§ 6 FORMAL CONTRACTS

The following types of contracts are subject in some respects to special rules that depend on their formal characteristics and differ from those governing contracts in general:

(a) Contracts under seal,

(b) Recognizances,

(d) Letters of credit.

COMMENTS & ILLUSTRATIONS:

Comment:

a. "Formal contracts." The contracts referred to in this Section are sometimes referred to as "formal contracts," and other contracts may then be called "informal" or "simple" contracts. This usage is avoided in this Restatement because contracts other than those enumerated are also subject to formal requirements. Thus statutes modeled on the English Statute of Frauds make certain classes of contracts unenforceable unless evidenced by a writing; rules developed under such statutes are stated in Chapter 5. Similarly, Uniform Commercial Code § 9-201 gives effect to a "security agreement" according to its terms, with exceptions which include the specification of formal requisites in § 9-203. Except for contracts under seal, the special rules governing the contracts enumerated in this Section are not stated in the Restatement of this Subject. Many of the rules here stated as applicable to contracts in general also have application to these special types of contract. See, for example, Uniform Commercial Code § 1-103.

b. Contracts under seal. The rules governing the formation of sealed contracts are stated in Chapter 4, and peculiar incidents attached to such contracts after formation are referred to where appropriate. In many States the legal effect of seals has been modified or abolished by statute. Under Uniform Commercial Code § 2-203, contracts or offers to buy or sell goods are not contracts under seal even though a seal is affixed. Under Uniform Commercial Code § 3-113, a negotiable instrument under seal is nevertheless subject to Article 3 of the Code, including the rule of § 3-408 that want or failure of consideration is a defense.

c. Recognizances. A recognizance is an acknowledgment in court by the recognizor that he is bound to make a certain payment unless a specified condition is performed. They are in use chiefly to secure, first, the attendance in court at a future day of the recognizor, or, second, the prosecution of an action, or, third, the payment of bail.

d. Negotiable instruments. Negotiable instruments are such drafts, certificates of deposit, and promissory notes as are payable to bearer or to the order of a specified person, and such bonds, certificates of shares of stock, and other investment securities as are in bearer or registered form. In every State they are subject either to Article 3 or Article 8 of the Uniform Commercial Code or to the older statutes, the Uniform Negotiable Instruments Law and the Uniform Stock Transfer Act.

e. Negotiable documents. Negotiable documents are such warehouse receipts, bills of lading, and other documents of title as run to bearer or to the order of a named person, or, where recognized in overseas trade, to a named person or assigns. Warehouse receipts are subject in every State either to Article 7 of the Uniform Commercial Code or to the Uniform Warehouse Receipts Act. Interstate and export bills of lading are subject to the Federal Bills of Lading Act; import and local bills are subject in most States to Article 7 of the Uniform Commercial Code or to the Uniform Bills of Lading Act.

f. Letters of credit. A letter of credit is a promise to honor drafts or other demands for payment which is within the scope of Article 5 of the Uniform Commercial Code. The Code defines that scope, prescribes formal requirements, provides that no consideration is necessary to establish a letter of credit, and partially codifies the governing law. The governing law is closely related to the law of negotiable instruments; it has been developed from the law merchant and influenced by Section 135 of the Uniform Negotiable Instruments Law and by statutes and usages relating to banking. The Uniform Commercial Code makes no radical change in the law developed by judicial decision.