© 2008 West Legal Studies in Business A Division of Thomson Learning 1 BUSINESS LAW TODAY Essentials 8 th Ed. Roger LeRoy Miller - Institute for University Studies, Arlington, Texas Gaylord A. Jentz - University of Texas at Austin, Emeritus Chapter 9 Contracts: Third Party Rights, Discharge, Breach, and Remedies

© 2008 West Legal Studies in Business A Division of Thomson Learning 2 Learning Objectives  What is the difference between an assignment and a delegation?  What factors indicate a third party is an intended beneficiary?  What is the difference between compensatory damages and consequential damages? What are nominal damages, and when do courts award nominal damages?  Under what circumstances will equitable remedies be available?  What is the rationale underlying the doctrine of election of remedies?

© 2008 West Legal Studies in Business A Division of Thomson Learning 3 Assignments  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.  Cannot Assign rights for personal services or when obligor’s performance changes.

© 2008 West Legal Studies in Business A Division of Thomson Learning 4 Assignment Relationships

© 2008 West Legal Studies in Business A Division of Thomson Learning 5 Delegations  Transfer of duties to a 3 rd party (Delegatee) by Delegator.  Delegatee owes duty to original party in contract.  Delegator is still liable for performance of duty.

© 2008 West Legal Studies in Business A Division of Thomson Learning 6 Delegation Relationships

© 2008 West Legal Studies in Business A Division of Thomson Learning 7 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 Incidental Beneficiary. Benefit is unintentional. 3P has no rights.

© 2008 West Legal Studies in Business A Division of Thomson Learning 8 Third Party Beneficiaries

© 2008 West Legal Studies in Business A Division of Thomson Learning 9 Contract Discharge

© 2008 West Legal Studies in Business A Division of Thomson Learning 10 Contract Discharge  Discharge is the full performance of all contractual duties.  Conditions of 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.

© 2008 West Legal Studies in Business A Division of Thomson Learning 11 Contract Discharge  Discharge 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.

© 2008 West Legal Studies in Business A Division of Thomson Learning 12 Contract 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. CASE 9.1 Kim v. Park (2004).  Anticipatory Repudiation One party gives notice of refusal to perform. Innocent party treats AR as material breach.

© 2008 West Legal Studies in Business A Division of Thomson Learning 13 Contract Discharge  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.

© 2008 West Legal Studies in Business A Division of Thomson Learning 14 Discharge by Operation of Law  Contract Alteration.  Statutes of Limitations.  Bankruptcy.  Objective Impossibility. Party’s incapacitation. Subject matter is destroyed. Performance becomes illegal. Commercial impracticability.

© 2008 West Legal Studies in Business A Division of Thomson Learning 15 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.  Sale of Goods: difference between the contract price and market.  Sale of Land: Specific performance?  Construction Contracts: Depends on the stage of construction.

© 2008 West Legal Studies in Business A Division of Thomson Learning 16 Damages  Consequential (Special) Damages Foreseeable damages that result from breach of contract. Caused by other than breach of contract.  Punitive (Exemplary) Damages. Deter wrongdoer; set example.  Nominal Damages.

© 2008 West Legal Studies in Business A Division of Thomson Learning 17 Damages  Mitigation of Damages. Injured party has a legal duty to mitigate damages. CASE 9.2 Hanson v. Boeder (2007).  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.

© 2008 West Legal Studies in Business A Division of Thomson Learning 18 Damages Summary

© 2008 West Legal Studies in Business A Division of Thomson Learning 19 Equitable 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.

© 2008 West Legal Studies in Business A Division of Thomson Learning 20 Equitable Remedies  Specific Performance. CASE 9.3 Stainbrook v. Low (2006).  Reformation: court re-writes the contract to reflect parties’ true intentions. 

© 2008 West Legal Studies in Business A Division of Thomson Learning 21 Equitable 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.  Limitation of Liability Clauses.  Election of Remedies.

© 2008 West Legal Studies in Business A Division of Thomson Learning 22 Remedies Summary