Commercial law extends to the sale of goods and services, negotiable instruments, security interests, leases, principal-agency relationships, contracts of carriage, shipping, and other parties. In a broad sense, commercial law also encompasses related business issues, such as bankruptcy and the taxation of profits.
Because commercial law can be difficult to define objectively and incorporates a wide range of matters, it is more helpful here to consider the matter as one of timing. Commercial law covers legal issues related to initial transactions. When a lawsuit is filed to address a legal dispute, those same legal questions are more appropriately characterized as litigation. Thus, commercial law attorneys assist their clients with business deals, while litigation lawyers help them with court cases when clients have disputes with other businesses.
Notice of assignment
The ability of businesses to make contracts is the foundation for modern commercial law. Without them, companies would not be able to enter into transactions because they would have no guarantee that the other side would honor its half of the bargain. Sales transactions would be impossible, and anyone purchasing goods on an installment plan would be unable to get their product. This is not because businesses could not trust one another but rather because a system is required to enforce contracts.
The backbone of this system is the essential legal component: the contract. The formation of contracts is the common denominator of all commercial transactions. Without a system of rules, parties would be unable to enter into agreements because they would not understand what is required of them under an agreement, nor would they be able to verify whether their undertakings were binding.
To create an agreement, all the following elements must be present: an offer, an acceptance, and consideration. Each party to a contract must be an identifiable and legal entity, and each party must have the legal capacity to enter the agreement.
In addition, the consideration exchangedvalue, goods, services, a promise to do something, or to refrain from doing somethingmust establish the reasonable equivalence of value (if $20 changes hands, both parties must see the benefit of the exchange). Finally, specific rules govern the formal process of offering and accepting, which vary depending on the situation (for example, most states have adopted an innovation called "loose seal" that makes preprinted terms on forms, such as those in contracts or warranties, binding when signed by the party stating the terms and then indorsed or sealed by the other party).
The contract is formed when an offer is made, considering another's response. If the offer is accepted, a contract is formed.
Resetting the code
Because commercial law is primarily found in state statutes, there's a chance that inconsistencies would arise between the different state's laws, causing confusion and potentially disrupting the one-way flow of interstate commerce. So the UCC, or Uniform Commercial Code (UCC), was drafted by the National Conference of Commissioners on Uniform State Laws in 1952 to provide a statewide statutory framework that would eliminate inconsistencies between the different state laws.
Goods are movable goods. Goods include, but are not limited to, the following movable items:
- Paycheck, check of any type, or other negotiable instrument representing a cash value
- Security agreement
- Non-negotiable certificate of deposit
- Rights and obligations under a retirement plan
- Rights and obligations under an insurance policy
- The coin or paper money of the United States or of any other country that is designated as legal tender
- An airline mileage reward program ticket
Additionally, the term "goods" does not include:
- Fortified wine or malt beverage
- Pawn ticket
- Notes and coins used as currency
- Chattel paper (e.g., promissory notes)
- Paper evidence (e.g., stock certificates)
The term "goods" also does not include:
- A membership in an organization such as a fitness club, golf course, tennis club, or country club
- The right to control the use of a trademark or service mark
- The right to control the use of an invention
- The right to receive a pension or welfare benefit
- The right to receive worker's compensation
Third-party contract issues
Commercial law refers to the body of law that applies to businesses. This is a vast area of law that crosses numerous legal disciplines. Commercial law can refer to everything from business transactions to regulatory issues related to business practices.
This broad scope can create challenges when trying to understand commercial law. Consider the example of a bank that makes a loan to a customer and then sells the loan to another company without telling the customer. Is the borrower obligated to pay the company, even though the borrower never contracted with them directly? And if the borrower fails to pay, can the company turn around and sue the bank for breach of contract?
Commercial law provides answers to these and other such questions involving third parties. One key area of commercial law that business owners should understand is the rights of third parties in connection with a contract. This can create several legal issues, and business owners must be aware of them.
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