Key Takeaways

  • A common law contract typically governs transactions involving services, real estate, and employment rather than goods.
  • The essential elements include offer, acceptance, consideration, legal capacity, mutual consent, legality, and sometimes writing.
  • Unlike UCC contracts, common law contracts are less flexible and require a stricter match between offer and acceptance.
  • Modifications under common law require new consideration, unlike UCC contracts where good faith can suffice.
  • Enforcement and damages are guided by state court precedents, which can vary across jurisdictions.

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.

Key Differences Between Common Law and UCC Contracts

The most critical distinction between a common law contract and one governed by the Uniform Commercial Code (UCC) lies in the type of transaction involved. The UCC applies specifically to contracts involving the sale of goods, while common law governs contracts related to services, employment, real estate, and intangible assets.

Key differences include:

  • Type of Transaction: UCC = sale of goods; Common Law = services, real estate, etc.
  • Offer and Acceptance: Common law requires a “mirror image” acceptance; UCC allows for some variance.
  • Modification Rules: Under common law, a contract modification must include new consideration. The UCC allows modifications without new consideration, provided they’re made in good faith.
  • Performance and Breach: UCC allows for “perfect tender” of goods; common law uses the “substantial performance” standard.
  • Remedies: UCC includes unique remedies like “cover” and “replevin” that are not available under common law.

Understanding these differences is vital when determining which legal framework applies to your contract.

Contracts Explained

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
  • Consideration

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.

Essential Elements of a Common Law Contract

While the article already covers four key elements, the broader legal understanding identifies seven essential components necessary for a common law contract to be valid:

  1. Offer – A clear and definite promise.
  2. Acceptance – Must mirror the offer to form a valid agreement.
  3. Consideration – Something of value exchanged by both parties.
  4. Mutual Assent – Also called “a meeting of the minds”; both parties must agree to the same terms.
  5. Capacity – Parties must have legal capacity (e.g., age and mental competency).
  6. Legality – The subject matter of the contract must be lawful.
  7. Writing (if required) – Certain contracts, like those for real estate, must be in writing under the Statute of Frauds.

If any of these are missing, a court may deem the contract void or unenforceable.

Contract Fluidity

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.

Enforcing a Common Law Contract in Court

When a dispute arises over a common law contract, courts examine several factors to determine enforceability. Judges look at the intent of the parties, the clarity of the terms, and whether all essential elements are present. Common law courts will not enforce vague or incomplete agreements.

Typical remedies for breach under common law include:

  • Compensatory damages to restore the injured party.
  • Consequential damages for losses indirectly caused by the breach.
  • Specific performance, when monetary damages are insufficient, especially in real estate matters.
  • Rescission or reformation, which either voids the contract or adjusts its terms.

Because the common law relies heavily on judicial precedent, outcomes may vary based on jurisdiction.

Frequently Asked Questions

  1. What is a common law contract?
    A common law contract is a legally binding agreement primarily governed by court-made law and judicial precedents, covering services, employment, and real estate transactions.
  2. How is a common law contract different from a UCC contract?
    Common law contracts deal with services and are stricter in terms of offer and acceptance, while UCC contracts cover the sale of goods and allow more flexibility.
  3. Do all contracts need to be in writing under common law?
    Not all, but contracts involving real estate, marriage, or agreements that can't be performed within a year typically must be written under the Statute of Frauds.
  4. Can a common law contract be modified without new consideration?
    No. Under common law, a valid modification generally requires new consideration from both parties.
  5. What happens if one element of a contract is missing?
    If a contract lacks a key element such as consideration or mutual consent, it may be considered void or unenforceable in court.

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