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

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

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

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  1. Chapter 8Contracts: Third Party Rights, Discharge, Breach andRemedies

  2. 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?

  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. 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. • Anticipatory Repudiation • One party gives notice of refusal to perform. • Innocent party treats AR as material breach.

  9. 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.

  10. 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.

  11. 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.

  12. 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

  13. Damages • Mitigation of Damages • 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.

  14. 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.

  15. 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

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