CHAPTER 14 Discharge Breach and Remedies Privity of

CHAPTER 14 Discharge, Breach and Remedies

Privity of Contract n n n The state of two specified parties being in a contract. Contracting parties have a legal obligation to perform the duties specified in their contract. If one party fails to perform as promised, the other party may enforce the contract and sue for breach. © 2000. West Legal Studies. Chapter 15 2

Third Party Rights n n Third parties generally do not acquire any rights under other people’s contracts. The exceptions are: 1. Assignees to whom rights subsequently are transferred, and 2. Intended third-party beneficiaries to whom the contracting parties intended to give rights under the contract at the time of contracting. © 2000. West Legal Studies. Chapter 15 3

Assignment of Rights n n n Assignment – The transfer of contractual rights by the obligee to another party. Assignor – The obligee who transfers the right. Assignee – The party to whom the right has been transferred. © 2000. West Legal Studies. Chapter 15 4

Rights That Can and Cannot Be Assigned n Personal Service Contracts n n Contracts for the provision of personal services are generally not assignable. Assignment of Future Rights n Usually, a person cannot assign a currently nonexistent right that he or she expects to have in the future. © 2000. West Legal Studies. Chapter 15 5

TERMINATION OF THE CONTRACT n Contracts can be terminated (discharged) in four ways: n n By By Performance. Agreement of the Parties. Operation of Law. Nonperformance.

BY MEANS OF DISCHARGE

DISCHARGE BY PERFORMANCE n Complete Performance. n n Exact fulfillment of the terms of the contract. Substantial Performance. n n Minor deviations from contract specifications. Two criteria must be met: n n 1) Breach must not have been material. 2) Breach must be non-willful and devoid of bad faith conduct.

DISCHARGE BY AGREEMENT OF THE PARTIES n n Release. Rescission. Accord and Satisfaction. Novation.

DISCHARGE BY AGREEMENT OF THE PARTIES n Release. n n n Discharging the legal rights one party has against another. To be valid, should be in writing, supported by consideration, and should effect immediate relinquishment of rights or claims. Rescission. n Voluntary, mutual surrender and discharge of contractual rights and duties whereby parties are returned to the original status quo.

DISCHARGE BY AGREEMENT OF THE PARTIES n Accord and Satisfaction. n n n Agreement to accept performance different from that required in original bargain. When parties comply with the accord, satisfaction has occurred. Novation. n Creates a new contractual duty and involves substitution of a party who was neither owed a duty nor obligated to perform in the original bargain.

DISCHARGE BY OPERATION OF LAW n n n Bankruptcy automatically discharges the party’s contractual obligations. Statutes of Limitations sets limits on the length of time a contracting party may wait to bring suit. Any contract materially altered by one party without the consent of the other will be discharged.

DISCHARGE BY NONPERFORMANCE n n n Impossibility. Commercial Frustration. Actual Breach. Anticipatory Breach. Conditions.

DISCHARGE BY NONPERFORMANCE n Impossibility. n n n An unforeseen event or condition which precludes performance. Conduct by one party which makes performance by the other party impossible is objective impossibility. Subjective impossibility consists of nonperformance owing to personal impossibility.

DISCHARGE BY NONPERFORMANCE n Commercial Frustration. n n n This doctrine excuses performance in cases where the essential purpose and value of the contract have been frustrated. If the event causing the frustration could have been foreseen, no discharge allowed. Actual Breach. n Occurs when one or more of the contracting parties fails to perform the obligations set up by the contract.

© 2000. West Legal Studies. Chapter 15 16

DISCHARGE BY NONPERFORMANCE n Anticipatory Breach. n n Involves giving advanced notice, through words or conduct, that one does not intend to fulfill a contract as written. Anticipatory repudiation, UCC sanctions a demand that adequate assurances of due performance. Allows one to suspend performance for 30 days or until assurances are put forth.

DISCHARGE BY NONPERFORMANCE n Conditions may result in nonperformance which justifies discharge. Condition is act/event that limits or qualifies a promise. n Condition must occur before promissor has a duty to perform or refrain from performing. n

TYPES AND REMEDIES SOUGHT

TYPES OF REMEDIES n Legal Remedies (money damages): damages resulting from a court’s exercise of its power “at law. ” n n n Compensatory Damages. Consequential Damages. Punitive Damages. Nominal Damages. Liquidated Damages. Mitigation of Damages.

TYPES OF REMEDIES n Equitable Remedies: remedies arising from a court’s use of its powers of equity. n n Rescission and Restitution Specific Performance Reformation. Injunction.

DAMAGES n n Most common legal remedy sought by injured party. Courts ask, when computing damages whether breaching party, as a reasonable person, should have foreseen the injuries that would result from breach.

DAMAGES MOST COMMON: n Compensatory Damages. n n Sums of money which will place the injured party in the same economic position that would have been attained had the contract been performed. Consequential Damages. n Indirect or special damages arising from the effects of the breach itself.

DAMAGES n Duty to Mitigate. n n To measure damages the courts place on the injured party the duty to mitigate (or minimize) these damages. Punitive Damages. n Imposed not to compensate the injured party but to punish the wrongdoer so as to deter future conduct.

DAMAGES n Liquidated Damages. n n When parties agree in advance to a certain sum of money that will be paid to the injured party should breach of contract occur. Nominal Damages. n Small amount of compensation for the breach.

EQUITABLE REMEDIES n n Plaintiff’s eligibility to receive fairness depends on the absence of bad faith on the plaintiff’s part and similar factors. Court’s power to award equitable remedies is discretionary.

WAIVER OF BREACH n n Contracting party may agree to accept less than complete performance by waiving a breach of contract that is committed by another party. Waiver eliminates the breach.

Websites to View http: //www. hg. org/remedy. html http: //www. ncjrs. org/victcivl. htm