Chapter 9


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Third Party Rights, Discharge, Breach, and Remedies

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Chapter 9

  1. 1. CHAPTER 9 Third Party Rights, Discharge, Breach, and Remedies
  2. 2. <ul><li>What is the difference between an assignment and a delegation? </li></ul><ul><li>What factors indicate a third party is an intended beneficiary? </li></ul><ul><li>How is the difference between compensatory damages and consequential damages? What are nominal damages, and when do courts award them? </li></ul><ul><li>Under what circumstances will equitable remedies be available? </li></ul><ul><li>What is the rationale underlying the doctrine of election of remedies? </li></ul>Learning Objectives
  3. 3. Assignments <ul><li>Transfer of contractual rights to a 3 rd party (assignee). </li></ul><ul><li>The assignee has the right to demand performance from the other original party (Obligor) to the contract. </li></ul><ul><li>Cannot Assign rights for personal services or when obligor’s performance changes. </li></ul><ul><li>Forest Commodity Corp. v. Lone Star Industries, Inc. (2002). </li></ul>
  4. 4. Delegations <ul><li>Transfer of duties to a 3 rd party (Delegatee) by Delegator. </li></ul><ul><li>Delegatee owes duty to original party in contract. </li></ul><ul><li>Delegator is still liable for performance of duty. </li></ul>
  5. 5. Third Party Beneficiaries <ul><li>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. </li></ul><ul><li>3P Incidental Beneficiary . Benefit is unintentional. 3P has no rights. </li></ul>
  6. 6. Contract Discharge <ul><li>Discharge is the full performance of all duties. </li></ul><ul><li>Conditions to Performance: </li></ul><ul><ul><li>Condition is a possible future event that may or may not happen. </li></ul></ul><ul><ul><li>Triggers or terminates performance. </li></ul></ul><ul><ul><li>Condition Precedent: prior to performance </li></ul></ul><ul><ul><li>Condition Subsequent: follows initial performance. </li></ul></ul><ul><ul><li>Concurrent: occur simultaneously. </li></ul></ul>
  7. 7. Contract Discharge <ul><li>Discharge by Performance: Complete vs. Substantial Performance </li></ul><ul><ul><li>Complete Performance: perfect performance under the contract. </li></ul></ul><ul><ul><li>Substantial Performance: technically a minor breach but as long as in good faith, the non-breaching party remains liable to pay. </li></ul></ul><ul><ul><li>Satisfaction Contract: performance is conditioned on reasonable satisfaction. </li></ul></ul>
  8. 8. Contract Discharge <ul><li>Material Breach </li></ul><ul><ul><li>When performance is not substantial. </li></ul></ul><ul><ul><li>Innocent party is excused from performance and has the right to sue for damages. </li></ul></ul><ul><ul><li>A minor breach may be cured. </li></ul></ul><ul><ul><li>Kim v. Park (2004). </li></ul></ul><ul><li>Anticipatory Repudiation </li></ul><ul><ul><li>One party gives notice of refusal to perform. </li></ul></ul><ul><ul><li>Innocent party treats AR as material breach. </li></ul></ul>
  9. 9. Contract Discharge <ul><li>Discharge by Agreement. </li></ul><ul><ul><li>Discharge By Mutual Rescission: parties must make another agreement. </li></ul></ul><ul><ul><li>Discharge by Novation: new contract with substitution of a third party for one of the original parties. </li></ul></ul><ul><ul><li>Accord and Satisfaction: settlement to discharge original contract. </li></ul></ul>
  10. 10. Contract Discharge <ul><li>Discharge by Operation of Law. </li></ul><ul><ul><li>Contract Alteration. </li></ul></ul><ul><ul><li>Statutes of Limitations. </li></ul></ul><ul><ul><li>Bankruptcy. </li></ul></ul><ul><ul><li>Impossibility of Performance (Objective). </li></ul></ul><ul><ul><ul><li>Party’s incapacitation. </li></ul></ul></ul><ul><ul><ul><li>Subject matter is destroyed. </li></ul></ul></ul><ul><ul><ul><li>Performance becomes illegal. </li></ul></ul></ul><ul><ul><ul><li>Commercially impracticable. </li></ul></ul></ul>
  11. 11. Damages <ul><li>Compensatory Damages: </li></ul><ul><ul><li>Compensates injured party (Plaintiff). </li></ul></ul><ul><ul><li>Plaintiff must prove actual damages caused by breach. Amount: </li></ul></ul><ul><ul><ul><li>Generally: difference between Defendant’s promised performance and actual. </li></ul></ul></ul><ul><ul><ul><li>Sale of Goods: difference between the contract price and market. </li></ul></ul></ul>
  12. 12. Damages <ul><li>Consequential (Special) Damages </li></ul><ul><ul><li>Foreseeable damages that result from breach of contract. </li></ul></ul><ul><ul><li>Caused by other than breach of contract. </li></ul></ul><ul><li>Punitive (Exemplary) Damages. </li></ul><ul><ul><li>Deter wrongdoer; set example. </li></ul></ul><ul><li>Nominal Damages. </li></ul>
  13. 13. Damages <ul><li>Mitigation of Damages. </li></ul><ul><ul><li>Injured party has a legal duty to mitigate damages. </li></ul></ul><ul><li>Liquidated Damages vs. Penalties. </li></ul><ul><ul><li>Liquidated: fixed, certain dollar amount agreed to by parties, paid in the event of breach. LD’s are enforceable. </li></ul></ul><ul><ul><li>Penalty: designed to penalize a party. Generally not enforceable. </li></ul></ul><ul><ul><li>Green Park Inn, Inc. v. Moore (2002). </li></ul></ul>
  14. 14. Equitable Remedies <ul><li>Rescission: cancel or undo a contract. </li></ul><ul><ul><li>Available for fraud, mistake, duress and failure of consideration. </li></ul></ul><ul><li>Restitution: recapture the benefit conferred on the defendant that has unjustly enriched her. </li></ul><ul><ul><li>Parties must return goods, property or money. </li></ul></ul><ul><li>Specific Performance. </li></ul><ul><li>Reformation: court re-writes the contract to reflect parties’ true intentions. </li></ul>
  15. 15. Equitable Remedies <ul><li>Recovery based on Quasi-Contract. Plaintiff must show: </li></ul><ul><ul><li>Benefit was conferred on the other party. </li></ul></ul><ul><ul><li>Party conferring benefit expected to be paid. </li></ul></ul><ul><ul><li>Party seeking recovery did not volunteer. </li></ul></ul><ul><ul><li>Retaining benefit without payment would be unjust enrichment. </li></ul></ul><ul><li>Election of Remedies. </li></ul>