s the first variable. The difference between common law and civil law. Just to wrap up a look at this variable let me give you a quick quiz to test your knowledge of geography and history. So, I’m going to ask you about four countries and I’ll ask you whether they are common law countries or civil law countries. So get your pencil and paper ready.

So the first country is India. The common law or civil law? Now remember the test is was this country originally quote owned by England, in which case it would be a common law country. Or by a European country in which case it would be civil law. And England, in India, India’s relationship was with England and it is a common law country. Okay? Question number two, Brazil. Common law or civil law?

And Brazil’s legal system is related to a continent, to Portugal, and that makes it a civil law country.

Okay, next one. And I’ll warn you in advance, this is a tough one. The United States. Common law or civil law?

In a way, this is a trick question, because the United States was once owned by England. Therefore you would immediately think common law, but yet it’s a mixed system. It has a pocket of civil law because we bought Louisiana from the French and Louisiana has retained a civil law tradition. So actually the US is mixed. And final question, Canada. Common law or civil law?

Another trick question. Canada is also mixed. Most of the provinces are common law. Canada used to be owned by England. But, Quebec has a civil law tradition. So, again as you travel around the world you’re going to encounter both common law and civil law countries. For the most part they’re the same but there are some differences, which I’ll refer to later. Now, the other variable In determining the type of law is what type of contract are you dealing with. You can divide the contract pie into three big pieces. There’s contracts for the sale of real estate, contract for the sale of services, and contracts for the sale of products, which the law often calls goods.

Contracts for the sale of real estate and services follows the distinction we just discussed. It would either be common law or civil law. Since it’s a real estate contract in England or in India, it would be governed by common law principles. But when it gets to products, it becomes a little more complicated because even in a mainly common law country like the United States. There is a code that would be similar to a civil law code. In the United States, we call this code the Uniform Commercial code. And by uniform, we mean that it has been adopted around the country, although there are variations within individual states. There’s another uniform law that applies internationally.

And that’s the United Nations convention on contracts for the international sale of goods. So if you’re involved in international contracting and if your country has adopted this convention, then this might be the law that governs your negotiation and your sale. So far, 81 countries. They’re hard to read here, but 81 countries have adopted the UN convention on contracts for the international sale of goods. The latest one was the Congo in June 2014. You have the countries listed here included as a trivial question, one of the flags. I realize that it is hard to see, but see if you can identify that flag. Which happens to be the very last country on the list, Zambia.

So what this means is that if you are a company in let’s say Brazil, which is one of the adopters and you’re selling goods to a company in the United States. Because both of those countries have adopted this convention, you’re contract would be governed by this international law, unless you said in the contract, we do not want the law to apply. We’re going to pick a different law, but generally it’s the default position. So those are the two variables. That are important in determining the law that will govern your contract.