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What are the sources of contract law?
States create their own contract law. They pass statutes and allow courts to develop common law. In doing so, state legislators and judges rely upon model laws in developing the statutory and common law. These model laws are known as the Restatement of Contracts and the Uniform Commercial Code. These model laws influence judges who interpret contract law and legislators who draft statutes that resemble (or copy exactly) these model laws. As such, you can study model laws to acquire a broad understanding of how contract law works. You can then look to the specific laws of your state to determine the exact law that applies to a given situation.
Restatement of Contract – The Restatement of Contracts (Restatement) is a model law that deals primarily with contracts that do not involve the sale of goods or when goods are not the primary subject of the contract. Most state common law generally tracks closely the provisions of the Restatement.
Article 2 of the Uniform Commercial Code – Article 2 of the Uniform Commercial Code (UCC) governs contracts for the sale of goods. It has been uniformly accepted by nearly every state in the United States. A sale of goods includes any manufactured product, crops, timber, livestock, attachments to land, exchanged currencies, mined minerals, etc. It does not include intellectual property, securities, non-commodity currencies, and un-mined minerals.
To be subject to the provision of the UCC, goods must be the primary purpose of the contract. If services are the primary purpose of the agreement, the incidental inclusion of goods is not covered by the UCC or corresponding state statutes.
Discussion: What are some of the advantages and disadvantages of model codes of laws? Why do you think states more readily adopt a uniform code of contracts covering the sale of goods, but are less apt to adopt a uniform code covering services?
Practice Question: Jill approaches an interior designer about designing and purchasing furniture for her home. Jill owns a large mansion. The designer quotes Jill a price of $10,000 for her services and $1 million for all of the furniture. If Jill’s state adopts the Restatement of Contracts and UCC, which model law will primarily govern the contract?
- When a contract is for a mix of goods and services, the court will examine what is the primary consideration in the contract when determining whether the UCC or Common Law (Restatement) applies. In this situation, based upon the value of goods being exchanged, it appears that the contract is primarily for goods (thus, the UCC will apply). If, however, there are compelling arguments that the goods are incidental to the $10K worth of services being provided, the common law applicable to service contracts will apply.