Close this search box.

Table of Contents

Common Law


Common Law, in the context of finance, often refers to a legal system based on customs and court precedents rather than codified written laws. This system guides decisions in cases where statutes are unclear, with judges often referring to previous rulings for direction. It originated in England and is the foundational basis for legal systems in many English-speaking countries.


The phonetics for the keyword “Common Law” are: /’kɒm.ən lɔ:/Here’s the breakdown:- Common: /ˈkɒm.ən/- Law: /lɔ:/

Key Takeaways

1. Common Law is case law: The main characteristic of common law is that it’s largely based on precedent. Decisions made by judges in previous cases form a significant part of the law. It’s an extensive system of laws that has been developed by judges and similar quasi-judicial tribunals, and these are called ‘common law jurisdictions’.2. Flexibility: Common law is flexible and adaptable to changing circumstances. Since common law is based on the interpretation of law by judges, it has a level of flexibility that allows it to evolve over time, adapting to changes in society, technology, and public opinion.3. Principle of stare decisis: Stare decisis is a legal principle that is inherent to common law. It means “to stand by decisions” and it implies that courts should obey established precedents. This ensures fairness and stability in the justice system.


Common Law is a significant term in business/finance as it forms the basis of legal systems in many countries, including the United States, Canada, and the UK. It develops from precedent, i.e., judgments and decisions made by courts in previous cases, which provide a guide for future situations and disputes. In the context of business and finance, Common Law systems can significantly affect practices related to contracts, property rights, and liability. For example, when making business agreements, it’s crucial to understand the principles of contract law established under the Common Law system. The stability and predictability offered by Common Law are imperative to maintain a business-friendly environment, ensuring fair treatment for all parties involved in business transactions while reducing uncertainty and risk.


The purpose of Common Law, often termed as case law or precedent, is to ensure consistency in the implementation of justice. In the financial or business context, it helps to provide a framework of rules and regulations that enhance predictability in business dealings and financial transactions. For instance, the doctrines and precedents set within common law play a substantial role in shaping fields such as contract law, business organizations, and fiduciary responsibilities. This helps businesses operate within a set expectation of rules and maintains a level playing field.Another purpose of Common Law in finance or business is to protect rights and resolve disputes. For example, in a disagreement between two business parties related to a contract, common law precedents help to determine what compensation would be fair, based on similar cases in the past. Even though it is established by the court, businesses too utilize it to uphold standard commercial practices, ensure compliance, shape business decisions, and strategies. In this way, common law contributes to the robustness and transparency of the financial and business environment.


1. Partnership at Will: Under the common law, if two individuals agree to enter into a business venture together without drafting an official partnership agreement, a partnership at will is formed. They share equal rights and responsibilities, and either party can terminate this agreement at any point. 2. Contract Law: Common law plays a key role in the formation and enforcement of contracts. For instance, if two parties enter into an agreement to exchange goods or services for money, common law dictates that both sides must uphold their end of the agreement. If either side fails to perform as agreed, the other side can take legal recourse and sue for damages.3. Property Rights: Common law plays a crucial role in defining property rights. If a business purchases a property, common law protects its ownership rights and also outlines their legal responsibilities. For example, a business cannot use the property to contaminate a nearby river and damage the environment. If they do, they could be held accountable under common law.

Frequently Asked Questions(FAQ)

What is Common Law?

Common Law is a legal system originating from England and based on court decisions, rather than statutes written by lawmakers. It emphasizes the role of judges in determining the meaning of laws and how they apply.

How does Common Law apply to finance and business?

In finance and business, Common Law can come into play in things like contract disputes, property rights, and certain aspects of corporate governance. It’s the basis for many legal principles that underpin commercial transactions.

How is Common Law different than Civil Law?

Unlike Civil Law, which is based on written codes and statutes, Common Law is largely based on precedent, meaning the judicial decisions from previous cases.

Does Common Law exist everywhere?

No, Common Law is not universal. It exists primarily in countries that were former British colonies, including the US (except for Louisiana), UK, Canada, and Australia. Many other countries have a Civil Law system.

Can Common Law change over time?

Yes, since Common Law is based on court decisions, it can change over time as new decisions are made and legal precedents evolve.

How does Common Law impact business contracts?

In a business contract, the terms and conditions of the agreement are enforced using the principles of Common Law. Issues such as breach of contract, non-performance, and contract interpretation often resort to Common Law principles.

How does Common Law work with business disputes?

In business disputes, the court looks to past cases that are similar to the current dispute. The verdicts and rulings in these past cases help to direct and inform the decision of the current dispute.

What is a Common Law system most known for?

A Common Law system is most known for its case law, that is, the decisions made by judges in previous cases. These decisions then serve as precedent for future court cases.

Related Finance Terms

Sources for More Information

About Our Editorial Process

At Due, we are dedicated to providing simple money and retirement advice that can make a big impact in your life. Our team closely follows market shifts and deeply understands how to build REAL wealth. All of our articles undergo thorough editing and review by financial experts, ensuring you get reliable and credible money advice.

We partner with leading publications, such as Nasdaq, The Globe and Mail, Entrepreneur, and more, to provide insights on retirement, current markets, and more.

We also host a financial glossary of over 7000 money/investing terms to help you learn more about how to take control of your finances.

View our editorial process

About Our Journalists

Our journalists are not just trusted, certified financial advisers. They are experienced and leading influencers in the financial realm, trusted by millions to provide advice about money. We handpick the best of the best, so you get advice from real experts. Our goal is to educate and inform, NOT to be a ‘stock-picker’ or ‘market-caller.’ 

Why listen to what we have to say?

While Due does not know how to predict the market in the short-term, our team of experts DOES know how you can make smart financial decisions to plan for retirement in the long-term.

View our expert review board

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More