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Contract Rights and DutiesContract Rights and Duties

Contracting parties have a legal obligation to Contracting parties have a legal obligation to perform the duties specified in their contract.perform the duties specified in their contract.

If one party fails to perform as promised, the If one party fails to perform as promised, the other party may enforce the contract and sue other party may enforce the contract and sue for breach.for breach.

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Assignment of RightsAssignment of Rights

Assignment –Assignment – The transfer of contractual The transfer of contractual rights by the obligee to another party.rights by the obligee to another party.

Assignor –Assignor – The obligee who transfers the The obligee who transfers the right.right.

Assignee –Assignee – The party to whom the right has The party to whom the right has been transferred.been transferred.

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Assignment of a RightAssignment of a Right

Contract No. 1: Contract No. 1: Creditor Creditor (Obligee)(Obligee)

Contract No. 2: Contract No. 2: AssignorAssignor

DebtorDebtor

(Obligor)(Obligor)

AssigneeAssignee

Contract No. 1Contract No. 1

Loan of MoneyLoan of Money

NoteNote

(Promise to pay)(Promise to pay)

Right to Right to enforce enforce payment of payment of notenote

Contract No. 2 Contract No. 2 Assignment of Assignment of

notenote

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Rights That Can and Cannot Be AssignedRights That Can and Cannot Be Assigned

Generally, a party may assign rights, Generally, a party may assign rights, provided performance will not materially provided performance will not materially change.change.

Personal Service Contracts.Personal Service Contracts. Contracts for Contracts for the provision of personal services are the provision of personal services are generally not assignable.generally not assignable.

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Effect of An Assignment of RightsEffect of An Assignment of Rights

Where there has been an assignment of a Where there has been an assignment of a right, the assignee right, the assignee “stands in the shoes of “stands in the shoes of the assignor” the assignor” and is entitled to performance and is entitled to performance from the obligor.from the obligor.

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Notice of AssignmentNotice of Assignment

To protect his or her rights, the assignee To protect his or her rights, the assignee should immediately notify the obligor that:should immediately notify the obligor that:

1.1. The assignment has been made, andThe assignment has been made, and

2.2. Performance must be rendered to the Performance must be rendered to the assignee.assignee.

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Delegation of DutiesDelegation of Duties

Delegation –Delegation – A transfer of contractual duties A transfer of contractual duties by the obligor to another party for by the obligor to another party for performance.performance.

Delegator –Delegator – The obligor who transferred his The obligor who transferred his or her duty.or her duty.

Delegatee –Delegatee – The party to whom the duty has The party to whom the duty has been transferred.been transferred.

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Delegation of a DutyDelegation of a Duty

Contract No. 1: Contract No. 1: Promisor Promisor (Obligor)(Obligor)

Contract No. 2: Contract No. 2: DelegatorDelegator

PromiseePromisee

(Obligee)(Obligee)

DelegateeDelegatee

Contract No. 1Contract No. 1

Promise to PerformPromise to Perform

Duty of Duty of performanceperformance

Contract No. 2 Contract No. 2 Delegation of Delegation of

dutiesduties

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Duties that Can and Cannot Be DelegatedDuties that Can and Cannot Be Delegated

If the obligee has a substantial interest in If the obligee has a substantial interest in having the obligor perform the acts required by having the obligor perform the acts required by the contract, duties may not be transferred.the contract, duties may not be transferred. e.g., Personal service contracts calling for the e.g., Personal service contracts calling for the

exercise of personal skills, discretion, or exercise of personal skills, discretion, or expertise.expertise.

e.g., Contracts whose performance would e.g., Contracts whose performance would materially vary if the obligor’s duties were materially vary if the obligor’s duties were delegated.delegated.

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Effect of Delegation of DutiesEffect of Delegation of Duties

If the delegation is valid, the delegator If the delegation is valid, the delegator remains legally liable for the performance of remains legally liable for the performance of the contract.the contract.

If the delegatee does not perform properly, If the delegatee does not perform properly, the obligee can sue the obligor-delegator for the obligee can sue the obligor-delegator for any resulting damages.any resulting damages.

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Effect of Delegation of Duties Effect of Delegation of Duties (continued)(continued)

Assumption of DutiesAssumption of Duties When a delegation of duties contains the When a delegation of duties contains the

term term assumption, I assume the duties,assumption, I assume the duties, or or other similar language:other similar language: The delegatee is legally liable to the obligee The delegatee is legally liable to the obligee

for nonperformance.for nonperformance.

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Third-Party BeneficiariesThird-Party Beneficiaries

Third parties sometimes claim rights under Third parties sometimes claim rights under others’ contracts.others’ contracts.

Such third parties are either:Such third parties are either: Intended BeneficiariesIntended Beneficiaries, or, or Incidental BeneficiariesIncidental Beneficiaries

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Intended BeneficiaryIntended Beneficiary

A third party who is not in contract.A third party who is not in contract. Has rights under the contract.Has rights under the contract. Can enforce the contract against the obligor.Can enforce the contract against the obligor.

Intended beneficiaries are classified as:Intended beneficiaries are classified as: Donee BeneficiariesDonee Beneficiaries or or Creditor BeneficiariesCreditor Beneficiaries

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Donee BeneficiariesDonee Beneficiaries

Donee Beneficiary Contract –Donee Beneficiary Contract – A contract A contract entered into with the intent to confer a benefit entered into with the intent to confer a benefit or gift on an intended third party.or gift on an intended third party.

Donee Beneficiary –Donee Beneficiary – The third party on The third party on whom the benefit is to be conferred.whom the benefit is to be conferred.

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Donee Beneficiary ContractDonee Beneficiary Contract

Life Insurance Life Insurance Company Company (Promisor)(Promisor)

Insured Insured (Promisee)(Promisee)

Original ContractOriginal Contract

Right to Right to enforce enforce contractcontract

(Life insurance policy)(Life insurance policy)

Named Named Beneficiary Beneficiary

(Donee (Donee Beneficiary)Beneficiary)

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Discharge by PerformanceDischarge by Performance

A party’s duty to perform under a contract A party’s duty to perform under a contract may be discharged by:may be discharged by: By Performance- By Performance- both parties have fulfilled both parties have fulfilled

their duties within the contracttheir duties within the contract If not, the injured party can claim a breach If not, the injured party can claim a breach

of contractof contractWhen one party fails to perform a crucial When one party fails to perform a crucial

duty under a contract, the other party may duty under a contract, the other party may regard his own obligation as dischargedregard his own obligation as discharged

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Discharge by PerformanceDischarge by Performance By Performance cont’d:By Performance cont’d:

Substantial Performance- Substantial Performance- most of the duties most of the duties have been performed; only minimal duties left have been performed; only minimal duties left uncompleteduncompletedViewed as a minor breachViewed as a minor breachShould expect full performance by the non-Should expect full performance by the non-

breaching party less the damages suffered; breaching party less the damages suffered; unless the breach was done deliberately, then unless the breach was done deliberately, then considered a major breachconsidered a major breach

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Discharge by PerformanceDischarge by Performance

By Performance cont’d:By Performance cont’d: Anticipatory Breach- Anticipatory Breach- when one party when one party

notifies the other that they will be unable to notifies the other that they will be unable to complete performancecomplete performanceThe non-breaching party can wait until the The non-breaching party can wait until the

promised time of performance or immediately promised time of performance or immediately sue for breachsue for breach

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Discharge by PerformanceDischarge by Performance

By Performance cont’d:By Performance cont’d: Timing of Performance- Timing of Performance- for those contracts for those contracts

without a specified time of performance, a without a specified time of performance, a reasonable length of time is determined by a reasonable length of time is determined by a judge/jury based on the circumstancesjudge/jury based on the circumstancesEx. Delivery of Ex. Delivery of vegetablesvegetables vs. vs. furniturefurniture

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Discharge by Mutual AgreementDischarge by Mutual Agreement The parties to a contract may mutually agree The parties to a contract may mutually agree

to discharge or end their contractual duties.to discharge or end their contractual duties. Mutual agreementMutual agreement of the parties of the parties

Rescission- parties agree to return all Rescission- parties agree to return all

considerationconsideration

Substitution- parties decide the original Substitution- parties decide the original

contract is not what they want, therefore, an contract is not what they want, therefore, an

new (substitute) is creatednew (substitute) is created

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Discharge by Mutual AgreementDischarge by Mutual Agreement

Mutual agreement cont’d:Mutual agreement cont’d: Accord and satisfaction- parties agree to a Accord and satisfaction- parties agree to a

change in performancechange in performance Novation- parties agree to allow a substitute Novation- parties agree to allow a substitute

party perform a contractual dutyparty perform a contractual duty

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Discharge by Impossibility of Discharge by Impossibility of PerformancePerformance The parties may agree in their contract that The parties may agree in their contract that

certain events will excuse nonperformance of certain events will excuse nonperformance of the contract.the contract. e.g., Natural disasterse.g., Natural disasters e.g., Labor strikese.g., Labor strikes e.g., Shortages of raw materialse.g., Shortages of raw materials e.g., Death or disability for a personal servicee.g., Death or disability for a personal service e.g., Subject matter is destroyede.g., Subject matter is destroyed

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Discharge by Operation of LawDischarge by Operation of Law

A contract may be unenforceable due to the A contract may be unenforceable due to the law.law. Alteration- a material change in the terms of a Alteration- a material change in the terms of a

contract without one party’s consentcontract without one party’s consent Bankruptcy- a debtor is relieved of Bankruptcy- a debtor is relieved of

responsibility to pay a creditorresponsibility to pay a creditor Statute of Limitations- the time period to Statute of Limitations- the time period to

enforce a contract has elapsedenforce a contract has elapsed

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Remedies for BreachRemedies for Breach RemedyRemedy- a legal means by which an injured - a legal means by which an injured

party enforces a rightparty enforces a right Minor Breach- Minor Breach- generally money damages generally money damages

are awarded as a remedy; injured party must are awarded as a remedy; injured party must still performstill perform

Major Breach- Major Breach- injured party need not injured party need not continue performancecontinue performance Rescission and restitution- Rescission and restitution- return return

considerationconsideration

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Remedies for BreachRemedies for Breach

Major Breach cont’d-Major Breach cont’d- Money damagesMoney damages

CompensatoryCompensatoryConsequentialConsequentialPunitivePunitiveLiquidatedLiquidatedNominalNominal

Specific performanceSpecific performance

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Other contractual terms to know:Other contractual terms to know:

Mitigate damages- Mitigate damages- the injured party is the injured party is required to take reasonable steps to required to take reasonable steps to minimize their injuryminimize their injury

WaiverWaiver- party intentionally gives up a - party intentionally gives up a contractual rightcontractual right