1 WHAT IS A CONTRACT
We can say that a contract is an
agreement between two or more parties which
gives rise to rights and obligations which will be enforced according to the system
of law applying to the contract .
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A simple example is where A and B agree that A shall build a house for B for
a fixed price according to plans prepared by B ’ s architect. Under this contract,
A will have both an obligation to build the house according to the plans and a
right to payment of the price when the work is done. B will correspondingly
have both the obligation to pay A and the right to have the house built
according to the plans.
Depending on which system of law applies to their contract, if A does not
fulfill his obligation to build the house according to the plans then B might be
able to obtain compensation for this ‘breach’ or breaking of the contract. The
system of law applying to the contract might say, for example, that B is entitled
to obtain a sum of money sufficient to put him in the position in which he
would have been had the contract been properly performed, that is, had A in
fact built the house in accordance with the plans; this sum of money could be
the cost to B of rectifying A ’ s deficient work.
The way in which B would actually go about obtaining the compensation to
which he would be entitled according to the system of law applying to the
contract depends upon a number of circumstances, and could be quite
1
Often the system of law applying to a contract, also called the governing law of the
contract, will be stated in the contract itself. For example, the parties may include a clause
in their contract which provides for Chinese law to apply to their contract, or for English
law to apply. See page 80 for an explanation of what is meant by the system of law ‘applying
to’ or governing a contract.
International Construction Contracts: A Handbook, First Edition. William Godwin.
© William Godwin 2013. Published 2013 by John Wiley & Sons, Ltd.
complicated. In a simple case where A and B both reside in the same country
and have their assets there, B will typically go to the local court to obtain an
order against A for the relevant compensation. If A does not pay, then B may
be able to ‘execute’ his order by obtaining other orders against A to force him
to pay; for example, an order for the sale of A ’ s assets. In a more complicated
case, where A and B live in different countries, or A ’ s assets are in a different
country, the procedures for executing his order for compensation against A
could be more complicated for B.
2
Let us look more closely now at what is meant by an agreement between
two or more parties giving rise to a contract between them.