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CHAPTER 9 Third Party Rights, Discharge, Breach, and Remedies. Learning Objectives. What is the difference between an assignment and a delegation? What factors indicate a third party is an intended beneficiary?

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CHAPTER 9Third Party Rights, Discharge, Breach, and Remedies

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Learning Objectives

  • What is the difference between an assignment and a delegation?

  • What factors indicate a third party is an intended beneficiary?

  • How is the difference between compensatory damages and consequential damages? What are nominal damages, and when do courts award them?

  • Under what circumstances will equitable remedies be available?

  • What is the rationale underlying the doctrine of election of remedies?

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  • Transfer of contractual rights to a 3rd 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.

  • Forest Commodity Corp. v. Lone Star Industries, Inc. (2002).

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  • Transfer of duties to a 3rd party (Delegatee) by Delegator.

  • Delegatee owes duty to original party in contract.

  • Delegator is still liable for performance of duty.

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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.

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Contract Discharge

  • Discharge is the full performance of all duties.

  • Conditions to 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.

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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.

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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.

    • Kim v. Park (2004).

  • Anticipatory Repudiation

    • One party gives notice of refusal to perform.

    • Innocent party treats AR as material breach.

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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.

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Contract Discharge

  • Discharge by Operation of Law.

    • Contract Alteration.

    • Statutes of Limitations.

    • Bankruptcy.

    • Impossibility of Performance (Objective).

      • Party’s incapacitation.

      • Subject matter is destroyed.

      • Performance becomes illegal.

      • Commercially impracticable.

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  • 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.

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  • 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.

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  • Mitigation of Damages.

    • Injured party has a legal duty to mitigate damages.

  • 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.

    • Green Park Inn, Inc. v. Moore (2002).

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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.

  • Specific Performance.

  • Reformation: court re-writes the contract to reflect parties’ true intentions.

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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.

  • Election of Remedies.