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in this section, we cover the key legal concerns relating to contract formation that represent the foundation of contract literacy. Before doing so, however, we cover a preliminary matter relating to the source of contract law. [1]


In our globalized economy, contract law has become increasingly similar from country to country, but differences still exist. Because these differences relate to the source of contract law, understanding the source is an important attribute of contract literacy. As a result, at the beginning of any negotiation you should determine whether your situation is governed by the laws of a civil law or common law country.

The distinction between civil law and common law countries is especially important because the legal requirements for a valid contract differ to some extent. For example, civil law does not include the consideration requirement discussed below.

Generally speaking, civil law countries include continental European countries and the former colonies of these countries. In civil law countries, the principles of law are primarily found in a published "code”—in effect, an encyclopedia of law. Common law countries (generally England and its former colonies) rely more heavily on previously decided cases—that is, precedents—as a source of law. Apart from differences in legal requirements, one practical distinction between the two legal systems is that common law contracts tend to be quite lengthy because lawyers attempt to anticipate every possible scenario that might arise when a contract is performed. Civil law contracts traditionally were shorter because the contract could incorporate provisions from the code. However, even in civil-law countries there is a trend toward longer contracts.

  • [1] the second and third parts of this chapter have been adapted in part from Siedel, G.J. and Haapio, H. (2010) using proactive law for competitive advantage.American Business Law Journal, 47(4), 641-86.
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