Chapter 11

Contractual Obligations

Understand contractual obligations and their enforcement.

Objective:

Assignment: A transfer of a right a party may have under a contract to another.

Assignor: The party who transfers the contractual right.

Assignee: The party who receives the contractual right.

Transfer of Contract Rights and Duties

Obligor: The party who owes a duty under the contract.

Performance: The fulfillment of contractual promise as agreed.

Transfer of Contract Rights and Duties

Discharge: the termination of duties that ordinarily occurs when the parties perform as promised.

Breach of Contract: Failure to perform a contract as promised.

Substantial Performance: Occurs when just about all of the duties are performed, but a minor duty under the contract remains.

Discharge of Contractual Obligations

Defaults: fails to perform the contract duties.

Anticipatory Breach: When one of the parties contacts the other party that he/she will not be able to perform their duties.

Discharge of Contractual Obligations

1. on a specific date or upon the expiration of a specific period of time.

2. upon the occurrence of specific event.

3. upon the failure of a specific event to happen.

4. at the free will of either party upon giving notice.

When the parties prepare their contract, they may agree to terminate the contract…

There are four main ways the parties may later mutually agree to change either the terms of the contract or the nature of their relationship.

By Subsequent Agreement

Rescission: The parties may agree to unmake or undo their entire contract from its very beginning.

Substitution: The parties decide to replace the original contract with a new contract.

By Subsequent Agreement

Accord and Satisfaction: discharges the previous contractual obligation.

Novation: A party entitled to receive performance under a contract may release the other party from the duty of performance and accept a substitute.

By Subsequent Agreement

Escape hatch: Language in a contract that permits modifications, or even termination, of performance without liability for damages in the event of an inability to perform on schedule because of specified conditions.

By Impossibility of Performance

Alteration: A material change in the terms of a written contract without the consent of the other party.

By Operation of Law

To discharge a contract, the alteration must be:Material, thus

changing the obligation in an important way.

Made intentionally, and not by accident or mistake.

Made by a party to the agreement, or by an authorized agent.

Made without consent of the other party.

Tender: A ready, willing and able offer to perform an obligation.

By Tender of Performance

Remedy: The legal means by which a right is enforced or a right’s violation is prevented or redressed.

Remedies Possible for Beach

1. The injured party need not continue performing the duties defined in the contract.

2. Rescission or restitution. Canceling the contract and returning whatever has been received under it.

If the breach is considered a major breach, then…

3. Money damages. The payment of money to compensate for injury.

4. Specific performance. A court order commanding the breaching party to perform what was promised in the contract.

If the breach is considered a major breach, then…

Rescission: Allows the parties to treat the contract as cancelled.

Restitution: Permits each party to recover money or property given to the other party.

Rescission and Restitution

Compensatory: Seeks to restore the injured parties to the same financial position they were in prior to the beach.

Consequential: Seeks to restore the injured parties to the same financial position they were in if the contract had been performed.

Money Damages

Money DamagesPunitive: Money

damages added to the original money damage award. This is used as a punishment for the fraud or intentional tort.

Liquidated: Parties to a contract agree on a certain amount of monetary damages that will be paid if a particular contract breach occurs

Money DamagesNominal: When a

party fails to perform a duty under a contract an no substantial harm has resulted, a court will still award a token amount called nominal damages. Granted in

recognition of the rights that have been violated.

Specific Performance: Occurs when the only appropriate remedy for a breach of contract is to decree (order) that the breaching party do exactly what is required under the contract.

Money DamagesMitigate the

Damages: A legal term used when a party injured by a breach of contract is required by law to take reasonable steps to minimize the harm done.

Waivers: A party to a contract intentionally and explicitly gives up a contractual right.

Money DamagesStatue of

Limitations: Time limit set by state law setting a time limit for seeking any remedy after a legal claim, such as breach of contract.

Bankruptcy: Permits the discharge (or excusing) of debts.