• Video

The Flexibility of Contracts

Every day, people engage in both simple and complex transactions that rely on contracts. Professor Todd Zywicki discusses how standard contracts allow people to make routine purchases, like buying a cup of coffee, without needing to think about the terms. Contracts can also be adjusted, specialized, and modified for larger transactions like business mergers. The flexibility of the contractual form allows for as much or as little standardization as needed. https://youtube.com/watch?v=iOjzNqzuvwg


Contracts cover everything from the cup of coffee you buy today, which may not look like a contract, but has a whole network of promises embedded in that transaction from the idea that, that the coffee is going to, you know, be healthy for you, right? That it won't be adulterated. All the way through to complex contracts for software development, recording contracts, contracts to manufacture things, put them on ships, load them from ships, distribute them. If something goes wrong with it, there are systems of warranties to govern what your rights are in terms of, if a product turns out to be defective and most of the time, we're not even aware of this. It's kind of like a software program that runs in the background, without you ever becoming aware of it. And that's the genius of the common laws. It provides this whole system of default rules that allow you to engage in these complex transactions without even thinking about it. But at the same time allows you to tailor those rules to fit whatever your circumstances are. You can think of writing a contract as being like buying a suit. You can walk into, say Macy's or Brooks brothers, and you can just get a suit off the rack. And it'll fit people pretty well most of the time, maybe you have to have the cuffs taken up or the pants hemmed, but mostly it works for you with some nips and tucks around the end. Or you can invest a lot of money. You can go to Saville Row and get a custom made suit that costs a couple thousand, rather than a couple hundred dollars, that fits you perfectly. And what we see is that's the flexibility that contract law gives you for simple ordinary transactions, it's like an off the rack suit where it could take the terms and it saves you all the trouble of hashing that out and negotiating it. Or if you are gonna do some sort of complex, you know, transaction, whether a merger and an acquisition, for example, of a multi-billion dollar company or software development thing, or making a movie or something like that, there may be all kind of specialized terms and conditions that you want to include in that. Contract law is flexible enough to do both of those at once: to provide off the rack default rules, as well as the freedom to be able to create your own custom made rules, if you're willing to go to the additional hassle and the difficulty of doing that.

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