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Chapter 9

BUSINESS LAW TODAY Essentials 8 th Ed. Roger LeRoy Miller - Institute for University Studies, Arlington, Texas Gaylord A. Jentz - University of Texas at Austin, Emeritus. Contracts: Third Party Rights, Discharge, Breach, and Remedies. Chapter 9. Learning Objectives.

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Chapter 9

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  1. BUSINESS LAW TODAYEssentials 8th Ed.Roger LeRoy Miller - Institute for University Studies, Arlington, TexasGaylord A. Jentz - University of Texas at Austin, Emeritus Contracts: Third Party Rights, Discharge, Breach, and Remedies Chapter 9

  2. Learning Objectives • What is the difference between an assignment and a delegation? • What factors indicate a third party is an intended beneficiary? • What is the difference between compensatory damages and consequential damages? What are nominal damages, and when do courts award nominal damages? • Under what circumstances will equitable remedies be available? • What is the rationale underlying the doctrine of election of remedies?

  3. Assignments • Transfer of contractual rights to a 3rd party (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.

  4. Assignment Relationships

  5. 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.

  6. Delegation Relationships

  7. 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.

  8. Third Party Beneficiaries

  9. Contract Discharge

  10. Contract Discharge • Discharge is the full performance of all contractual 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.

  11. 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.

  12. Contract Discharge • Material Breach • 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. • CASE 9.1Kim v. Park (2004). • Anticipatory Repudiation • One party gives notice of refusal to perform. • Innocent party treats AR as material breach.

  13. Contract Discharge • Discharge by Agreement • Discharge By Mutual Rescission: 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.

  14. Discharge by Operation of Law • Contract Alteration. • Statutes of Limitations. • Bankruptcy. • Objective Impossibility. • Party’s incapacitation. • Subject matter is destroyed. • Performance becomes illegal. • Commercial impracticability.

  15. 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. • Sale of Land: Specific performance? • Construction Contracts: Depends on the stage of construction.

  16. Damages • Consequential (Special) 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.

  17. Damages • Mitigation of Damages. • Injured party has a legal duty to mitigate damages. • CASE 9.2Hanson v. Boeder (2007). • 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.

  18. Damages Summary

  19. 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.

  20. Equitable Remedies • Specific Performance. • CASE 9.3Stainbrook v. Low (2006). • Reformation: court re-writes the contract to reflect parties’ true intentions. 

  21. 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. • Limitation of Liability Clauses. • Election of Remedies.

  22. Remedies Summary

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