The Laws That Govern Contracts

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The Laws That Govern Contracts

In order to understand if a contract is valid we must first understand the laws that govern contracts. There are three different types of laws that govern contracts: common law, the Uniform Commercial Code, and other miscellaneous statutes that apply to particular situations.

  • Common law is the compilation of caselaw that has been formed over the years. In order to understand these laws, you have to review what the courts have ruled in specific situations. This type of law is ever-changing as long as courts are ruling on those different situations.
  • Uniform Commercial Code (UCC) is the law that is specific to goods for the sale of $500 or more and usually governs the transactions between merchants.
  • Other miscellaneous laws are simply other statutes that are more regulatory to cover a specific issue. One example is the law regulating contracts and how contracts can and cannot automatically renew for consumers. Another example is the Statute of Frauds that requires certain contracts to be in writing, which governs contracts that have a term of more than a year, or involve the sale of goods for more than $500, or contracts involving real estate.

So if you are entering into a contract for a service it is likely to fall under common law. Whereas, if you are selling products or goods, then your contract will be governed by the Uniform Commercial Code. Because these laws can be quite different, it’s important to know which type of law will dictate the terms of the contract, because it can be whether your contract is actually enforceable.  Lastly, there are other miscellaneous statutes that will apply that you or your lawyer will have to research as I discussed above. These laws have specific terms for  specific situations and must be reviewed carefully before negotiating or drafting a contract. Not being aware of certain contract laws can result in your contract being invalidated or used against a party for violating consumer or employee rights. The cost of those defending those claims far outweigh having a lawyer write a legally sound contract.