Chapter 8 Contracts: Third Party Rights, Discharge, Breach and Remedies

What is the difference between an assignment and a delegation? Learning Objectives What is the difference between an assignment and a delegation? What factors indicate a third party is an intended beneficiary? How are most contracts discharged? What is a condition and how does a condition affect contractual performance?

Assignments Transfer of contractual rights to a 3rd party. 3rd party is called the assignee. The assignee has the right to demand performance from the other original party (Obligor) to the contract. Cannot Assign rights for personal services or when obligor’s performance changes.

Delegations Transfer of duties to a 3rd party (Delegatee) by Delegator. Delegatee owes duty to original party in contract. Delegator is still liable for performance of duty.

Third Party Beneficiaries 3P Intended Beneficiary (Creditor and Donee) Original parties to K intend at the time of contracting that the contract performance directly benefit a 3rd party. After rights vest, 3P can sue for breach. 3P Incidental Beneficiary. Benefit is unintentional. 3P has no rights.

Contract Discharge Discharge is the full performance of all duties. Conditions of Performance: Condition is a possible future event that may or may not happen. Triggers or terminates performance. Condition Precedent: prior to performance Condition Subsequent: follows initial performance. Concurrent: occur simultaneously.

Contract Discharge Discharge by Performance: Complete vs. Substantial Performance Complete Performance: perfect performance under the contract. Substantial Performance: technically a minor breach but as long as in good faith, the non-breaching party remains liable to pay. Satisfaction Contract: performance is conditioned on reasonable satisfaction.

Contract Discharge Material Breach Anticipatory Repudiation When performance is not substantial Innocent party is excused from performance and has the right to sue for damages. A minor breach may be cured. Anticipatory Repudiation One party gives notice of refusal to perform. Innocent party treats AR as material breach.

Contract Discharge Discharge by Agreement Discharge By Rescission: both parties must make another agreement. Discharge by Novation: new contract with substitution of a third party for one of the original parties. Accord and Satisfaction: settlement to discharge original contract.

Contract Discharge Discharge by Operation of Law Contract Alteration Statutes of Limitations Bankruptcy Objective Impossibility of Performance Party’s incapacitated, Subject matter is destroyed, Performance becomes illegal, or Commercially impracticable.

Damages Compensatory Damages Compensates injured party (Plaintiff) Plaintiff must prove actual damages caused by breach. Amount: Generally: difference between Defendant’s promised performance and actual. Sale of Goods: difference between the contract price and market.

Damages Consequential (Special) Damages Punitive (Exemplary) Damages Foreseeable damages that result from breach of contract. Caused by other than breach of contract. Punitive (Exemplary) Damages Deter wrongdoer; set example. Nominal Damages

Damages Mitigation of Damages Liquidated Damages vs. Penalties Injured party has a legal duty to mitigate damages. Liquidated Damages vs. Penalties Liquidated: fixed, certain dollar amount agreed to by parties, paid in the event of breach. LD’s are enforceable. Penalty: designed to penalize a party. Generally not enforceable.

Equitable Remedies Rescission: cancel or undo a contract. Available for fraud, mistake, duress and failure of consideration. Restitution: recapture the benefit conferred on the defendant that has unjustly enriched her. Parties must return goods, property or money. Specific Performance Reformation: court re-writes the contract to reflect parties’ true intentions.

Equitable Remedies Recovery based on Quasi-Contract. Plaintiff must show: Benefit was conferred on the other party. Party conferring benefit expected to be paid. Party seeking recovery did not volunteer. Retaining benefit without payment would be unjust enrichment. Election of Remedies