Enforcement of Contracts: Everything You Need to Know
Enforcement of contracts and dispute resolution is imperative for proper market functionality.3 min read
Enforcement of contracts and dispute resolution is imperative for proper market functionality. To constitute a contract, there must be an offer from one party followed by acceptance from the other party. There is a requirement that when parties agree on a contract, some mechanism exists that ensures that the parties stick to the terms.
Strong contract enforcement measures enhance the stability of commercial relationships, thereby reducing the uncertainty associated with doing business. This is because both businesses and individuals will be assured that their previously negotiated contractual rights are enforceable in local courts.
In some locales, though comprehensive statutes exist with respect to the settlement of a contract dispute, often the courts are inefficient, have high costs associated with them, or are rife with corruption. Consequently, in addition to contract law, there must be quality legal institutions that uphold laws supporting effective implementation of those laws.
Such legal institutions include comprehensive organizations supporting the courts, a judiciary that is both competent and independent, a legal professional, proper law enforcement, and an effective and transparent process for lawmaking.
If the procedures implemented to enforce commercial transactions are cumbersome or bureaucratic, this affects proper contract dispute resolution. This, in turn, causes economies to become less efficient. Having weak and unsubstantial contract enforcement will slow down trade, harm investment, and hinder overall economics.
Innovation and Entrepreneurship
Weak contract enforcement processes present a strong roadblock to innovation and entrepreneurship. Under such conditions, businesses will be compelled to only do business with partners that they have a personalized relationship with to avoid the risk of doing business with an unfamiliar party.
The results will be very unfavorable:
- This will slow innovative businesses from entering the market.
- Banks will be cautious and reduce financing arrangements for new investments.
What’s more, weak enforcement is particularly harsh for entrepreneurship because new business ventures will find it more difficult to garner financing from banks and other lenders or to create a line of credit from their suppliers. This is in addition to uncertainty associated with building revenues.
In recognizing these issues, various countries have created specialized commercial courts; others responded by overhauling how they organize their courts or their legal systems to accommodate commercial dispute resolution.
Utilizing computerized systems for case management proved itself as an effective tool with respect to court organization. It has reduced procedural delays and enhanced the monitoring of judges and court officers.
Alternative Dispute Resolution
In addition to formal contract enforcement measures by way of the judiciary, alternative dispute resolution can provide for the enforcement of contracts in a timelier fashion. Such measures include mediation, arbitration, and conciliation hearings. Such hearings can be conducted by industry bodies, specialized agencies, or even by general third-party evaluators.
The World Bank, in its Doing Business rankings, provides a ranking of contract enforcement. This ranking focuses on public institutions functionality during a commercial dispute. This measures the cost, time, and complexity associated with the procedure in resolving a commercial dispute between two local businesses.
The World Bank collects data by way of a study of the various countries’ codes of civil procedure and numerous other court regulations. It also takes surveys of local litigators and by judges. The report also monitors a country’s best practices and initiatives that are aimed at improving contract enforcement.
Contract enforcement is a pillar of having the rule of law.
However, though a contract may facially appear valid, at times it may not be legally enforceable. Therefore, if concerns arise regarding your contract, be it enforceability concerns or you simply need help drafting a contract, you should consult with a competent contracts attorney who can make sure that the contract is valid.
Note that during a dispute over terms of a contract, a court will first determine whether the agreement between the parties constitutes a valid and enforceable contract.
If you need help with understanding contract laws in different jurisdictions and how enforcement in those jurisdictions work or just want basic contract drafting, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.