Common Law Of Contracts: Everything You Need to Know
The common law of contracts is important to understand when running a legal business in the United States.3 min read
2. Contracts Explained
3. Contract Fluidity
The common law of contracts is important to understand when running a legal business in the United States.
Overview of UCC Contracts and Common Law Contracts
In general, contract law principles are applied and understood in the United States. The Uniform Commercial Code (UCC) and the common law governs them. Common law is in charge of transactions with intangible assets, real estate, employment, services, and insurance.
Contractual transactions with tangible objects, such as buying a car, and goods are governed by UCC. UCC and the common law have unique differences that are important to understand and know, especially if someone does contractual transactions often.
A contract is when two or more parties enter an agreement where an offer is made and then accepted. Each party benefits out of this contract. Agreements can either be oral, written, informal or formal, or implied, such as a long-term business relationship.
Contract examples include promissory notes, leases, and rental agreements, to name a few. Four components are necessary to make a contractual agreement. They include:
- An offer
- Acceptance of that offer
- Intending to enter into an agreement that's legally binding
The offer is conditional but voluntary and is a promise an offeror makes to an offeree to accept. An invitation to treat is not the same as an offer. When an individual doesn't want to implement terms but wants to seek negotiations, this is called an invitation to treat.
An example of invitations to treat are adverts, such as goods displayed in stores. Acceptance is the next step when forming a contract. This can be communicated in writing, orally, or suggested by conduct, such as a handshake. A counteroffer is not the same as acceptance.
A previous offer made in response to an offer is a counteroffer. This will instantly reject the original offer and needs to be accepted under the counter offer terms.
As an example, Bob tells Paul he will sell his car for an offer of $600. However, Paul decides to make a counteroffer of $500 instead. This means Bob's original offer is not valid anymore, and Bob must decide whether or not to accept Pat's counteroffer for that to be valid.
Consideration is the next part of a contract. This is when something that's of value is given by both sides of a contract that enters them into an agreement where they must exchange mutual performances. Consideration needs to have a value that's determined objectively. For example, the promise of love can't be used since this is not enforceable and subjective in nature.
Consideration can be made for a particular act to be performed, such as fixing a roof that's leaking. No matter what the particulars are, it must be of value to both parties who are in the contract.
The last element in a contract is when there's an intention to form a relationship that's legal. This is one of the fundamental pillars when it comes to contract law. Both parties actively choose to enter into this arrangement, which creates obligations that are legally binding.
Domestic arrangements don't have the same intention to create this legally binding relationship. As an example, if a father decides to offer to pay his son money if he does well in school, this isn't in the realm of contracts. The exception to this rule are agreements made by separated or divorced couples over dividing their property.
A contract won't be legally valid if one of these parts if missing. Therefore, it's essential each part is completed to legally form a contract. The law is dynamic and must constantly change so it can keep up with current times.
Online shopping or e-commerce is an example of a change the law must adapt to. An example of a contract that happens online is buying a computer. The four parts of the contract still need to occur. The invitations to treat are the computers listed online.
The customer then picks a computer, makes an offer, and accepts it by filling out their personal information and payment details. The terms and conditions will be listed, which they need to accept.
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