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What is the relationship between contracts and transactions? Are contracts just “paperwork”, in other words documents that needs to be done after the “deal” has been made between businessmen/-women? The answer that might surprise some businessmen is quite simply no. Contracts are much more than “paperwork” and although such a view of contracts might have been acceptable in the past, such a reactive perception of contracts puts the businesses under an unnecessary danger of failure.


Contracts and contract law can namely function as a safety net that rescues the contract parties when something goes wrong. This is of course the whole point in contracting. After all, formalized and documented contracting becomes attractive when a credible commitment can not be created by other means, e.g. by long-term relational trust.


The aforementioned safety net function of contracts is based to the fact that contracts provide part of the legal framework for transactions. For all categories of transactions it is important to realize the interaction between the different kinds of legal norms setting up the legal framework for the transactions. This legal framework consists of both general and contractual legal norms, where the default solutions provided by the applicable law can be fine-tuned to the needs of the contract parties with help of the contractual regulation of their relationship. However, some general legal norms are mandatory which means that they can not be altered through contractual regulation. Therefore, a fully effective contractual management of transactions presuppose understanding of the needs and limits of contractual fine-tuning of the legal framework for the transaction.


Naturally, contracts do not provide a legal framework only. Because of the fact that contracts will be enforceable (according to the general legal norms of the applicable general legal framework) they will also provide a general transactional framework for the actual performance of the contractual obligations, including the often quite detailed specification for the performance, performance timetables etc.


However, realizing fully the relationship between contracts and transactions demands a new preventive or proactive approach to contracting and law. From such a proactive perspective, contracts are instruments for the realization of all kinds of transactions:

- consumer-to-consumer transactions (C2C),

- business-to-consumer transactions (B2C),

- business-to-business transactions (B2B),

- business-to-government transactions (B2G), as well as

- government to government transactions (G2G).


Such a proactive view to contracting is necessary due to fact that the principle of freedom of contract is widely acknowledge throughout the world, which turns contracts to important transactional tools in fine-tuning the legal framework regulating the transactions. Since such freedom of contract is widest within B2B and B2G transactions, this management aspect to contracting is most appealing within these two categories.


Contracts can also be understood as important assets for an organization. In fact, Organization themselves can be understood as networks of contracts, as has been discussed in economics under the theory of firm as a nexus of contracts.


In order to fully realize to potential of contracts as instruments for managing risks involved in different kinds of transactions, one should take a deeper look at the relationship between contracts and risks, click here to go there.


Furthermore, how can contracts be used as instruments for the management of such transactions? In order to answer that question one should take a detour and discuss the role of contracts in different forms of business management, click here to go there.