Contract Law For Dummies®

Contract Law For Dummies®

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Table of Contents

Introduction

About This Book

Conventions Used in This Book

What You’re Not to Read

Foolish Assumptions

How This Book Is Organized

Part I: Introducing Contract Law and Contract Formation

Part II: Determining Whether a Contract Is Void, Voidable, or Unenforceable

Part III: Analyzing Contract Terms and Their Meaning

Part IV: Performing the Contract or Breaching It

Part V: Exploring Remedies for Breach of Contract

Part VI: Bringing Third Parties into the Picture

Part VII: The Part of Tens

Icons Used in This Book

Where to Go From Here

Part I: Introducing Contract Law and Contract Formation

Chapter 1: Getting the Lowdown on Contract Law

Grasping the Concept of Contract Law

Defining contract

Comparing different schools of thought on contract rules

Tracing contract law’s roots

Meeting the Key Players: Common Law, the Restatement, and the UCC

Exploring the common law: Tradition and precedent

Capturing general rules in the Restatement

Statutes: Supplanting common law with codes

Brushing up on the Uniform Commercial Code (UCC)

Applying state law in federal court

Applying different sources of contract law

Forming, Defending, and Interpreting Contracts: The Basics

Understanding contract formation

Checking out attack and defense maneuvers

Finding the terms of the contract and building contract-interpretation

skills

Examining Contract Performance, Breach, and Remedies

Recognizing breach of contract

Formulating remedies and establishing losses

Exploring the role of third parties in contract law

Practicing in the Real World of Contracts

Chapter 2: Let’s Make a Deal: Offer and Acceptance

Contract Formation: Getting a Handle on the Essentials

Forming a Contract: Promises, Offers, and Mutual Assent

Making a commitment by making a promise

Turning a promise into an offer by asking for something in return

Giving acceptance by giving or agreeing to give what was requested in

return

Assenting in action or thought: Objective manifestation versus subjective

intent

Forming contracts without words: The implied-in-fact contract

Determining Whether Language Constitutes an Offer

Distinguishing a preliminary inquiry from an offer

Ads, catalogs, and circulars: Distinguishing advertisements from offers

Deciding How Long an Offer Remains Open

Determining Whether the Offeror Can Back Out: Revoking the Offer

Making an option contract

Recognizing statutes that create an option

Relying on the offer

Deciding Whether the Offer Has Been Accepted

Acceptance must match the offer: The mirror-image rule

Acceptance is effective on dispatch: The mailbox rule

Looking at various forms of acceptance

Making Sense of the “Battle of the Forms” and UCC § 2-207

Deciding whether acceptance is conditional

Dealing with additional or different terms

Chapter 3: Sealing the Deal: The Doctrine of Consideration

Checking an Agreement for Consideration

Using a simple Q and A

Making a diagram

Making Distinctions about Consideration

Deciding whether it’s a bargain or a gift promise

Distinguishing between sufficient and adequate consideration

Detecting an Absence of Consideration

Spotting a phony: Nominal consideration

Applying the pre-existing duty rule

Finding past consideration

Tracking Down Illusory Promises

Dealing with satisfaction clauses

Analyzing output and requirements contracts

Spotting illusory promises in settlements

Too Many Blanks: Distinguishing Contracts from Agreements to Agree

Looking for Consideration Substitutes: Enforcing without Consideration

Evaluating the Recital of Consideration in a Contract Term

Chapter 4: Noting Exceptions: Promises Enforceable without a Contract

Examining Exceptions: When Contracts Aren’t Necessary

The Doctrine of Reliance: Looking for a Promise That Induced Action

Determining whether reliance applies

Limiting the remedy for breach of the promise

Deciding Cases That Test the Limits of Reliance: Promissory Estoppel

Deciding whether a charitable pledge is enforceable

Deciding whether a sophisticated party can claim reliance

Remembering that reliance doesn’t usually qualify as acceptance

The Doctrine of Restitution: Creating an Obligation to Prevent Unjust

Enrichment

Battling unjust enrichment with the implied-in-law contract

Determining when a court is likely to find unjust enrichment

Sorting out restitution in a material breach

Part II: Determining Whether a Contract Is Void, Voidable, or Unenforceable

Chapter 5: Introducing Contract Defenses

Leveraging the Power of Policies

Freedom of contract

Efficiency

Fairness

Predictability

Making the Most of Statutes

Protecting consumers with state and federal statutes

Tapping the power of statutes to bring a contract claim

Examining the Courts’ Role in Policing Contracts

Checking into Affirmative Defenses

Distinguishing valid, void, and voidable contracts

Separating matters of law and matters of fact

Chapter 6: Considering Whether an Agreement Is Unenforceable Due to Illegality

or Unfairness

Determining Enforceability When the Legislature Has Spoken

Recognizing illegal agreements that are unenforceable

Noting exceptions: Illegal but enforceable agreements

Making a Public Policy Argument

Examining enforceability in agreements that restrain trade

Examining enforceability in agreements that interfere with family

relationships

Examining enforceability in agreements that encourage torts

Testing an Agreement against the Doctrine of Unconscionability

Applying the doctrine of unconscionability in the UCC

Distinguishing procedural and substantive unconscionability

Challenging Enforceability with the Doctrine of Reasonable Expectations

Chapter 7: Evaluating the Parties’ Ability to Make the Contract

Recognizing Who Can Legally Make a Contract

Passing the mental capacity check

Child’s play? Making contracts with minors

Basing a Contract Defense on One Party’s Bad Actions

Saying things that aren’t true: The fraud defense

Making an offer they can’t refuse: The duress defense

Taking unfair advantage: The undue influence defense

Whoops! The Mistake Defense

Evaluating a mutual mistake defense

Using the mutual mistake defense to escape a release

Finding relief when the mistake is unilateral

Chapter 8: Assessing the Enforceability of Oral Agreements

Asking Whether the Parties Intended to Orally Form a Contract

Challenging Oral Agreements with the Statute of Frauds

Determining whether a transaction is within the statute of frauds

Distinguishing between voidable and unenforceable agreements

Finding a Writing That Satisfies the Statute

Does it describe the contract?

Is it signed by the party against whom enforcement is sought?

Finding Exceptions to the Statute

Revisiting reliance

Finding an exception in the main purpose rule

Examining part performance and restitution

Finding exceptions in UCC § 2-201

Finding a big exception in international contracts

Part III: Analyzing Contract Terms and Their Meaning

Chapter 9: Evaluating Unwritten Terms with the Parol Evidence Rule

Introducing the Parol Evidence Rule

Identifying Parol Evidence: The Stuff outside the Writing

Asking Why the Evidence Is Being Offered

To prove a modification

To prove a defense to formation

To prove an unfulfilled condition

To prove the meaning of a term

To add a term to the agreement

Deciding Whether the Agreement Is Final and Complete

Recognizing the difference between subjective and objective intent

Figuring out whether the agreement is final

Checking whether the agreement is complete

Dealing with a merger clause that says the contract is final and complete

Considering Evidence That Supplements or Contradicts the Agreement

Contrasting the Common Law with the UCC Parol Evidence Rule

Getting Terms in Writing to Avoid the Parol Evidence Rule Quagmire

Chapter 10: Finding Unwritten Terms That Complete the Contract

Finding the Terms of an Incomplete Contract

Using contract rules to fill the gaps

Understanding types of gap-filling rules

Reading In the Duty of Good Faith

Being honest: The subjective duty of good faith

Being reasonable: The objective duty of good faith

Using freedom of contract to refine the definition of good faith

Working with and around the Default Rules

Recognizing default rules when you see them

Using freedom of contract to change the rules and shift the risk

Protecting Buyers through Warranties

Making express warranties

Looking for an implied warranty of title or warranty against

infringement

Checking for an implied warranty of merchantability

Seeking out an implied warranty of fitness for a particular purpose

Shifting the Risk by Disclaiming or Limiting Warranties

Making warranty disclaimers specific and conspicuous

Limiting the remedy for breach

Drafting a disclaimer of warranty

Recognizing the statutory regulation of disclaimers

Chapter 11: Interpreting Contracts

Grasping the Basics of Ambiguity

Doing the Interpretation Two-Step

Understanding How Courts Decide What’s Ambiguous

Applying the rules of interpretation

Examining the baggage the parties bring to the contract

Bringing in objective meaning from outside the contract

Considering subjective evidence: Context and testimony

Deciding What Something Means

Dealing with Misunderstanding

Part IV: Performing the Contract or Breaching It

Chapter 12: Evaluating Whether Contract Modifications Are Enforceable

Considering Modifications Made during Performance

Determining whether consideration is required

Written requirements: Seeing whether the modification is within the

statute of frauds

Dealing with “no oral modification” clauses

Agreeing to future, unilateral modifications

Making Changes after One Party Fully Performed: Accord and Satisfaction

Determining whether the parties formed an accord: Offer and acceptance

Finding consideration: Doing something additional or different

Finding consideration in unliquidated debts and debt-dispute settlements

Figuring out what happens when the accord has been satisfied . . . or not

Distinguishing accord and satisfaction from substituted contract

Applying the rule of UCC § 3-311 to settlements by check

Doing away with consideration by statute or case law

Chapter 13: Deciding Whether Unforeseen Events Excuse Performance

Deciding Whether a Nonperforming Party Is in Breach

Did the event occur after contract formation?

Did performance become impracticable?

Was nonoccurrence of the event a basic assumption?

Did the party seeking to be discharged carry the risk?

Determining Whether a Buyer’s Purpose Was Frustrated

Figuring Out What Happens When a Party’s Performance Is Excused

Using our old friends reliance and restitution

Allocating the loss when a performance is partially excused

Using Freedom of Contract to Allocate Risk

Drafting a “force majeure” clause to identify events excusing

nonperformance

No excuses: Drafting a “hell or high water” clause

Chapter 14: Checking for Conditional Language

Defining Condition in Legal Terms

Telling the difference between a promise and a condition

Determining whether a condition is express or implied

Tapping the Power of Express Conditions

Determining Whether Courts Will Find an Implied Condition

Sorting Out Conditions Precedent, Concurrent, and Subsequent

Deciding Who Must Go First

Checking out the default order of performance

Making agreements about the order of performance

Determining Whether a Party Has Substantially Performed

Considering how the type of breach affects the outcome

Running tests to find substantial performance

Deciding whether a breach with respect to time is material

Solving the problem by drafting express conditions

Looking at Conditions in the UCC

Rule § 2-601: Making a “perfect tender”

Rule § 2-612: Dealing with installment contracts

Excusing Conditions

Finding promise: Interpreting your way out of a condition

Using restitution when a condition bars recovery

Finding a divisible contract

Claiming waiver to excuse a condition

Throwing yourself on the mercy of the court to excuse a condition

Chapter 15: Breaching the Contract by Anticipatory Repudiation

Recognizing the Two Types of Anticipatory Repudiation

Determining Whether a Party Has Repudiated

Insecurity and assurances: Using UCC § 2-609 to identify repudiation

Applying the rule to the common law

Figuring Out What Happens after Repudiation

Deciding whether the breaching party can retract the repudiation

Seeking remedies for the breach when the injured party accepts the

repudiation

Ignoring the repudiation: Not the best option

Part V: Exploring Remedies for Breach of Contract

Chapter 16: Examining How Courts Handle Breach of Contract

Mastering the Rule of the Expectancy

Seeing the expectancy in context

Accounting for expenses

Justifying breach: The economist’s notion of the efficient breach

Recognizing How Contract Law Limits the Damages for Breach

Concluding whether the breach caused the loss

Determining whether the loss is established with certainty

Limiting damages with the rule of foreseeability

Asking whether the non-breaching party mitigated the loss

Using Reliance and Restitution as Remedies

Chapter 17: Exploring Remedies in Article 2 of the UCC

Comparing Common-Law and UCC Remedies

Recognizing the key difference

Understanding just how similar they really are

Giving the Buyer a Remedy When the Seller Is in Breach

Seeking specific performance: Getting the promised goods

Buying substitute goods and calculating cover damages

Making the buyer whole by calculating market damages

Adding consequential damages for losses caused by the breach

Including incidental damages and subtracting savings

Keeping the goods and claiming damages

Providing the Seller a Remedy When the Buyer’s in Breach

Seeking the contract price as damages

Selling to someone else and calculating resale damages

Deciding whether to complete the manufacture of the goods

Making the seller whole by calculating market damages

Solving the mystery of lost profits

Chapter 18: Checking for Additional Remedies

Deciding Whether Equitable Remedies Should Be Granted

Awarding specific performance . . . or not

Stopping a party with an injunction

Undoing or Revising the Contract

Unwinding the contract through rescission

Rewriting the contract through reformation

Letting the Parties Determine the Remedies for Breach

Calculating liquidated damages

Providing for limited remedies

Awarding Transaction Costs on Top of Damages

Getting attorney’s fees

Recovering transaction costs

Punitive damages? Fuhgeddaboudit!

Finding the Law that Governs the Contract

Selecting the governing law through a choice-of-law clause

Selecting the place of trial through a choice-of-forum clause

Resolving a Dispute through Alternative Dispute Resolution

Resolving disputes through arbitration

Trying mediation

Part VI: Bringing Third Parties into the Picture

Chapter 19: Deciding Whether a Third Party Can Enforce or Interfere with a

Contract

Determining Whether a Party Is a Third-Party Beneficiary

Creating a creditor beneficiary by telling someone to pay your debt

Creating a donor beneficiary by making a gift

Creating an incidental beneficiary: Another name for loser

Asking three key questions to identify third-party beneficiaries

Changing a third-party beneficiary’s rights

Interfering with Someone Else’s Contract: A Big No-No

Finding the tort of tortious interference with contract

Considering claims that the interference is improper

Chapter 20: Acknowledging the Rights and Duties of Third Parties

Breaking Down a Contract into Rights and Duties

Determining Whether Rights May Be Assigned

Applying the general rule: Freely assigning rights

Spotting exceptions to the assignment of rights

Determining Whether Duties May Be Delegated

Applying the general rule: Freely delegating duties

Back to the source: Spotting exceptions to the delegation of duties

Using UCC § 2-609 to get assurances

Prohibiting Assignment and Delegation

Drafting an effective prohibition

Recognizing key limitations on prohibition

Substitutions: Making a New Contract through Novation

Part VII: The Part of Tens

Chapter 21: Ten Questions to Ask When Analyzing a Contracts Problem

Was a Contract Formed?

Is a Promise Enforceable without a Contract?

Does a Party Have a Defense to the Contract That Was Formed?

Where Do You Find the Terms of the Contract?

Do the Parties’ Interpretations of the Contract’s Language Differ?

Is a Party in Breach?

Did a Condition Have to Occur Before a Performance Was Due?

Did a Breach Occur Before Performance Was Due?

What Are the Remedies for Breach?

How Does the Contract Affect Third Parties?

Chapter 22: Ten Notable People (And Philosophies) in Contract Law

Lord Mansfield

Christopher Columbus Langdell

Samuel Williston

Arthur Corbin

Benjamin N. Cardozo

Karl N. Llewellyn

E. Allan Farnsworth

Ian Macneil

Richard Posner

Stewart Macaulay

Appendix: Glossary

Cheat Sheet

Contract Law For Dummies

®

by Scott J. Burnham with Joe Kraynak