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Contract Law For Dummies®

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Table of Contents

Contract Law For Dummies®

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About the Author

Scott J. Burnham, a graduate of New York University School of Law, is the Curley Professor of Commercial Law at Gonzaga University School of Law in Spokane, Washington. For 30 years, he has taught Contracts at law schools throughout the U.S. and internationally. As a practicing lawyer and consultant on contract matters, he has a good sense of the practical application of contracts principles, and as a prolific writer on legal topics, he has the ability to convey those principles with clarity.

Dedication

To everyone who studies contract law — may you grow to love her as much as I do!

Author’s Acknowledgments

Thanks to acquisitions editors Michael Lewis and David Lutton, who chose me to author this book and ironed out all the preliminary details to make it possible, and to Larry Garvin, who recommended me for the gig.

Elizabeth Rea, my project editor, deserves a loud cheer for serving as a gifted and patient collaborator and editor — shuffling chapters back and forth, shepherding the text and graphics through production, making sure any technical issues were properly resolved, and serving as the unofficial quality control manager. Copy editor Danielle Voirol earns the editor of the year award for ferreting out my typos, misspellings, grammatical errors, and other language foe paws (or is it faux pas?), in addition to assisting Elizabeth as reader advocate. I also tip my hat to the Composition crew for doing such an outstanding job of transforming my text and graphics into such an attractive book. My deepest thanks go to wordsmith Joe Kraynak, who was able to successfully blend my knowledge of Contracts with his knowledge of writing.

Publisher’s Acknowledgments

We’re proud of this book; please send us your comments at . For other comments, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002.

Some of the people who helped bring this book to market include the following:

Acquisitions, Editorial, and Vertical Websites

Project Editor: Elizabeth Rea

Acquisitions Editor: Michael Lewis

Senior Copy Editor: Danielle Voirol

Development Editor: Joe Kraynak

Assistant Editor: David Lutton

Editorial Program Coordinator: Joe Niesen

Technical Editors: James P. Nehf, Jeremy Telman

Editorial Manager: Michelle Hacker

Editorial Assistant: Alexa Koschier

Cover Photo: © iStockphoto.com/Pali Rao

Cartoons: Rich Tennant ()

Composition Services

Project Coordinator: Nikki Gee

Layout and Graphics: Joyce Haughey, Christin Swinford, Laura Westhuis

Proofreaders: Melissa Cossell, Bonnie Mikkelson

Indexer: Valerie Haynes Perry

Publishing and Editorial for Consumer Dummies

Kathleen Nebenhaus, Vice President and Executive Publisher

Kristin Ferguson-Wagstaffe, Product Development Director

Ensley Eikenburg, Associate Publisher, Travel

Kelly Regan, Editorial Director, Travel

Publishing for Technology Dummies

Andy Cummings, Vice President and Publisher

Composition Services

Debbie Stailey, Director of Composition Services

Introduction

In The Paper Chase, a TV series based on a 1973 movie about the adventures of first-year law students at Harvard, Professor Kingsfield, the Contracts professor, tells his students the following:

The study of law is something new and unfamiliar to most of you, unlike any other schooling you have ever known before. You teach yourselves the law, but I train your minds. You come in here with a skull full of mush, and, if you survive, you leave thinking like a lawyer.

Getting you to think like a lawyer is the goal of law school, but reaching that goal can seem more arduous than it has to be. When you take the course called Contracts, for example, you’ll probably find that you’re mostly reading cases, and you never see a contract.

One reason for this disconnect is that the course in Contracts is traditionally designed to teach you “legal method” — skills such as reading cases, analysis, and synthesis — and not the substance of contract law, which is often sort of incidental. The only problem is that you have to know the rules and principles of contract law in order to have some grist for the analytical mill.

Because your casebook may not present the material in an easily accessible and understandable format, Contract Law For Dummies is designed to plug that gap. It can help you wrap your brain around the most fundamental concepts and help you see the forest, not just the trees. Consider this book your stepstool up to the higher-complexity coverage you’ll encounter in your classes.

About This Book

Contract law isn’t exactly a science or an art; it’s a little of each. As a science, contract law is governed by certain principles and rules. As an art, contract law often requires creativity as courts apply the rules and interpret the language of contracts. Because of this, Contract Law For Dummies contains a little of both. It presents the rules that govern contracts and provides numerous examples to help you apply those rules to different fact situations. This presentation enables you, as a budding contract lawyer, to do the following:

check.png More accurately predict a court’s ruling on any given contract dispute.

check.png Know when you have to follow a rule and when you can change it.

check.png Draft contracts that more effectively protect your clients’ interests.

check.png Pass your law school and bar exams.

This book is organized so you can read it from cover to cover or skip around to only those parts, chapters, or sections that capture your current fancy or serve your present needs. I’ve been teaching contract law for 30 years and practiced it for 7 years before that, and I’ve developed a unique approach that has been very successful for my students. This book follows that approach, presenting what you need to know in the order that tends to be most effective.

As you’ll soon discover, however, developing the skills required for understanding and practicing contract law — and doing it well — isn’t always a linear path. While discovering new concepts and ways to interpret the language of contracts, you often must skip back to review what you thought you already knew and understood. This book is optimized for skipping around to find exactly what you need whenever you happen to need it.

Conventions Used in This Book

I use several conventions in this book to call your attention to certain items. For example:

check.png Italic highlights new, somewhat technical terms (such as objective manifestation and parol evidence), which I follow up with straight- forward, easy-to-understand definitions.

check.png Boldface text indicates keywords and phrases in bulleted and numbered lists.

check.png Monofont highlights web addresses.

check.png A widget is a hypothetical good bought and sold in Contracts classes.

check.png Contracts with a capital C refers to the study of the subject, and contracts with a small c refers to agreements.

check.png I generally cite the North Carolina version of the Uniform Commercial Code (UCC), because the Uniform version is under copyright, whereas an enacted statute is in the public domain.

check.png When I refer to “the Code,” I mean the UCC. And when you see “the Restatement,” I’m referring to the Second Restatement of Contracts.

What You’re Not to Read

You can safely skip anything you see in a gray shaded box. We stuck this material in a box (called a sidebar) for the same reason that most people stick stuff in boxes: to get it out of the way so you don’t trip over it. However, you may find the brief asides in the sidebars engaging, entertaining, and perhaps even mildly informative.

Foolish Assumptions

In writing this book, I made a few foolish assumptions, mostly about your motivation and how you’re going to use this book:

check.png You’re planning to master U.S. contract law. This book mentions English law, international law, and the contract law of other countries only in passing.

check.png You’re eager to tackle contract law.

check.png You’re probably going to supplement this text with more formal study, including coursework, additional reading, assignments, and briefing the cases.

check.png You understand that my approach to teaching contract law is only one of many effective ways.

check.png In class, you won’t say, “But Burnham says. . . .”

I make no assumptions concerning how much you already know about contract law — you needn’t know anything to get started.

How This Book Is Organized

To assist you in navigating this book’s contents, I divvied up the chapters that comprise this book into seven distinct parts. This section provides a quick overview of what I cover in each part.

Part I: Introducing Contract Law and Contract Formation

In a contract law case, one of the first things the court has to determine is whether the parties even have a contract. The chapters in this part introduce and explain the essential elements of contract formation (offer, acceptance, and consideration) along with notable exceptions — promises that are enforceable without a contract.

As a bonus, Chapter 1 provides an overview of contract law and introduces you to the two sources of governing rules: the Restatement of Contracts and the Uniform Commercial Code (UCC).

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

To challenge the formation of a contract in the court of law, a party may present a contract defense — proof claiming that certain additional facts undermine the contract’s formation and destroy its enforceability. This part explains different contract defenses, including whether a party did anything illegal or unfair and whether the parties had the ability to make a contract, as well as the factors that determine whether an oral agreement is enforceable.

Part III: Analyzing Contract Terms and Their Meaning

Contract disputes arise when the parties don’t concur on which terms they agreed to or what the terms mean. One party may claim that the parties agreed to a term that doesn’t appear in the written contract. A contract may have gaps that fail to address unforeseen circumstances. Or the language in a contract may be ambiguous. The chapters in this part discuss several strategies that the courts use to plug the gaps in a contract and interpret what the language really means . . . or at least what it would mean to reasonable people standing in the parties’ shoes.

Part IV: Performing the Contract or Breaching It

Whether the parties formed a contract is only half the story. The other half deals with the performance of that contract. The chapters in this part tackle nonperformance issues. Here you find out whether changes made to a contract after formation are enforceable, whether the occurrence of unforeseen events or the nonoccurrence of certain conditions excuses performance, and how one party may breach a contract even before performance is due.

Part V: Exploring Remedies for Breach of Contract

If a party breaches the contract, the courts must decide how to remedy the breach in a way that’s fair for both parties. This isn’t tort law, where the courts try to punish the wrongdoer. In contract law, the goal is to give the non-breaching party what she expected from the performance of the contract but no more than that. The non-breaching party shouldn’t get a windfall at the expense of the breaching party.

The chapters in this part introduce and explain the various methods available to the courts to remedy a breach.

Part VI: Bringing Third Parties into the Picture

A contract often affects more than the parties who made it. A contract is like a piece of property that can be carved up and bought and sold. When parts are transferred, third parties can get involved in performance and enforcement of the contract. The chapters in this part help you recognize the rights and duties of those third parties and decide under which circumstances third parties are allowed to enforce contracts and may have duties to perform under a contract.

Part VII: The Part of Tens

Every For Dummies book includes a Part of Tens — chapters containing ten bite-sized, easily digestible tips, tricks, or insights. Here I offer ten key questions to ask when analyzing a contract problem and ten famous people and philosophies in contract law.

Icons Used in This Book

Throughout this book, icons appear in the margins to call your attention to different types of information. Here are the icons and a brief description of each.

remember.eps Everything in this book is important (except for the stuff in the shaded boxes), but some information is even more important. When you see this icon, read the text next to it not once but two or three times to tattoo it on your gray matter.

tip.eps Tips provide insider insight from behind the scenes. When you’re looking for a better, faster way to do something, check out these tips.

warning_bomb.eps This icon appears when you need to be extra vigilant or seek additional guidance before moving forward. Don’t skip this important information — I’m warning you!

keycase.eps Certain cases have strongly influenced contract law and how the courts interpret the law and language of contracts. To spot these key cases, look for the Key Case icon.

example_contractlaw.eps Contract law makes a lot more sense when you see how it applies to fact situations, so I use hypothetical situations liberally throughout the book to illustrate and simplify the explanation of certain concepts. The Example icon flags these hypotheticals so you can easily spot them.

Where to Go From Here

Contract Law For Dummies is designed to take you from ground zero to a fundamental understanding of contract law. If you’re interested in the big-picture view of contract law in theory and practice, check out Chapter 1. Otherwise, read the book from cover to cover, skip around by using the table of contents as your guide, or head to the index if you need guidance on a more specific topic.

Part I

Introducing Contract Law and Contract Formation

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In this part . . .

Chapter 1 begins by exploring the fundamentals of contract law — what it is, how it came into being, and which sources provide the rules and principles that govern contracts. Here, you discover the basics of contract formation, contract defenses, and contract interpretation, and you find out what generally happens when parties don’t fulfill their contractual obligations.

The remaining chapters in this part focus on contract formation. You encounter the three essential elements of contract formation — offer, acceptance, and consideration — and find out when promises are enforceable even if parties haven’t met the requirements to form a contract.