Formal and Informal Contracts.

Contracts can be classified as formal or informal contracts.

(a) Formal Contracts. Formal contracts are enforced because the formality with which they are executed is considered sufficient to sig­nify that the parties intend to be bound by their terms. Formal contracts include (1) contracts under seal, (2) contracts of record, and (3) negotiable instruments.

A contract under seal is executed by affixing a seal or making an impression upon the paper or upon some tenacious substance, such as wax, attached to the instrument. Although at common law an impression was necessary, the courts now treat various signs or marks to be the equivalent of a seal. Most states hold that there is a seal if a person's signature or a corpo­ration's name is followed by a scroll or scrawl, the word "seal," or the letters "L.S." In some jurisdictions the body of the contract must recite that the parties are sealing the contract, in addition to their making a seal following their signatures.

FACTS:

Square D Company made a contract with C.J. Kern Contractors, Inc. The corporate seal of Kern appeared on the contract. Was the contract a sealed contract?

DECISION:

The contract with Kern was not a sealed contract. The mere presence of the cor­porate seal on the paper did not by itself make it a sealed contract without some statement in the contract or other evidence that it was in­tended to he a sealed contract

A contract under seal was binding at common law solely because of its formality. In many states, this has been changed by statute. The Uniform Commercial Code abolishes the law of seals for the sale of goods. In some states the law of seals has been abolished generally without regard to the nature of the transaction involved.

A contract of record is an agreement or obligation that has been recorded by a court. One form of contract of record arises when one acknowledges before a proper court the obligation to pay a certain sum unless a specified condition is met. For example, a party who has been arrested may be released on a promise to appear in court and may agree to pay a certain sum on failing to do so. An obligation of this kind is known as a recognizance.

Similarly, an agreement made with an administrative agency is bind­ing because it has been so made. For example, when a business agrees with the Federal Trade Commission that the enterprise will stop a particular prac­tice which the Commission regards as unlawful, the business is bound by its agreement and cannot thereafter reject it.

Negotiable instruments are contracts governed by the law of com­mercial paper. These special purpose contracts must meet certain formal requirements in order to be enforceable.

(b) Informal Contracts. All other contracts arc called informal, or simple, contracts without regard to whether they are oral or written. These contracts are enforceable not because of the form of the transaction but because they represent the agreement of the parties.