1.3 Sources of Contract Law

Sources of Contract Law

Contract law doesn't come from a single place. It's built from multiple sources that each govern different types of agreements. Understanding which source applies to a given contract is one of the first things you need to figure out, because the rules can differ significantly depending on whether you're dealing with common law or the UCC.

Sources of Contract Law

Common law is the body of law derived from court decisions and judicial precedents built up over centuries. It evolves as new cases are decided and judges establish or refine legal principles. Common law governs most contracts, including those for services, real estate, employment, and insurance.

The Uniform Commercial Code (UCC) is a standardized set of rules governing commercial transactions. It has been adopted by most states (with minor variations) to promote uniformity in business dealings across state lines. The UCC primarily applies to contracts for the sale of goods, meaning tangible, movable items. If you're buying a car, a shipment of lumber, or a laptop, the UCC governs that transaction.

The Restatement (Second) of Contracts is a scholarly work published by the American Law Institute that summarizes and clarifies common law contract principles. It is not legally binding, but courts frequently cite it as persuasive authority when reasoning through contract disputes. Think of it as an influential reference guide that helps promote consistency in how courts interpret contract law.

Role of Case Law and Precedent

Case law refers to the body of legal principles established by courts when they decide specific disputes. Each time a court interprets a statute or resolves a contract issue, that decision becomes part of the case law and can shape how future disputes are handled.

Precedent is the practice of following prior court decisions in similar cases. The formal term for this principle is stare decisis, a Latin phrase meaning "to stand by things decided." Stare decisis promotes stability and predictability: parties entering a contract can look at how courts have ruled before and have a reasonable expectation of how their dispute would be resolved.

A few key points about how precedent works in practice:

• Lower courts are bound by the decisions of higher courts within the same jurisdiction (this is called binding precedent)
• Decisions from courts in other jurisdictions may be considered but are only persuasive, not binding
• Stare decisis ensures fairness by treating similar cases alike, but courts can overturn precedent when circumstances or legal reasoning warrant it

Scope of the UCC in Sales Contracts

The UCC applies to transactions involving the sale of goods, which are tangible, movable items. It does not cover real estate transactions, service contracts, or intangible assets like intellectual property. If a contract involves a mix of goods and services (for example, hiring someone to install a custom kitchen and supply the cabinets), courts typically apply the predominant purpose test to determine whether the UCC or common law governs.

The UCC provides default rules for formation, performance, and remedies that parties can modify or override by agreement. This flexibility is a core feature: the UCC fills in the gaps when the parties haven't addressed something in their contract.

The two most relevant articles for a contracts course:

• Article 2 (Sales) governs the formation, performance, and breach of contracts for the sale of goods. It includes rules on offer, acceptance, modification, and warranties (both express and implied).
• Article 2A (Leases) governs contracts for the lease of goods. It mirrors much of Article 2 but includes provisions specific to leasing arrangements, such as lease term, renewal, and default.

Common Law vs. UCC in Contracts

This comparison comes up constantly in contracts courses. The differences are testable and worth memorizing.