Contracts and Leases in Common Law and UCC - Essay Example

Contracts and Leases in Common Law and UCC According to Bagley and Dauchy (2012), a contract is an agreement between two or more parties which can be legally enforced. The parties can either be individuals, companies or organizations. A Lease of property is an example of a business contract. Contracts create an obligation of doing or not doing particular things, and they are important to the community because they facilitate cooperation and trust. Business contracts are one of the most popular legal transactions that people get involved in when running businesses. Regardless of the type of business an individual runs, it is important to have an understanding of contract law as it is the key to making sound business agreements that can be enforced legally in the event of a dispute. Normally, a contract is enforced and governed by the laws of the country where it was made. In the United States of America, a contract is governed by two types of state laws, that is, the common law and the Uniform Commercial Code (UCC) (Bagley and Dauchy, 2012). Common Law Common law is a law which governs contracts for services and contracts that are not governed by the Uniform Commercial Code. Most contracts such as employment agreements, general business agreements and leases are controlled by common law. Common law contracts can either be bilateral or unilateral. However, the contracts are valid only if the three elements of common law contract formation are met. The elements of formation are offer, acceptance and consideration (Bagley and Dauchy, 2012). The Uniform Commercial Code (UCC) The uniform commercial code (UCC) governs the contracts between merchants and the sale of goods. The law was written by the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI). It was published in 1952 to harmonize the law of sales and other commercial transactions in the United States. Although it has not been fully enacted, some provisions of the code have been adopted by all the fifty states of the US (Fullerton, 2011). Previously, the code was divided into 9 articles; however, after a number of reviews and revisions, the code is now divided into eleven articles with each giving provisions that relate to a particular area of commercial law. Article 1, gives the definitions of terms used in commercial law and the general principles that apply to the UCC. Article 2 covers all contracts pertaining to the sale of goods. Article 2A covers all transactions pertaining to leases of goods. Article 3 covers negotiable instruments such as checks and promissory notes. Article 4 governs bank collections of drafts and checks. Article 4A governs the transfer of funds through banks. Article 5 governs letters of credit. Article 6 governs bulk sales. Article 7 covers domestic documents of title. Article 8 covers all transactions in investment securities and article 9 applies to security interests in real property (Bagley and Dauchy, 2012). Differences between Contracts Formed Under Common Law and Contracts Governed By the Uniform Commercial Code (UCC) Although both the common law and the UCC govern contracts, the two laws differ in various ways. The first difference is that, contracts under uniform commercial code apply to various commercial issues such as sale of goods, banking and security interests whereas common law contracts deal with the sale of real estates, employment contracts, insurance, services and sale of intangible assets (Prabhat, 2011). According to the UCC, a good is any item that is tangible and movable. Therefore, the sale of a home is not a sale of goods since the home is immovable. Also, the sale of a right to a trademark is not a sale of goods since it is not tangible (Cornell University Law School, 2005). The second difference between the two contracts is that, contracts under UCC can be modified without additional considerations as long as they are made in good faith whereas those under common law except promissory estoppels and promise to pay disputed debt are modifiable only with additional considerations. Under article 2 of the UCC, contracts can be modified either through writing or verbal communication without additional considerations made, and such modifications do not breach a contract (Cornell University Law School, 2005). Thirdly, under common law, an acceptance is by mirror image rule otherwise it is a counter offer or rejection. However, as far as sale is concerned, under the uniform commercial code, this general law is altered. Under the UCC the mirror image rule is rejected and acceptance between merchants is enforceable in spite of minor changes made. The uniform commercial code states that “A definite and seasonal expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms” (Fullerton, 2011, par 40). According to the UCC, these additional terms serve as part of the contract. However, the acceptance may not be valid if the additional terms alter the agreement (Fullerton, 2011). The fourth difference is that, option contracts made under common laws are irrevocable whereas those made under uniform commercial code are only irrevocable if they were made in writing. Moreover, revocation under the UCC occurs after a reasonable time and it is not effective unless the buyer informs the seller of it. The other difference between contracts made under these two laws is that, offers of contracts made under common laws contain all terms including price, quantity and time of performance whereas those made under UCC do not specify the exact terms and conditions. Instead, they may only contain quantity of goods to be valid and leave the other terms open and negotiable between the parties involved. Finally, under common law, contracts can be discharged due to impossibilities such as death or insanity of parties involved prior to acceptance whereas under UCC, contracts are discharged because of mere impracticability, that is, duties are not discharged by temporary impracticable conditions (Prabhat, 2011). Both common laws and the uniform commercial code are legal laws in the United States of America. The two laws govern business contracts in the country and ensure cooperation among business organizations. Although the two laws differ in various ways, they are both important in making business contracts. It is important for any business organization or individual to have an understanding of the laws because they are very vital in making sound business agreements. References Bagley E. and Dauchy E. (2012). The Entrepreneur's Guide to Business Law (4th ed.). Stamford, Cengage Learning. Cornell University Law School (2005). UCC: Uniform Commercial Code. Retrieved on July 26, 2011 from http://www.law.cornell.edu/ucc/2/article2.htm Fullerton J. (2011). Uniform Commercial Code Sale of Goods. Retrieved on July 26, 2011 from http://www.fullertonlaw.com/construction-law-survival-manual/uniform-commercial-code-sale-of-goods.html Prabhat (2011). Difference between UCC and Common Law. Retrieved on July 26, 2011 from http://www.differencebetween.net/miscellaneous/politics/difference-between-ucc-and-common-law/ Read More