1. Contractual Obligations and their Enforcement
Business Law Ch 11
Contractual Obligations and their Enforcement

2. Transfer of Contractual Rights
Assignment – Transfer of a right a party may have under a contract to another
Assignor – The party who transfer the contractual rights
Assignee – Party who receives this contractual right
Assignment does not need to be supported by consideration to be legally effective

3. Transfer of Contractual Rights
Assignee “stands in the shoes of the assignor”
Means that the assignee receives exactly the same contractual rights and duties as the assignor
Assignor typically does not promise that the obligor (one who owes a duty under a contract) will perform as promised in the original contract
If the obligor breaches, the assignee, not the assignor, must sue for breach.

4. Assignable Rights
A party may assign contractual rights to another, providing performance (fulfillment of contractual promises as agreed) will not be materially changed.

5. Non-Assignable Rights
Contractual rights may not be assigned if performance requirements would be materially changed

6. Non-Assignable Rights
Other situations:
Rights created under a contract that prohibits transfer of a contractual right
Claims for damage for personal injuries
Claims against the United States
Rights to personal service, especially those of a skilled nature, or when personal trust and confidence are involved
Assignments of future wages, as limited by state statutes.

7. Form of Assignments
Assignment of contractual rights usually is made voluntarily
Assignments may be written or oral
No consideration is necessary to make a valid assignment

8. Notice of Assignment
Until notified that an assignment has occurred, the obligor may continue to pay assignor.
After notification, obligor is liable to assignee for performance.
Assignee should properly notify the obligor of the assignment

9. Delegation of Contractual Duties
Delegation of Contractual Duties – Transfer of a routine obligation of a party that must be performed to fulfill a contract to another party
Person who delegates duties is still remains legally obligated and responsible for proper performance
A person cannot delegate to another any duty where performance requires unique personal skill or special qualifications

10. Discharge of Contractual Obligations: By Performance
Discharge of a contract – Termination of duties that ordinarily occur when the parties perform as promised
Most contracts are discharged by complete performance
Breach of Contract – Failure to provide complete performance

11. By Performance Cancellation – Breach of a sales contract under the UCC
Substantial Performance – Just about all the duties are performed but a minor duty under the contract remains
Defaults – Fails to perform
Anticipatory Breach – Notifies the other party to a contract before the time of performance has arrived that he or she will not perform.

12. Timing of Performance
Contract does not say when performance must be done - The duty must be performed within a reasonable time
Contract identifies a date for performance – Courts will rule it as a minor breach
Contract identifies the date and that “time is of the essence” – Courts will rule it as a major breach

13. By the Initial Terms
Parties may agree that the contract will terminate:
On a specific date or upon the expiration of a specified 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 upon giving notice

14. By Subsequent Agreement
Parties may mutually agree to change either the terms of the contract or the nature of their relationship
Rescission – The parties may agree to unmake or to undo their entire contract from its very beginning
Substitution – Replace the present contract with a new contract

15. By Subsequent Agreement
Accord and Satisfaction – Accord is an agreement to substitute a new contractual obligation for an existing one if the new obligation is satisfactorily performed. Satisfaction is the actual performance of the new obligation.
Discharges the previous obligation
If performance in the accord is not rendered, the old contract remains in effect.
Novation – A party entitled to receive performance under a contract may release the other party from the duty of performance and accept a substitute party. New contract is formed

16. By Impossibility of Performance
Impossibility of Performance refers to extreme external conditions rather than an obligor’s personal inability to perform
Discharges contractual obligations
Escape Hatch – language in contract that permits modification or even termination of performance without liability for damages in the event of an inability to perform on schedule because of specified conditions

17. By Operation of Law
A contract may be discharged or the right to enforce it may be barred by operation of law
Persons debts are discharged in bankruptcy
Also happens when the time allowed for enforcement of the contract has elapsed because of statute of limitations
Alteration (material change in the terms of a written contract without the consent of the other party) discharges the agreement by operation of law

18. By Tender of Performance
Tender – A ready, willing, and able offer to perform an obligation
If the duty requires the doing of an act, a tender that is made in good faith but is rejected will discharge the obligation of the one offering to perform.
If obligation requires the payment of money, rejection of a tender to pay the money does not discharge the debt nor does it prevent the creditor from colleting later

19. By Tender of Performance
To be valid, the tender of money must consist of the exact amount due in currency or coins, or legal tender
A tender of only part of the debt is not a valid tender
Creditor may refuse it without losing the right to later collect the entire amount due.

20. 11-1 Assessment
Turn to page 196 and complete the assessment

21. 11-1 Assessment Answers B (Assignor) False A (Complete Performance)
A (Novation)

22. 11-1 Assessment Answers
Yes, the performance can be delegated as it does not require special skills or qualifications. Yes, any delegation of duties leaves the delegator still liable to the other contracting party.
No, the contract is based on trust from 12 years of experience and the qualifications and skill of Quality.
Yes, time truly is of the essence in this situation. Just putting the statement in the contract, however, would not make it so.

23. Remedies Possible for Breach
Remedy – Legal means by which a right is enforced or a right’s violation is prevented or redressed.
Different remedies are available depending on whether the breach is major or minor.

24. Remedy for a Minor Breach
Only remedy generally available for a minor breach is MONEY DAMAGES.
Party injured by a minor breach generally must continue to perform the duties defined by the contract
Amount of damages would be whatever it took to complete the minor duty left undone
Recovered by suit if victim already paid
Deduct from the money due

25. Remedies for Major Breach
Major breach – Injured party need not continue performing the duties defined by the contract.
In addition:
Rescission and Restitution – Canceling the contract and returning whatever has been received under it.
Money Damages – The payment of money to compensate for injury.
Specific Performance – A court order commanding the breaching party to perform what was promised in the contract

26. Rescission and Restitution
Intended to place the parties in the same legal position they were in before contracting.
Rescission – Allows the parties to treat the contract as canceled.
All contractual obligations of the parties are canceled.
Restitution – Permits each party to recover money or property given to the other party

27. Money Damages
Money damages may be:
Compensatory
Consequential
Punitive
Liquidated

28. Compensatory Damages
Seeks to restore injured parties to the same financial position they were in prior to the breach

29. Compensatory Example
Charlotte, a home broker contracted to buy a house from Ben for $65,000, knowing that the fair market value of the property was considerably higher. To facilitate the purchase Charlotte then spent $3000 on a title search, a survey, an appraisal, loan origination fee, and other expenses. If Ben then committed a material breach, for refusing to sell, a court would award Charlotte$3000 as compensatory damages.

30. Consequential Damages
Tries to place injured parties in the same financial position they would have been in if the contract had been performed.
Grants money for the foreseeable injuries caused by the breach
Consequential damages generally are foreseeable when a reasonable person would know that a breach would cause the injury or has been explicitly notified of same.

31. Consequential Example
Charlotte brags to Ben that because they contracted, she has arranged the resale of his property for $ Upon hearing this Ben refuses to go through with their contract. As a result, Charlotte loses her buyer at $ Ben will be liable for consequential damages in the amount of Charlottes lost profit of $20000.

32. Punitive Damages
When Fraud or Intentional Tort is involved in a breach of contract
Damages added to other money damages
Purpose is to punish and to make an example of the defendant

33. Liquidated Damages
Parties to a contract sometimes agree on a certain amount of monetary damages that will be paid if a particular contract breach occurs
Typically placed in a contract when an actual damage amount would be too speculative or too difficult to arrive at in court.
If liquidated damage amount is excessive in relation to the injury, the clause will not be enforceable

34. Nominal Damages
Token amount to acknowledge that a wrong has been done.

35. Specific Performance
Decree (order) that the breaching party do exactly what was required under the contract
A court will not award the remedy unless the party seeking it is blameless and has acted reasonably and fairly throughout the transaction
Available when the subject of the contract is unique
Courts are reluctant to grant specific performance in situations where they would have great difficulty in supervising the results.
Examples – Personal Service or Employment

36. Factors Affecting Choice of Remedy
Conflict of Remedies
Often electing to pursue one remedy will rule out pursuing another
Specific Performance and Damages cannot be recovered for the same breach
Rescission and Restitution pre-contract position and Damages is a post-contract financial position

37. Factors Affecting Choice of Remedy
Duty to Mitigate
Mitigate the Damages - A party injured by a breach of contract is required by law to take reasonable steps to minimize the harm done
If injured party fails to take reasonable steps to mitigate the damages, the amount of potential recovery is lessened by the amount that could have been mitigated

38. Factors Affecting Choice of Remedy
Waivers
Sometimes a party intentianally and explicitly gives up contractual rights
Example: “I will accept your overdue payment without a late charge”

39. Statute of Limitations
Period of time in which to bring suit
Time period varies among states
4 years is common for contracts
3 years is common for torts
UCC provides that an action for breach of contract for the sale of goods must be begun within 4 years after the cause of action arises
Parties may shorten the period

40. Bankruptcy Discharging (or excusing) of debt.
Debtors get a fresh start
Estate is distributed among various claimants in order to discharge many of the bankrupt's debt

41. 11-2 Assessment
Turn to page 201 and complete the Assessment

42. 11-2 Assessment Answers C (Specific Performance) True
B (the subject matter of the contract is unique)
D (None of the above can be pursed at the same time)

43. 11-2 Assessment Answers
No. The coach is not legally free to change employers. This would be a breach of his contract.
Yes. Bethlehem Steel is liable for $ The liquidated damage clause is clear and the amount is not punitively excessive
Yes. Consequential damages that are generally foreseeable can be recovered.
Pyramid can assert that the statute of limitations has passed.