© 2005 West Legal Studies in Business A Division of Thomson Learning CHAPTER 9 Third Party Rights, Discharge, Breach, and Remedies

© 2005 West Legal Studies in Business A Division of Thomson Learning 2 What is the difference between an assignment and a delegation?What is the difference between an assignment and a delegation? What factors indicate a third party is an intended beneficiary?What factors indicate a third party is an intended beneficiary? How is the difference between compensatory damages and consequential damages? What are nominal damages, and when do courts award them?How is the difference between compensatory damages and consequential damages? What are nominal damages, and when do courts award them? Under what circumstances will equitable remedies be available?Under what circumstances will equitable remedies be available? What is the rationale underlying the doctrine of election of remedies?What is the rationale underlying the doctrine of election of remedies? Learning Objectives

© 2005 West Legal Studies in Business A Division of Thomson Learning 3 Assignments Transfer of contractual rights to a 3 rd party (assignee).Transfer of contractual rights to a 3 rd party (assignee). The assignee has the right to demand performance from the other original party (Obligor) to the contract.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.Cannot Assign rights for personal services or when obligor’s performance changes. Forest Commodity Corp. v. Lone Star Industries, Inc. (2002).Forest Commodity Corp. v. Lone Star Industries, Inc. (2002).

© 2005 West Legal Studies in Business A Division of Thomson Learning 4 Delegations Transfer of duties to a 3 rd party (Delegatee) by Delegator.Transfer of duties to a 3 rd party (Delegatee) by Delegator. Delegatee owes duty to original party in contract.Delegatee owes duty to original party in contract. Delegator is still liable for performance of duty.Delegator is still liable for performance of duty.

© 2005 West Legal Studies in Business A Division of Thomson Learning 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 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 Incidental Beneficiary. Benefit is unintentional. 3P has no rights.

© 2005 West Legal Studies in Business A Division of Thomson Learning 6 Contract Discharge Discharge is the full performance of all duties.Discharge is the full performance of all duties. Conditions to Performance:Conditions to 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.

© 2005 West Legal Studies in Business A Division of Thomson Learning 7 Contract Discharge Discharge by Performance: Complete vs. Substantial PerformanceDischarge 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.

© 2005 West Legal Studies in Business A Division of Thomson Learning 8 Contract Discharge Material BreachMaterial 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. –Kim v. Park (2004). Anticipatory RepudiationAnticipatory Repudiation –One party gives notice of refusal to perform. –Innocent party treats AR as material breach.

© 2005 West Legal Studies in Business A Division of Thomson Learning 9 Contract Discharge Discharge by Agreement.Discharge by Agreement. –Discharge By Mutual Rescission: 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.

© 2005 West Legal Studies in Business A Division of Thomson Learning 10 Contract Discharge Discharge by Operation of Law.Discharge by Operation of Law. –Contract Alteration. –Statutes of Limitations. –Bankruptcy. –Impossibility of Performance (Objective). Party’s incapacitation.Party’s incapacitation. Subject matter is destroyed.Subject matter is destroyed. Performance becomes illegal.Performance becomes illegal. Commercially impracticable.Commercially impracticable.

© 2005 West Legal Studies in Business A Division of Thomson Learning 11 Damages Compensatory 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.Generally: difference between Defendant’s promised performance and actual. Sale of Goods: difference between the contract price and market.Sale of Goods: difference between the contract price and market.

© 2005 West Legal Studies in Business A Division of Thomson Learning 12 Damages Consequential (Special) DamagesConsequential (Special) Damages –Foreseeable damages that result from breach of contract. –Caused by other than breach of contract. Punitive (Exemplary) Damages.Punitive (Exemplary) Damages. –Deter wrongdoer; set example. Nominal Damages.Nominal Damages.

© 2005 West Legal Studies in Business A Division of Thomson Learning 13 Damages Mitigation of Damages.Mitigation of Damages. –Injured party has a legal duty to mitigate damages. Liquidated Damages vs. Penalties.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. –Green Park Inn, Inc. v. Moore (2002).

© 2005 West Legal Studies in Business A Division of Thomson Learning 14 Equitable Remedies Rescission: cancel or undo a contract.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.Restitution: recapture the benefit conferred on the defendant that has unjustly enriched her. –Parties must return goods, property or money. Specific Performance.Specific Performance. Reformation: court re-writes the contract to reflect parties’ true intentions.Reformation: court re-writes the contract to reflect parties’ true intentions.

© 2005 West Legal Studies in Business A Division of Thomson Learning 15 Equitable Remedies Recovery based on Quasi-Contract. Plaintiff must show: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.Election of Remedies.