Cambodia, like most, although not all, open economies, operates on the basis of a market system. This means that economic activity takes place through the exchange of commodities. Contract law is the legal mechanism through which such market activity is conducted and regulated.
Contract law is important for many reasons. Contracts are essential to the activities of businesses, governments, and individuals in free market societies. Respect for contracts can aid investment and growth, which generally lead to a more prosperous society. So the basic policy in free market nations is to promote the performance and enforcement of contracts.
Unfortunately, as we all know, dispute is often present in human relations. And parties sometimes disagree about the formation, meaning, or performance of their contracts. Such disputes can be complex and difficult to resolve. Resolving them in a fair, efficient way is the task of contract law. That is why it is so important that people in business and government–and other individuals–understand contract law.
Contract disputes occur in a wide range of areas, because contracts are used in so many different aspects of life. Of course, the free market economy operates to a large extent through contracts. Business organizations –from small family businesses in local markets to the largest multinational corporations–use contracts to buy and sell raw materials, supplies, and services. Farmers make contracts to buy the equipment and supplies they need to grow things, and to sell what they produce. It is hard to imagine a business surviving without using contracts. This is because the main goal of business is to make money, and it is difficult to do that without using contracts to trade things.
Contracts are also crucial in the activities of governments in trying to protect and improve the well-being of their people. Governments make contracts to buy what they need to operate the different branches of government; to keep order and protect the public from various dangers, to build key elements of the nation’s infrastructure, such as railroads and airports; to control the nation’s natural resources; and sometimes to hire private parties to help them perform certain government functions. Governments also make important contracts with other governments (such as treaties) about a wide variety of matters. These matters range from trade issues to environmental standards, from human rights to peace accords that resolve wars.
For individuals, contracts make it possible to reliably get food, shelter, health care, work, education, transportation, and recreation; to marry, raise children, and care properly for families; and even to affect events after their deaths! In fact, for most people, it would be difficult to go through even a short period of life without making contracts.
Of course, one reason the importance of contracts may not be obvious is that making contracts is so common. It happens so much, and in so many different situations, that people making contracts often do not even realize they are doing so. For example, if a persons buys a bowl of noodle soup for breakfast at a market stall, he has actually made a contract. The buyer of the soup has agreed to pay a certain amount of money for the soup, and the seller has agreed to provide the soup. In fact, this is probably a valid, oral, bilateral contract. There is no need to understand these legal terms yet. The point is only that even such a common act as buying soup for breakfast actually involves making a contract.
Even contracts like the soup example above, which may seem simple, are governed by the legal principles discussed in this book. For instance, in the soup example, suppose the buyer used a threat of violence to compel the seller to sell him the soup. In that case, the contract would not be valid, because of a formation problem: duress. If it was not clear which soup the parties meant, there might be interpretation problems. If the seller provided the wrong soup, defective soup, or no soup, without a legal excuse, the seller would have breached the contract. In that case, the buyer could ask a court for a remedy. So even this small transaction could involve legal problems. Contract law tries to resolve these problems.
