BUS 115 Chap012 third parties, discharge, remedies


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  • Lisa Gomez owed Roger King $500 for some photography work that King had done for her. At thesame time, King owed Ted Walker $500 back rent. King assigned Walker the right to receive the moneyfrom Gomez. In this situation, King was the assignor, Walker the assignee, and Gomez the obligor. Thefollowing flowchart clearly illustrates these points.
  • BUS 115 Chap012 third parties, discharge, remedies

    1. 1. Chapter 12 Third Parties, Discharge, and Remedies 14-1
    2. 2. Learning Objectives 1. Explain the legal rights given to all beneficiaries. 2. Identify the legal rights given to incidental beneficiaries. 3. Explain the assignment of rights and the delegation of duties. 4. Explain the nature of a novation. 5. Relate what constitutes satisfactory performance of a contract. 14-2
    3. 3. Learning Objectives 6. Outline the difference between complete and substantial performance. 7. List the ways that a contract can be discharged by nonperformance. 8. Clarify the concept of anticipatory repudiation. 9. Enumerate the types of damages available in the event of a breach of contract. 10. Contrast specific performance with injunctive relief. 14-3
    4. 4. Contracts and Third Parties • Third party (outside party) – a person who may in some way be affected by a contract but who is not one of the contracting parties. • Third party beneficiary – A third party receiving benefits from a contract made by others 14-4
    5. 5. Intended Beneficiaries • Intended beneficiary – The contract was designed to benefit them – Can enforce the contract even though not in privity • some exceptions, varying among states • Creditor beneficiary – An outside third party to whom one or both contracting parties owe a continuing debt of obligation arising from a contract. 14-5
    6. 6. Common Intended Beneficiaries • Donee Beneficiaries – A third party who provides no consideration for the benefits received and who owes the contracting parties no legal duty • Insurance Beneficiaries – Usually considered a donee beneficiary – In some cases, can be both insurance and creditor beneficiary • Mortgage loan requiring mortgage life insurance policy 14-6
    7. 7. Incidental Beneficiaries • Incidental beneficiary – Would substantially benefit if the agreement were performed, but whose benefit was not part of the contract – Have no legal right to enforce the contract 14-7
    8. 8. The Law of Assignment • Assignment –a transfer of a contract right • Delegation –a transfer of a contract duty 14-8
    9. 9. Parties to Assignment • Assignor – The party who assigns rights or delegates duties • Assignee – The outside third party to whom the assignment is made • Obligor – The remaining party to the original agreement 14-9
    10. 10. From King to Gomez to Walker 14-10 12-10
    11. 11. Consideration in Assignment • Consideration not required for assignment – But lack of consideration allows assignor to repudiate anytime before execution – Also allows creditors of assignor to rescind assignment on grounds of fraudulent conveyance • Fraudulent conveyance – Transfer of property with the intent to defraud creditors 14-11
    12. 12. Form of Assignment • Assignment may be accomplished through written, oral, or implied agreements between the assignor and the assignee • Must observe the requirement provided by the equal dignities rule 14-12
    13. 13. Form of Assignment Figure 14-1 14-13
    14. 14. Notice of Assignment • An assignment is valid at the time it is made • To protect against subsequent assignments, the assignee should give notice of the assignment to the obligor – The assignor may also give notice • Once notified, the obligor should deal with the assignee 14-14
    15. 15. Notice of Assignment 14-15
    16. 16. Subsequent Assignments • If the assignor make a subsequent assignment of the same right, the courts must decide which of the two assignees has a superior right and claim against the obligor • Superior right usually given to first assignee, but sometimes given to assignee who first gives notice to obligor – Depends on jurisdiction 14-16
    17. 17. Rights and Duties of the Assignee • The assignee has the same rights and duties as the assignor did under the original contract. • Assignee has duty to give notice to obligor • Obligor given reasonable time to verify that assignment is legit 14-17
    18. 18. Liabilities and Warranties of the Assignor • The assignor is obligated to any express and implied warranties that serve to protect either the assignee or the obligor • Warranty – a promise, statement, or other representation that a thing has certain qualities. 14-18
    19. 19. Liabilities and Warranties of the Assignor • Warranties to Assignee – Assignor bound to assignee by an implied warranty that obligor will perform • Unless no consideration exchanged (gift) • Warranties to Obligor – If assignor delegates duties to assignee, – Assignor bound to obligor by implied warranty that assignee will perform in complete and satisfactory manner 14-19
    20. 20. Restrictions on Assignments • Restrictions on Personal and Professional Service Contracts – Artists, musicians, physicians, attorneys, ministers • Restrictions Imposed by Original Contract – Contract could forbid assignment/delegation – Court may or may not uphold 14-20
    21. 21. Restrictions on Assignments • Restrictions Imposed by Law – Members of armed services may only assign their pay to spouse or family member – Police officers and certain public officials restricted from assigning pay or delegating duties they have been especially chosen to perform 14-21
    22. 22. Novation and Assignment • If assignor is not released, all three parties are still in privity. • If all parties agree to release the assignor from the contract, only the assignee and obligor in privity. (Novation) • Novation – Replacing one member of a contract with another – Replacing an existing debt/obligation with a new one 14-22
    23. 23. Discharge by Performance • Most contracts are discharged by performance – the parties do what they agreed to do under the terms of the contract • What about when performance is: – Untimely – Unsatisfactory – Partial 14-23
    24. 24. Time for Performance • If no time for performance is stated, contract must be performed within a Reasonable time – The time that may fairly, properly, and conveniently be required to do the task, considering the circumstances – Reasonable time varies and is decided by courts 14-24
    25. 25. Time for Performance • If time for performance is stated in the contract, and it is clear that time is of the essence, courts will generally enforce time. • If time is stated, but it is not clear that time is particularly important, courts can allow for additional time to perform. • Force Majeure (superior force) clause – allows for intervention of unforeseen circumstances to afford extra time (acts of God, strikes, war, etc.) 14-25
    26. 26. Satisfaction of Performance • Satisfactory performance – The contracting parties have performed their contractual duties according to the agreement – Can be determined by personal taste or some objective standard • If no express definition of satisfaction, law implies that: – Services - done in a skillful manner – Materials and goods - free from defects 14-26
    27. 27. Complete and Substantial Performance • Complete performance – All the parties fully accomplish every term, condition, and promise to which they agreed – Terminates contract • Substantial performance – A party, in good faith, executes all promised terms and conditions, with the exception of minor details that do not affect the real intent of their agreement – Offending party will have to reimburse for parts not performed 14-27
    28. 28. Contractual Conditions • Condition precedent – Requires the performance of certain acts or promises before the other party is obligated to perform – Unilateral contract • Performance of condition precedent serves as acceptance of offer – Bilateral contract • If condition precedent not performed, can lead to rescission or termination of contract. 14-28
    29. 29. Contractual Conditions • Condition Concurrent – Requires both parties to perform at the same time – Ex: delivery and payment • Condition subsequent – Parties agree that the contract will be terminated when a prescribed event occurs or does not occur 14-29
    30. 30. Tender of Performance • Tender of performance – Offering to do what one has agreed to do under the terms of the contract • Tender of payment – Presenting payment at the agreed time • Making tender is important to demonstrate willingness and ability to perform. 14-30
    31. 31. Discharge by Nonperformance • Nonperformance – Failing to fulfill or accomplish a promise, contract, or obligation according to its terms – Discharge by: • • • • agreement operation of law impossibility breach of contract 14-31
    32. 32. Discharge by Agreement • Termination by Terms of the Contract – Setting terms for termination in the contract • Mutual Rescission – Usually requires return of consideration received • Termination by Waiver – Voluntarily giving up your right to complain about a party’s unsatisfactory performance (or failing to do so within a certain amount of time) – No return of consideration necessary 14-32
    33. 33. Discharge by Agreement • Novation – Replacing one party with another • Accord and Satisfaction – A new agreement arising from a bona fide dispute in contract terms – Performance of the accord is the satisfaction • General Release – Document whereby a creditor releases a debtor from obligations on a debt 14-33
    34. 34. Discharge by Impossibility • Conditions that arise subsequent to the making of a contract may either void the agreement or make it voidable by one of the parties • When the exact subject matter of an executory contract is destroyed, the performance obligation may be discharged. • Act declared illegal • Death/insanity/disability of a party 14-34
    35. 35. Discharge by Impossibility • Frustration-of-purpose doctrine – releases a party from a contractual obligation when performing the obligations would be thoroughly impractical and senseless Ex: Pay premium price for hotel room near Panthers Stadium for Superbowl, but game cancelled due to entire team contracting H1N1. 14-35
    36. 36. Discharge by Impossibility • Commercial impracticability – Courts may excuse the nonperformance of one party to a contract because an unforeseen and very severe hardship has arisen that would place an enormous hardship on that party 14-36
    37. 37. Syrovy Trust v. Alpine Resources, Inc. Court of Appeals of Washington, 1992 • Syrovy agrees to sell all the timber that Alpine can harvest from Syrovy’s property in two years for $140,000 • Alpine harvests and pays $50,000 • Syrovy sues for remaining $90,000 • Alpine claims commercial impracticability due to bad weather both winters and the fact that they couldn’t log during hunting season • Trial court grants summary judgment for Syrovy, Alpine appeals 14-37
    38. 38. Syrovy Trust v. Alpine Resources, Inc. Court of Appeals of Washington, 1992 • Court: – For commercial impracticability, events must be unforeseen/unanticipated – Difficulties assumed by a party at time of contracting cannot form basis of commercial impracticability defense – Alpine are experienced loggers, able to foresee harsh winter conditions, and there is no evidence that performance was impossible – Access problems are also foreseeable – Affirmed in favor of Plaintiff, Syrovy. 14-38
    39. 39. Discharge by Operation of Law • Bankruptcy – A discharge in bankruptcy will serve as a defense for most, but not all, debts • Statute of Limitations – Doesn’t technically void a debt, but serves as a defense for the debtor against collection attempts 14-39
    40. 40. Discharge by Breach of Contract • Deliberate Breach of Contract – One of the parties fails to do what was agreed to under the terms of the contract • Anticipatory breach – When a party to a contract either expresses or clearly implies an intention not to perform the contract, even before being required to act • Abandonment of Contractual Obligations – Stopping performance once it has begun 14-40
    41. 41. Standard Damages in Contract Law • Actual damages (Compensatory damages) – The real financial loss suffered by the injured party • Bob contracts with Joe to purchase 100 bushels of wheat at $20/bushel. Joe doesn’t deliver, so Bob has to purchase elsewhere at $25/bushel. Bob could sue for $5/bushel plus court costs. 14-41
    42. 42. Standard Damages in Contract Law • Incidental damages – Cover any expenses paid out by the innocent party to prevent further loss – Ex: Expenses related to inspection, receipt, transportation, care, and custody of goods rightfully rejected 14-42
    43. 43. Standard Damages in Contract Law • Consequential damages (aka indirect/special) – result indirectly from the breach because of special circumstances that exist with a particular contract – Must prove they were reasonably foreseeable at the time the contract was made – Ex: loss of operating revenue due to late completion of construction 14-43
    44. 44. Standard Damages in Contract Law • Punitive (Exemplary) Damages – Damages in excess of actual losses suffered by the plaintiff awarded as a measure of punishment for the defendant’s wrongful acts – Fraudulent Misrepresentation – Disparagement – Violating an implied covenant of fairness and honesty – Intentional interference with an existing contract 14-44
    45. 45. Special Types of Damages • • • • • Nominal Damages Present and Future Damages Liquidated Damages Damages Under Quantum Meruit Speculative Damages 14-45
    46. 46. Special Types of Damages • Nominal Damages – Token damages awarded to parties who have experienced an injury to their legal rights but no actual loss – “you’re technically right, but you didn’t suffer any real loss, so you win a dollar.” • Present and Future Damages – For present injuries and those that might be reasonably expected in the future 14-46
    47. 47. Special Types of Damages • Liquidated Damages – Agreed to in the original contract – Must be realistic and in proportion to reasonably expected losses • Damages Under Quantum Meruit – Used to assess damages in cases involving implied-inlaw or quasi-contracts – Damages awarded are in an amount considered reasonable in return for the benefits the one party derived through the quasi-contract relationship 14-47
    48. 48. Special Types of Damages • Speculative Damages – Losses that haven’t been suffered and that cannot be proven – Based on speculation, with no real foundation – Courts won’t allow 14-48
    49. 49. Mitigation of Damages • Innocent/injured party has a duty to keep damages to a minimum • Exercise reasonable precautions to keep damages from becoming unreasonably burdensome to offending party 14-49
    50. 50. Equitable Remedies • A decree of specific performance – Court order calling for the breaching party to do what he/she promised to do under the original contract – Used only when subject matter is unique or rare (land, art, heirlooms, specific animals, etc.) 14-50
    51. 51. Equitable Remedies • Injunctive relief – Temporary or permanent court order to refrain from doing something • Ex: Psystar issued temporary injunction ordering them to stop selling products while case still in court. Gives time to consider whether permanent injunction should be issued, preventing further damages to Apple. 14-51
    52. 52. Litigation Costs • Usually divided into two categories: 1. Attorney’s fees • Each party pays their own, with exceptions, depending on statutory law 2. Taxable expenses/costs • Paid by losing party • Filing costs, subpoena costs, copying costs, etc. 14-52
    53. 53. Question? What is an outside party for whose benefit a contract was not made but who would substantially benefit if the agreement were performed according to its terms and conditions? A. Intended beneficiary B. Creditor beneficiary C. Obligee beneficiary D. Incidental beneficiary 14-53
    54. 54. Question? What is a person who may in some way be affected by a contract but who is not one of the contracting parties? A. Primary party B. Third party beneficiary C. Third party D. Secondary party 14-54
    55. 55. Question? What is a beneficiary in whose favor a contract is made? A. Intended beneficiary B. Creditor beneficiary C. Obligee beneficiary D. Debtor beneficiary 14-55
    56. 56. Question? What is a transfer of a contract right? A. Assignment B. Duty C. Transfer D. Delegation 14-56
    57. 57. Question? What is a transfer of a contract duty? A. Assignment B. Duty C. Transfer D. Delegation 14-57
    58. 58. Question? What is the outside third party to whom the assignment is made? A. Assignee B. Assignor C. Obligee D. Obligor 14-58
    59. 59. Question? What occurs when all the parties fully accomplish every term, condition, and promise to which they agreed ? A. Satisfactory performance B. Complete performance C. Substantial performance D. Absolute performance 14-59
    60. 60. Question? What occurs when all the parties fully accomplish every term, condition, and promise to which they agreed ? A. Satisfactory performance B. Complete performance C. Substantial performance D. Absolute performance 14-60
    61. 61. Question? Which contractual condition requires both parties to perform at the same time? A. Precedent B. Concurrent C. Subsequent D. Concomitant 14-61
    62. 62. Question? What is failing to fulfill or accomplish a promise, contract, or obligation according to its terms? A. Dis-achievement B. Non-achievement C. Nonperformance D. Unconditioning 14-62
    63. 63. Question? With __________ the parties to a contract mutually agree to replace one of the parties with a new party. A. Mutual rescission B. Termination by Waiver C. Novation D. Bankruptcy 14-63
    64. 64. Question? What are token damages awarded to parties who have experienced an injury to their legal rights but no actual loss? A. Realistic damages B. Normal damages C. Nominal damages D. Logical damages 14-64
    65. 65. Question? What is the time that may conveniently be required to do the task that is to be done? A. Reasonable time B. Practical time C. Logical time D. Realistic time 14-65