BizCLIR

"Next to criminal law, there is no body of law more important to a developing country than contract law." The words of Cornell Law School Professor Robert Summers aptly summarize the central role that contract law and, more specifically, the enforcement of contracts plays in a working commercial legal system. Without an adequate, well-defined body of contract law and the means to enforce those contracts, other laws considered essential to a modern economy become meaningless. For example, a law on secured transactions presupposes the existence of an underlying contract law and a mechanism to enforce those contracts. In this regard, secured transactions are nothing more than a particular species of contract that must be enforced according to their contractual terms. The same holds for other essential commercial laws such as the laws governing mortgages, personal property leases, and negotiable instruments. Even the law on bankruptcy presupposes the existence of binding contractual debt obligations that can be equitably adjusted or discharged through the bankruptcy process.

While customary law can provide for the creation and enforcement of contracts, in modern formal commercial legal systems, there are two components to enforcing contracts. First, there must be laws establishing the rules for the creation, interpretation, and performance of contracts. These rules in a formal system either can be set forth in statutory enactments or, in common law systems, can be found in published decisions of judges. Second, a working system of commercial law enforcement must have a means of adjudicating and enforcing contractual rights. In formal modern economies, the adjudicatory bodies are either the courts or, where parties agree, by private arbitration. If businesses do not have a working forum for adjudication of their disputes, a severe curtailment of business opportunities and expansion inevitably results. In addition, transaction flexibility may be limited because of the need to structure transactions in ways that limit disputes. The result is an economy that curtails its potential for growth and prosperity.

Rwanda?s current legal framework and institutional environment for enforcing contracts are generally perceived as workable. There are a number of shortcomings, however, that result in a perception that the enforcement of contracts in Rwanda is difficult. These shortcomings can be divided into two areas. First, the framework laws dealing with contracts are archaic and ill suited to a modern commercial economy. Second, the court system is not perceived to be efficient or to have the necessary capacity to deal with complex commercial transactions. As discussed in this chapter, both of these problems are the subject of ongoing progressive legal reform that should continue to be supported in future development efforts.