CHAPTER 11 Contractual Obligations and their Enforcement

Chapter 11
Contractual Obligations
and Their Enforcement
11-1 Transfer and Discharge of
Obligations
11-2 Remedies for Breach of
Contract
Law for Business and Personal Use
Chapter 11
© South-Western, a part of Cengage Learning Slide 1

11-1 Transfer and
GOALS
Discharge of Obligations
• Identify what rights can be assigned and
what duties delegated
• Describe the various ways in which
contractual obligations may be discharged
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Chapter 11
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THE TRANSFER OF CONTRACT
RIGHTS AND DUTIES
• Assignment
• Transfer of contractual right to another party
• Assignor
• Party who transfers the contractual right
• Assignee
• Party who receives the contractual right
• Obligor
• The one who owes a duty under contract
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Chapter 11
Slide 3

What’s Your Verdict Page 191
• Whipple bought a highpowered
sports coupe from
Boss Motors for $32,000.
After a down payment of
$2,000, the balance, plus
interest, was to be paid by
mail in installments over 48
months. Boss Motors
needed cash to purchase
new cars. It immediately
sold Whipple’s contract to a
finance company, Palmout
Inc. It told Whipple to mail
all payments to Palmout.
• Is such a transfer of
contract rights legal
• Yes
• What term describes
this transfer
• Assignment
• Who is the assignor
• Boss Motors
• Who is the assignee
• Palmout Inc.
• Who is the obligor
• Whipple
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Chapter 11
Slide 4

THE TRANSFER OF CONTRACT
RIGHTS AND DUTIES
• Assignable rights
• May assign contractual rights as long as
performance will not be changed materially
• Non-assignable rights
• You cannot assign contractual rights if
performance requirements are materially
changed
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Chapter 11
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THE TRANSFER OF CONTRACT
RIGHTS AND DUTIES
• Form of assignments
• Usually voluntarily by the assignor
• Can be oral or written (some require written)
• Notice of assignments
• Until notification, obligor continues to pay assignor
• After notification, obligor is liable to the assignee
• Delegation of contractual duties
• Can delegate duties (routine tasks), but person
remains legally responsible for proper performance
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Chapter 11
Slide 6

DISCHARGE OF CONTRACTUAL
OBLIGATIONS
• By performance
• Terms to Know (page 193)
• Discharge
• Breach of Contract
• Substantial Performance
• Defaults
• Anticipatory Breach
Continued on the next slide
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Chapter 11
© South-Western, a part of Cengage Learning Slide 7

DISCHARGE OF CONTRACTUAL
OBLIGATIONS
• Timing of performance
• If timing not stated, then duty must be performed with a
reasonable time
• Example: shipping tomatoes vs. shipping furniture
• If contract identifies performance date,
• If performance occurs shortly after the date, this will normally
be considered a minor breach
• If contract states that „time is of the essence”, failure to
perform by that date could be considered a major breach
• Note: Courts look at the subject matter and specific
circumstances to determine if “time is of the essence”, not
just the words in the conract.
Law for Business and Personal Use
© South-Western, a part of Cengage Learning
Chapter 11
Slide 8

DISCHARGE OF CONTRACTUAL
OBLIGATIONS
• By the initial terms
• Parties may agree in their contract when it will
terminate
• By subsequent agreement
• Rescission (both parties agree to undo their contract)
• Substitution (both parties agree to replace it with a new contract)
• Accord and satisfaction (agreement to substitute a new
contractual obligation for an existing one and the actual performance)
• Novation (a third party is added to contract as substitute for one of the
parties – all 3 parties have to agree)
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Chapter 11
Slide 9

What’s Your Verdict Page 192
• Jen borrowed $2,000 from
Effriham to buy a new
keyboard for his band. Jen
agreed to pay the money
back plus interest on Dec
1 st . When Jen did not pay,
Effriham, who needed
money to pay bills,
suggested that if Jen would
pay $1,500 by Jan 15 th , he
would call the loan paid in
full. Jen agreed.
• This is considered Accord
• Even though Jen agreed,
she failed to make the
$1,500 payment. Effriham
then brought a lawsuit
against Jen for payment of
the debt.
• Was there Satisfaction
• Will the court order Jen to
pay the original amount
of $2,000 or the amount
under the accord of
$1,500
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Chapter 11
Slide 10

DISCHARGE OF CONTRACTUAL
OBLIGATIONS
• By impossibility of performance
• Extreme external conditions (strike by employees,
weather related events, etc.)
• Destruction of unique subject matter
• By operation of law
• One of the parties files for Bankruptcy
• Material alteration of the terms by one party
without consent of the other party
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Chapter 11
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DISCHARGE OF CONTRACTUAL
OBLIGATIONS
• By tender of performance
• Tender: a ready, willing and able offer to perform
an obligation
• If duty requires:
• Doing an act: if tender is rejected, the obligation will be
discharged
• Payment of money: if tender is rejected, it does not
discharge the debt
• It does relieve the debtor of future court costs or interest
charges
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Chapter 11
Slide 12

11-2 Remedies for Breach of
GOALS
Contract
• Name and describe various remedies possible
for minor or major breach of contract
• Discuss the factors that affect the choice of
remedies
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REMEDIES POSSIBLE FOR
BREACH
• Remedy: legal means to fix breach
• Remedy for a minor breach
• Not significant in relation to the contract
• Only remedy is money damages
• Remedies for a major breach
1. Rescission and restitution
• Intended to place parties in the same legal position as
before they entered into contract
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REMEDIES POSSIBLE FOR BREACH
2. Money damages
• Compensatory
(actual)
• Consequential
(actual +
foreseeable injuries)
• Punitive (to punish)
• Liquidated (agreed
to by parties in
contract)
• Nominal (token
amount)
3. Specific performance
• Order requiring parties
to perform exactly as
per the contract
• Available when subject
matter is unique
• Ex. Purchase of antique
custom made 1932
Rolls Royce
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Chapter 11
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What’s Your Verdict Page 197
• Liu contracted to buy 160 acres of land from McCall.
She planned to build an amusement park on the
land as it was near the junction of two interstates
and had adequate utilities and population density.
• When McCall learned of her plan, he refused to
transfer the title.
• What remedies are available to Lui
• Rescission and Restitution
• Money Damages
• Specific Performance
• What is Lui’s optimal (best) remedy
• Specific Performance
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Chapter 11
Slide 16

What’s Your Verdict Page 199
• Jim Brushback, an unknown baseball pitcher, signed
a contract to play his rookie year for a major league
team for $120,000. After 2 months, Brushback had
won all four games he’d started with 37 strikeouts
and an earned-run average (ERA) of 1.75. He then
contracted with a competitive team for $4 million a
year for the next five years, thereby breaching his
rookie contract.
• What remedies are available to the original
team
• Restitution or Specific Performance
Law for Business and Personal Use
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Chapter 11
Slide 17

FACTORS AFFECTING CHOICE OF
REMEDY
• Conflict of remedies
• Party injured has a choice – choosing one will
eliminate the other choices
• Duty to mitigate
• Injured parties are required to take reasonable
steps to minimize the harms
• Waivers
• Intentionally and explicitly giving up a contract
right (creditor says “I will accept your late
payment without a late charge”)
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FACTORS AFFECTING CHOICE OF
REMEDY
• Statute of limitations
• Time period to bring a lawsuit (4 years for
contracts and 3 years for torts)
• No remedy if time period has expired
• Bankruptcy
• Permits the discharge (or excusing) of debts
• If a party files for bankruptcy, the other party will
lose any remedy (or it will be limited)
Law for Business and Personal Use
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Chapter 11
Slide 19

Remedies For Breach Of Contract
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Chapter 11
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PREVENT LEGAL DIFFICULTIES
In the execution of contracts . . .
• As a prospective assignee, determine whether the
assignor is subject to any defense that may affect
your claim. Do this by promptly checking with the
obligor (debtor). Remember that you, as the
assignee, acquire only the rights as the assignor
possessed.
• If you are an assignee, be sure to notify the obligor
(debtor) of the assignment as soon as practicable.
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Continued on the next slide
Chapter 11
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PREVENT LEGAL DIFFICULTIES
• Be aware that “time is of the essence” in many
contracts. If a contract calls for performance by a
certain time, failure to perform may be a breach of
contract. When appropriate, include this requirement
in your contract, and clearly state that failure to
perform at the time agreed upon may be treated as
a breach.
Continued on the next slide
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Chapter 11
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PREVENT LEGAL DIFFICULTIES
• Remember that hardship and higher costs do not
make performance impossible. Bad weather, fires,
strikes, inability to obtain materials, or similar
difficulties could cause hardship. To be protected
against damages for failure to fulfill a contract because
of such events, include in the contract a clause to that
effect.
• Negotiate, and if possible, mediate or voluntarily
arbitrate, before you litigate. A lawsuit should be the
final resort because it is costly in time, money, and
goodwill.
Continued on the next slide
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Chapter 11
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PREVENT LEGAL DIFFICULTIES
• Always keep accurate records and be prepared to
show that you actually suffered a monetary loss from
a breach of contract. Make and keep evidence of a
reasonable effort to mitigate the damages.
Law for Business and Personal Use
Chapter 11
© South-Western, a part of Cengage Learning Slide 24