Chapter 8Contracts: Third Party

Rights, Discharge, Breach and

Remedies

Chapter 8Contracts: Third Party

Rights, Discharge, Breach and

Remedies

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?

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?

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

AssignmentsAssignmentsTransfer 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.

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.

DelegationsDelegations

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.

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.

Third Party BeneficiariesThird 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.

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.

Contract DischargeContract 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 performanceCondition Subsequent: follows initial performance.Concurrent: occur simultaneously.

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 performanceCondition Subsequent: follows initial performance.Concurrent: occur simultaneously.

Contract DischargeContract Discharge

Discharge by Performance: Complete vs. Substantial PerformanceComplete 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.

Discharge by Performance: Complete vs. Substantial PerformanceComplete 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.

Contract DischargeContract 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 RepudiationOne party gives notice of refusal to perform. Innocent party treats AR as material breach.

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 RepudiationOne party gives notice of refusal to perform. Innocent party treats AR as material breach.

Contract DischargeContract Discharge

Discharge by AgreementDischarge 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.

Discharge by AgreementDischarge 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.

Contract DischargeContract DischargeDischarge by Operation of Law

Contract AlterationStatutes of LimitationsBankruptcyObjective Impossibility of Performance

• Party’s incapacitated,• Subject matter is destroyed,• Performance becomes illegal, or• Commercially impracticable.

Discharge by Operation of LawContract AlterationStatutes of LimitationsBankruptcyObjective Impossibility of Performance

• Party’s incapacitated,• Subject matter is destroyed,• Performance becomes illegal, or• Commercially impracticable.

DamagesDamages

Compensatory DamagesCompensates 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.

Compensatory DamagesCompensates 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.

DamagesDamages

Consequential (Special) DamagesForeseeable damages that result from

breach of contract.Caused by other than breach of contract.

Punitive (Exemplary) DamagesDeter wrongdoer; set example.

Nominal Damages

Consequential (Special) DamagesForeseeable damages that result from

breach of contract.Caused by other than breach of contract.

Punitive (Exemplary) DamagesDeter wrongdoer; set example.

Nominal Damages

DamagesDamages

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.

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.

Equitable RemediesEquitable 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.

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.

Equitable RemediesEquitable 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

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