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Contractual Obligations. Chapter 11. Objective:. Understand contractual obligations and their enforcement. Transfer of Contract Rights and Duties. Assignment: A transfer of a right a party may have under a contract to another. Assignor: The party who transfers the contractual right.
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Contractual Obligations Chapter 11
Objective: • Understand contractual obligations and their enforcement.
Transfer of Contract Rights and Duties • Assignment: A transfer of a right a party may have under a contract to another. • Assignor: The party who transfers the contractual right. • Assignee: The party who receives the contractual right.
Transfer of Contract Rights and Duties • Obligor: The party who owes a duty under the contract. • Performance: The fulfillment of contractual promise as agreed.
Discharge of Contractual Obligations • Discharge: the termination of duties that ordinarily occurs when the parties perform as promised. • Breach of Contract: Failure to perform a contract as promised. • Substantial Performance: Occurs when just about all of the duties are performed, but a minor duty under the contract remains.
Discharge of Contractual Obligations • Defaults: fails to perform the contract duties. • Anticipatory Breach: When one of the parties contacts the other party that he/she will not be able to perform their duties.
When the parties prepare their contract, they may agree to terminate the contract… • 1. on a specific date or upon the expiration of a specific period of time. • 2. upon the occurrence of specific event. • 3. upon the failure of a specific event to happen. • 4. at the free will of either party upon giving notice.
By Subsequent Agreement There are four main ways the parties may later mutually agree to change either the terms of the contract or the nature of their relationship.
By Subsequent Agreement • Rescission: The parties may agree to unmake or undo their entire contract from its very beginning. • Substitution: The parties decide to replace the original contract with a new contract.
By Subsequent Agreement • Accord and Satisfaction: discharges the previous contractual obligation. • Novation: A party entitled to receive performance under a contract may release the other party from the duty of performance and accept a substitute.
By Impossibility of Performance • Escape hatch: Language in a contract that permits modifications, or even termination, of performance without liability for damages in the event of an inability to perform on schedule because of specified conditions.
By Operation of Law • Alteration: A material change in the terms of a written contract without the consent of the other party.
To discharge a contract, the alteration must be: • Material, thus changing the obligation in an important way. • Made intentionally, and not by accident or mistake. • Made by a party to the agreement, or by an authorized agent. • Made without consent of the other party.
By Tender of Performance • Tender: A ready, willing and able offer to perform an obligation.
Remedies Possible for Beach • Remedy: The legal means by which a right is enforced or a right’s violation is prevented or redressed.
If the breach is considered a major breach, then… • 1. The injured party need not continue performing the duties defined in the contract. • 2. Rescission or restitution. Canceling the contract and returning whatever has been received under it.
If the breach is considered a major breach, then… • 3. Money damages. The payment of money to compensate for injury. • 4. Specific performance. A court order commanding the breaching party to perform what was promised in the contract.
Rescission and Restitution • Rescission: Allows the parties to treat the contract as cancelled. • Restitution: Permits each party to recover money or property given to the other party.
Money Damages • Compensatory: Seeks to restore the injured parties to the same financial position they were in prior to the beach. • Consequential: Seeks to restore the injured parties to the same financial position they were in if the contract had been performed.
Money Damages • Punitive: Money damages added to the original money damage award. This is used as a punishment for the fraud or intentional tort. • Liquidated: Parties to a contract agree on a certain amount of monetary damages that will be paid if a particular contract breach occurs
Money Damages • Nominal: When a party fails to perform a duty under a contract an no substantial harm has resulted, a court will still award a token amount called nominal damages. • Granted in recognition of the rights that have been violated. • Specific Performance: Occurs when the only appropriate remedy for a breach of contract is to decree (order) that the breaching party do exactly what is required under the contract.
Money Damages • Mitigate the Damages: A legal term used when a party injured by a breach of contract is required by law to take reasonable steps to minimize the harm done. • Waivers: A party to a contract intentionally and explicitly gives up a contractual right.
Money Damages • Statue of Limitations: Time limit set by state law setting a time limit for seeking any remedy after a legal claim, such as breach of contract. • Bankruptcy: Permits the discharge (or excusing) of debts.
