Contract Rights and Duties

1. Contract Rights and Duties • Contracting parties have a legal obligation to perform the duties specified in their contract. • If one party fails to perform as promised, the other party may enforce the contract and sue for breach.

2. Assignment of Rights • Assignment – The transfer of contractual rights by the obligee to another party. • Assignor – The obligee who transfers the right. • Assignee – The party to whom the right has been transferred.

3. Assignment of a Right Contract No. 1 Loan of Money Contract No. 1: Creditor (Obligee) Debtor (Obligor) Contract No. 2: Assignor Note (Promise to pay) Contract No. 2 Assignment of note Right to enforce payment of note Assignee

4. Rights That Can and Cannot Be Assigned • Generally, a party may assign rights, provided performance will not materially change. • Personal Service Contracts. Contracts for the provision of personal services are generally not assignable.

5. Effect of An Assignment of Rights • Where there has been an assignment of a right, the assignee “stands in the shoes of the assignor” and is entitled to performance from the obligor.

6. Notice of Assignment • To protect his or her rights, the assignee should immediately notify the obligor that: • The assignment has been made, and • Performance must be rendered to the assignee.

7. Delegation of Duties • Delegation –A transfer of contractual duties by the obligor to another party for performance. • Delegator –The obligor who transferred his or her duty. • Delegatee –The party to whom the duty has been transferred.

8. Delegation of a Duty Contract No. 1: Promisor (Obligor) Contract No. 1 Promise to Perform Promisee (Obligee) Contract No. 2: Delegator Contract No. 2 Delegation of duties Duty of performance Delegatee

9. Duties that Can and Cannot Be Delegated • If the obligee has a substantial interest in having the obligor perform the acts required by the contract, duties may not be transferred. • e.g., Personal service contracts calling for the exercise of personal skills, discretion, or expertise. • e.g., Contracts whose performance would materially vary if the obligor’s duties were delegated.

10. Effect of Delegation of Duties • If the delegation is valid, the delegator remains legally liable for the performance of the contract. • If the delegatee does not perform properly, the obligee can sue the obligor-delegator for any resulting damages.

11. Effect of Delegation of Duties (continued) Assumption of Duties • When a delegation of duties contains the term assumption, I assume the duties, or other similar language: • The delegatee is legally liable to the obligee for nonperformance.

12. Third-Party Beneficiaries • Third parties sometimes claim rights under others’ contracts. • Such third parties are either: • Intended Beneficiaries, or • Incidental Beneficiaries

13. Intended Beneficiary • A third party who is not in contract. • Has rights under the contract. • Can enforce the contract against the obligor. • Intended beneficiaries are classified as: • Donee Beneficiaries or • Creditor Beneficiaries

14. Donee Beneficiaries • Donee Beneficiary Contract –A contract entered into with the intent to confer a benefit or gift on an intended third party. • Donee Beneficiary –The third party on whom the benefit is to be conferred.

15. Donee Beneficiary Contract Life Insurance Company (Promisor) Insured (Promisee) Original Contract (Life insurance policy) Right to enforce contract Named Beneficiary (Donee Beneficiary)

16. Discharge by Performance • A party’s duty to perform under a contract may be discharged by: • By Performance- both parties have fulfilled their duties within the contract • If not, the injured party can claim a breach of contract • When one party fails to perform a crucial duty under a contract, the other party may regard his own obligation as discharged

17. Discharge by Performance • By Performance cont’d: • Substantial Performance- most of the duties have been performed; only minimal duties left uncompleted • Viewed as a minor breach • Should expect full performance by the non-breaching party less the damages suffered; unless the breach was done deliberately, then considered a major breach

18. Discharge by Performance • By Performance cont’d: • Anticipatory Breach- when one party notifies the other that they will be unable to complete performance • The non-breaching party can wait until the promised time of performance or immediately sue for breach

19. Discharge by Performance • By Performance cont’d: • Timing of Performance- for those contracts without a specified time of performance, a reasonable length of time is determined by a judge/jury based on the circumstances • Ex. Delivery of vegetables vs. furniture

20. Discharge by Mutual Agreement • The parties to a contract may mutually agree to discharge or end their contractual duties. • Mutual agreement of the parties • Rescission- parties agree to return all consideration • Substitution- parties decide the original contract is not what they want, therefore, an new (substitute) is created

21. Discharge by Mutual Agreement • Mutual agreement cont’d: • Accord and satisfaction- parties agree to a change in performance • Novation- parties agree to allow a substitute party perform a contractual duty

22. Discharge by Impossibility of Performance • The parties may agree in their contract that certain events will excuse nonperformance of the contract. • e.g., Natural disasters • e.g., Labor strikes • e.g., Shortages of raw materials • e.g., Death or disability for a personal service • e.g., Subject matter is destroyed

23. Discharge by Operation of Law • A contract may be unenforceable due to the law. • Alteration- a material change in the terms of a contract without one party’s consent • Bankruptcy- a debtor is relieved of responsibility to pay a creditor • Statute of Limitations- the time period to enforce a contract has elapsed

24. Remedies for Breach • Remedy- a legal means by which an injured party enforces a right • Minor Breach- generally money damages are awarded as a remedy; injured party must still perform • Major Breach- injured party need not continue performance • Rescission and restitution- return consideration

25. Remedies for Breach • Major Breach cont’d- • Money damages • Compensatory • Consequential • Punitive • Liquidated • Nominal • Specific performance

26. Other contractual terms to know: • Mitigate damages- the injured party is required to take reasonable steps to minimize their injury • Waiver- party intentionally gives up a contractual right