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Contract law

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A contract, in the simplest definition, is a promise enforceable by law. The promise may be to do something or to refrain from doing something. The making of a contract requires the mutual assent of two or more persons, one of them ordinarily making an offer and another accepting.

If one of the parties fails to keep the promise, the other is entitled to recourse against him. The law of contracts considers such questions as whether a contract exists, what the meaning of it is, whether a contract has broken, and what compensation is due the injured party.

Contract law is the product of a business civilization. It will not be found, in any significant degree, in precommercial societies. Most primitive societies have other ways of enforcing the commitments of 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 on both sides at the same moment. Problems may arise if the goods exchanged are later found to be defective, but these problems will be handled through property law – with its penalties for taking or spoiling the property of another – rather than through 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 «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 labour.

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 guard against 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 voluntaryassumption of obligations, regulating the performance of obligationsso 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 are from different countries, an international panel of arbitrators may offer a greater guarantee of impartiality than would a national court. Despite these advantages of arbitration, the development of contract law may suffer considerably by a withdrawal from the courts of litigation involving some of the most significant and difficult problems of the present day, all the more so because the reasoning in arbitral awards is usually not made public.


UNDERSTANDING MAIN POINTS___________________________________

3. Answer the following questions using the information from the text:

1. What does making of a contract require?

2. What is one party entitled to do if the other fails to keep the promise?

3. What does the law of contract consider?

4. How do primitive societies enforce the commitment of individuals?

5. Did contract law exist in early societies? How were problems solved?

6. What does a true law of contract imply?

7. What are the reasons for the growing use of arbitration?

8. What are the advantages and disadvantages of arbitration?


4. Explain in other words the following words and word combinations:

1. to give hostages

2. to pledge land

3. to pawn into slavery

4. bargain

5. wages

6. assumption of obligations

7. to authorize

8. to be impartial

5. PREPOSITIONS. Choose the right preposition in brackets according
to the contents of the sentences (into, on, of, for, to).

1. What is the party entitled... if the other fails to keep the promise?

2. In precommercial societies there was an economy based... barter.

3. In primitive societies they pawned an individual... «debt slavery».

4. What was the claim... payment based on in primitive societies?

5. What does modern commercial practice rely...?

6. There are several reasons... the growing use of arbitration.

7. What are the advantages... arbitration?


6. Match the verbal combinations with the word ‘contract’ with their Ukrainian equivalents:

1) to sign a contract

2) to conclude a contract

3) to draw up a contract

4) to execute (to perform)

a contract

5) to break a contract

6) to cancel a contract

a) порушувати контракт

b) виконувати контракт

c) складати контракт

d) підписувати контракт


e) заключати контракт

f) розривати контракт


7. Substitute the active vocabulary of the lesson for the italicized pails:

1. Early societies worked with notions of property rather than of promise.

2. The making of a contract requires the mutual agreement.

3. If a contract is broken, compensation is to be paid to the suffered party.

4. All problems connected with damaging the property were handled through property law.

5. The proceedings are private that is convenient.


8. Explain the difference in meanings of the following words in pairs below.

Point out the parts of speech of the words; make up your own sentences with them.

1. commitment and obligation

2. to handle disputes and to settle disputes

3. to pledge and to pawn

4. to guard and to secure

5. agreement and treaty

6. wages and salary

7. process and procedure

8. to authorize and to entrust


9. There are many types of legal contracts which create a legal relationship between individuals and between companies and individuals. Look at the following types and link each to its description.


1. Contract of employment a. This contract comes into existence as

soon as a job offer oral or written, is



2. Shareholders agreement b. This agreement is used where
one party buys goods from the
manufacture and re-cells them on
his own account.


3. Consultancy agreement c. This agreement sets out the terms
and conditions on which a business
supplies goods.


4. Distribution agreementd. This agreement is used where

one party grants to another the right

to run a business in the name of the

first party. Examples include Body

Shop and McDonalds.


5. Franchise agreement e. This agreement is used where one

party provides services as an independent

advisor to a company.


6. Manufacturing licence agreement f. This is intended to govern the

relationship between a number of

shareholders in a company.


7.Terms and conditions of sale g. This agreement should be used
agreementwhere one party (the licensor) owns

intellectual property rights in respect

of a product it has developed and wishes

to license the manufacture to a third party.




UNIT 6___________________________________________________________

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