Transfer and Discharge of ObligationsChapter 11

Section 11-1

• Goals– Identify what rights can be assigned and what

duties delegated.

– Describe the various ways in which contractual obligations may be discharged.

What Do You Think

• Think of three contracts you have recently entered into.

• What was the consideration given and what rights did you receive in the contract?

• Have you ever thought about selling rights you obtained in a contract?

Hot Debate page 188

• Make a persuasive argument that emphasizes the legal reasons supporting Ben’s suit.

• Make a persuasive agreement that emphasizes the legal reasons supporting his father’s actions.

Assignment

• An assignment is a transfer of a right of a party may have under a contract to another.

• Assignor is the party who transfers the contractual right.

• Assignee is the party who receives the contractual right.

Obligor

• An obligor is the person who owes a duty under the contract.

Assignment (Things to Know!!!!)

• An assignment does not have to be supported by consideration to be effective.

• If an obligor breaches the contract, the assignee not he assignor must sue for the breach. (Basically the party who has the rights at the time of the breach must sue.)

What’s Your Verdict page 189

• Is such a transfer of contract rights legal?

Assignable Rights

• Generally a party may assign contracted rights to another, provided performance will not be changed in an important (material) way.

Performance

• Performance is the fulfillment of contractual promises as agreed.

Non-Assignable Rights

• Some rights may not be assigned to another party.

• These rights include:– If the contract itself prohibits the transfer of rights,

those rights are not assignable.– Claims for damages of personal injuries.– Claims against the United States Government.– Rights of personal services, especially those of skilled

nature, or when personal trust and confidence are involved.

– Assignments of future wages, as limited by state statutes.

Form of Assignment

• Some state statues require that certain assignments be in writing.

• Remember our old friend the Statue of Frauds.

• Remember: No consideration is necessary to make an assignment valid.

Delegation of Duties

• Delegation of duties is when you transfer you obligation to perform to another party.

• Note: You will remain liable for performance of the duty to the party who you originally entered into the contract with.

Assessment 11-1 page 193 (Part 1)

• Think About Legal Concepts– Questions: 1; 2; and 4.

• Think Critically About Evidence – Question #7

Discharge of a Contract

• A discharge of a contract is the termination of the duties when the parties perform as promised. (Basically when you do what you promised you were going to do.)

Breach of Contract

• Breach of contract occurs when one party does not perform as promised. (Basically that party didn’t do what they promised to do.)

Breach of Contract (Major Breach)

• When one party fails to perform major duty as promised, the other party may treat such a failure as a major breach, and regard his or her obligation as discharged.

• In sales contracts under the UCC this is termed a cancellation.

Breach of Contract (Minor Breach)

• Substantial performance is when all of the major duties are performed, but a minor duty under the contract remains.

• This does not allow the parties to discharge the contract.

Breach of Contract

• HOWEVER: If the failure to perform is deliberate the non-breaching party may treat it as a major breach.

Default

• When a party fails to perform they are said to have defaulted on the contract.

Anticipatory Breach

• An anticipatory breach is when one party notifies the other party that they intend on not fulfilling the contract in advance of the time that they have to fulfill the contract.

A Question of Ethics

• What legal choices are there for the Sterlings?

• What ethical issues does each choice possess?

Timing of Performance

• Contracts often do not say when a duty must be performed.

• In such cases the performance must take place with in a reasonable time.– A judge an jury would determine what a

reasonable time is, if the contract would come up in court.

Timing of Performance

• If the contract identifies a date of performance, most courts would rule that the performance shortly after the date is a minor breach of contract.

• However, if the contract states that, “time is of the essence”, failure to perform by that date may be regarded as a major breach.

• The courts will look at the contract to see if time is really of the essence.

By the Initial Terms (Not on the quiz; Just an FYI)

• When parties prepare their contract, they may agree that it will terminate.– On a specific date or upon the expiration of a

specific period of time.

– Upon the occurrence of a specified event.

– Upon the failure of a certain event to happen.

– At the free will of either party giving notice.

By Subsequent Agreement

• The parties who make a contract may mutually agree to change the contract.

• They can do so by: (These are on the next slides so you don’t have to write them down yet):– Rescission

– Accord and Satisfaction

– Novation

Recession

• By recession the parties may agree to unmake or undo their entire contract from the beginning.– Each party will return any consideration they have

already received.

Accord and Satisfaction

• Substitution is when the parties decide to change what they receive in the contract.

• Accord is an agreement to make such a change in duties.

• Satisfaction is the new obligation.

Novation

• Novation is when a party releases another party from the duty of performance and accepts a substitute party.

• In effect a new contract is formed by agreement of the three parties who are involved.

What Do You Think?

• What is an example of Novation? Perhaps one that you yourself have used in the past?

What’s Your Verdict page 190

• Does Shelia owe $500 or $1,000?

By Impossibility of Performance

• Impossibility of performance generally refers to extreme external conditions rather than an obligor’s personal inability to perform.

Impossibility of Performance

• May be used to discharge the duties of a contract.

• Examples of impossibility of performance include:– Unique subject matter identified in the contract is

destroyed before it can be delivered.

– A performance becomes illegal before it can be rendered.

– The death of disability of someone who was to provide a personal service that only that person could render.

Think Critically Through Visuals page 192

• Would you company’s contracts be discharged due to this situation? Why or why not?

By Operation of Law

• A contract may be discharged or the right to enforce it may be barred by operation of law. (example bankruptcy)

Alteration of Contract

• An alteration of a written agreement usually discharges the contract by operation of law.

• To discharge the contract the alteration must be:–Material.–Made intentionally.–Made by a party to the agreement, or an authorized

agent.–Made without consent of the other party.

Tender of Performance

• A tender is a ready willing and able offer to perform an obligation.

• A tender of only part of the debt is no a valid tender.

• To be valid the tender must be in the exact amount due in currency, coins, or legal tender.

Assessment 11-1 page 193 (Part 2)

• Think About Legal Concepts– Questions: 3; 5; and 6.

• Think Critically About Evidence – Questions 8 and 9

Think Critically About Evidence page 207

• Question 19

Analyze Real Cases page 208

• Question 25

Section 11-2

• Goals– Name and describe various remedies possible for

minor or major breach of contract.

– Discuss the factors that affect the choice of remedies.

Remedy

• A remedy means the action of procedure followed to enforce a right or to get damages for an injury to a right.

Remedy For a Minor Breach

• The only remedy for a minor breach is money damages..

• A party injured by a minor breach generally must continue to perform the duties defined in the contract.

Remedies for a Major Breach

• The injured party need not continue to perform the duties outlined in the contract.

• The injured party can choose among the following options.– Rescission and restitution

–Money damages

– Specific performance.

Rescission and Restitution

• Canceling the contract and returning whatever has been received under it.

• This remedy is intended to place the parties in the same legal position they where in before contracting.

Money Damages

• The payment of money to compensate for injury.

• There are various types of Money Damages

Compensatory (Money Damages)

• An award of compensatory money damages seeks to place injured parties in the same financial position they would have been in if there was no breach.

Consequential (Money Damages)

• An award of consequential money damages is intended to place the parties in the same legal position they where in before contracting.

• (Like rescission and restitution)

Punitive (Money Damages)

• Punitive money damages are added to punish and make an example of the defendant.

• Usually used in cases where fraud, duress, or an intentional tort occurs.

Liquidated (Money Damages)

• Liquidated damages are pre agreed upon damages written into the contract.

Nominal (Money Damages)

• Nominal damages are a token amount that courts will award to acknowledge that a wrong has been committed.

Specific Performance

• A court order commanding the breached party to perform what was promised in the contract.

• Usually this is used when the subject of the contract is very unique and the only way to compensate the injured party is for the execution of the contract.

• The courts must have a way of supervising the remedy.

Conflict of Remedies

• A party injured in a breach of contract must elect, or choose, a remedy when suing.

What’s Your Verdict page 194

• What is the optimal remedy for Liu?

Assessment 11-2 page 198 (Part 1)

• Think About Legal Concepts– Questions: 1, 2, 3, and 4.

• Think Critically About Evidence – Questions 8, and 9.

Duty to Mitigate

• A party injured by a breach of contract is required by law to take reasonable steps in minimize the harm done by the breach; or to mitigate the damages.

Waivers

• A waiver is when a party intentionally and explicitly gives up a contractual right.

Statue of Limitations

• Laws regarding how long you have to bring a tort to court.

Bankruptcy

• A legal proceeding where a debtor’s assets are distributed among his or her creditors to discharge the debts.

What’s Your Verdict page 196

• What remedies are available to the original team?

Assessment 11-2 page 198 (Part 2)

• Think About Legal Concepts– Questions: 5, 6, and 7.

• Think Critically About Evidence – Questions 10, 11, and 12.