What is a contract? The elements of a contract [No. 86]
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What is a contract? The elements of a contract [No. 86]

One of the issues that people worry about
in the law of contracts is exactly what kind of agreements do they cover. Ah, the basic definition of a contract is
any agreement between two or more parties in which people either agree to perform or
abstain from any act. Generally speaking we talk about the ability
to have gains from trade. And in the simplest kind of case it means
that I give you my horse and you give me your cow, a contract of barter. But in many cases it turns out that the key
element is going to be gains from trade over time, so that I am going to lend you money
today and you are going to repay me tomorrow. It turns out that we always use self-help
devices in order to firm up these relationships. I may take security before I make you a loan. I may only make loans to people whom I trust,
I may only make loans if somebody else is prepared to guarantee them. But in the end these informal devices will
come up short unless there is the security and the knowledge that you can sue somebody
in the event that a breach takes place. There is no formal requirement in the law
of contract as such which says that the agreement must be in writing in all cases. Indeed thousands of contracts that people
enter into every day have no written evidence whatsoever. You buy a newspaper, you pay a dollar and
you get the paper. It’s a contract. There is an offer, there is an acceptance
and there is performance. But as contracts deal with ah more complex
subject matter, as the duration of their performance starts to increase, as the value of the contracting
stuff starts to increase, writing is almost always required and the reason is you cannot
negotiate the purchase of a house with the same speed and rapidity that you can negotiate
the purchase of a paper. And so what you do is you get lots of formal
stuff and the way in which it works roughly speaking as follows: You have a period of
oral give and take in negotiation in which neither side is bound even if they have quote
on quote reached an agreement. Then what you do is you sign a written agreement
by both parties indicating the major obligations to be discharged. That’s called the Statute of Frauds requirement. At that particular point, the property has
not conveyed because after you make the agreement then you run inspections first on the title
papers and then on the condition of the premises and only after those things are satisfied,
you actually have the conveyance. If one wants to think about why contracts
are so important, it turns out that contracts allow you to make improvements on public space
when the government enters into various kinds of agreements with various contractors to
pave the roads and to repair them. If you look at the private space, generally
speaking, no individual can build all the things that are necessary and the law of contracts
allows you to specialize and essentially to take people with different sets of skills
and to combine them in optimal fashion.

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